COUPANG, INC.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q ("Form 10-Q"), as well as our consolidated financial
statements and related notes included in our final prospectus filed with the
Securities and Exchange Commission (the "SEC") pursuant to Rule 424(b) under the
Securities Act of 1933, as amended ("Securities Act"), (File No. 333-253030) on
March 11, 2021 ("Final Prospectus"). This discussion, particularly information
with respect to our future results of operations or financial condition,
business strategy and plans, and objectives of management for future operations,
includes forward-looking statements that involve risks and uncertainties as
described under the heading "Special Note Regarding Forward-Looking Statements"
in this Form 10-Q. You should review the disclosure in Part II-Item 1A. "Risk
Factors" in this Form 10-Q for a discussion of important factors that could
cause our actual results to differ materially from those anticipated in these
forward-looking statements.
Overview
We are a leading e-commerce player in Korea . We believe that we are the
preeminent online destination for e-commerce in the market because of our broad
selection, low prices, and exceptional convenience across our owned inventory
selection as well as products offered by third-party merchants. Our unique
end-to-end fulfillment, logistics, and technology network enables Rocket
Delivery, which provides free, next-day delivery for orders placed anytime of
the day, even seconds before midnight-across millions of products. Our
structural advantages from complete end-to-end integration, investments in
technology, and scale economies generate higher efficiencies that allow us to
pass savings to customers in the form of lower prices. The capabilities we have
built provide us with opportunities to expand into other offerings and
geographies.
Initial Public Offering
On March 15, 2021 , we completed our initial public offering ("IPO") in which we
issued and sold 100,000,000 shares of our Class A common stock at an IPO price
of $35.00 per share. We received net proceeds of $3.4 billion after deducting
underwriting discounts of $69 million and other offering costs.
Immediately prior to effectiveness of the Company's IPO registration statement
on Form S-1, Coupang, LLC , a Delaware limited liability company, converted into
a Delaware corporation pursuant to a statutory conversion, which changed our
name to Coupang, Inc. ("Corporate Conversion").
As a result of the Corporate Conversion and IPO, our redeemable convertible
preferred units ("preferred units") and common units (which included common
units designated as profits interests ("PIUs")), in each case, automatically
converted into an equal number of shares of Class A or Class B common stock,
except with respect to a conversion adjustment to certain PIUs, which reduced
the outstanding common units designated as PIUs that converted into the shares
of Class A common stock. Also, our convertible notes were automatically
converted into 171,750,446 shares of our Class A common stock. For additional
information related to the Corporate Conversion and IPO, see Note 10 -
"Redeemable Convertible Preferred Units and Stockholders'/Members' Equity
(Deficit)" and Note 8 - "Convertible Notes and Derivative Instrument."
Fulfillment Center Fire
On June 17, 2021 , a fire extensively damaged our Deokpyeong fulfillment center
(the "FC Fire"), resulting in a loss of the building, equipment, inventory, and
other assets at the site. Inventory and property and equipment losses from the
FC Fire of $158 million and $127 million were recognized in "Cost of sales" and
"Operating, general and administrative," respectively, during the second quarter
of 2021. Whether and to what extent we may recover insurance proceeds to cover
these losses is currently unknown, and as such, no insurance recoveries have
been recognized. During the second quarter of 2021, the Company also incurred or
accrued for other costs directly related to the FC Fire of $11 million . The FC
Fire resulted in an increase to our net loss of $296 million ("FC Fire Losses")
for the nine months ended September 30, 2021 .
24--------------------------------------------------------------------------------
Table of Contents
Key Financial and Operating Highlights:
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 % Change 2021 2020 % Change
Total net revenues $ 4,644,705 $ 3,136,507 48 % $ 13,329,679 $ 8,163,846 63 %
Total net revenues, constant
currency(1) $ 4,513,626 $ 3,139,384 44 % $ 12,555,591 $ 8,434,714 54 %
Gross profit(2) $ 754,527 $ 466,955 62 % $ 2,145,527 $ 1,336,985 61 %
Net loss(4) $ (323,977) $ (172,999) 87 % $ (1,137,611) $ (380,402) 199 %
Net loss margin (7.0) % (5.5) % (8.5) % (4.7) %
Adjusted EBITDA(1) $ (207,434) $ (176,649) 17 % $ (462,547) $ (275,524) 68 %
Adjusted EBITDA margin(1) (4.5) % (5.6) % (3.5) % (3.4) %
Net cash (used in) provided by
operating activities $ (55,366) $ 210,378 (126) % $ (207,832) $ 285,088 (173) %
Free cash flow(1) $ (244,589) $ (3,440) NM(3) $ (712,426) $ (29,631) NM(3)
Trailing twelve months ended September
30,
(in thousands) 2021 2020 % Change
Net cash (used in) provided by
operating activities $ (191,366) $ 340,729 (156) %
Free cash flow(1) $ (865,364) $ (61,104) NM(3)
_____________
(1)Total net revenues, constant currency; total net revenues growth, constant
currency; adjusted EBITDA; adjusted EBITDA margin; and free cash flow are
non-GAAP measures. See "Non-GAAP Financial Measures and Reconciliations" below
for the reconciliation of the Non-GAAP measures with their comparable amounts
prepared in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP").
