WARBY PARKER INC. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 filed with theSecurities and Exchange Commission ("SEC") onMarch 18, 2022 (the "Annual Report"). Data as of and for the three and six months endedJune 30, 2022 and 2021 has been derived from our unaudited condensed consolidated financial statements. Results for any interim period should not be construed as an inference of what our results would be for any full fiscal year or future period. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, such as those relating to our plans, objectives, expectations, intentions, and beliefs, which involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Special Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q and in Part I, Item 1A, Risk Factors, in the Annual Report.
Overview
A pioneer of the direct-to-consumer model,
Since day one, our focus on delighting customers and doing good has created a foundation for continuous innovation:
•We aim to provide customers with the highest-quality product possible by designing glasses at our headquarters inNew York City , using custom materials, and selling direct to the customer. By cutting out the middleman, we are able to sell our products at a lower price than many of our competitors and pass the savings on to our customers. In addition to lower prices, we introduced simple, unified pricing (glasses starting at$95 , including prescription lenses) to the eyewear market. •We've built a seamless shopping experience that meets customers where and how they want to shop, whether that's on our website, on our mobile app, or in our more than 170 retail stores. •We've crafted a holistic vision care offering that extends beyond glasses to include contacts, vision tests and eye exams, vision insurance, and beyond. We leverage leading (and in many cases proprietary) technology to enhance our customers' experiences, whether it's to help them find a better-fitting frame using our Virtual Try-On tool, or to update their prescription from home using Virtual Vision Test, our telehealth app. •We recruit and retain highly engaged, motivated team members who are driven by our commitment to scaling a large, growing business while making an impact and are excited to connect their daily work back to our mission. •We are a public benefit corporation focused on positively impacting all stakeholders, and hope to inspire other entrepreneurs and businesses to think along the same lines. Working closely with our nonprofit partners, we distribute glasses to people in need in more than 50 countries globally and many parts ofthe United States . Over 10 million more people now have the glasses they need to learn, work, and achieve better economic outcomes through our Buy a Pair, Give a Pair program. We generate revenue through selling our wide array of prescription and non-prescription eyewear, including glasses, sunglasses, and contact lenses. We also generate revenue from providing eye exams and vision tests, and selling eyewear accessories. We maintain data across the entire customer journey that allows us to develop deep insights, informing our innovation priorities and enabling us to create a highly personalized, brand-enhancing experience for our customers. We have built an integrated, multichannel presence that we believe deepens our relationship with existing customers while broadening reach and accessibility. And while we have the ability to track where our customers transact, we're channel agnostic to where the transaction takes place and find that many of our customers engage with us across both digital and physical channels; for example, many customers who check out online also visit a store throughout their customer journey, while others choose to browse online before visiting one of our stores. 22
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Financial Highlights For the three months endedJune 30, 2022 andJune 30, 2021 : •we generated net revenue of$149.6 million and$131.6 million , respectively; •we generated gross profit of$86.3 million and$78.1 million , respectively, representing a gross profit margin of 57.7% and 59.3%, respectively; •we generated net loss of$32.2 million and$10.3 million , respectively; and •we generated adjusted EBITDA of$5.9 million and$10.8 million , respectively.
