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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Waitr Holdings Inc.    WTRH

WAITR HOLDINGS INC.

(WTRH)
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WAITR : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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08/06/2020 | 09:59am EDT
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the unaudited condensed
consolidated financial statements and related notes thereto included elsewhere
in this Quarterly Report on Form 10-Q (the "Form 10-Q") and with the audited
consolidated financial statements included in the Company's 2019 Form 10-K filed
with the SEC on March 16, 2020. Dollar amounts in this discussion are expressed
in thousands, except as otherwise noted.

Cautionary Statement Regarding Forward-Looking Statements


This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange
Act. All statements, other than statements of historical or current facts, that
reflect future plans, estimates, beliefs and expected performance are
forward-looking statements. In some cases, you can identify forward-looking
statements because they are preceded by, followed by or include words such as
"may," "can," "should," "will," "estimate," "plan," "project," "forecast,"
"intend," "expect," "anticipate," "believe," "seek," "target" or similar
expressions. These forward-looking statements are based on information available
as of the date of this Form 10-Q and our management's current expectations,
forecasts and assumptions, and involve a number of judgments, risks and
uncertainties, including the following factors, in addition to the factors
discussed elsewhere in this Form 10-Q, and the factors discussed in our 2019
Form10-K (Part I, Item 1A, Risk Factors), and in our subsequent quarterly
reports (Part II, Item 1A. Risk Factors):

       •  general economic and business risks affecting our industry that are
          largely beyond our control;

• our limited operational history and development risks associated with

the development of any new business;

• failure to retain existing diners or add new diners or our diners

          decreasing their number of orders or order sizes on the Platforms;


       •  loss of restaurants on the Platforms, including due to changes in our

fee structure;

• declines in our delivery service levels or lack of increases in business

for restaurants;



       •  inability to maintain and enhance our brands or occurrence of events
          that damage our reputation and brands, including unfavorable media
          coverage;

• failure of restaurants in our networks to maintain their service levels;


  • seasonality and the impact of inclement weather;

• inability to grow at historical growth rates or achieve profitability;



  • inability to manage growth and meet demand;


       •  economic downturns or other events (such as the scope, scale and
          duration of the impact of COVID-19, or similar widespread
          health/pandemic outbreaks);

• prioritization of experience of restaurants and diners over short-term

profitability;

• slower than anticipated growth in the use of the Internet via websites,

mobile devices and other platforms;

• changes in our products or to operating systems, hardware, networks or

          standards that our operations depend on;


  • potential liability and expenses for legal claims;


       •  dependence of our business on our ability to maintain and scale our
          technical infrastructure;

• personal data, internet security breaches or loss of data provided by

our diners, drivers or restaurants on our Platforms;

• inability to comply with applicable law or standards if we become a

          payment processor at some point in the future;


  • risks related to the credit card and debit card payments we accept;


  • reliance on third-party vendors to provide products and services;


  • the highly competitive and fragmented nature of our industry;

• substantial competition in technology innovation and distribution and

inability to continue to innovate and provide technology desirable to

diners and restaurants;

• dependence on search engines, display advertising, social media, email,

          content-based online advertising and other online sources to attract
          diners to the Platforms;


       •  inability to attract diners and convert them into Active Diners (as
          defined under Key Business Metrics below) making orders in a
          cost-effective manner;

• loss of senior management or key operating personnel and dependence on

          skilled personnel to grow and operate our business;


  • driver shortages and increases in driver compensation;

• major hurricanes, tropical cyclones, and other instances of severe

          weather and other natural phenomena;


  • increases in food, labor, fuel and other costs;


  • plans to make acquisitions;

• federal, state, and foreign laws and regulations regarding privacy, data

          protection, and other matters;


  • failure to protect our intellectual property;


  • patent lawsuits and other intellectual property rights claims;


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  • our use of open source software;


       •  insufficient capital to pursue business objectives and respond to
          business opportunities, challenges or unforeseen circumstances;


  • unionization of our employees;


• failure of our independent contract drivers to meet our contractual

          obligations or otherwise perform in a manner consistent with our
          requirements;

• determination by regulators or judicial process that our independent

          contractors are our employees;


  • requirements of being a public company;

• changes to the Fair Labor Standards Act of 1938 and state minimum wage

laws raising minimum wages or eliminating tip credit in calculating

          wages;


  • risks related to the Bite Squad Merger; and

• the impact of the COVID-19 pandemic, including the potential recession

          or further financial market corrections resulting from the spread of
          COVID-19.


These risks and uncertainties may be outside of our control. Forward-looking
statements should not be relied upon as representing our views as of any
subsequent date. We do not undertake any obligation to update forward-looking
statements to reflect events or circumstances after the date they were made,
whether as a result of new information, future events or otherwise, except as
may be required under applicable securities laws. Our actual results could
differ materially from those discussed in these forward-looking statements.

Overview


Waitr operates an online food ordering and delivery platform, connecting local
restaurants and diners in cities across the United States. Our strategy is to
bring delivery and carryout infrastructure to underserved populations of
restaurants and diners and establish market leadership positions in the markets
in which we operate. On January 17, 2019, we completed the acquisition of Bite
Squad, an online food ordering and delivery platform with operations similar to
those of Waitr. Our business has been built with a restaurant-first philosophy
by providing differentiated and brand additive services to the restaurants on
the Platforms. Our Platforms allow consumers to browse local restaurants and
menus, track order and delivery status, and securely store previous orders for
ease of use and convenience. Restaurants benefit from the online Platforms
through increased exposure to consumers for expanded business in the delivery
market and carryout sales.

