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Blue Apron Holdings, Inc. (APRN) SEC Filing 10-Q Quarterly report for the period ending Tuesday, March 31, 2020

SEC Filings

APRN Quarterly Reports

Blue Apron Holdings, Inc.

CIK: 1701114 Ticker: APRN

 

Exhibit 99.1

 

Blue Apron Holdings, Inc. Reports First Quarter 2020 Results

 

Key Highlights:

·

Delivered net loss and adjusted EBITDA for the first quarter of 2020 in line with previously provided guidance range. Net loss for the first quarter of 2020 was $20.1 million and adjusted EBITDA was a loss of $5.8 million.

·

Net revenue increased 8% and customers increased 7% sequentially from the fourth quarter of 2019 primarily as a result of reaccelerated marketing efforts.

·

Improved certain key customer metrics including average revenue per customer and orders per customer, with year-over-year increases of 5% and 4% respectively, representing the fifth consecutive quarter of year-over-year improvements in both metrics.

·

Subsequent to the first quarter Blue Apron has seen significant increase in demand following the various stay at-home  and restaurant restriction orders and other restrictions on consumers that have been enacted throughout much of the country in response to the COVID-19 pandemic.

New York, NY – April 29, 2020 – Blue Apron Holdings, Inc. (NYSE: APRN) announced today financial results for the quarter ended March 31, 2020.

 

“As planned, we have started to deliver on the first stage of our growth strategy with sequential quarter-over-quarter growth in both net revenue and customers, along with continued strength in certain other key customer metrics, which we saw even prior to the impact of COVID-19,” said Linda Findley Kozlowski, Blue Apron Chief Executive Officer. “As we move into the second quarter of 2020, we are focused on driving customer retention and establishing longer-term consumer habits out of the heightened demand we have been seeing as a result of the impact of COVID-19, including stay-at-home and restaurant restriction orders and other changes. Given this, we expect that this uptick in demand can be maintained beyond the period of direct impact of COVID-19, even as restrictions begin to be lifted.  

 

“Our growth strategy is also helping us to address the more recent changes in our business related to the COVID-19 pandemic.  Since late March, we have seen increased demand from existing, returning and new customers in response to the COVID-19 pandemic, and we are proud of our team’s quick actions taken across the business to address this increased demand, particularly after the initial spike in demand where we were unable to fully meet the increased order volume. As more customers invite us into their homes, we believe the appreciation they have for the quality meal experience we deliver is helping to grow our connection to them and we look forward to having them continue to cook with us. I am grateful to all our employees for their commitment and efforts in providing consumers access to our high-quality meal kits made from delicious ingredients during these unprecedented times.”

 

Effect of COVID-19 Pandemic on Blue Apron’s Business

 

Beginning late in the first quarter of 2020, Blue Apron has experienced a significant increase in demand for its meal kits primarily as a result of changes to consumer behavior following the implementation of stay-at-home and restaurant restriction orders throughout much of the United States in response to the COVID-19 pandemic. In order to meet the increased demand, the company is taking action to increase capacity at its fulfillment centers, including hiring new employees and temporarily reducing variety in menu options, which limits the need to change production lines and allows for more time to pack meal kits. At the same time, the company has

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taken a variety of safety measures following federal, state, and local guidelines at its fulfillment centers. These safety measures include enhanced daily cleaning and disinfection policies, enhanced personal sanitation efforts and implementing social distancing throughout the fulfillment centers. To date, while the company has held production at times in order to implement some of its enhanced safety measures, Blue Apron has not experienced significant disruptions in its operations of its fulfillment centers,  and has not experienced any significant disruptions in its supply chain or any carrier interruptions or delays.

 

The COVID-19 pandemic did not have a material impact on the company’s consolidated financial statements for the three months ended March 31, 2020.  The company's leadership is monitoring the continuing impact of the COVID-19 pandemic on its business and the global economy, including impacts on consumer behavior relating to cooking at home, and the company believes there will be an ongoing positive impact on demand for its meals, although the duration and extent of this demand increase is unknown.