For the six months ended
•we generated net revenue of$302.8 million and$270.5 million , respectively; •we generated gross profit of$176.0 million and$161.8 million , respectively, representing a gross profit margin of 58.1% and 59.8%, respectively; •we generated net loss of$66.3 million and$7.3 million , respectively; and •we generated adjusted EBITDA of$6.7 million and$20.1 million , respectively. For a definition of adjusted EBITDA, a non-GAAP measure, and a reconciliation to the most directly comparable GAAP measure, see the section titled "Key Business Metrics and Certain Non-GAAP Financial Measures." Direct Listing OnSeptember 29, 2021 , we completed a direct listing of our Class A common stock (the "Direct Listing") on theNew York Stock Exchange ("NYSE"). We incurred fees related to financial advisory services, audit, and legal expenses in connection with the Direct Listing of$4.1 million and$4.4 million for the three and six months endedJune 30, 2021 , respectively, which are recorded in selling, general, and administrative expenses. Impact of COVID-19 The health and safety of our customers and employees remains our top priority, and to that end we will continue to monitor developments related to the COVID-19 pandemic and adjust policies and operations as needed. We have developed procedures to enable us to responsibly and efficiently open or close locations and adjust operations as needed. We have onboarded and continue to onboard new suppliers, as well as enhance inventory planning and monitoring capabilities. We have experienced minimal supply chain disruptions through the first half of 2022 and we expect the actions we have taken will help to mitigate supply chain disruptions in future quarters, although the future trajectory of the COVID-19 pandemic is still unknown. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, operations, and financial condition will depend on future developments that are highly uncertain. Given the uncertainty, we cannot estimate the financial impact of the pandemic on our future results of operations, cash flows, or financial condition. For additional details, refer to the risks described in our Annual Report, including those described in Part I, Item 1A. "Risk Factors." Key Business Metrics and Certain Non-GAAP Financial Measures In addition to the measures presented in our condensed consolidated financial statements, we use the following key business metrics and certain non-GAAP financial measures to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions. The following table summarizes our key performance indicators and non-GAAP financial measures for each period presented below, which are unaudited. Three Months EndedJune 30 ,
Six Months Ended
2022 2021 2022 2021
Active Customers (in millions) 2.26 2.08 2.26 2.08
Store Count(1) 178 145 178 145
Adjusted EBITDA(2) (in thousands) $ 5,936 $ 10,810 $ 6,710 $ 20,075
Adjusted EBITDA margin(2) 4.0 % 8.2 % 2.2 % 7.4 %
__________________
(1)Store Count number at the end of the period indicated.
(2)Adjusted EBITDA and adjusted EBITDA margin are supplemental measures of our
performance that are not required by, or presented in accordance with, GAAP.
Adjusted EBITDA and adjusted EBITDA margin are not measurements of our financial
performance under GAAP and should not be considered as an alternative to net
loss or any other performance measure derived in accordance with GAAP.
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Active Customers The number of Active Customers is a key performance measure that we use to assess the reach of our physical retail stores and digital platform as well as our brand awareness. We define an Active Customer as a unique customer that has made at least one purchase in the preceding 12-month period. We determine our number of Active Customers by counting the total number of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period. Given our definition of a customer is a unique customer that has made at least one purchase, it can include either an individual person or a household of more than one person utilizing a single account. Store Count Store Count is a key performance measure that we use to reach consumers and generate incremental demand for our products. We define Store Count as the total number of retail stores open at the end of a given period. We believe our retail stores embody our brand, drive brand awareness, and serve as efficient customer acquisition vehicles. Our results of operations have been and will continue to be affected by the timing and number of retail stores that we operate.
As of
Adjusted EBITDA and Adjusted EBITDA Margin We define adjusted EBITDA as net income (loss) before interest and other income, taxes, and depreciation and amortization as further adjusted for stock-based compensation expense and related employer payroll taxes, non-cash charitable donations, and non-recurring costs such as direct listing or other transaction costs. We define adjusted EBITDA margin as adjusted EBITDA divided by net revenue. We caution investors that amounts presented in accordance with our definitions of adjusted EBITDA and adjusted EBITDA margin may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate adjusted EBITDA and adjusted EBITDA margin in the same manner. We present adjusted EBITDA and adjusted EBITDA margin because we consider these metrics to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors' understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.
Management uses adjusted EBITDA and adjusted EBITDA margin:
•as a measurement of operating performance because they assist us in evaluating
the operating performance of our business on a consistent basis, as they remove
the impact of items not directly resulting from our core operations;
•for planning purposes, including the preparation of our internal annual
operating budget and financial projections;
•to evaluate the performance and effectiveness of our operational strategies;
and
•to evaluate our capacity to expand our business.