At June 30, 2020, we had approximately 18,000 restaurants, in over 700 cities,
on the Platforms. Average Daily Orders for the three months ended June 30, 2020
and 2019 were approximately 44,241 and 55,728, respectively, and revenue was
$60,506 and $51,342, respectively. For the six months ended June 30, 2020 and
2019, Average Daily Orders were 40,909 and 54,269, respectively, and revenue was
$104,749 and $99,374, respectively.

During the second quarter of 2020, we continued implementing various
initiatives, with a focus on improving revenue per order, costs per order, cash
flow, profitability and liquidity. One of the major initiatives we successfully
completed was switching to an independent contractor model for delivery drivers.
Additionally, we continued to focus efforts on operational improvements through
the streamlining of operations, support and sales and marketing functions and
offered new and enhanced service offerings to our restaurant partners. The
implementation of these initiatives resulted in revenue growth and profitable
results for the three and six months ended June 30, 2020.

Sales of our common stock pursuant to at-the-market offerings launched in March
and May 2020, along with the implementation of the initiatives discussed above,
resulted in increases in our working capital and liquid assets as of June 30,
2020. At the completion of our at-the-market offering programs on July 10, 2020,
we had sold a total of 23,698,720 shares of common stock for net proceeds of
approximately $47,575. We continue to evaluate additional opportunities to
further strengthen our liquidity position, fund growth initiatives and/or
combine with other businesses to complement our operating cash flows as we
pursue our long-term growth plans.

Management Appointments


On May 22, 2020, the board appointed Leonid (Leo) Bogdanov to the position of
Chief Financial Officer. Mr. Bogdanov previously had been serving as Director of
Financial Planning & Analysis of the Company. Additional management appointments
made during the second quarter of 2020 through the filing of this Form 10-Q
included the appointment on May 22, 2020 of Mark D'Ambrosio to the position of
Chief Sales Officer and the appointments on July 1, 2020 of Thomas C. Pritchard
to the position of General Counsel and David Cronin to the position of Chief
Engagement Officer.

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COVID-19 Update

In March 2020, as the COVID-19 pandemic became more widespread in the U.S., we
launched several initiatives to help protect and support our restaurant
partners, diners, drivers and employees during these unprecedented times,
including offering no-contact delivery for all restaurant delivery orders;
offering no-contact grocery delivery in select markets; working with restaurant
partners to waive diner delivery fees; deploying free marketing programs for
restaurants; and providing masks, gloves and hand sanitizer to drivers.
Additionally, in early April 2020, we expanded our delivery areas to further
support our restaurant partners and diners. We have experienced a significant
increase in the number of new independent contractor driver applications,
providing us the capacity to satisfy additional delivery and carryout demand
from restaurant partners and diners.

We have thus far been able to operate effectively during the COVID-19 pandemic.
In early March 2020, we initially experienced declines in order volumes over an
approximate three-week period, as restaurant and diner routines were disrupted
by state-mandated stay-at-home orders and business closures. In
mid-to-late-March, however, we began to experience steady improvements in our
order volumes. Average Daily Orders for the second quarter of 2020 exceeded
first quarter 2020 volumes by approximately 18%.

The potential impacts and duration of the COVID-19 pandemic on the global
economy and on the Company's business, in particular, are uncertain and may be
difficult to assess or predict. The pandemic has resulted in, and may continue
to result in, significant disruption of global financial markets, which may
reduce the Company's ability to access capital and continue to operate
effectively. The COVID-19 pandemic could also reduce the demand for the
Company's services. In addition, a recession or further financial market
correction resulting from the spread of COVID-19 could adversely affect demand
for the Company's services. To the extent that the COVID-19 pandemic adversely
impacts the Company's business, results of operations, liquidity or financial
condition, it may also have the effect of heightening many of the other risks
described in the risk factors in the Company's 2019 Form 10-K. Management
continues to monitor the impact of the COVID-19 outbreak closely.

Significant Accounting Policies and Critical Estimates


The preparation of financial statements in accordance with GAAP requires us to
make estimates and assumptions that affect 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 revenues and expenses
during the reporting period, along with related disclosures. We regularly assess
these estimates and record changes to estimates in the period in which they
become known. We base our estimates on historical experience and various other
assumptions believed to be reasonable under the circumstances. Changes in the
economic environment, financial markets, and any other parameters used in
determining these estimates could cause actual results to differ from estimates.
Significant estimates and judgements relied upon in preparing these condensed
consolidated financial statements affect the following items:

• determination of the nature and timing of satisfaction of

revenue-generating performance obligations and the standalone selling price

       of performance obligations;


  • variable consideration;


  • other obligations such as product returns and refunds;


  • allowance for doubtful accounts and chargebacks;

• incurred loss estimates under our insurance policies with large deductibles

       or retention levels;


  • income taxes;


  • useful lives of tangible and intangible assets;


  • depreciation and amortization;


  • equity compensation;


  • contingencies;

    •  goodwill and other intangible assets, including the recoverability of
       intangible assets with finite lives and other long-lived assets;


  • impairments; and

• fair value of assets acquired and liabilities assumed as part of a business

combination.



Other than the changes disclosed in Part I, Item 1, Note 2 - Basis of
Presentation and Summary of Significant Accounting Policies to our unaudited
condensed consolidated financial statements in this Form 10-Q, there have been
no material changes to our significant accounting policies and estimates
described in the 2019 Form 10-K.

New Accounting Pronouncements and Pending Accounting Standards


See Part I, Item 1, Note 2 - Basis of Presentation and Summary of Significant
Accounting Policies for a description of accounting standards adopted during the
six months ended June 30, 2020. Also described in Note 2 are pending standards
and their estimated effect on our unaudited condensed consolidated financial
statements.