(2)Gross profit is calculated as total net revenues minus cost of sales, and for
the nine months ended September 30, 2021 includes $158 million related to
inventory losses recognized during the second quarter of 2021 from the FC Fire.
(3)Non-meaningful.
(4)Net loss for the nine months ended September 30, 2021 includes $296 million
in losses recognized during the second quarter of 2021 related to the FC Fire.
Key Business Metrics and Non-GAAP Financial Measures
We review the key business and financial metrics discussed below. We use these
measures to evaluate our business, measure our performance, identify trends
affecting our business, formulate business plans, and make strategic decisions.
Key Business Metrics
Three Months Ended
(in thousands, except net revenues September 30, December 31, September 30,
per Active Customer) 2020 2020 March 31, 2021 June 30, 2021 2021
Active Customers 13,987 14,850 16,037 17,022 16,823
Total net revenues per Active
Customer $ 224 $ 256 $ 262 $ 263 $ 276
Active Customers
As of the last date of each reported period, we determine our number of Active
Customers by counting the total number of individual customers who have ordered
at least once directly from our apps or websites during the relevant period. A
customer is anyone who has created an account on our apps or websites,
identified by a unique email address. The change in Active Customers in a
reported period captures both the inflow of new customers as well as the outflow
of existing customers who have not made a purchase in the period. We view the
number of Active Customers as a key indicator of our potential for growth in
total net revenues, the reach of our network, the awareness of our brand, and
the engagement of our customers.
25--------------------------------------------------------------------------------
Table of Contents Net Revenues per Active Customer Net revenues per Active Customer is the total net revenues generated in a period divided by the total number of Active Customers in that period. A key driver of growth is increasing the frequency and the level of spend of Active Customers who are shopping on our apps or websites. We therefore view net revenues per Active Customer as a key indicator of engagement and retention of our customers and our success in increasing the share of wallet. Non-GAAP Financial Measures and Reconciliations We report our financial results in accordance withU.S. GAAP. However, management believes that certain non-GAAP financial measures provide investors with additional useful information in evaluating our performance. These non-GAAP financial measures may be different than similarly titled measures used by other companies. Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance withU.S. GAAP. Non-GAAP measures have limitations in that they do not reflect all the amounts associated with our results of operations as determined in accordance withU.S. GAAP. These measures should only be used to evaluate our results of operations in conjunction with the correspondingU.S. GAAP measures. Free Cash Flow Free cash flow is defined as cash flow from operations less purchases of property and equipment, plus proceeds from sale of property and equipment. We believe that free cash flow is an additional and useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after purchases of property and equipment, can be used for strategic initiatives, including investing in our business and strengthening our balance sheet. Free cash flow has limitations as an analytical tool and should not be considered in isolation or as substitutes for analysis of otherU.S. GAAP financial measures, such as net cash provided by operating activities. A limitation of free cash flow is that it may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure. We expect our free cash flow to fluctuate in future periods as we invest in our business to support our plans for growth. Adjusted EBITDA and Adjusted EBITDA Margin During the first quarter of 2021, we began using adjusted EBITDA and adjusted EBITDA margin as non-GAAP financial measures. Adjusted EBITDA is defined as net income/(loss) for a period before depreciation and amortization, interest expense, interest income, income tax expense (benefit), other income (expense), net, equity-based compensation, impairments, and other items that we do not believe are reflective of our ongoing operations. Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of total net revenues. We use adjusted EBITDA and adjusted EBITDA margin as key measures to evaluate and assess our performance and allocate internal resources. We believe adjusted EBITDA and adjusted EBITDA margin are frequently used by investors and other interested parties in evaluating companies in the e-commerce industry for period-to-period comparisons as they remove the impact of certain items that are not representative of our core business, such as material non-cash items and certain variable charges. However, other companies may calculate adjusted EBITDA and adjusted EBITDA margin in a manner different from ours and therefore they may not be directly comparable to similar terms used by other companies. Adjusted EBITDA and adjusted EBITDA margin are not measures of financial performance underU.S. GAAP and should not be considered as alternatives to cash flow from operating activities or as measures of liquidity or alternatives to net income/(loss) as indicators of operating performance or any other