By providing these non-GAAP financial measures, together with a reconciliation
to the most directly comparable GAAP measure, we believe we are enhancing
investors' understanding of our business and our results of operations, as well
as assisting investors in evaluating how well we are executing our strategic
initiatives. Adjusted EBITDA and adjusted EBITDA margin have limitations as
analytical tools, and should not be considered in isolation, or as an
alternative to, or a substitute for net loss or other financial statement data
presented in our condensed consolidated financial statements as indicators of
financial performance. Some of the limitations are:
•such measures do not reflect our cash expenditures, or future requirements for
capital expenditures, or contractual commitments;
•such measures do not reflect changes in, or cash requirements for, our working
capital needs;
•such measures do not reflect the interest expense, or the cash requirements
necessary to service interest or principal payments on our debt;
•such measures do not reflect our tax expense or the cash requirements to pay
our taxes;
•although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future and such
measures do not reflect any cash requirements for such replacements; and
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•other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.
Due to these limitations, adjusted EBITDA and adjusted EBITDA margin should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally. Each of the adjustments and other adjustments described in this paragraph and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.
The following table reconciles adjusted EBITDA and adjusted EBITDA margin to the most directly comparable GAAP measure, which is net loss:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Net loss $ (32,166) $ (10,307) $ (66,299) $ (7,295)
Adjusted to exclude the following:
Interest and other income, net 38 440 (108) 306
Provision for income taxes 47 1,059 586 1,202
Depreciation and amortization expense 7,880 5,118 15,017 9,823
Stock-based compensation expense(1) 26,867 10,409 54,244 11,670
Non-cash charitable donation(2) 3,270 - 3,270 -
Transaction costs(3) - 4,091 - 4,369
Adjusted EBITDA 5,936 10,810 6,710 20,075
Adjusted EBITDA margin 4.0 % 8.2 % 2.2 % 7.4 %
__________________
(1) Represents expenses related to the Company's equity-based compensation
programs and related employer payroll taxes, which may vary significantly from
period to period depending upon various factors including the timing, number,
and the valuation of awards granted, vesting of awards including the
satisfaction of performance conditions, and the impact of repurchases of awards
from employees. For the three and six months ended June 30, 2022 , the amount
includes $0.1 million and $0.3 million , respectively, of employer payroll costs
associated with releases of RSUs and option exercises.
(2) Represents charitable expense recorded in connection with the donation of
178,572 shares of Class A common stock to the Warby Parker Impact Foundation in
May 2022 .
(3) Represents (i) costs directly attributable to the preparation for our
Direct Listing and (ii) expenses incurred in connection with the cash tender
offer completed in June 2021 .
Factors Affecting Our Financial Condition and Results of Operations
We believe that our performance and future success depend on a variety of
factors that present significant opportunities for our business but also present
risks and challenges that could adversely impact our growth and profitability.
There have been no material changes to such factors from those described in the
Annual Report under the heading "Factors Affecting Our Financial Condition and
Results of Operations." Those factors also pose risks and challenges, including
those discussed in Part I, Item 1A. "Risk Factors" of the Annual Report.
