UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020.
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-38134
Blue Apron Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
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81‑4777373 |
(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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28 Liberty Street, New York, New York |
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10005 |
(Address of Principal Executive Offices) |
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(Zip Code) |
Registrant’s telephone number, including area code (347) 719‑4312
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class |
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Trading Symbol |
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Name of Exchange on Which Registered |
Class A Common Stock, $0.0001 par value per share |
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APRN |
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New York Stock Exchange LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer ☐ |
Accelerated filer ☒ |
Smaller reporting company ☒ |
Emerging growth company ☒ |
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Non-accelerated filer ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each class of the issuer’s common stock as of the latest practicable date.
Class |
Number of Shares Outstanding |
|||
Class A Common Stock, $0.0001 par value |
9,727,283 shares outstanding as of March 31, 2020 |
|||
Class B Common Stock, $0.0001 par value |
3,654,248 shares outstanding as of March 31, 2020 |
|||
Class C Capital Stock, $0.0001 par value |
0 shares outstanding as of March 31, 2020 |
BLUE APRON HOLDINGS, INC.
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4 |
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4 |
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5 |
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6 |
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7 |
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8 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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22 |
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37 |
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37 |
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39 |
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41 |
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74 |
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74 |
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74 |
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74 |
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75 |
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76 |
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1
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans, and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:
· |
our expectations regarding our expenses and revenue, our ability to maintain and grow adjusted EBITDA and to achieve profitability, the sufficiency of our cash resources, our needs for additional financing, our ability to effectively manage expenses and cash flows, and our ability to remain in compliance with financial and other covenants under our indebtedness; |
· |
our ability, including the timing and extent, to obtain additional financing and sufficiently manage costs and to fund investments in our operations in amounts necessary to support the execution of our growth strategy; |
· |
our ability, including the timing and extent, to successfully execute our growth strategy, cost-effectively attract new customers and retain existing customers, and to expand our direct-to-consumer product offerings; |
· |
our ability to sustain the recent increase in demand resulting from the COVID-19 (coronavirus) pandemic and to retain new customers; |
· |
our ability to identify, consummate and realize the anticipated benefits of strategic alternatives and the structure, terms and specific risks and uncertainties associated with any such potential strategic alternatives; |
· |
our expectations regarding the benefits and expected costs and charges associated with our plan to close our Arlington, Texas fulfillment center, together with any potential disruption to our workforce and operations associated with such closure and related transfer of production volume to our Linden, New Jersey and Richmond, California fulfillment centers; |
· |
our ability to maintain and grow the value of our brand and reputation; |
2
· |
our expectations regarding, and the stability of, our supply chain, including potential shortages or interruptions in the supply or delivery of ingredients, as a result of COVID-19 or otherwise; |
· |
our ability to maintain food safety and prevent food-borne illness incidents; |
· |
changes in consumer tastes and preferences or in consumer spending; |
· |
our ability to effectively compete; |
· |
our ability to attract and retain qualified employees and key personnel; |
· |
our ability to comply with modified or new laws and regulations applying to our business; |
· |
our vulnerability to adverse weather conditions, natural disasters and pandemics; and |
· |
our ability to obtain and maintain intellectual property protection. |
While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.
3
BLUE APRON HOLDINGS, INC.
(In thousands, except share and per-share data)
(Unaudited)
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March 31, |
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December 31, |
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2020 |
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2019 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
29,505 |
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$ |
43,531 |
Accounts receivable, net |
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209 |
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248 |
Inventories, net |
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24,712 |
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25,106 |
Prepaid expenses and other current assets |
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13,644 |
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8,864 |
Total current assets |
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68,070 |
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77,749 |
Property and equipment, net |
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138,314 |
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181,806 |
Other noncurrent assets |
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4,868 |
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6,510 |
TOTAL ASSETS |
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$ |
211,252 |
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$ |
266,065 |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
26,539 |
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$ |
23,972 |
Accrued expenses and other current liabilities |
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25,743 |
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30,366 |
Deferred revenue |
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7,814 |
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6,120 |
Total current liabilities |
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60,096 |
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60,458 |
Long-term debt |
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53,646 |
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53,464 |
Facility financing obligation |
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35,976 |
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71,689 |
Other noncurrent liabilities |
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10,873 |
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12,455 |
TOTAL LIABILITIES |
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160,591 |
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198,066 |
Commitments and contingencies (Note 9) |
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STOCKHOLDERS’ EQUITY (DEFICIT): |
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Class A common stock, par value of $0.0001 per share — 1,500,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 9,727,283 and 7,799,093 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively |
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1 |
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1 |
Class B common stock, par value of $0.0001 per share — 175,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 3,654,248 and 5,464,196 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively |
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1 |
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1 |
Class C common stock, par value of $0.0001 per share — 500,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 0 shares issued and outstanding as of March 31, 2020 and December 31, 2019 |
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— |
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— |
Additional paid-in capital |
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602,783 |
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599,976 |
Accumulated deficit |
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(552,124) |
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(531,979) |
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) |
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50,661 |
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67,999 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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$ |
211,252 |
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$ |
266,065 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
4
BLUE APRON HOLDINGS, INC.