 

First Quarter 2020 Financial Results

·

Net revenue decreased 28% year-over-year to $101.9 million in the first quarter of 2020, compared to the first quarter of 2019, reflecting the company’s deliberate reduction in marketing spend in prior periods while focusing on marketing efficiency and targeting high affinity consumers. Sequentially, net revenue increased 8% quarter-over-quarter largely reflecting the company’s reaccelerated marketing efforts in the first quarter of 2020 as well as seasonal trends in the business.

·

Cost of goods sold, excluding depreciation and amortization (COGS), as a percentage of net revenue increased 120 basis points year-over-year from 58.3% to 59.5% primarily driven by increases in shipping costs due to rate increases from shipping carriers and increases in fulfillment packaging and labor costs, partially offset by a decrease in food costs as a result of improved planning and process-driven strategies. COGS improved by 150 basis points as a percentage of net revenue quarter-over-quarter largely reflecting the expected seasonal trends in the business.

·

Marketing expense was $15.0 million, or 14.8% as a percentage of net revenue, in the first quarter of 2020, compared to $14.2 million, or 10.0% as a percentage of net revenue, in the first quarter of 2019 as the company reaccelerated its marketing efforts, including increased focus on brand awareness.

·

Product,  technology, general, and administrative (PTG&A) costs decreased 13% year-over-year from $39.1 million in the first quarter of 2019 to $34.2 million in the first quarter of 2020, reflecting the company’s continued focus on expense management and optimization of its cost structure.

·

Other operating expense was $3.2 million in the first quarter of 2020, representing $8.1 million in charges related to the planned Arlington facility closure announced in February 2020, including a $7.4 million non-cash impairment charge on long-lived assets, $0.6 million of employee-related expenses and $0.1 million of other exit costs, partially offset by a $4.9 million non-cash gain, net of a $1.5 million termination fee, on a lease termination in March 2020 related to the company’s unoccupied Fairfield facility. Other operating expense for the first quarter of 2019 was $0.2 million, representing employee-related expenses associated with the Arlington facility restructuring announced in January 2019.

·

Net loss was $20.1 million, and diluted loss per share was $1.51, in the first quarter of 2020 based on 13.3 million weighted average common shares outstanding, compared to a net loss of $5.3 million, and diluted loss per share of $0.41, in the first quarter of 2019 based on 13.0 million weighted average common shares outstanding. Sequentially, net loss decreased $1.7 million quarter-over-quarter from a net loss of $21.9 million in the fourth quarter of 2019. All periods presented have been adjusted to reflect the company’s one-for-fifteen reverse stock split that became effective on June 14, 2019.

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·

Adjusted EBITDA decreased 167% year-over-year to a loss of $5.8 million in the first quarter of 2020, compared to a profit of $8.6 million in the first quarter of 2019. Sequentially, adjusted EBITDA loss improved by $2.5 million quarter-over-quarter from a loss of $8.3 million in the fourth quarter of 2019.

 

Key Customer Metrics

·

Key customer metrics included in the chart below reflect the company’s deliberate marketing investments while executing on strategic priorities, as well as trends of the business and seasonality.

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended,

 

    

March  31,

    

December  31,

     

March  31,

 

 

2020

 

2019

 

2019

Orders (in thousands)

 

 

1,763

 

 

1,622

 

 

2,482

Customers (in thousands)

 

 

376

 

 

351

 

 

550

Average Order Value

 

$

57.68

 

$

58.14

 

$

57.15

Orders per Customer

 

 

4.7

 

 

4.6

 

 

4.5

Average Revenue per Customer

 

$

271

 

$

269

 

$

258

 

For a description of how Blue Apron defines and uses these key customer metrics, please see “Use of Key Customer Metrics” below.

 

Liquidity and Capital Resources

·

Cash and cash equivalents was $29.5 million as of March 31, 2020.

·

Cash used in operating activities totaled $12.6 million for the first quarter of 2020 compared to cash from operating activities of $5.1 million in the first quarter of the prior year as a result of increased net losses.

·

Capital expenditures totaled $1.6 million for the first quarter of 2020. This represents a decrease of $0.1 million in capital expenditures from the first quarter of 2019.