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Results of Operations
The results of operations presented below should be reviewed in conjunction with
the condensed consolidated financial statements and notes included elsewhere in
this Quarterly Report on Form 10-Q. The following tables set forth our results
of operations for the periods presented in dollars and as a percentage of net
revenue:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Condensed Consolidated Statements of
Operations Data:
Net revenue $ 149,624 $ 131,560 $ 302,842 $ 270,533
Cost of goods sold 63,277 53,507 126,849 108,699
Gross profit 86,347 78,053 175,993 161,834
Selling, general, and administrative 118,428 86,861 241,814 167,621
expenses
Loss from operations (32,081) (8,808) (65,821) (5,787)
Interest and other income, net (38) (440) 108 (306)
Loss before income taxes (32,119) (9,248) (65,713) (6,093)
Provision for income taxes 47 1,059 586 1,202
Net loss (32,166) (10,307) (66,299) (7,295)
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
% of Net Revenue % of Net Revenue
Condensed Consolidated Statements of
Operations Data:
Net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 42.3 % 40.7 % 41.9 % 40.2 %
Gross profit 57.7 % 59.3 % 58.1 % 59.8 %
Selling, general, and administrative 79.2 % 66.0 % 79.8 % 62.0 %
expenses
Loss from operations (21.5) % (6.7) % (21.7) % (2.2) % Interest and other income, net - % (0.3) % - % (0.1) % Loss before income taxes (21.5) % (7.0) % (21.7) % (2.3) % Provision for income taxes - % 0.8 % 0.2 % 0.4 % Net loss (21.5) % (7.8) % (21.9) % (2.7) %
Components of Results of Operations
Net Revenue
We primarily derive revenue from the sales of eyewear products, optical
services, and accessories. We sell products and services through our retail
stores, website, and mobile apps. Revenue generated from eyewear products
includes the sales of prescription and non-prescription optical glasses and
sunglasses, contact lenses, eyewear accessories, and expedited shipping charges,
which are charged to the customer, associated with these purchases. Revenue is
recognized when the customer takes possession of the product, either at the
point of delivery or in-store pickup, and is recorded net of returns and
discounts. Revenue generated from services consists of both in-person eye exams
in cases where we directly employ the optometrist, and prescriptions issued
through the Virtual Vision Test app. Revenue is recognized when the service is
rendered and is recorded net of discounts.
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Cost of Goods Sold Cost of goods sold includes the costs incurred to acquire materials, assemble, and sell our finished products. Such costs include (i) product costs held at the lesser of cost and net realizable value, (ii) freight and import costs, (iii) optical laboratory costs, (iv) customer shipping, (v) occupancy and depreciation costs of retail stores, and (vi) employee-related costs associated with our prescription services and optical laboratories, which includes salaries, benefits, bonuses, and stock-based compensation. We expect our cost of goods sold to fluctuate as a percentage of net revenue primarily due to product mix, customer preferences and resulting demand, customer shipping costs, and management of our inventory and merchandise mix. Cost of goods sold also may change as we open or close retail stores because of the resulting change in related occupancy and depreciation costs. Over time we expect our cost of goods sold to increase with revenue due to an increased number of orders and with the opening of new retail stores driven by the resulting occupancy and depreciation costs and employee-related costs associated with prescription services offerings at our retail stores. Gross Profit and Gross Margin We define gross profit as net revenues less cost of goods sold. Gross margin is gross profit expressed as a percentage of net revenues. Our gross margin has remained steady historically, but may fluctuate in the future based on a number of factors, including the cost at which we can obtain, transport, and assemble our inventory, the rate at which we open new retail stores, and how effective we can be at controlling costs, in any given period. Selling, General, and Administrative Expenses Selling, general, and administrative expenses, or SG&A, primarily consist of employee-related costs including salaries, benefits, bonuses, and stock-based compensation for our corporate and retail employees, marketing, information technology, credit card processing fees, donations in connection with our Buy a Pair, Give a Pair program, facilities, legal, and other administrative costs associated with operating the business. Marketing costs, which consist of both online and offline advertising, include sponsored search, online advertising, marketing and retail events, and other initiatives. SG&A also includes administrative costs associated with our Home Try-On program, which provides customers the opportunity to sample eyewear at home prior to purchase. SG&A is expensed in the period in which it is incurred. During the second half of 2022 we implemented a headcount reduction in our corporate offices and anticipate executing on certain other cost control actions, including reducing marketing spend and other variable costs. We expect these actions to reduce costs included in SG&A, however, the changing prices of goods and services caused by inflation and other macroeconomic factors may cause unforeseen fluctuations in SG&A expenses. Interest and Other Income, Net Interest and other income, net, consists primarily of interest generated from our cash and cash equivalents balances net of interest incurred on borrowings and fees on our undrawn line of credit, and are recognized as incurred. We expect our interest and other income costs to fluctuate based on our future bank balances, credit line utilization, and the interest rate environment. Provision for Income Taxes Provision for income taxes consists of income taxes related to foreign and domestic federal and state jurisdictions in which we conduct business, adjusted for allowable credits, deductions, and valuation allowance against deferred tax assets.