Consolidated Statements of Operations
(In thousands, except share and per-share data)
(Unaudited)
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Three Months Ended |
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March 31, |
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2020 |
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2019 |
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Net revenue |
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$ |
101,857 |
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$ |
141,890 |
Operating expenses: |
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Cost of goods sold, excluding depreciation and amortization |
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60,638 |
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82,704 |
Marketing |
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15,032 |
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14,234 |
Product, technology, general and administrative |
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34,217 |
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39,148 |
Depreciation and amortization |
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6,753 |
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8,604 |
Other operating expense |
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3,198 |
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230 |
Total operating expenses |
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119,838 |
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144,920 |
Income (loss) from operations |
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(17,981) |
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(3,030) |
Interest income (expense), net |
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(2,155) |
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(2,232) |
Income (loss) before income taxes |
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(20,136) |
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(5,262) |
Benefit (provision) for income taxes |
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(9) |
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(13) |
Net income (loss) |
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$ |
(20,145) |
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$ |
(5,275) |
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Net income (loss) per share attributable to Class A, Class B, and Class C common stockholders*: |
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Basic |
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$ |
(1.51) |
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$ |
(0.41) |
Diluted |
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$ |
(1.51) |
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$ |
(0.41) |
Weighted-average shares used to compute net income (loss) per share attributable to Class A, Class B, and Class C common stockholders*: |
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Basic |
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13,305,805 |
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12,979,900 |
Diluted |
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13,305,805 |
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12,979,900 |
* Reflects the 1-for-15 reverse stock split that became effective on June 14, 2019.
The accompanying notes are an integral part of these Consolidated Financial Statements.
5
BLUE APRON HOLDINGS, INC.
Consolidated Statement of Stockholders’ Equity (Deficit)
(In thousands, except share data)
(Unaudited)
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Class A |
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Class B |
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Class C |
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Additional |
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Total |
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Common Stock * |
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Common Stock * |
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Common Stock * |
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Paid-In |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity (Deficit) |
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2020 |
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Balance — December 31, 2019 |
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7,799,093 |
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$ |
1 |
|
5,464,196 |
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$ |
1 |
|
— |
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$ |
— |
|
$ |
599,976 |
|
$ |
(531,979) |
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$ |
67,999 |
Conversion from Class B to Class A common stock |
|
1,835,947 |
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0 |
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(1,835,947) |
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0 |
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— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Issuance of common stock upon exercise of stock options and vesting of restricted stock |
|
92,243 |
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0 |
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25,999 |
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0 |
|
— |
|
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— |
|
|
486 |
|
|
— |
|
|
486 |
Share-based compensation |
|
— |
|
|
— |
|
— |
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— |
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— |
|
|
— |
|
|
2,321 |
|
|
— |
|
|
2,321 |
Net income (loss) |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(20,145) |
|
|
(20,145) |
Balance — March 31, 2020 |
|
9,727,283 |
|
$ |
1 |
|
3,654,248 |
|
$ |
1 |
|
— |
|
$ |
— |
|
$ |
602,783 |
|
$ |
(552,124) |
|
$ |
50,661 |
|
|
|
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|
|
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|
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|
|
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|
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2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Balance — December 31, 2018 |
|
5,240,073 |
|
$ |
1 |
|
7,714,036 |
|
$ |
1 |
|
— |
|
$ |
— |
|
$ |
590,538 |
|
$ |
(471,238) |
|
$ |
119,302 |
Conversion from Class B to Class A common stock |
|
1,104,091 |
|
|
0 |
|
(1,104,091) |
|
|
(0) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Issuance of common stock upon exercise of stock options and vesting of restricted stock |
|
23,911 |
|
|
0 |
|
27,444 |
|
|
0 |
|
— |
|
|
— |
|
|
103 |
|
|
— |
|
|
103 |
Share-based compensation |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
2,974 |
|
|
— |
|
|
2,974 |
Impact of adoption of accounting standard update |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
340 |
|
|
340 |
Net income (loss) |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(5,275) |
|
|
(5,275) |
Balance — March 31, 2019 |
|
6,368,075 |
|
$ |
1 |
|
6,637,389 |
|
$ |
1 |
|
— |
|
$ |
— |
|
$ |
593,615 |
|
$ |
(476,173) |
|
$ |
117,444 |
* Reflects the 1-for-15 reverse stock split that became effective on June 14, 2019.
