LEGACY EJY, INC. The following discussion of our financial condition and results of operations should be read together with our financial statements, related notes and other financial information appearing elsewhere in this Quarterly Report. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below, elsewhere in this Quarterly Report, particularly in Part II, Item 1A, "Risk Factors". Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Recent Developments
Going Concern
Since inception, we have incurred net losses and cash outflows from operations.
Management expects that operating losses and negative cash flows from operating
activities will continue in the foreseeable future as we continue to work to
fund our operations and as we progress through our review of strategic
alternatives. As previously disclosed in our Annual Report on Form 10-K for the
year ended
On
The Company's estimated cash and cash equivalents, which includes the
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the event we are not able to successfully consummate a strategic transaction, or obtain additional financing as discussed above, or will not be able to meet our obligations as they become due, we may need to file a voluntary petition for relief under the United States Bankruptcy Code in order to implement a restructuring plan or liquidation.
Overview
Enjoy was incorporated in the state of
We currently operate in over 80 locations across
Enjoy started with a simple question, "What if the best of the store could come
to you?" Over the last eight years we built and optimized our
Over the past twenty five years, eCommerce has disrupted the retail industry in
virtually every category, shifting commerce from physical stores to the home.
While eCommerce channels greatly expanded choices and increased convenience with
fulfillment to customers' doorsteps, they have not addressed the importance of
an interactive shopping experience that customers desire for products, such as
technology. Enjoy provides set-up and activation, and also assists customers in
purchasing hardware, accessories, and subscription services in the comfort of
the home. This
We maintain multi-year contractual relationships with leading telecommunications
and technology companies, which are our "Business Partners" or "Customers." Our
revenue stems from a variety of service, set-up and delivery fees that are paid
to us by our Customers. During a visit from our
Enjoy delivers a broad assortment of telecommunications and technology products and accessories, which are provided by our Customers. Our mobile retail sales team ("Experts") provide set-up, activation and demonstration of the products we deliver. We assist Consumers in evaluating and selecting a myriad of accessories, media sources, protection, broadband, and other services. We also assist in the trade-in and upgrade of our customers' products. We strive to deliver our customers' products with same-day or next-day frequency, matching the speed of traditional eCommerce channels but with an experience.
Consumers initiate their purchase on our Customers' eCommerce sites, service centers or retail locations. The Consumer selects at-home delivery and a delivery window. Consumer orders flow seamlessly from our Customers' eCommerce sites to Enjoy via deeply integrated technology platforms. This results in near-zero Consumer acquisition costs for Enjoy.
Our inventory is 100% consigned to us by our Customers and maintained in secure
warehouses at our market locations. These warehouse locations also serve as the
base of operations for our
Our business is enabled by highly sophisticated, proprietary sets of technology applications, systems and data science tools. To deliver and optimize millions of retail experiences, we built our technology platform from the ground up to support customer integrations, smart logistics and a variety of solutions to empower our Experts in providing the best and most personalized experience for every Consumer.
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Our Experts are central to the at-home retail experience we provide for Consumers. Our Experts are 100% Enjoy employees and have the skills and training to be deeply knowledgeable about the products and services that we offer. We believe our Experts bring a world-class and deeply engaging shopping experience to Consumers.
We believe Enjoy is positioned to benefit from several long-term trends that will continue to expand the demand for Commerce-at-Home. These trends include but may not be limited to: 1) the growth in online shopping and the need for speed and convenience, 2) a more mobile workforce, which includes increased telecommuting and work-from-home arrangements, all of which have been accelerated by the COVID-19 pandemic, 3) increasingly connected homes enabled by technology and telecommunications and 4) the rapid expansion of subscription- based services delivered through online channels.
Factors Affecting Our Business
Consumer Discretionary Spending
We rely on consumer discretionary spending and may be adversely affected by economic downturns and other macroeconomic conditions or trends. Our business and operating results are subject to global economic conditions and their impact on consumer discretionary spending. Some of the factors that may negatively influence consumer spending include high levels of unemployment, higher consumer debt levels, reductions in net worth, and declines in asset values and related market uncertainty, fluctuating commodity prices, inflation and general uncertainty regarding the overall future political and economic environment. Consumer purchases of technology may decline during periods of economic uncertainty, when disposable income is reduced or when there is a reduction in consumer confidence. Such economic uncertainty may slow the rate at which individuals choose to purchase new technology, upgrade existing technology or purchase services, subscriptions or accessories.