Comparison of the Three Months Ended
Net Revenue
Three Months Ended June 30,
2022 2021 $ Change % Change
(in thousands)
Net revenue $ 149,624 $ 131,560 $ 18,064 13.7 %
Net revenue increased $18.1 million , or 13.7%, for the three months ended
June 30, 2022 compared to the same period in 2021. The growth in net revenue was
driven by an increase in orders from our larger Active Customer base, as well as
an increase in Average Order Value ("AOV"), which is defined as net revenue for
a given period divided by the number of orders during the same period. The
increase in AOV was driven primarily by a higher mix of purchases of
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glasses with progressive lenses which increased our average price per unit sold, while our average units per order remained stable year-over-year.
Cost of Goods Sold, Gross Profit, and Gross Margin
Three Months Ended June 30,
2022 2021 $ Change % Change
(in thousands)
Cost of goods sold $ 63,277 $ 53,507 $ 9,770 18.3 %
Gross profit 86,347 78,053 8,294 10.6 %
Gross margin 57.7 % 59.3 % (1.6) %
Cost of goods sold increased by $9.8 million , or 18.3%, for the three months
ended June 30, 2022 compared to the same period in 2021, and increased as a
percentage of revenue over the same period by 160 basis points, from 40.7% of
revenue to 42.3% of revenue. The increase in cost of goods sold was primarily
driven by increased product and fulfillment costs associated with the growth in
our contact lens offering, as well as an increase in store occupancy, store
depreciation, and prescription services expenses due to new retail stores opened
in 2022 and a full period of expense from new retail stores opened throughout
2021.
Gross profit, calculated as net revenue less cost of goods sold, increased by
$8.3 million , or 10.6%, for the three months ended June 30, 2022 compared to the
same period in 2021, primarily due to the increase in net revenue over the same
period.
Gross margin, expressed as a percentage and calculated as gross profit divided
by net revenue, decreased by 160 basis points for the three months ended
June 30, 2022 compared to the same period in 2021. The decrease in gross margin
was primarily a result of the sales growth of contact lenses which are sold at a
lower margin than our other eyewear, increases in store occupancy costs as a
percent of revenue primarily due to increased depreciation and rent charges as
we grew our store base from 145 stores as of June 30, 2021 to 178 stores as of
June 30, 2022 , and increased prescription services costs as the number of stores
with optical examination rooms grew. These impacts were partially offset by the
growth in sales of higher margin progressive lenses and leverage from the
scaling of our in-house optical laboratory network, including our Las Vegas
laboratory which opened in the fourth quarter of 2021.
Selling, General, and Administrative Expenses
Three Months Ended June 30,
2022 2021 $ Change % Change
(in thousands)
Selling, general, and administrative
expenses $ 118,428 $ 86,861 $ 31,567 36.3 %
As a percentage of net revenue 79.2 % 66.0 % 13.2 %
Selling, general, and administrative expenses increased $31.6 million , or 36.3%,
for the three months ended June 30, 2022 compared to the same period in 2021.
This increase was primarily driven by a $16.2 million increase in stock-based
compensation and related payroll taxes, an increase in charitable expenses for
the donation of stock to the Warby Parker Impact Foundation , higher compensation
costs, mainly from growth in our retail workforce, increased costs related to
operating as a public company, and increased technology costs to support
business growth. These increases were partially offset by a reduction in
professional services costs related to our Direct Listing in 2021 that were not
recurring in 2022 and reduced costs for our Home Try-On program from decreased
utilization as the COVID-19 pandemic has progressed and customers have returned
to stores in larger numbers. The stock-based compensation charges incurred in
the three months ended June 30, 2022 primarily related to RSU and PSU awards for
which the performance based vesting condition was satisfied by our Direct
Listing.