measures of performance derived in accordance withU.S. GAAP. Adjusted EBITDA and adjusted EBITDA margin have limitations as analytical tools, and you should consider them in addition to, and not in isolation or as substitutes, for analysis of our results as reported underU.S. GAAP. Constant Currency Revenue and Constant Currency Revenue Growth The effect of currency exchange rates on our business is an important factor in understanding period-to-period comparisons. Our financial reporting currency is theU.S. dollar ("USD") and changes in foreign exchange rates can significantly affect our reported results and consolidated trends. For example, our business generates sales predominantly in Korean Won ("KRW"), which are favorably affected as the USD weakens relative to the KRW, and unfavorably affected as the USD strengthens relative to the KRW. We use constant currency revenue and constant currency revenue growth for financial and operational decision-making and as a means to evaluate comparisons between periods. We believe the presentation of our results on a constant currency basis in addition toU.S. GAAP results helps improve the ability to understand our performance because they exclude the effects of foreign currency volatility that are not indicative of our actual results of operations. 26
--------------------------------------------------------------------------------
Table of Contents Constant currency information compares results between periods as if exchange rates had remained constant. We define constant currency revenue as total revenue excluding the effect of foreign exchange rate movements, and use it to determine the constant currency revenue growth on a comparative basis. Constant currency revenue is calculated by translating current period revenues using the prior period exchange rate. Constant currency revenue growth (as a percentage) is calculated by determining the increase in current period revenue over prior period revenue, where current period foreign currency revenue is translated using prior period exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance withU.S. GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance withU.S. GAAP. The following tables present the reconciliations from eachU.S. GAAP measure to its corresponding non-GAAP measure for the periods noted: Free Cash Flow Trailing Twelve Months Ended Three Months Ended September 30, Nine Months Ended September 30, September 30, (in thousands) 2021 2020 2021 2020 2021 2020 Net cash (used in) provided by operating activities$ (55,366) $ 210,378 $ (207,832) $ 285,088 $ (191,366) $ 340,729 Adjustments: Purchases of property and equipment (190,058) (213,818) (505,554) (314,941) (675,243) (405,458) Proceeds from sale of property and equipment 835 - 960 222 1,245 3,625 Free cash flow$ (244,589) $ (3,440) $
(712,426)
Net cash used in investing activities$ (201,231) $ (251,611) $
(506,812)
3,672,191
Adjusted EBITDA and Adjusted EBITDA Margin
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Total net revenues $ 4,644,705 $ 3,136,507 $ 13,329,679 $ 8,163,846
Net loss (323,977) (172,999) (1,137,611) (380,402)
Net loss margin (7.0) % (5.5) % (8.5) % (4.7) %
Adjustments:
Depreciation and amortization 51,540 32,296 145,866 85,551
Interest expense 7,376 25,712 38,047 78,423
Interest income (2,603) (1,267) (5,450) (9,512)
Income tax expense 66 21 171 228
Other expense (income), net 4,026 (67,704) 7,479 (73,829)
Equity-based compensation 56,138 7,292 193,450 24,017
FC Fire Losses - - 295,501 -
Adjusted EBITDA $ (207,434) $ (176,649) $ (462,547) $ (275,524)
Adjusted EBITDA margin (4.5) % (5.6) % (3.5) % (3.4) %
27--------------------------------------------------------------------------------
Table of Contents
Constant Currency Revenue and Constant Currency Revenue Growth
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Total net revenues $ 4,644,705 $ 3,136,507 $ 13,329,679 $ 8,163,846
Total net revenues growth 48 % 95 % 63 % 87 %
Adjustment:
Exchange rate effect (131,079) 2,877 (774,088) 270,868 Total net revenues, constant currency$ 4,513,626 $ 3,139,384 $ 12,555,591 $ 8,434,714 Total net revenues growth, constant currency 44 % 95 % 54 % 93 % Impact of COVID-19 The COVID-19 pandemic and resulting global disruptions have affected our business, as well as those of our customers, merchants, and suppliers. To serve our customers while also providing for the safety of our employees, we have adapted numerous aspects of our logistics and infrastructure, transportation, supply chain, purchasing, and third-party merchant processes. We have experienced and may continue to experience a net positive impact on our sales and consumer demand for our products and services following changes in consumer purchasing behavior and the implementation of governmental orders to mitigate the spread of COVID-19, which has resulted in higher levels of customer engagement. Since the initial outbreak of COVID-19, we have made numerous process updates across our operations and have adapted our fulfillment and delivery infrastructure to implement additional employee and customer safety measures, including enhanced cleaning and physical distancing, personal protective gear, disinfectant spraying, and temperature checks. These measures have been implemented to minimize the risk of spread of COVID-19 to our workers, our customers, and the communities in which we operate, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our