·

Free cash flow totaled cash used of $14.2 million for the first quarter of 2020 compared to free cash flow generated of $3.4 million in the first quarter of the prior year driven by a decrease in operating cash flow, partially offset by reduced capital expenditures.

·

As the company announced in February, its Board of Directors continues to evaluate a broad range of strategic alternatives to maximize shareholder value, including to support the execution of the company’s growth strategy.

 

Second Quarter 2020 Outlook

Based on second quarter trends to date, Blue Apron today provided an outlook for certain second quarter 2020 financial metrics, which are based on certain assumptions regarding the company’s business, trends, seasonal factors and, in particular, the impact of COVID-19 and the response of various government authorities. The below guidance is based on certain assumptions regarding the continued impact of COVID-19 on the company’s business, including as a result of changes in consumer behavior and grocery alternatives, and the magnitude and timing of the impact on the company’s business when the effects of COVID-19 and related restrictions begin to ease. Further, the following guidance assumes that the company will not experience any significant disruptions in its fulfillment operations or supply chain as a result of the COVID-19 pandemic.

For the second quarter, the company expects net revenue will grow year over year in the high single digits on a percentage basis to approximately $130.0 million. Notwithstanding substantial investments in its front-line

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fulfillment center team as volume ramps up, the company expects to deliver a net loss of no more than $6.0 million, positive adjusted EBITDA of at least $5.0 million and positive operating cash flow of at least $10.0 million.

Conference Call and Webcast

Blue Apron will hold a conference call and webcast today at 8:30 a.m., Eastern Time to discuss its first quarter 2020 results and business outlook. The conference call can be accessed by dialing (877) 883-0383 or (412) 902-6506, utilizing the conference ID 3644668.  Alternatively, participants may access the live webcast on Blue Apron’s Investor Relations website at investors.blueapron.com.

A recording of the webcast will also be available on Blue Apron’s Investor Relations website at investors.blueapron.com following the conference call. Additionally, a replay of the conference call can be accessed until Wednesday, May 6, 2020 by dialing (877) 344-7529 or (412) 317-0088, utilizing the conference ID 10142448.

 

About Blue Apron

Blue Apron’s mission is to make incredible home cooking accessible to everyone. Launched in 2012, Blue Apron is reimagining the way that food is produced, distributed, and consumed, and as a result, building a better food system that benefits consumers, food producers, and the planet.  Blue Apron has developed an integrated ecosystem that enables the company to work in a direct, coordinated manner with farmers and artisans to deliver high-quality products to customers nationwide at compelling values.

 

Forward-Looking Statements

This press release includes statements concerning Blue Apron Holdings, Inc. and its future expectations, plans and prospects that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be 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. Blue Apron has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its business, financial condition and results of operations. These forward-looking statements speak only as of the date of this press release and are subject to a number of risks, uncertainties and assumptions including, without limitation, the company achieving its expectations with regards to its expenses and revenue, its ability to maintain and grow adjusted EBITDA and to achieve profitability, the sufficiency of the company’s cash resources, the company’s need for additional financing, its ability to effectively manage expenses and cash flows, and its ability to remain in compliance with the financial and other covenants under the company’s revolving credit facility; its ability, including the timing and extent, to obtain additional financing and sufficiently manage costs and to fund investments in operations in amounts necessary to support the execution of the company’s growth strategy; its ability, including the timing and extent, to successfully execute the company’s growth strategy, cost-effectively attract new customers and retain existing customers, and to expand its direct-to-consumer product offerings; its ability to sustain the recent increase in demand resulting from the COVID-19 pandemic and to retain new customers; its ability to withstand the impact of the COVID-19 pandemic on the company’s operations and results, including as a result of the loss of adequate labor, any prolonged closures, or series of temporary closures, of one or more fulfillment centers, supply chain or carrier interruptions or delays, or changes in consumer behaviors, both when stay-at-home and restaurant restriction orders are lifted and/or as a result of the COVID-19 pandemic’s impact on financial markets and economic conditions; its 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;