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Interest and Other Income, Net
Three Months Ended June 30,
2022 2021 $ Change % Change
(in thousands)
Interest and other income, net $ (38) $ (440) $ 402 (91.4) %
As a percentage of net revenue - % (0.3) % 0.3 %
Interest and other income, net increased $0.4 million , or 91.4%, for the three
months ended June 30, 2022 compared to the same period in 2021 primarily due to
the impact of fair value adjustments to outstanding warrants that were exercised
in 2021 that was not repeated in 2022.
Provision for Income Taxes
Three Months Ended June 30,
2022 2021 $ Change % Change
(in thousands)
Provision for income taxes $ 47 $ 1,059 $ (1,012) (95.6) %
As a percentage of net revenue - % 0.8 % (0.8) %
Provision for income taxes decreased
Comparison of the Six Months Ended
Net Revenue
Six Months Ended June 30,
2022 2021 $ Change % Change
(in thousands)
Net revenue $ 302,842 $ 270,533 $ 32,309 11.9 %
Net revenue increased $32.3 million , or 11.9%, for the six months ended June 30,
2022 compared to the same period in 2021. The growth in net revenue was driven
by an increase in orders from our larger Active Customer base, as well as an
increase in AOV. The increase in AOV was driven primarily by a higher mix of
purchases of glasses with progressive lenses which increased our average price
per unit sold, while our average units per order remained stable year-over-year.
Cost of Goods Sold, Gross Profit, and Gross Margin
Six Months Ended June 30,
2022 2021 $ Change % Change
(in thousands)
Cost of goods sold $ 126,849 $ 108,699 $ 18,150 16.7 %
Gross profit 175,993 161,834 14,159 8.7 %
Gross margin 58.1 % 59.8 % (1.7) %
Cost of goods sold increased by $18.2 million , or 16.7%, for the six months
ended June 30, 2022 compared to the same period in 2021, and increased as a
percentage of revenue over the same period by 170 basis points, from 40.2% of
revenue to 41.9% of revenue. The increase in cost of goods sold was primarily
driven by increased product and fulfillment costs associated with the growth in
our contact lens offering, as well as an increase in store occupancy, store
depreciation, and prescription services expenses due to new retail stores opened
in 2022 and a full period of expense from new retail stores opened throughout
2021.
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Gross profit, calculated as net revenue less cost of goods sold, increased by$14.2 million , or 8.7%, for the six months endedJune 30, 2022 compared to the same period in 2021, primarily due to the increase in net revenue over the same period. Gross margin, expressed as a percentage and calculated as gross profit divided by net revenue, decreased by 170 basis points for the six months endedJune 30, 2022 compared to the same period in 2021. The decrease in gross margin was primarily a result of the sales growth of contact lenses which are sold at a lower margin than our other eyewear, increases in store occupancy costs as a percent of revenue primarily due to increased depreciation and rent charges as we grew our store base from 145 stores as ofJune 30, 2021 to 178 stores as ofJune 30, 2022 , and increased prescription services costs as the number of stores with optical examination rooms grew. These impacts were partially offset by the growth in sales of higher margin progressive lenses and leverage from the scaling of our in-house optical laboratory network, including ourLas Vegas laboratory which opened in the fourth quarter of 2021.
Selling, General, and Administrative Expenses
Six Months Ended June 30,
2022 2021 $ Change % Change
(in thousands)
Selling, general, and administrative
expenses $ 241,814 $ 167,621 $ 74,193 44.3 %
As a percentage of net revenue 79.8 % 62.0 % 17.8 %
Selling, general, and administrative expenses increased $74.2 million , or 44.3%,
for the six months ended June 30, 2022 compared to the same period in 2021. This
increase was primarily driven by a $42.1 million increase in stock-based
compensation and related payroll taxes, higher compensation costs, mainly from
growth in our retail workforce, an increase in charitable expenses for the
donation of stock to the Warby Parker Impact Foundation , increased insurance
costs related to operating as a public company, increased technology costs to
support business growth, and increased marketing costs in the first quarter of
2022. These increases were partially offset by reduced costs for our Home Try-On
program from decreased utilization as the COVID-19 pandemic has progressed and
customers have returned to stores in larger numbers. The stock-based
compensation charges incurred in the six months ended June 30, 2022 primarily
related to RSU and PSU awards for which the performance based vesting condition
was satisfied by our Direct Listing.