workers, customers, merchants, and suppliers. The global impact of COVID-19 continues to rapidly evolve, and we will continue to monitor the situation and the effects on our business and operations closely. Further, we do not yet know the full extent of potential impacts of the pandemic on our business or operations, our industry, or on the global economy, including the impact of any future developments related to the duration and scope of the pandemic, any recurrence of the disease, the actions taken in response to the pandemic, the scale and rate of economic recovery from the pandemic, new variants that have emerged or may emerge in the future, subsequent waves of infection, along with the adoption and effectiveness of vaccines, any ongoing effects on consumer demand and spending patterns, logistics and fulfillment related labor constraints and costs including costs to attract and retain employees, or other impacts as a result of the pandemic, and whether these or other currently unanticipated consequences of the pandemic are reasonably likely to materially affect our results of operations, cash flows, or financial condition. These drivers make it challenging to reasonably quantify the direct impact the pandemic has had on our business versus those impacts that may have been indirectly related to the pandemic. For additional details, refer to Part II-Item 1A. "Risk Factors" contained elsewhere in this Form 10-Q. Components of Results of Operations Total Net Revenues We categorize our revenue as (1) net retail sales and (2) net other revenue. Total net revenues incorporate reductions for estimated returns, promotional discounts, and earned loyalty rewards and exclude amounts collected on behalf of third parties, such as value added taxes. We periodically provide customers with promotional discounts to retail prices, such as percentage discounts and other similar offers, to incentivize increased customer spending and loyalty. These promotional discounts are discretionary and are reflected as reductions to the selling price and revenue recognized on each corresponding transaction. Loyalty rewards are offered as part of revenue transactions to all retail customers, whereby rewards are earned as a percentage of each purchase, for the customer to apply towards the purchase price of a future transaction. We defer a portion of revenue from each originating transaction, based on the estimated standalone selling price of the loyalty reward earned, and then recognize the revenue as the loyalty reward is redeemed in a future transaction, or when they expire. The amount of the deferred revenue related to these loyalty rewards is not material. Net retail sales represent the majority of our total net revenues which we earn from online product sales of our owned inventory to customers. Net other revenue includes revenue from commissions earned from merchants that sell their products through our apps or websites. We are not the merchant of record in these transactions, nor do we take possession of the related inventory. 28
--------------------------------------------------------------------------------
Table of Contents Net other revenue also includes consideration from online restaurant ordering and delivery services performed by us, as well as advertising services provided on our apps or websites. We also earn subscription revenue from memberships to our Rocket WOW membership program, which provides customers with access to benefits such as access toRocket Fresh , no minimum spend for Rocket Delivery, and free shipping on returns, which is also included in net other revenue. Cost of Sales Cost of sales primarily consists of the purchase price of products sold directly to customers where we record revenue gross, and includes logistics costs. Inbound shipping and handling costs to receive products from suppliers are included in inventory and recognized in cost of sales as products are sold. Additionally, cost of sales includes outbound shipping and logistics related expenses, and depreciation and amortization expense. Operating, General and Administrative Expenses Operating, general and administrative expenses include all our operating costs excluding cost of sales, as described above. More specifically, these expenses include costs incurred in operating and staffing our fulfillment centers (including costs attributed to receiving, inspecting, picking, packaging, and preparing customer orders), customer service related costs, payment processing fees, costs related to the design, execution, and maintenance of our technology infrastructure and online offerings, advertising costs, general corporate function costs, and depreciation and amortization expense. Interest Expense Interest expense primarily consists of interest on our short-term borrowings and long-term debt, our convertible notes issued in our 2018 convertible note financing, and finance lease liabilities. Income Tax Expense The Company's tax expense or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. We are subject to income taxes inthe United States and foreign jurisdictions in which we do business. These foreign jurisdictions have different statutory tax rates than those inthe United States . Additionally, certain of our foreign earnings may also be taxable inthe United States . Accordingly, our effective tax rate will vary depending on the relative proportion of foreign to domestic income, use of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws.