Online Consumer Shopping Behaviors and Commerce-at-Home
Our business is affected by online shopping behavior and growth of eCommerce. Our revenue stems primarily from online purchases originating at our Customers websites or customer service centers. The global online shopping market is large and growing as a percentage of global retail purchases. Consumers are diversifying their purchases for delivery at home, and the COVID-19 pandemic has accelerated this trend. With some consumers still wary of buying in-store, they have increased demand for new product categories purchased online and delivered to their homes. Consumers are also increasing their purchases of at home services through online channels. Although there has been an increased demand in eCommerce business in the marketplace, COVID-19 safety protocols materially reduced the percent of our indoor Consumer engagements, which negatively impacted our business.
Changes in Consumer Behavior and Lifestyles
Our business is affected by changes in consumer behavior and lifestyles at home and work and the role that mobile technology plays in enabling these changes. Mobile technology has grown rapidly over the past four decades and reliance on smartphones is predicted to increase as more features become available. Smartphone and mobile technology represent the primary product categories in our revenues. Furthermore, work-from-home and remote-work have been growing steadily. While the COVID-19 pandemic has dramatically increased work-from- home arrangements over the past year, the underlying trends towards a more flexible work environments and telecommuting suggest that these trends will continue. Studies suggest flexible work environments create more productive and happier workforce. Advancements in technology have allowed remote workers to collaborate in increasingly effective ways. These trends are likely to accelerate Commerce-at-Home.
Product Innovation Lifecycles
Our business is affected by upgrade cycles in smartphone and consumer technology. Consumer trends in the length of the average replacement cycle for technology are linked to advancements in performance and features of these devices. Our Customers produce or sell leading brands and are quick to bring innovations to market.
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Changes in Products and Services Offered by Our Customers
In addition to our base fee earned from our Customers for delivery and setup of products, our revenues are affected by add-on digital subscription services and device protection plans purchased by Consumers. Digital subscription services such as news, music, movies, gaming apps and entertainment have been growing as consumers have shifted their consumption behaviors from traditional sources of content to online and on-demand formats. Our business is also affected by consumer adoption of device protection plans and other support services provided by our Customers. We believe that the growth in subscription services driven by both consumer adoption rates and new services will continue.
Availability of Inventory from Our Customers
We carry consigned inventory provided by our Customers. This inventory is either manufactured or procured by our Customers and delivered to our warehouses. We cannot guarantee with certainty that we will have adequate inventory at all times to support our business. At times, our business can face disruptions stemming from inventory shortages driven by new product releases with high consumer demand, supply constraints, political, environmental or other factors.
Seasonal Sales Trends
We have experienced and expect to continue to experience seasonal fluctuations in sales due to the spending patterns of Consumers. Our revenue has generally been lowest in the first and second calendar quarters due to lower consumer demand following the fourth quarter holiday season and because of the decline in sales that typically occurs in anticipation of the introduction of new or enhanced smartphone and consumer technology, which usually take place in the third calendar quarter and which tend to drive sales in that quarter and the following quarter. Further, our revenue tends to be higher in the third and fourth calendar quarter due to seasonal sales such as "Black Friday" and "Cyber Monday," as Consumers tend to make higher purchases during the holiday season. Our revenue for the second calendar quarter is generally the lowest of the year followed by the first calendar quarter. We expect these seasonality trends to continue.
Restricted Stock Unit Grants
In
•
25% of the
•
6.25% (1/16th) of the
Key Performance Metrics
We regularly review several metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. The reasons we believe these key performance metrics are useful to investors are provided below.
Daily Mobile Stores - Daily Mobile Stores represent the number of Mobile Stores we operate on a given day. This is calculated by dividing the total number of visit-serving Expert shifts in a given reporting period by the number of calendar days in that period. A visit-serving Expert shift is defined as an Expert that is scheduled to serve Consumers on a given day. We believe this is the primary measure of scale and growth of our retail footprint.