The accompanying notes are an integral part of these Consolidated Financial Statements.
6
BLUE APRON HOLDINGS, INC.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Three Months Ended |
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March 31, |
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||||
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2020 |
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2019 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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|
|
|
|
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Net income (loss) |
$ |
(20,145) |
|
$ |
(5,275) |
|
Adjustments to reconcile net income (loss) to net cash from (used in) operating activities: |
|
|
|
|
|
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Depreciation and amortization of property and equipment |
|
6,753 |
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|
8,604 |
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Loss (gain) on disposal of property and equipment |
|
— |
|
|
110 |
|
Loss (gain) on build-to-suit accounting derecognition |
|
(4,936) |
|
|
— |
|
Loss on impairment |
|
7,448 |
|
|
— |
|
Changes in reserves and allowances |
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(425) |
|
|
(671) |
|
Share-based compensation |
|
2,240 |
|
|
2,835 |
|
Non-cash interest expense |
|
182 |
|
|
125 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
39 |
|
|
153 |
|
Inventories |
|
767 |
|
|
1,216 |
|
Prepaid expenses and other current assets |
|
(2,992) |
|
|
3,341 |
|
Accounts payable |
|
2,533 |
|
|
279 |
|
Accrued expenses and other current liabilities |
|
(5,964) |
|
|
(1,319) |
|
Deferred revenue |
|
1,694 |
|
|
(1,727) |
|
Other noncurrent assets and liabilities |
|
202 |
|
|
(2,533) |
|
Net cash from (used in) operating activities |
|
(12,604) |
|
|
5,138 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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|
|
|
|
|
Purchases of property and equipment |
|
(1,611) |
|
|
(1,734) |
|
Proceeds from sale of property and equipment |
|
59 |
|
|
67 |
|
Net cash from (used in) investing activities |
|
(1,552) |
|
|
(1,667) |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
Payments of debt issuance costs |
|
— |
|
|
(7) |
|
Proceeds from exercise of stock options |
|
486 |
|
|
102 |
|
Principal payments on capital lease obligations |
|
(77) |
|
|
(66) |
|
Net cash from (used in) financing activities |
|
409 |
|
|
29 |
|
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH |
|
(13,747) |
|
|
3,500 |
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CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period |
|
46,443 |
|
|
97,307 |
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period |
$ |
32,696 |
|
$ |
100,807 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
Cash paid for income taxes, net of refunds |
$ |
— |
|
$ |
— |
|
Cash paid for interest |
$ |
2,088 |
|
$ |
2,174 |
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION: |
|
|
|
|
|
|
Acquisition (disposal) of property and equipment financed under capital lease obligations |
$ |
22 |
|
$ |
— |
|
Non-cash additions to property and equipment |
$ |
81 |
|
$ |
138 |
|
Purchases of property and equipment in Accounts payable and Accrued expenses and other current liabilities |
$ |
354 |
|
$ |
250 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
7
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Description of Business
When used in these notes, Blue Apron Holdings, Inc. and its subsidiaries are collectively referred to as the “Company.”