Results of Operations
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Net retail sales $ 4,137,136 $ 2,897,682 $ 11,938,685 $ 7,555,592
Net other revenue 507,569 238,825 1,390,994 608,254
Total net revenues 4,644,705 3,136,507 13,329,679 8,163,846
Cost of sales 3,890,178 2,669,552 11,184,152 6,826,861
Operating, general and administrative 1,069,639 683,192 3,242,891 1,722,077
Total operating cost and expenses 4,959,817 3,352,744 14,427,043 8,548,938
Operating loss (315,112) (216,237) (1,097,364) (385,092)
Interest income 2,603 1,267 5,450 9,512
Interest expense (7,376) (25,712) (38,047) (78,423)
Other (expense) income, net (4,026) 67,704 (7,479) 73,829
Loss before income taxes (323,911) (172,978) (1,137,440) (380,174)
Income tax expense 66 21 171 228
Net loss $ (323,977) $ (172,999) $ (1,137,611) $ (380,402)
29--------------------------------------------------------------------------------
Table of Contents
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Net retail sales $ 4,137,136 $
2,897,682 $ 11,938,685
43 % 96 % 58 % 87 %
Exchange rate effect (115,707) 2,389 (693,310) 250,687
Net retail sales, constant currency $ 4,021,429
39 % 96 % 49 % 93 %
currency
Net other revenue $ 507,569 $
238,825 $ 1,390,994
113 % 77 % 129 % 85 %
Exchange rate effect (15,372) 488 (80,778) 20,181
Net other revenue, constant currency $ 492,197 $
239,313 $ 1,310,216
106 % 77 % 115 % 91 %
currency
Net Retail Sales
Net retail sales increased $1.2 billion or 43% (39% on a constant currency
basis), and $4.4 billion , or 58% (49% on a constant currency basis), for the
three and nine months ended September 30, 2021 , respectively, when compared to
the prior year periods. The increase was primarily due to continued growth in
our Active Customers compared to the prior year periods, as well as in net
retail sales per Active Customer, driven by increased product selection and
customer engagement across more product categories. In addition, the
year-over-year growth in net retail sales for the three and nine months ended
September 30, 2021 was impacted by the comparison to the three and nine months
ended September 30, 2020 , which benefited from the increase in sales due to
COVID-19 related changes in consumer behavior.
Net Other Revenue
Net other revenue for the three and nine months ended September 30, 2021
increased $269 million or 113% (106% on a constant currency basis), and $783
million or 129% (115% on a constant currency basis), respectively, compared to
the prior year periods. The increase was primarily due to growth in our Active
Customers compared to the prior year periods, as well as growth in our net other
revenue per Active Customer during those same periods, driven by the continued
expansion of newer offerings and increased merchants on our marketplace and
related product selection.
Cost of Sales
Cost of sales for the three and nine months ended September 30, 2021 increased
$1.2 billion or 46%, and $4.4 billion or 64%, respectively, compared to the
prior year periods. The increase for the three months ended September 30, 2021 ,
was primarily attributable to increased product and logistics costs resulting
from increased sales and customer demand. Cost of sales as a percentage of
revenue decreased from 85.1% to 83.8% for the three months ended September 30,
2021 , primarily due to a shift to higher margin revenue categories, partially
offset by higher labor and operations costs. The increase for the nine months
ended September 30, 2021 was impacted by increased product and logistics costs
resulting from increased sales and customer demand, as well as $158 million in
inventory losses related to the FC Fire which occurred in the second quarter of
2021. Cost of sales as a percentage of revenue increased from 83.6% to 83.9% for
the nine months ended September 30, 2021 , primarily due to costs related to the
FC Fire and higher labor and operations costs, partially offset by a shift to
higher margin revenue categories. The portion of the FC Fire loss that was
recorded within cost of sales as a percentage of revenue was 1.2% for the nine
months ended September 30, 2021 .
Operating, General and Administrative Expenses
Operating, general and administrative expenses for the three and nine months
ended September 30, 2021 increased $386 million or 57%, and $1.5 billion , or
88%, respectively, compared to the prior year periods. The increase for the
three months ended September 30, 2021 primarily reflects higher labor costs to
support growth and expansion of newer initiatives. The increase for the nine
months ended September 30, 2021 primarily reflects higher labor costs to support
growth and expansion of newer initiatives as well as property, equipment and
other losses recognized related to the FC Fire which occurred in the second
quarter of 2021. Operating, general and administrative expenses as a percentage
of revenue increased from 21.8% to 23.0% for the three months ended
September 30, 2021 , and 21.1% to 24.3% for the nine months ended September 30,
2021 , primarily related to higher labor costs. The increase for the nine months
ended September 30, 2021 was also impacted by the FC Fire.