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We currently qualify as an "emerging growth company" pursuant to the provisions
of the JOBS Act. For as long as we are an "emerging growth company," we may take
advantage of certain exemptions from various reporting requirements that are
applicable to other public companies that are not "emerging growth companies,"
including 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 in our periodic reports and proxy statements,
reduced disclosure obligations relating to the presentation of financial
statements in Management's Discussion and Analysis of Financial Condition and
Results of Operations, exemptions from the requirements of holding advisory
"say-on-pay" votes on executive compensation and stockholder advisory votes on
golden parachute compensation. In addition, an emerging growth company can delay
its adoption of certain accounting standards until those standards would
otherwise apply to private companies. Although we have the ability to "opt out"
of this extended transition period, we are choosing not to do so. Section 107 of
the JOBS Act provides that a decision to opt out of the extended transition
period for complying with new or revised accounting standards is irrevocable.

Factors Affecting the Comparability of Our Results of Operations


Bite Squad Merger.  The Bite Squad Merger was considered a business combination
in accordance with ASC 805, and has been accounted for using the acquisition
method. Under the acquisition method of accounting, total merger consideration,
acquired assets and assumed liabilities are recorded based on their estimated
fair values on the acquisition date. The excess of the fair value of merger
consideration over the fair value of the assets less liabilities acquired has
been recorded as goodwill. The results of operations of Bite Squad are included
in our unaudited condensed consolidated financial statements beginning on the
acquisition date, January 17, 2019.

In connection with the Bite Squad Merger, we incurred direct and incremental
costs during the six months ended June 30, 2019 of approximately $6,956,
consisting of legal and professional fees, which are included in general and
administrative expenses in the unaudited condensed consolidated statement of
operations in such period. During the six months ended June 30, 2020, we have
eliminated certain duplicative costs and achieved synergies associated with the
Bite Squad Merger, however, we may not continue to achieve this result at levels
anticipated, resulting in higher general and administrative expenses in future
periods.

Changes in Fee Structure.  Since 2017, our fee structure evolved gradually from
a per transaction fee plus a percentage of the food sale amount to one based
exclusively on a percentage of the food sale amount. In early 2018, we also
established a multi-tier fee structure, allowing restaurants to elect to pay a
higher fee rate in lieu of paying a one-time set-up and integration fee.
Additionally, we initiated modifications to our fee structure in July 2019 with
a majority of restaurants on the Waitr Platform, which became effective in
August 2019, and in January 2020, with the majority of our remaining
restaurants, which became effective throughout February 2020. We continue to
review and update our rate structure, as we look to offer new and enhanced
value-adding services to our restaurant partners.

Seasonality and Holidays.  Our business tends to follow restaurant closure and
diner behavior patterns. In many of our markets, we generally experience a
relative increase in order frequency from September to March and a relative
decrease in diner activity from April to August primarily as a result of weather
patterns, summer breaks and other vacation periods. In addition, restaurants
tend to close on certain holidays, including Thanksgiving and Christmas Eve-Day,
in our key markets. Further, diner activity may be impacted by unusually cold,
rainy, or warm weather. Cold weather and rain typically drive increases in order
volume, while unusually warm or sunny weather typically drives decreases in
orders. Furthermore, snowstorms, hurricanes and tropical storms have adverse
effects on order volume. Consequently, our results between quarters, or between
periods may vary as a result of prolonged periods of unusually cold, warm,
inclement, or otherwise unexpected weather and the timing of certain holidays.

Acquisition Pipeline. We actively maintain and evaluate a pipeline of potential acquisitions and may be acquisitive in the future. Potentially significant future business acquisitions may impact the comparability of our results in future periods with those for prior periods.

Key Factors Affecting Our Performance


Efficient Market Expansion and Penetration.  Our continued revenue growth and
path to improved cash flow and profitability is dependent on successful
penetration of our markets and achieving our targeted scale in current and
future markets. Delay or failure in achieving positive market-level operating
margins (exclusive of indirect and corporate overhead costs) could adversely
affect our working capital, which in turn, could slow our growth plans.

We typically target markets that we estimate could achieve sustainable, positive
market-level operating margins that support market operating cash flows and
profits, improve efficiency, and appropriately leverage the scale of our
advertising, marketing, research and development, and other corporate resources.
Our financial condition, cash flows, and results of operations depend, in
significant part, on our ability to achieve and sustain our target profitability
thresholds in our markets.

Waitr'sRestaurant and Diner Network.  A significant part of our growth is our
ability to successfully expand our network of restaurants and diners using the
Platforms. If we fail to retain existing restaurants and diners using the
Platforms, or to add new restaurants and diners to the Platforms, our revenue,
financial results and business may be adversely affected.

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Key Business Metrics

Defined below are the key business metrics that we use to analyze our business
performance, determine financial forecasts, and help develop long-term strategic
plans:

Active Diners.  We count Active Diners as the number of diner accounts from
which an order has been placed through the Platforms during the past
twelve months (as of the end of the relevant period) and consider Active Diners
an important metric because the number of diners using our Platforms is a key
revenue driver and a valuable measure of the size of our engaged diner base.

Average Daily Orders.  We calculate Average Daily Orders as the number of orders
during the period divided by the number of days in that period. Average Daily
Orders is an important metric for us because the number of orders processed on
our Platforms is a key revenue driver and, in conjunction with the number of
Active Diners, a valuable measure of diner activity on our Platforms for a given
period.