Interest and Other Income, Net
Six Months Ended June 30,
2022 2021 $ Change % Change
(in thousands)
Interest and other income, net $ 108 $ (306) $ 414 (135.3) %
As a percentage of net revenue - % (0.1) % 0.1 %
Interest and other income, net increased $0.4 million , or 135.3%, for the six
months ended June 30, 2022 compared to the same period in 2021 primarily due to
the impact of fair value adjustments to outstanding warrants that were exercised
in 2021 that was not repeated in 2022, partially offset by lower interest income
due to lower cash balances.
Provision for Income Taxes
Six Months Ended June 30,
2022 2021 $ Change % Change
(in thousands)
Provision for income taxes $ 586 $ 1,202 $ (616) (51.2) %
As a percentage of net revenue 0.2 % 0.4 % (0.2) %
Provision for income taxes decreased $0.6 million , or 51.2%, for the six months
ended June 30, 2022 compared to the same period in 2021 primarily due to the
change in pre-tax loss in addition to the tax effects of stock-based
compensation expense.
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Seasonality
Historically, our business has not experienced material seasonal fluctuations in net revenue. We do observe moderately higher seasonal demand during the month of December due in part to customer usage of health and flexible spending benefits in the final week of the year. Consistent with our policy to recognize revenue upon order delivery, any orders placed at the end of December are recognized as revenue upon delivery, which may occur in the following year, and as such we typically see revenue decrease sequentially from the first quarter to the second quarter. Our business has historically experienced a higher proportion of costs in each subsequent quarter as a year progresses due to the overall growth of the business and operating costs to support that growth, including costs related to the opening of new retail stores and employee-related compensation to support growth. The fourth quarter, in particular, has historically experienced the highest amount of costs in a year to support the business demand in the quarter, even though a portion of the net revenue from that demand is not recognized until January of the following year (see above for more details). In the future, seasonal trends may cause fluctuations in our quarterly results, which may impact the predictability of our business and operating results. Liquidity and Capital Resources Since inception, we have financed our operations primarily from net proceeds from the sale of redeemable convertible preferred stock and cash flows from operating activities. As ofJune 30, 2022 , we had cash and cash equivalents of$211.6 million , which was primarily held for working capital purposes, and an accumulated deficit of$559.5 million . As ofDecember 31, 2021 , we had cash and cash equivalents of$256.4 million , which was primarily held for working capital purposes, and an accumulated deficit of$493.2 million . We expect that operating losses could continue in the foreseeable future as we continue to invest in the expansion of our business. We believe our existing cash and cash equivalents, funds available under our existing credit facility, and cash flows from operating activities will be sufficient to fund our operations for at least the next 12 months. However, our future capital requirements will depend on many factors, including, but not limited to, growth in the number of retail stores, the needs of our optical laboratories and distribution network, expansion of our product offerings or service capabilities, and the timing of investments in technology and personnel to support the overall growth in our business. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. In the event that additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all. In particular, the recent COVID-19 pandemic, rising interest and inflation rates, and other macroeconomic factors have caused disruption in the global financial markets, which could reduce our ability to access capital and negatively affect our liquidity in the future. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, financial condition, and cash flows would be adversely affected. Credit Facility InAugust 2013 , we entered into the Loan and Security Agreement withComerica Bank , or the Credit Facility, as amended, that consists of a revolving credit line of up to$50.0 million . The revolving credit line has a sub-limit of up to$15.0 million for the issuance of letters of credit. Borrowings under the revolving credit line bear interest on the principal amount outstanding at a variable interest rate based on either LIBOR or the bank's prime rate (as defined in the credit agreement), with no additional margin. We are charged fees on the uncommitted portion of the credit line of approximately 0.2% as long as total borrowings remain less than$15.0 million . Other than letters of credit outstanding of$4.1 million and$4.0 million as ofJune 30, 2022 andDecember 31, 2021 , respectively, used to secure certain leases in lieu of a cash security deposit, there were no other borrowings outstanding under the Credit Facility. 31