The Company creates original recipes, which are sent along with fresh, high-quality, seasonally inspired ingredients, directly to customers for them to prepare, cook, and enjoy. The Company creates meal experiences around original recipes every week based on what’s in-season with farming partners and other suppliers. Customers can choose which recipes they would like to receive in a given week, and the Company delivers those recipes to their doorsteps along with the pre-portioned ingredients required to cook those recipes.
In addition to meals, the Company sells wine through Blue Apron Wine, a direct-to-consumer wine delivery service launched in September 2015. The Company also sells a curated selection of cooking tools, utensils, pantry items, and add-on products for different culinary occasions through Blue Apron Market, an e-commerce market launched in November 2014.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The unaudited interim Consolidated Financial Statements have been prepared on the same basis as the audited Consolidated Financial Statements, and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2020 and December 31, 2019, results of operations for the three months ended March 31, 2020 and 2019, and cash flows for the three months ended March 31, 2020 and 2019. These unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 18, 2020 (the “Annual Report”). There have been no material changes in the Company's significant accounting policies from those that were disclosed in Note 2, Summary of Significant Accounting Policies, included in the Annual Report.
The accompanying Consolidated Financial Statements include the accounts of Blue Apron Holdings, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company prepares its Consolidated Financial Statements and related disclosures in conformity with accounting principles generally accepted in the United States (“GAAP”).
Liquidity and Going Concern Evaluation
As of March 31, 2020, the Company had Cash and cash equivalents of $29.5 million and Long-term debt of $53.6 million, net of unamortized debt issuance costs. Long-term debt includes a fully-drawn revolving credit facility, entered into by the Company in August 2016 under a revolving credit and guaranty agreement (the “revolving credit facility”) that was subsequently amended, most recently, in October 2019. As of March 31, 2020, the Company had $54.7 million in outstanding borrowings and $0.3 million in issued letters of credit under the revolving credit facility. The remaining borrowing capacity on the revolving credit facility is $0.0 million.
The revolving credit facility contains certain restrictive covenants, financial covenants, and affirmative and financial reporting covenants restricting the Company and the Company’s subsidiaries’ activities. Financial covenants include a requirement to maintain a minimum aggregate liquidity balance of $20.0 million as of each quarter end and $10.0 million at any liquidity test date other than at quarter end, and in the event the Company has positive consolidated
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total net debt, maintain minimum quarterly consolidated adjusted EBITDA in excess of certain specified thresholds as defined in the revolving credit and guaranty agreement. Non-compliance with the covenants would result in an event of default upon which the lenders could declare all outstanding principal and interest to be due and payable immediately, terminate their commitments to loan money and foreclose against the assets securing the borrowings. As of March 31, 2020 and December 31, 2019, the Company was in compliance with all of the covenants under the revolving credit facility. See Note 9 for further discussion on the revolving credit facility.
The Company has experienced significant net losses since inception including $20.1 million and $5.3 million for the three months ended March 31, 2020 and 2019, respectively, and operating cash flows of $(12.6) million and $5.1 million for the three months ended March 31, 2020 and 2019, respectively. The Company has also made investments in capital expenditures to support its business including $1.6 million and $1.7 million for the three months ended March 31, 2020 and 2019, respectively. While trends in net loss and operating cash flows have improved over time since inception, and the Company has reduced spending on capital expenditures, it has continued to experience reductions in its Cash and cash equivalents, including a reduction to $29.5 million at March 31, 2020 from $43.5 million at December 31, 2019. In addition, the Company has continued to see significant negative trends in its Net revenue including year-over-year declines of 28% and 28% for the three months ended March 31, 2020 and 2019, respectively.
The Company is currently pursuing a strategy to drive customer and revenue growth, and its Board of Directors is evaluating a range of strategic alternatives to maximize shareholder value, which together with cost optimization initiatives, is being undertaken to provide additional liquidity to support the execution of its growth strategy and continued investments in its business. The Company’s ability, including the timing and extent, to successfully execute its growth strategy is inherently uncertain and is dependent on its ability to raise capital, and to implement the initiatives and deliver the results as forecasted, among other factors. Due to this uncertainty, if the Company is unable to sufficiently deliver results from its strategy and/or effectively manage expenses and cash flows, the Company may not be able to maintain compliance with its financial covenants in future periods resulting in an event of default under its revolving credit facility. Given the Company’s liquidity position, upon an event of default, if the Company were unable to obtain a waiver or successfully renegotiate the terms of its revolving credit facility with its lenders, and the lenders enforced one or more of their rights upon default, the Company would be unable to meet its current obligations.