30--------------------------------------------------------------------------------
Table of Contents Interest Expense Interest expense for the three and nine months endedSeptember 30, 2021 decreased$18 million or (71)%, and$40 million or (52)%, respectively, compared to the prior year periods. The decrease was primarily attributable to the conversion of our convertible notes into shares of our Class A common stock as a result of the Corporate Conversion and IPO during the first quarter of 2021. Liquidity and Capital Resources Liquidity As ofSeptember 30, 2021 andDecember 31, 2020 , we had stockholders' equity and members' (deficit) of$2.6 billion and$(4.1) billion , respectively. We anticipate that we will continue to incur losses for the next few years. We expect that our investment into our growth strategy will continue to be significant, including with respect to the expansion of our fulfillment, logistics, and technology capabilities. As part of this expansion to fulfill anticipated future customer demand, we plan to build several new fulfillment centers. We have entered into various new construction contracts which are expected to be completed over three years. These contracts have remaining capital expenditure commitments of$133 million as ofSeptember 30, 2021 . We expect that our future expenditures for both infrastructure and workforce-related costs will exceed several billion dollars over the next several years. Our primary source of funds has been, and we expect it to continue to be, cash generated from our net revenues, supplemented through debt financing and sales of our equity securities. We had total cash and cash equivalents and restricted cash of$4.3 billion as ofSeptember 30, 2021 , compared to$1.4 billion as ofDecember 31, 2020 . During the first quarter of 2021, we completed our IPO, in which we issued and sold 100,000,000 shares of our Class A common stock at a price of$35.00 per share. We received net proceeds of approximately$3.4 billion from the IPO after deducting underwriting discounts of$69 million and other offering costs. Nine Months Ended September 30, (in thousands) 2021 2020 Net cash (used in) provided by operating activities$ (207,832) $ 285,088 Net cash used in investing activities (506,812) (350,348) Net cash provided by financing activities 3,672,191 108,537
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(88,842) (6,236)
Net increase in cash and cash equivalents, and restricted cash Operating Activities Our net cash used in operating activities was$(208) million for the nine months endedSeptember 30, 2021 , representing a change of$(493) million , compared to$285 million of net cash from operations for the nine months endedSeptember 30, 2020 . The year-over-year change in operating cash flow was primarily driven by a$(401) million reduction in cash flows due to changes in operating assets and liabilities, consisting of increases in accounts receivable of$(35) million as a result of higher sales volume and expanded available selection for customers, decreases in accounts payable of$(387) million impacted from timing of payments, and a decrease in other liabilities of$(70) million from the timing of payments for employee withholdings and operating lease liabilities, partially offset by a decrease in purchases of inventory of$105 million . Also contributing to the increase in cash used in operating activities was a$(757) million increase in net loss partially offset by a$665 million increase in our non-cash expenses contributing to the net loss for the nine months endedSeptember 30, 2021 . Investing Activities Our net cash used in investing activities was$(507) million for the nine months endedSeptember 30, 2021 , representing an increase of$156 million , or 45%, as compared to$(350) million used in investing activities for the nine months endedSeptember 30, 2020 . This increase was mainly driven by a$191 million increase in purchases of property and equipment, primarily related to investments in our fulfillment and logistics infrastructure, including purchases of buildings and land, as well as technology equipment and capabilities. For the nine months endedSeptember 30, 2021 , purchases of land and buildings comprised$177 million of the$506 million in total purchases of property and equipment. For the nine months ended 31
--------------------------------------------------------------------------------
Table of ContentsSeptember 30, 2020 , purchases of land and buildings comprised$36 million of the$315 million in total purchases of property and equipment. Financing Activities Our net cash provided by financing activities for the nine months endedSeptember 30, 2021 increased$3.6 billion , compared to the nine months endedSeptember 30, 2020 . This increase was primarily driven by$3.4 billion of proceeds, net of underwriting discounts of$69 million and other offering costs, from the issuance of 100,000,000 shares of our Class A common stock upon the completion of our IPO, a$46 million increase in cash proceeds from the issuance of common stocks/units related to equity awards and$97 million in repurchases of common units and preferred units in the prior period, partially offset by a$(87) million increase in repayment of debt and short-term borrowings. We believe that our sources of liquidity will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, we may need additional cash resources in the future if we find and pursue opportunities for investment, acquisition, strategic cooperation, or other similar actions, which may include investing in technology, our logistics and fulfillment infrastructure, or related talent. If we determine that our cash requirements exceed our amounts of cash on hand or if we decide to further optimize our capital structure, we may seek to issue additional debt or equity securities or obtain credit facilities or other sources of financing. This financing may not be available on favorable terms, or