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Mobile Store Profit (Loss) and Mobile Store Margin - Mobile Store Profit (Loss)
is a measure prepared in accordance with GAAP and is defined as revenue less
cost of revenue. Mobile Store Margin is Mobile Store Profit (Loss) as a
percentage of revenue. We view this metric as an important measure of business
performance as it captures
Segment Income (Loss) - Segment Income (Loss) is defined as revenue less cost of
revenue, operational expenses directly related to each segment and excludes
certain corporate expenses. We view this metric as an important measure of
business performance as it captures
Adjusted EBITDA - Adjusted EBITDA is defined as net loss, adjusted for interest expense, provision for income taxes, depreciation and amortization, stock-based compensation, loss on convertible loans, one time transaction related costs, interest income and other expenses not considered a core part of our operations. Adjusted EBITDA provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance. Adjusted EBITDA is a non-GAAP measure. Refer to the "Non-GAAP Measures" section below for further discussion.
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The following tables present our key performance metrics for the periods presented (in thousands except Daily Mobile Stores amounts):
Three Months Ended March 31, 2022
North America Europe Consolidated
Daily Mobile Stores 649 129 778
Daily Revenue Per Mobile Store $ 355 $ 281 $ 343
Mobile Store Loss $ (9,042 ) $ (1,744 ) $ (10,786 )
Mobile Store Margin (43.5 )% (53.5 )% (44.9 )%
Segment Loss $ (32,072 ) $ (7,011 )
Adjusted EBITDA $ (51,522 )
Three Months Ended March 31, 2021
North America Europe Consolidated
Daily Mobile Stores 427 152 579
Daily Revenue Per Mobile Store $ 404 $ 280 $ 371
Mobile Store Loss $ (3,122 ) $ (1,700 ) $ (4,822 )
Mobile Store Margin (20.1 )% (44.4 )% (24.9 )%
Segment Loss $ (19,298 ) $ (5,872 )
Adjusted EBITDA $ (34,076 )
Results of Operations
Components of Results of Operations
Revenue
Revenue consists of service fees paid to us by our Customers for bringing their products and services to Consumers. These fees are comprised of fixed service fees per visit and variable fees based on the sale of accessories, solutions and subscription services. The composition of these fees and the rate of services paid vary by Customer per the terms of our contracts with them. Our fees are reduced by chargebacks and consigned inventory that is lost, damaged or stolen. Chargebacks are based upon Consumer cancellation of services and subscriptions within a pre-specified timeframe.
Cost of revenue
Cost of revenue primarily consists of salaries, benefits and other expenses related to the Company's Experts, fleet vehicle costs, and other expenses directly related to the performance of each Expert field visit. These expenses will increase in proportion to the growth of our Mobile Stores. We expect these expenses to decrease as a percentage of revenue for the next several years.
Operations and technology
Operations and technology expenses primarily consist of technology, facility and overhead costs directly related to the operation of our Mobile Stores. This includes lease and operating expenses for our warehouses, inventory management and storage, facility supplies and depreciation expense. We also include costs for employees who directly or indirectly support our Experts, including supervisory and operations management, inventory management, fulfillment and research and development costs. We expect operations and technology expenses to increase in future periods to support our growth, including bringing on additional warehouse facilities and continuing to invest in technology improvements to support the selling experience for Consumers, selling tools for our sales professionals and to drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments. We expect these expenses to decrease as a percentage of revenue over the next several years.
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General and administrative
General and administrative expenses primarily consist of personnel-related expenses for our general corporate functions. This includes our leadership team, employees involved in finance, human resources, legal and workplace services, enterprise and financial information technology systems and marketing. We expect to increase general and administrative expenses as we grow our infrastructure to support operating as a public company and the overall growth in our business. While these expenses may vary from period to period as a percentage of revenue, we expect them to decrease as a percentage of revenue over the next several years.
Loss on convertible loans
Unrealized loss on convertible loans consists of the change in the fair value of our convertible loans. The convertible loans were converted to common stock as part of the Merger.
Interest income
Interest income consists of interest earned on our cash and cash equivalents.
Interest expense
Interest expense includes mainly the interest incurred on our outstanding indebtedness, as well as amortization of deferred financing costs, mainly debt origination and commitment fees.
Other income, net
Other income during the periods presented consisted primarily of fair value gains and losses related to the issued stock warrants as well as gains and losses from foreign currency transactions.