However, if the Company is unable to sufficiently implement its growth strategy, it believes it has plans to effectively manage expenses and cash flows in order to maintain compliance with its debt covenants. This includes significant expense reductions in areas identified by the Company in product, technology, general and administrative costs, marketing expenses, and capital expenditures. A significant portion of the Company’s costs is discretionary in nature and, if needed, the Company has the ability to reduce or delay spending in order to reduce expenses and cash outflows. While reductions in spending, particularly marketing and capital expenditures, will negatively impact net revenue and the Company’s ability to execute its growth strategy, the Company plans to execute such reductions to the extent needed to comply with debt covenants and to achieve savings to reinvest in the business.
For example, in February 2020, the Company announced the planned closure of its Arlington, Texas fulfillment center and the consolidation of production volume from its Arlington, Texas fulfillment center into its Linden, New Jersey and Richmond, California fulfillment centers, which is expected to generate annual savings beginning in the second quarter of 2020 of approximately $8.0 million.
The Company has also previously demonstrated an ability to implement various cost reduction initiatives. For example, in January 2019, the Company implemented a downsizing and transfer of a substantial portion of the production volume from its Arlington, Texas fulfillment center to its Linden, New Jersey fulfillment center to further optimize fulfillment center efficiencies. In November 2018 and October 2017, the Company implemented workforce reductions to generate savings in Product, technology, general, and administrative expenses and Cost of goods sold, excluding depreciation and amortization. As a result of these actions, along with other cost optimization initiatives, the Company’s Product, technology, general, and administrative expenses reduced by approximately 13% or $4.9 million and 21% or $10.3 million, respectively, for the three months ended March 31, 2020 and 2019. In addition, while the Company reaccelerated its marketing efforts in the three months ended March 31, 2020, it has significantly reduced its Marketing expense over the past 12 months. While Marketing expense decreased 47% over the past 12 months, Net
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revenue decreased by 32% for the same period. The Company also reduced its year-over-year spending on capital expenditures over the past 12 months by 56% or $6.6 million.
Based on the current facts and circumstances, the Company’s financial planning process and its historical ability to implement cost reductions, the Company believes it is probable it can effectively manage expenses and cash flows in order to maintain compliance with the financial covenants under its revolving credit facility for at least the next 12 months. As a result, the Company has concluded, that after consideration of management’s plans, it has sufficient liquidity to meet its obligations within one year after the issuance date of the Consolidated Financial Statements, and it does not have substantial doubt about its ability to continue as a going concern.
Use of Estimates
In preparing its Consolidated Financial Statements in accordance with GAAP, the Company is required to make estimates and assumptions that affect the amounts of assets, liabilities, revenue, costs, and expenses, and disclosure of contingent assets and liabilities which are reported in the Consolidated Financial Statements and accompanying disclosures. The accounting estimates that require the most difficult and subjective judgments include revenue recognition, inventory valuation, leases, recoverability of long-lived assets, and the recognition and measurement of contingencies. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from the Company’s estimates and assumptions.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS” Act), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” The Company may take advantage of these exemptions until the Company is no longer an “emerging growth company.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, its financial statements may not be comparable to companies that comply with public company effective dates. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of its initial public offering (the “IPO”) on July 5, 2017, or such earlier time that it is no longer an emerging growth company. The Company would cease to be an emerging growth company if it has more than $1.07 billion in annual revenue, has more than $700.0 million in market value of its stock held by non-affiliates (and it has been a public company for at least 12 months, and has filed one annual report on Form 10-K), or it issues more than $1.0 billion of non-convertible debt securities over a three-year period.
Smaller Reporting Company Status
The Company is a “smaller reporting company,” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, and therefore qualifies for the SEC's reduced disclosure requirements for smaller reporting companies.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued its final standard on lease accounting, Accounting Standards Update No. 2016-02, Leases (Topic 842), which supersedes Topic 840, Leases. The new accounting standard requires the recognition of right-of-use assets and lease liabilities for all long-term leases, inclu