Gross Food Sales.  We calculate Gross Food Sales as the total food and beverage
sales, sales taxes, prepaid gratuities, and diner fees processed through the
Platforms during a given period. Gross Food Sales are different than the order
value upon which we charge our fee to restaurants, which excludes gratuities and
diner fees. Prepaid gratuities, which are not included in our revenue, are
determined by diners and may differ from order to order. Gratuities other than
prepaid gratuities, such as cash tips, are not included in Gross Food Sales.
Gross Food Sales is an important metric for us because the total volume of food
sales transacted through our Platforms is a key revenue driver.

Average Order Size.  We calculate Average Order Size as Gross Food Sales for a
given period divided by the number of orders during the same period. Average
Order Size is an important metric for us because the average value of food sales
on our Platforms is a key revenue driver.



                                             Three Months Ended June 30,          Six Months Ended June 30,
Key Business Metrics (1)                        2020               2019              2020             2019
Active Diners (as of period end)                 2,109,353        2,362,290          2,109,353       2,362,290
Average Daily Orders                                44,241           55,728             40,909          54,269

Gross Food Sales (dollars in thousands) $ 175,044$ 183,042

     $      308,557$   353,445
Average Order Size (in dollars)            $         43.48      $     36.09

$ 41.44$ 35.98

(1) The key business metrics include the operations of Bite Squad beginning on

        the acquisition date, January 17, 2019.




Basis of Presentation

Revenue

We generate revenue primarily when diners place an order on one of the
Platforms. We recognize revenue from diner orders when orders are delivered. Our
revenue consists primarily of transaction fees, comprised of fees received from
restaurants (determined as a percentage of the total food sales, net of any
diner promotions or refunds to diners) and diner fees. During a portion of the
periods presented in this Form 10-Q, we also generated revenue from setup and
integration fees collected from certain restaurants to onboard them onto the
Platforms (these are recognized on a straight-line basis over the anticipated
period of benefit) and subscription fees from restaurants that opt to pay a
monthly fee in lieu of a lump sum setup and integration fee. Additionally, we
sell gift cards and recognize revenue upon gift card redemption. Revenue also
includes fees for restaurant marketing and data services.

Cost and Expenses:


Operations and Support.  Operations and support expense consists primarily of
salaries, benefits, stock-based compensation, and bonuses for employees and
contractors engaged in operations and customer service, including drivers, as
well as city/market managers, restaurant onboarding, photography, and driver
logistics personnel, and payment processing costs for customer orders.

Sales and Marketing.  Sales and marketing expense consists primarily of
salaries, commissions, benefits, stock-based compensation and bonuses for sales
and sales support personnel, including restaurant business development managers,
marketing employees and contractors, and third-party marketing expenses such as
social media and search engine marketing, online display, team sponsorships (the
costs of which are recognized on a straight line basis over the useful period of
the contract) and print marketing.

Research and Development.  Research and development expense consists primarily
of salaries, benefits, stock-based compensation and bonuses for employees and
contractors engaged in the design, development, maintenance and testing of the
Platforms.

General and Administrative. General and administrative expense consists primarily of salaries, benefits, stock-based compensation and bonuses for executive, finance and accounting, human resources and administrative employees, third-party legal,


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accounting, and other professional services, insurance (including workers' compensation, auto liability and general liability), travel, facilities rent, and other corporate overhead costs.


Depreciation and Amortization.  Depreciation and amortization expense consists
primarily of amortization of capitalized costs for software development,
trademarks and customer relationships and depreciation of leasehold
improvements, furniture, and equipment, primarily tablets deployed in
restaurants. We do not allocate depreciation and amortization expense to other
line items.

Intangible and Other Asset Impairments.  Intangible and other asset impairments
include write-downs of intangible assets and minor impairments related to the
replacement of internally developed software code.

Other Expenses (Income) and Losses (Gains), Net.  Other expenses (income) and
losses (gains), net, primarily includes interest expense on outstanding debt and
interest income on cash and money market deposits.

Results of Operations


The following table sets forth our results of operations for the periods
indicated, with line items presented in thousands of dollars and as a percentage
of our revenue:



                                             Three Months Ended June 30,                               Six Months Ended June 30,
(in thousands, except                            % of                        % of                         % of                        % of
percentages (1))                    2020        Revenue        2019         Revenue         2020         Revenue        2019         Revenue
Revenue                           $ 60,506           100 %   $  51,342           100 %    $ 104,749           100 %   $  99,374           100 %
Costs and expenses:
Operations and support              30,547            50 %      39,698            77 %       56,912            54 %      75,881            76 %
Sales and marketing                  2,740             5 %      15,339            30 %        5,566             5 %      25,662            26 %
Research and development             1,167             2 %       2,149             4 %        2,637             3 %       4,089             4 %
General and administrative          10,094            17 %      12,380            24 %       20,872            20 %      31,298            31 %
Depreciation and amortization        2,075             3 %       4,824             9 %        4,139             4 %       8,940             9 %
Intangible and other asset
impairments                             29             0 %           -             0 %           29             0 %          18             0 %
Loss on disposal of assets               3             0 %          10             0 %           11             0 %          15             0 %
Total costs and expenses            46,655            77 %      74,400           145 %       90,166            86 %     145,903           147 %
Income (loss) from operations       13,851            23 %     (23,058 )         (45 %)      14,583            14 %     (46,529 )         (47 %)
Other expenses (income) and
losses (gains), net:
Interest expense                     2,490             4 %       2,190             4 %        5,404             5 %       3,795             4 %
Interest income                        (21 )           0 %        (241 )           0 %          (81 )           0 %        (580 )          (1 %)
Other expense (income)                 712             1 %        (123 )           0 %          675             1 %        (173 )           0 %
Net income (loss) before income
taxes                               10,670            18 %     (24,884 )         (48 %)       8,585             8 %     (49,571 )         (50 %)
Income tax expense (benefit)            17             0 %         (32 )           0 %           34             0 %          30             0 %
Net income (loss)                 $ 10,653            18 %   $ (24,852 )         (48 %)   $   8,551             8 %   $ (49,601 )         (50 %)




  (1) Percentages may not foot due to rounding


Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Revenue

Revenue increased by $9,164, or 18%, to $60,506 in the three months ended June 30, 2020 from $51,342 in the three months ended June 30, 2019, primarily as a result of improved revenue per order.