Income tax provision
Our provision for income taxes consists of state minimum taxes in
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Comparison of Results of Operations
Comparison of the Three Months Ended
The following table is a reference for the discussion that follows:
Three Months Ended
March 31, Change
(dollars in thousands) 2022 2021 $ %
Revenue $ 24,024 $ 19,346 $ 4,678 24.2 %
Operating expenses:
Cost of revenue* 34,810 24,168 $ 10,642 44.0 %
Operations and technology* 27,332 19,233 $ 8,099 42.1 %
General and administrative* 19,680 12,098 $ 7,582 62.7 %
Total operating expenses 81,822 55,499 $ 26,323 47.4 %
Loss from operations (57,798 ) (36,153 ) $ (21,645 ) 59.9 %
Loss on convertible loans - (1,865 ) $ 1,865 (100.0 )%
Interest expense (38 ) (1,407 ) $ 1,369 (97.2 )%
Interest income 2 2 $ (0 ) (22.4 )%
Other income, net 2,623 134 $ 2,489 1857.5 %
Loss before provision for income taxes (55,211 ) (39,289 ) $ (15,922 ) 40.5 %
Provision for income taxes 34 177 $ (143 ) (81.0 )%
Net loss (55,245 ) $ (39,466 ) $ (15,779 ) 40.0 %
* To conform to current presentation, the Company reclassified certain costs
within each of its operating expense line items in the condensed consolidated
statements of operations and comprehensive loss for the three months ended
Revenue
Revenue for the three months ended
Cost of revenue
Cost of revenue for the three months ended
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Operations and technology
Operations and technology expenses for the three months ended
Corporate operations and technology expenses for the three months ended
General and administrative
General and administrative expense for the three months ended
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administrative expense as a percentage of revenue for the three months ended
Corporate general and administrative expenses for the three months ended
Loss on convertible loans
Loss on convertible loans for the three months ended
Interest income
Interest income for the three months ended
Interest expense
Interest expense for the three months ended
Other income, net
Other income, net for the three months ended
Provision for income taxes
The provision for income taxes for the three months ended
Non-GAAP Measures
In addition to net loss, which is a measure presented in accordance with GAAP, management believes that Adjusted EBITDA provides relevant and useful information to management and investors to assess our performance. Adjusted EBITDA is a supplemental measure of Enjoy's performance that is neither required by nor presented in accordance with GAAP. This measure is limited in its usefulness and should not be considered a substitute for GAAP metrics such as loss from operations, net loss, or any other performance measures derived in accordance with GAAP and may not be comparable to similar measures used by other companies.
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Adjusted EBITDA represents net loss adjusted for interest, taxes, depreciation and amortization, stock-based compensation expense and certain expenses and income not considered a core part of our operations.
We believe that Adjusted EBITDA provides a meaningful understanding of certain aspects of earnings (loss) before the impact of investing and financing charges and income taxes. Adjusted EBITDA is useful to an investor in evaluating our performance because this measure:
•
Is widely used by analysts, investors and competitors to measure a company's operating performance;
•
Is a financial measurement that is used by rating agencies, lenders, and other parties to evaluate our credit worthiness; and
•
Is used by our management for various purposes, including as a measure of performance and as a basis for strategic planning and forecasting.
The reconciliations of net loss to Adjusted EBITDA for the three months ended
Three Months Ended
March 31,
(in thousands) 2022 2021
Net loss $ (55,245 ) $ (39,466 )
Add back:
Interest expense 38 1,407
Provision for income taxes 34 177
Depreciation and amortization 1,155 916
Stock-based compensation 5,121 878
Loss on convertible loans - 1,865
Transaction-related costs (1) - 283
Deduct:
Interest income (2 ) (2 )
Other income, net (2,623 ) (134 )
Adjusted EBITDA $ (51,522 ) $ (34,076 )
(1)Includes costs associated with the Merger.
Liquidity and Capital Resources
To date, the funds received from previous common stock and redeemable convertible preferred stock issuances, as well as the Company's ability to obtain lending commitments, have provided the liquidity necessary for the Company to fund its operations. The Company's ongoing operations are dependent on its ability to obtain additional financing and generate sufficient cash flow to meet its obligations on a timely basis. The Company's business will require significant amounts of capital to sustain operations and the Company will need to make the investments it needs to execute its long-term business plans.
Since inception, we have incurred net losses and cash outflows from operations.