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Cash Flows The following table summarizes our cash flows for the six months endedJune 30, 2022 and 2021: Six Months Ended June 30, 2022 2021 (in thousands) Net cash used in operating activities$ (14,624) $ (5,095) Net cash used in investing activities (31,869) (21,215) Net cash provided by (used in) financing activities 1,982 (27,235) Effect of exchange rates on cash (302) 132 Net decrease in cash and cash equivalents $
(44,813)
Cash Flows from Operating Activities Net cash used in operating activities was$14.6 million for the six months endedJune 30, 2022 , consisting of a net loss of$66.3 million adjusted for$72.2 million of non-cash expenses and$20.5 million of net cash used as a result of changes in operating assets and liabilities. The non-cash charges included$53.9 million of stock-based compensation,$15.0 million of depreciation and amortization, and$3.3 million of non-cash charitable contributions. The changes in operating assets and liabilities were primarily driven by an increase in net inventory to support the growth of our business and an increase in other non-current assets related to investments in the implementation of our new enterprise resource planning system and other technology infrastructure, and decreases in accrued expenses and deferred revenue, partially offset by an increase in net lease liabilities in connection with new retail location leases entered into in 2022. Net cash used in operating activities was$5.1 million for the six months endedJune 30, 2021 , consisting of a net loss of$7.3 million , adjusted for$21.5 million of non-cash expenses and$19.3 million of net cash used as a result of changes in operating assets and liabilities. The non-cash charges included$11.7 million of stock-based compensation and$9.8 million of depreciation and amortization. The changes in operating assets and liabilities were primarily driven by decreases in deferred revenue, accounts payable and accrued expenses, and an increase in net inventory to support the growth of our business, partially offset by an increase in deferred rent. Cash Flows from Investing Activities For the six months endedJune 30, 2022 , net cash used in investing activities was$31.9 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in capitalized software development costs. For the six months endedJune 30, 2021 , net cash used in investing activities was$21.2 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in our supply chain infrastructure and capitalized software development costs. Cash Flows from Financing Activities For the six months endedJune 30, 2022 , net cash provided by financing activities was$2.0 million , which was primarily related to proceeds from shares issued in connection with our ESPP and stock option exercises. For the six months endedJune 30, 2021 , net cash used in financing activities was$27.2 million , which was primarily related to repurchases of stock during the period, including shares repurchased in connection with the cash tender offer completed in 2021. Contractual Obligations and Commitments There have been no material changes to our contractual obligations from those described in the Annual Report. Critical Accounting Policies and Estimates Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, 32
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revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. Our critical accounting policies are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in the Annual Report and the notes to the audited consolidated financial statements appearing elsewhere in the Annual Report, and in Note 2 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q. Except for the adoption of new accounting pronouncements as described in Note 2 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q, there were no significant changes to our critical accounting policies as reported in the Annual Report. Recent Accounting Pronouncements See Note 2 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for more information regarding recent accounting pronouncements. JOBS Act We currently qualify as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Accordingly, we are provided the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We have elected to adopt new or revised accounting guidance within the same time period as private companies, unless management determines it is preferable to take advantage of early adoption provisions offered within the applicable guidance. Our utilization of these transition periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act. Based on our public float as ofJune 30, 2022 , we will qualify as a "large accelerated filer" as ofDecember 31, 2022 , at which point we will no longer qualify as an emerging growth company. As a result, commencingJanuary 1, 2023 , we will be subject to certain requirements that apply to other public companies but did not previously apply to us due to our status as an emerging growth company, such as the auditor attestation requirements under Section 404 of the Sarbanes Oxley Act of 2002, as amended. Compliance with these enhanced disclosure requirements will increase our costs and could negatively affect our results of operations and financial condition. 33
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