Average Daily Orders and Gross Food Sales decreased in the three months ended
June 30, 2020 to 44,241 and $175,044, respectively, from 55,728 and $183,042,
respectively, in the three months ended June 30, 2019. Average Order Size
increased in the three months ended June 30, 2020 to $43.48 from $36.09 in the
three months ended June 30, 2019, an uplift of 20%.

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Operations and Support

Operations and support expense decreased by $9,151, or 23%, to $30,547 in the
three months ended June 30, 2020 from $39,698 in the three months ended June 30,
2019. As a percentage of revenue, operations and support expense decreased to
50% in the three months ended June 30, 2020 from 77% in the same period in 2019.
The decreases are primarily the result of the implementation of initiatives to
realize synergies from the Bite Squad Merger, including staff reductions and the
consolidation of operations and support functions.

Sales and Marketing


Sales and marketing expense decreased by $12,599, or 82%, to $2,740 in the three
months ended June 30, 2020 from $15,339 in the three months ended June 30, 2019,
primarily as a result of decreased advertising spend of approximately $8,699. As
a percentage of revenue, sales and marketing expense decreased to 5% in the
three months ended June 30, 2020 from 30% in the three months ended June 30,
2019, reflecting the lower advertising spend in the second quarter of 2020.

Research and Development


Research and development expense decreased by $982, or 46%, to $1,167 in the
three months ended June 30, 2020 from $2,149 in the three months ended June 30,
2019, primarily due to increased software development activities during the
second quarter of 2020, the costs for which were capitalized. As a percentage of
revenue, research and development expense was 2% and 4%, respectively, in the
three months ended June 30, 2020 and 2019.

General and Administrative


General and administrative expense decreased by $2,286, or 18%, to $10,094 in
the three months ended June 30, 2020 from $12,380 in the three months ended
June 30, 2019, primarily due to decreased stock-based compensation expenses. As
a percentage of revenue, general and administrative expense decreased to 17% in
the three months ended June 30, 2020 compared to 24% in the three months ended
June 30, 2019, primarily due to decreased stock-based compensation expenses as
well as corporate synergies associated with the Bite Squad Merger.

Depreciation and Amortization


Depreciation and amortization expense decreased by $2,749, or 57%, to $2,075 in
the three months ended June 30, 2020 compared to $4,824 in the three months
ended June 30, 2019, primarily as a result of the write-down of the carrying
value of intangible assets to their implied fair values in September 2019 in
connection with the Company's goodwill impairment analysis. As a percentage of
revenue, depreciation and amortization expense decreased to 3% in the three
months ended June 30, 2020 from 9% in the three months ended June 30, 2019.

Other Expenses (Income) and Losses (Gains), Net


Other expenses (income) and losses (gains), net totaled $3,181 in the three
months ended June 30, 2020, primarily reflecting $2,465 of interest expense
associated with the Term Loans and Notes, $712 of other expense and $21 of
interest income. Other expenses (income) and losses (gains), net, totaled $1,826
in the three months ended June 30, 2019, primarily reflecting $2,188 of interest
expense associated with the Term Loans and Notes and $241 of interest income.

Income Tax Expense

Income tax expense (benefit) was $17 and $(32) in the three months ended June 30, 2020 and 2019, respectively, entirely related to taxes required on gross margins in Texas. We have historically generated net operating losses; therefore, a valuation allowance has been recorded on our net deferred tax assets.

Net Income (Loss)


Net income for the three months ended June 30, 2020 was $10,653 compared to a
net loss for the three months ended June 30, 2019 of $24,852. See the revenue
and expense variance analyses above for the components of net income and net
loss for the respective periods.

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Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Revenue


Revenue increased by $5,375, or 5%, to $104,749 in the six months ended June 30,
2020 from $99,374 in the six months ended June 30, 2019, as a result of improved
revenue per order. The results of operations of Bite Squad are included in our
unaudited condensed consolidated financial statements beginning on the
acquisition date, January 17, 2019 (see Part I, Item 1, Note 3 - Business
Combinations).

Average Daily Orders and Gross Food Sales decreased in the six months ended
June 30, 2020 to 40,909 and $308,557, respectively, from 54,269 and $353,445,
respectively, in the six months ended June 30, 2019. Average Order Size
increased in the six months ended June 30, 2020 to $41.44 from $35.98 in the six
months ended June 30, 2019, an uplift of 15%.

Operations and Support


Operations and support expense decreased by $18,969, or 25%, to $56,912 in the
six months ended June 30, 2020 from $75,881 in the six months ended June 30,
2019. As a percentage of revenue, operations and support expense decreased to
54% in the six months ended June 30, 2020 from 76% in the same period of 2019.
The decreases are primarily the result of the implementation of initiatives to
realize synergies from the Bite Squad Merger, including staff reductions and the
consolidation of operations and support functions, as well as the closures of
approximately 60 unprofitable, non-core markets in December 2019 and January
2020.