at all. Capital Resources Our short-term borrowings generally include lines of credit with financial institutions available to be drawn upon for general operating purposes. InFebruary 2021 , we entered into a new three-year senior unsecured credit facility (the "new revolving credit facility") providing for revolving loans in an aggregate principal amount of up to$475 million (which automatically increased to an aggregate principal amount of$950 million based on us receiving at least$2.0 billion in net proceeds from our IPO). The new revolving credit facility provides us the right to request incremental commitments up to$1.25 billion , subject to customary conditions. DuringMarch 2021 , the aggregate principal amount of our new revolving credit facility increased to$1.0 billion as a result of our IPO. As ofSeptember 30, 2021 , there was no balance outstanding on the new revolving credit facility. Borrowings under the new revolving credit facility bear interest, at our option, at a rate per annum equal to (i) a base rate equal to the highest of (A) the prime rate, (B) the higher of the federal funds rate or a composite overnight bank borrowing rate plus 0.50%, or (C) an adjusted London interbank offered rate ("LIBOR") for a one-month interest period plus 1.00% or (ii) an adjusted LIBOR plus a margin equal to 1.00%. We are also required to pay other customary fees for a credit facility of this size and type, including letter of credit fees, an upfront fee, and an unused commitment fee. The new revolving credit facility contains a number of covenants that, among other things, restrict our ability to: •incur or guarantee additional debt; •make certain investments and acquisitions; •make certain restricted payments and payments of certain indebtedness; •incur certain liens or permit them to exist; and •make fundamental changes and dispositions (including dispositions of the equity interests of subsidiary guarantors). Each of these restrictions is subject to various exceptions. The new revolving credit facility requires us to (i) maintain a ratio of secured indebtedness to total consolidated tangible assets of less than 35%, if we have$1 or more of revolving loans or any unreimbursed drawn letters of credit outstanding under the new revolving credit facility at the end of each fiscal quarter and (ii) maintain a minimum amount of liquidity of at least$625.0 million (or$312.5 million to the extent the aggregate commitment of the new revolving credit facility is$500 million ). The new revolving credit facility is guaranteed on a senior unsecured basis by certain material restricted subsidiaries ofCoupang, Inc. (includingCoupang Corp. ), subject to customary exceptions. The new revolving credit facility also contains certain customary affirmative covenants and events of default for facilities of this type. DuringAugust 2021 , we entered into a new$169 million three-year term loan. We have pledged$203 million of certain land and buildings as collateral. The term loan bears interest at a fixed rate of 3.155%. 32
--------------------------------------------------------------------------------
Table of Contents InOctober 2021 , the Company entered into a new two-year loan agreement to borrow up to$139 million to finance the construction of a fulfillment center. The Company pledged up to$167 million of certain existing land and a building to be constructed as collateral. The loan bears interest at a fixed rate of 3.45%. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical Accounting Policies and Estimates We prepare our financial statements in accordance withU.S. GAAP. Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. Our significant accounting policies are discussed in Note 2 - "Significant Accounting Policies" to our consolidated financial statements included in the Final Prospectus. There have been no significant changes to these policies and estimates for the nine months endedSeptember 30, 2021 , except as described in Note 1 - "Basis of Presentation and Summary of Significant Accounting Policies" and Note 2 - "Change in Accounting Principle" to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Recently Adopted Accounting Pronouncements See Note 1 - "Basis of Presentation and Summary of Significant Accounting Policies" to the condensed consolidated financial statements included elsewhere in Part I, Item 1 of this Quarterly Report on Form 10-Q. Item 3. Quantitative and Qualitative Disclosures about Market Risk In addition to the risks inherent in our operations, we are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates, foreign currency, and credit. Interest Rate Risk As ofSeptember 30, 2021 , we had cash, cash equivalents, and restricted cash of$4.3 billion . Interest-earning instruments carry a degree of interest rate risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Our interest rate risk arises primarily from our short-term borrowings. Borrowings issued at variable rates expose us to variability in cash flows. Our policy, in the management of interest rate risk, is to strike a balance between fixed and floating rate financial instruments as well as our cash and cash equivalents and any short-term investments we may hold. The balance struck by our management is dependent on prevailing interest rate markets at any point in time. Our borrowings generally include lines of credit with financial institutions, some of which carry variable interest rates. An assumed hypothetical 10% change in prevailing interest rates would not have a material impact on our results of operations for either the three or nine months endedSeptember 30, 2021 . Any future borrowings incurred under the new revolving credit facility would accrue interest at a floating rate based on a formula tied to certain market rates at the time of incurrence. Foreign Currency Risk We have accounts on our foreign subsidiaries' ledgers, which are maintained in the respective subsidiary's local currency and translated into USD for reporting of our consolidated financial statements. As a result, we are exposed to fluctuations in the exchange rates of various currencies against the USD and other currencies, including the KRW. Transactional We generate the majority of our revenue from customers withinKorea . Typically, we aim to align costs with revenue denominated in the same currency, but we are not always able to do so. As a result of the geographic spread of our operations and 33