The Company had cash and cash equivalents of
On
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prepayment for future services reasonably expected to be rendered over the
course of
The Company's estimated cash and cash equivalents, which includes the
On
March 31, December 31,
(in thousands) 2022 2021
Cash and cash equivalents $ 37,277 $ 85,836
Restricted cash 1,710 1,710
Accounts receivable, net 5,355 9,977
The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by management assuming that we will continue as a going concern and do not
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include any adjustments to reflect the possible future effects of the recoverability and classification of assets, or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
Cash Flows
The following table presents cash provided by (used in) operating, investing, and financing activities during the periods presented:
Three Months Ended
March 31,
(in thousands) 2022 2021
Net cash used in operating activities $ (47,760 ) $ (35,268 )
Net cash used in investing activities (437 ) (537 )
Net cash (used in) provided by financing activities (355 ) 14,928
Effect of exchange rate on cash, cash equivalents
and restricted cash (7 ) (26 )
Net decrease in cash, cash equivalents and
restricted cash $ (48,559 ) $ (20,903 )
Operating Activities
During the three months ended
During the three months ended
Investing Activities
During the three months ended
During the three months ended
Financing Activities
During the three months ended
During the three months ended
Material Cash Requirements
Our material cash requirements, include amounts due under our contractual and other obligations, including under
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operating leases for monthly base rent under our lease agreement for office
space for our headquarters in
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. These estimates, assumptions, and judgments are necessary because future events and their effects on our consolidated financial statements cannot be determined with certainty and are made based on our historical experience and on other assumptions that we believe to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time. Because the use of estimates is inherent in the financial reporting process, actual results could materially differ from those estimates. We believe that the accounting estimates discussed below relate to the more significant areas involving management's judgments and estimates:
• Revenue Recognition; and • Stock-based Compensation.
Revenue Recognition - The Company generates revenue through visit fees whereby
its Experts provide delivery, set-up, and technological expertise services at
the request of its Customers. Its Customers are primarily large
telecommunication and technology companies that sell technology products and
services and require a
Each Customer contract contains only one performance obligation, which is a stand-ready obligation for the Company's Experts to provide visits to Consumers throughout the Company's contractual term. The stand-ready obligation consists of a series of distinct services that are substantially the same and have the same pattern of transfer, represented as visits provided to Consumers satisfied over time.
The transaction prices of the Company's contracts are entirely variable, as the number of visits and the specific services provided at each visit are unknown at contract inception. Each contract includes pricing whereby the Company and the Customer agree to payments for various elements of a visit, which generally include the base fee for conducting the visit and delivering product, as well as incremental amounts for add-ons provided to Consumers. Due to the nature of the obligation, the variability of payment based on the number of visits performed, and the specific services and products provided at each visit which are resolved as each visit is completed, the Company recognizes visit fees in revenue as such visits are provided. In addition, the Company is required to issue a credit to its Customer for the stipulated value of any consigned inventory that is under the Company's control that is lost, damaged, or stolen. The Company recognizes the credit as a reduction in revenue when it identifies that the items were lost, damaged, or stolen.
From time to time, the Company's Experts sell a Consumer incremental services on behalf of the Customer during a visit. Certain of the Company's contracts contain provisions that allow for a chargeback by the Customer of the Company's fee for selling the incremental service, if the Consumer cancels such services within a specified period from the visit. Chargebacks are recognized as a reduction of revenue, in the period such visit occurs, using an estimate derived from historical information regarding Consumer cancelations of specific services as well as real-time information provided by the Customer. The estimation of chargebacks for each performance obligation requires
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us to make subjective judgments and is subject to uncertainty. As of
Stock-Based Compensation
We account for stock-based compensation expense related to our stock option awards based on the estimated grant date fair value, which is calculated using the Black-Scholes option pricing model. Our use of the Black-Scholes option-pricing model requires the input of subjective assumptions which are subject to uncertainty. If factors change and different assumptions are used, our stock-based compensation expense could be materially different for the current period and in the future. These assumptions and estimates used in the Black-Scholes option-pricing model are as follows:
•
Risk-Free Interest Rate. The risk-free interest rate is determined by reference
to the
•
Expected Term. The expected term of the Company's stock options has been determined utilizing the "simplified" method for awards that qualify as "plain-vanilla" options.
•
Expected Volatility. Expected volatility was determined based on similar companies' stock volatility.
•
Expected Dividend Yield. Expected dividend yield is based on the fact that the Company has never paid cash dividends on common shares and does not expect to pay any cash dividends in the foreseeable future.
Recently Issued and Adopted Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our consolidated financial statements.
Emerging Growth Company
We are an emerging growth company, as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies, allowing them to delay the adoption of those standards until those standards would otherwise apply to private companies. Enjoy has elected to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as it qualifies as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
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