Sales and Marketing

Sales and marketing expense decreased by $20,096, or 78%, to $5,566 in the six
months ended June 30, 2020 from $25,662 in the six months ended June 30, 2019,
primarily as a result of decreased advertising spend of approximately $13,458 as
well as staff reductions and the consolidation of sales and marketing functions
in the second half of 2019 and early 2020. As a percentage of revenue, sales and
marketing expense decreased to 5% in the six months ended June 30, 2020 from 26%
in the six months ended June 30, 2019, reflecting the lower advertising spend in
the first half of 2020.

Research and Development

Research and development expense decreased by $1,452, or 36%, to $2,637 in the
six months ended June 30, 2020 from $4,089 in the six months ended June 30,
2019, primarily due to increased software development activities during the
first half of 2020, the costs for which were capitalized. As a percentage of
revenue, research and development expense was 3% for the six months ended
June 30, 2020 and 4% for the six months ended June 30, 2019.

General and Administrative


General and administrative expense decreased by $10,426, or 33%, to $20,872 in
the six months ended June 30, 2020 from $31,298 in the six months ended June 30,
2019. General and administrative expense in the six months ended June 30, 2019
included $6,956 of business combination-related professional and other costs
associated with the Bite Squad Merger. The decrease in general and
administrative expenses during the six months ended June 30, 2020 was also due
to decreased stock-based compensation expenses. As a percentage of revenue,
general and administrative expense decreased to 20% in the six months ended
June 30, 2020 compared to 31% in the six months ended June 30, 2019, primarily
due to the above mentioned business combination expenses in the first half of
2019 as well as corporate synergies associated with the Bite Squad Merger.

Depreciation and Amortization


Depreciation and amortization expense decreased by $4,801, or 54%, to $4,139 in
the six months ended June 30, 2020 compared to $8,940 in the six months ended
June 30, 2019, primarily as a result of the write-down of the carrying value of
intangible assets to their implied fair values in September 2019 in connection
with the Company's goodwill impairment analysis. As a percentage of revenue,
depreciation and amortization expense decreased to 4% in the six months ended
June 30, 2020 from 9% in the six months ended June 30, 2019.

Other Expenses (Income) and Losses (Gains), Net


Other expenses (income) and losses (gains), net totaled $5,998 in the six months
ended June 30, 2020, primarily reflecting $5,325 of interest expense associated
with the Term Loans and Notes and $81 of interest income. Other expenses
(income) and losses (gains), net, totaled $3,042 in the six months ended
June 30, 2019, reflecting $3,782 of interest expense associated with the Term
Loans and Notes and $580 of interest income.

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Income Tax Expense

Income tax expense was $34 and $30 in the six months ended June 30, 2020 and 2019, respectively, entirely related to taxes required on gross margins in Texas. We have historically generated net operating losses; therefore, a valuation allowance has been recorded on our net deferred tax assets.

Net Income (Loss)


Net income for the six months ended June 30, 2020 was $8,551 compared to a net
loss of $49,601 in the six months ended June 30, 2019. See the revenue and
expense variance analyses above for the components of net income and net loss
for the respective periods.

Liquidity and Capital Resources

Overview


As of June 30, 2020, we had cash on hand of approximately $66,702, consisting
primarily of cash and money market deposits, and approximately $3,191 of our
cash balance was reserved under a compensating balance arrangement with our
bank, pertaining to an outstanding letter of credit. Our primary sources of
liquidity to date have been proceeds from the issuance of stock, long-term
convertible debt, term loans and the cash assumed in connection with the
business combination with Landcadia Holdings, Inc. in November 2018. We had
total outstanding long-term debt of $109,506 as of June 30, 2020, consisting of
$59,573 of Term Loans, $49,645 of Notes and $288 of promissory notes. Short-term
debt as of June 30, 2020 included the current portion of the Term Loans of
$12,500 and $2,094 of short-term loans for insurance financing.

During the second quarter of 2020, we continued implementing various
initiatives, with a focus on improving revenue per order, costs per order, cash
flow, profitability and liquidity. Additionally, on May 1, 2020, we entered into
an amendment and restatement of the open market sale agreement associated with
our original ATM Program, pursuant to which the Company could offer and sell
shares of our common stock having an aggregate offering price of $30,000 (see
Part I, Item 1, Note 12 - Stockholders' Equity). Upon entering into the May 2020
ATM Program, we terminated the prior ATM Program.

We sold a total of 11,918,322 shares of our common stock pursuant to the
original ATM Program and May 2020 ATM Program during the second quarter of 2020
for net proceeds of approximately $16,114. In July 2020, we sold an additional
7,587,655 shares of common stock pursuant to the May 2020 ATM Program for net
proceeds of approximately $24,990, resulting in the completion of the May 2020
ATM Program. As discussed below, we used a portion of the proceeds from the
at-the-market offering programs to repay debt and intend to use the remaining
proceeds for working capital and general corporate purposes, and to further
enhance our ability to resume execution of our operational and growth
initiatives.

We made payments on the Term Loans of $12,500 on July 2, 2020 pursuant to the
Waiver and Conversion Agreement and $10,500 on August 3, 2020 pursuant to an
amendment to the Credit Agreement. At the time of the payment in connection with
the amendment to the Credit Agreement, the interest rates under the Term Loans
and Notes were reduced by 200 basis points for a one-year period, and the
maturity dates of the Term Loans and Notes were extended by one year. See
"Indebtedness" below for additional details of the Waiver and Conversion
Agreement, Term Loans, Notes and promissory notes.