--------------------------------------------------------------------------------
Table of Contents due to our reliance on certain products and services priced in currencies other than KRW, our business, results of operations, and financial condition have been and will continue to be impacted by the volatility of the KRW against foreign currencies. TranslationalCoupang, Inc.'s functional currency and reporting currency is the USD. The local and functional currency for our Korean subsidiary,Coupang Corp. , which is our primary operating subsidiary, is the KRW. The other subsidiaries predominantly utilize their local currencies as their functional currencies. Assets and liabilities of each subsidiary are translated into USD at the exchange rate in effect at the end of each period. Revenue and expenses for these subsidiaries are translated into USD using average rates that approximate those in effect during the period. Consequently, increases or decreases in the value of the USD affect the value of these items with respect to the non-USD-denominated businesses in the consolidated financial statements, even if their value has not changed in their original currency. For example, a stronger USD will reduce the reported results of operations of non-USD-denominated businesses and conversely a weaker USD will increase the reported results of operations of non-USD-denominated businesses. An assumed hypothetical 10% adverse change in average exchange rates used to translate foreign currencies to USD would have resulted in a decline in total net revenues of$417 million and$1.2 billion and a decrease in net loss of$20 million and$72 million for the three and nine months endedSeptember 30, 2021 , respectively. At this time, we do not, but we may in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency risk. It is difficult to predict the impact hedging activities would have on our results of operations. Credit Risk Our cash and cash equivalents, deposits, and loans with banks and financial institutions are potentially subject to concentration of credit risk. We place cash and cash equivalents with financial institutions that management believes are of high credit quality. The degree of credit risk will vary based on many factors, including the duration of the transaction and the contractual terms of the agreement. As appropriate, management evaluates and approves credit standards and oversees the credit risk management function related to investments. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures As ofSeptember 30, 2021 , our disclosure controls and procedures were evaluated, under the supervision and with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), to assess whether they are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in theSEC's rules and forms. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective as ofSeptember 30, 2021 , due to the material weaknesses in our internal control over financial reporting, as further described below. As a result, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, our condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity withU.S. GAAP. 34
--------------------------------------------------------------------------------
Table of Contents Previously Reported Material Weakness As disclosed in Part II-Item 1A. "Risk Factors" contained elsewhere in this Quarterly Report on Form 10-Q, we previously identified material weaknesses in our internal control over financial reporting related to (i) the design and effectiveness of information technology general controls, (ii) inadequate segregation of duties, and (iii) inadequate internal control over the timely preparation and review of account reconciliations. We have concluded that these material weaknesses arose because we did not have sufficient qualified accounting resources, formalized processes, and policies necessary to satisfy the accounting and financial reporting requirements of a public company. We have determined that these control deficiencies constituted material weaknesses in our internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in our internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis. These deficiencies could result in additional misstatements to our consolidated financial statements that would be material and would not be prevented or detected on a timely basis. Remediation Plan Management has developed and is executing a remediation plan to address the previously disclosed material weaknesses. We are actively engaged in the remediation of each of the outstanding material weaknesses, including utilizing the assistance of outside advisors where appropriate. To remediate the existing material weaknesses, additional time is required to demonstrate the effectiveness of the remediation efforts. The material weaknesses cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Changes in Internal Control over Financial Reporting We are taking actions to remediate the material weaknesses relating to our internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the quarter endedSeptember 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Limitations on Effectiveness of Controls and Procedures Our management, including our CEO and CFO, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 35
--------------------------------------------------------------------------------
Table of Contents
Part II. Other Information© Edgar Online, source