We currently expect that our cash on hand and estimated cash flow from
operations will be sufficient to meet our working capital needs beyond twelve
months, however, there can be no assurance that we will generate cash flow at
the levels we anticipate. We expect to continue to utilize proceeds from our
at-the-market offering programs to support our ongoing working capital
requirements. We may also use a portion of the net proceeds to repay additional
debt or to acquire or invest in businesses, products and technologies that are
complementary to our own, although we have no current commitments or agreements
with respect to any acquisitions as of the date of this filing. We continually
evaluate additional opportunities to strengthen our liquidity position, fund
growth initiatives and/or combine with other businesses by issuing equity or
equity-linked securities (in public or private offerings) and/or incurring
additional debt. However, market conditions, our future financial performance or
other factors may make it difficult or impossible for us to access sources of
capital, on favorable terms or at all, should we determine in the future to
raise additional funds.

We are continuously reviewing our liquidity and anticipated working capital needs, particularly in light of the uncertainty created by the COVID-19 pandemic. Thus far, Waitr has been able to operate effectively during the pandemic, however, the potential impacts and duration of the COVID-19 pandemic on the economy and on Waitr's business, in particular, may be difficult to assess or predict.

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Indebtedness

Limited Waiver and Conversion Agreement


On May 1, 2020, we, Waitr Inc., Intermediate Holdings, the lenders party thereto
and Luxor Capital entered into the Waiver and Conversion Agreement, pursuant to
which the lenders under the Credit Agreement agreed to waive the requirement to
prepay the Term Loans arising as a result of the May 2020 ATM Offering. In
consideration of the prepayment waiver, we agreed that, regardless of whether
any shares of our common stock were actually sold in the May 2020 ATM Offering,
(i) we would prepay a portion of the Term Loans in the amount of $12,500 on the
date that is 60 days after the Effective Date (as defined in the Waiver and
Conversion Agreement) and (ii) the lenders under the Notes would be permitted to
convert a portion of the outstanding principal amount of the Notes in the amount
of $12,500 into shares of our common stock at a conversion rate of 746.269
shares of common stock per one thousand principal amount of the Notes
(calculated based on the closing price of $1.34 per share of the Company's
common stock on Nasdaq on April 30, 2020, the date immediately preceding the
date of the Waiver and Conversion Agreement), notwithstanding the conversion
rate then in effect pursuant to the terms of the Notes. The converted shares
will be subject to a customary lock-up for a period of 45 days.

The Company evaluated the amendments in the Waiver and Conversion Agreement and
concluded that the amendments did not meet the characteristics of debt
extinguishments under ASC 470-50. Accordingly, the amendments were treated as a
debt modification, and thus, no gain or loss was recorded. See Term Loans under
the Debt Facility and Notes below for a discussion of the prepayment made on the
Term Loans and the conversion of Notes.

Term Loans under the Debt Facility


On November 15, 2018, Waitr Inc. entered into the Credit Agreement, which
provides for a senior secured first priority term loan in the aggregate
principal amount of $67,080. The quarterly interest payments due since September
30, 2019 have been paid-in-kind, resulting in an aggregate principal amount of
outstanding Term Loans at June 30, 2020 of $72,073. On July 2, 2020, the Company
repaid $12,500 of the Term Loans pursuant to the Waiver and Conversion
Agreement. Pursuant to the amendment of the Credit Agreement on July 15, 2020,
the Company repaid $10,500 of the Term Loans on August 3, 2020. On such date,
the interest rate under the Credit Agreement was reduced by 200 basis points to
5.125% for a one-year period and the maturity date was extended by one year to
November 15, 2023. The aggregate principal amount of outstanding Term Loans
totaled $49,073 at August 6, 2020. For additional details, see Part I, Item 1,
Note 7 - Debt and Note 15 - Subsequent Events, to our unaudited condensed
consolidated financial statements in this Form 10-Q. We believe that we were in
compliance with all covenants under the Credit Agreement as of June 30, 2020.

Notes


On November 15, 2018, the Company entered into the Convertible Notes Agreement,
pursuant to which the Company issued unsecured convertible promissory notes in
the aggregate principal amount of $60,000. A portion of the quarterly interest
payments due since June 30, 2019 have been paid in-kind and added to the
aggregate principal amount of the Notes. During the second quarter of 2020,
$12,359 of the Notes were converted into 9,222,978 shares of the Company's
common stock pursuant to the Waiver and Conversion Agreement. The outstanding
aggregate principal amount of the Notes at June 30, 2020 totaled $49,645.

On July 16, 2020, $141 of the Notes were converted into 105,384 shares of the
Company's common stock. Additionally, on August 3, 2020, in connection with the
$10,500 Term Loan payment discussed above, the interest rate under the
Convertible Notes Agreement was reduced by 200 basis points to 4.0% for
a one-year period and the maturity date was extended by one year to November 15,
2023. The outstanding aggregate principal amount of the Notes totaled $49,504 at
August 6, 2020. For additional details on the Notes, see Part I, Item 1, Note 7
- Debt and Note 15 - Subsequent Events, to our unaudited condensed consolidated
financial statements in this Form 10-Q. We believe that we were in compliance
with all covenants under the Convertible Notes Agreement as of June 30, 2020.

Promissory Notes


On September 27, 2019, the Company entered into an interest-free promissory note
to fund a portion of an acquisition. The principal amount of the promissory note
was initially $500, payable in 24 monthly installments, with payments expected
to begin shortly after integration of the acquired assets onto the Company's
platform. The Company recorded the promissory note at its fair value of $452 and
will impute interest over the life of the note using an interest rate of 10%,
representing the estimated effective interest rate at which the Company could
obtain financing. On February 13, 2020, the Company entered into an amendment to
the asset purchase agreement, whereby the promissory note was amended to $600,
payable in 30 monthly installments, commencing on March 1, 2020. The current
portion of the promissory note of $186 is included in other current liabilities
in the unaudited condensed consolidated balance sheet at June 30, 2020.

On October 1, 2019, the Company entered into an interest-free promissory note to
fund a portion of an additional acquisition. The principal amount of the
promissory note is $100, payable in 24 monthly installments. Payments commenced
on January 15, 2020. The

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Company recorded the promissory note at its fair value of $90 and will impute
interest over the life of the note using an interest rate of 10%, representing
the estimated effective interest rate at which the Company could obtain
financing. The current portion of the promissory note of $45 is included in
other current liabilities in the unaudited condensed consolidated balance sheet
at June 30, 2020.

Short-Term Loans

On May 16, 2020, the Company entered into a loan agreement with First Insurance
Funding to finance a portion of its annual insurance premium obligation. The
principal amount of the loan is $362, payable in ten monthly installments until
maturity on February 28, 2021. The loan carries an annual interest rate of 3.49%
and had an outstanding principal balance at June 30, 2020 of $291.

On November 15, 2019, the Company entered into a loan agreement with BankDirect
Capital Finance to finance a portion of its annual directors and officers
insurance premium obligation. The principal amount of the loan is $1,993,
payable in monthly installments, until maturity. The loan matures on August 15,
2020 and carries an annual interest rate of 4.15%. As of June 30, 2020, $449 was
outstanding under such loan.

On June 1, 2020, the Company entered into a loan agreement with IPFS Corporation
to finance a portion of its annual general liability insurance premium
obligation. The principal amount of the loan is $1,354, payable in monthly
installments beginning July 1, 2020, until maturity. The loan matures on May 31,
2021 and carries an annual interest rate of 3.99%.

Capital Expenditures


Our main capital expenditures relate to the purchase of tablets for restaurants
on the Platforms and investments in the development of the Platforms, which are
expected to increase as we continue to grow our business. Our future capital
requirements and the adequacy of available funds will depend on many factors,
including those set forth under "Risk Factors" in our 2019 Form 10-K, as such
factors may be updated in our quarterly reports on Form 10-Q. If we are unable
to obtain needed additional funds, we will have to reduce our operating costs,
which would impair our growth prospects and could otherwise negatively impact
our business.

Cash Flow

The following table sets forth our summary cash flow information for the periods
indicated:



                                                        Six Months Ended June 30,
(in thousands)                                            2020              2019

Net cash provided by (used in) operating activities $ 18,961 $

  (34,351 )
Net cash used in investing activities                       (1,963 )        (193,637 )
Net cash provided by financing activities                   20,387            91,475



Cash Flows Provided By (Used In) Operating Activities


For the six months ended June 30, 2020, net cash provided by operating
activities was $18,961, compared to net cash used in operating activities of
$34,351 for the six months ended June 30, 2019, primarily reflecting the effects
of the implementation of various initiatives aimed at improving costs and
profitability. Additionally, operating activities during the six months ended
June 30, 2019 included the payment of business combination-related expenses of
$6,956.

Cash Flows Used In Investing Activities


For the six months ended June 30, 2020 and 2019, net cash used in investing
activities was $1,963 and $193,637, respectively. Investing activities included
the purchase of property and equipment of $381 and $990 for the six months ended
June 30, 2020 and 2019, respectively, and costs associated with internally
developed software of $1,335 and $155 for the six months ended June 30, 2020 and
2019, respectively. During the six months ended June 30, 2019, investing
activities also included of $192,568 for the acquisition of Bite Squad.

Property and equipment is comprised primarily of computer tablets for
restaurants on the Platforms. The tablets remain our property. We control
software applications and updates on the tablets, and the tablets are devoted
exclusively to the Platforms. We also periodically purchase office furniture,
equipment, computers and software and leasehold improvements.

Cash Flows Provided by Financing Activities


For the six months ended June 30, 2020, net cash provided by financing
activities was $20,387, primarily reflecting $22,944 of proceeds from the sales
of common stock under the company's at-the-market offering programs, $1,906 of
proceeds from short-term

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loans and $3,415 of payments on short-term loans. For the six months ended
June 30, 2019, net cash provided by financing activities was $91,475, primarily
reflecting gross proceeds from the issuance of common stock of $50,002, proceeds
from the issuance of the Additional Term Loans of $42,080 and $5,032 of proceeds
from a short-term loan for the Company's annual insurance premium financing,
less $4,175 of equity issuance costs and $658 of payments on short-term loans.

Contractual Obligations and Other Commitments

During the six months ended June 30, 2020, the Company's outstanding debt obligations were reduced by approximately $12,359 in connection with the conversion of Notes pursuant to the Waiver and Conversion Agreement. Additionally, in July 2020, the Company paid $12,500 of the Term Loans and converted $141 of the Notes in connection with the Waiver and Conversion Agreement. On August 3, 2020, the Company paid $10,500 of the Term Loans pursuant to the Amended Loan Agreements, resulting in a reduction of the interest rates under the Term Loans and Notes by 200 basis points for a one-year period, to 5.125% and 4.0%, respectively, and the extension of the maturity dates under such Loan Agreements by one year to November 15, 2023.

As of the date of the filing of this Form 10-Q, other than the aforementioned Term Loan payments, Notes conversions and interest rate and maturity date revisions, there have been no significant changes to the Company's total contractual obligations disclosed in the 2019 Form 10-K.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2020.

© Edgar Online, source Glimpses


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