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achieving its expectations regarding the benefits and expected costs and charges associated with the company’s plan to close its Arlington, Texas fulfillment center, together with any potential disruption to its workforce and operations associated with such closure and related transfer of production volume to its Linden, New Jersey and Richmond, California fulfillment centers; its ability to maintain and grow the value of the company’s brand and reputation; its expectations regarding, and the stability of, its supply chain, including potential shortages or interruptions in the supply or delivery of ingredients, as a result of COVID-19 or otherwise; its ability to maintain food safety and prevent food-borne illness incidents; its ability to accommodate changes in consumer tastes and preferences or in consumer spending; its ability to effectively compete; its ability to attract and retain qualified employees and key personnel; its ability to comply with modified or new laws and regulations applying to its business; risks resulting from its vulnerability to adverse weather conditions, natural disasters and public health crises, including pandemics; its ability to obtain and maintain intellectual property protection; and other risks more fully described in the company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”) on February 18, 2020,  the company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 to be filed with the SEC, and in other filings that the company may make with the SEC in the future. The company assumes no obligation to update any forward-looking statements contained in this press release as a result of new information, future events or otherwise.

 

Use of Non-GAAP Financial Information

This press release includes non-GAAP financial measures, adjusted EBITDA and free cash flow, that are not prepared in accordance with, nor an alternative to, financial measures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In addition, these non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly-titled measures presented by other companies.

 

The company defines adjusted EBITDA as net earnings (loss) before interest income (expense), net, other operating expense, other income (expense), net, benefit (provision) for income taxes and depreciation and amortization, adjusted to eliminate share-based compensation expense. The company presents adjusted EBITDA because it is a key measure used by the company’s management and board of directors to understand and evaluate the company’s operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the company believes that the exclusion of certain items in calculating adjusted EBITDA can produce a useful measure for period-to-period comparisons of the company’s business.  Further, Blue Apron uses adjusted EBITDA to evaluate its operating performance and trends and make planning decisions, and it believes that adjusted EBITDA helps identify underlying trends in its business that could otherwise be masked by the effect of the items that the company excludes. Accordingly, Blue Apron believes that adjusted EBITDA provides useful information to investors and others in understanding and evaluating its operating results, enhancing the overall understanding of the company’s past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by its management in its financial and operational decision-making.

 

There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the most directly comparable GAAP equivalent. Some of these limitations are:

 

·

adjusted EBITDA excludes share-based compensation expense, as share-based compensation expense has recently been, and will continue to be for the foreseeable future, a significant recurring expense for the company’s business and an important part of its compensation strategy;

·

adjusted EBITDA excludes depreciation and amortization expense and, although these are non-cash expenses, the assets being depreciated may have to be replaced in the future;

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·

adjusted EBITDA excludes other operating expense, as other operating expense represents non-cash impairment charges on long-lived assets, a non-cash gain, net of termination fee, on lease termination, and restructuring costs;

·

adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest, which reduces cash available to us;

·

adjusted EBITDA does not reflect income tax payments that reduce cash available to us; and

·

other companies, including companies in the company’s industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

 

The company defines free cash flow as net cash from (used in) operating activities less purchases of property and equipment. The company presents free cash flow because it is used by the company’s management and board of directors as an indicator of the amount of cash the company generates or uses and to evaluate the company’s ability to satisfy current and future obligations and to fund future business opportunities. Accordingly, Blue Apron believes that free cash flow provides useful information to investors and others in understanding and evaluating its operating results, enhancing the overall understanding of the company’s ability to satisfy its financial obligations and pursue business opportunities, and allowing for greater transparency with respect to a key financial metric used by its management in its financial and operational decision making.

 

There are a number of limitations related to the use of free cash flow rather than net cash from (used in) operating activities, which is the most directly comparable GAAP equivalent.  Some of these limitations are:

 

·

free cash flow is not a measure of cash available for discretionary expenditures since the company has certain non-discretionary obligations such as debt repayments or capital lease obligations that are not deducted from the measure; and

·

other companies, including companies in the company’s industry, may calculate free cash flow differently, which reduces its usefulness as a comparative measure.

 

Because of these limitations, adjusted EBITDA and free cash flow should be considered together with other financial information presented in accordance with GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable measures calculated in accordance with GAAP is set forth below under the heading “Reconciliation of Non-GAAP Financial Measures”.

 

Use of Key Customer Metrics

 

This press release includes various key customer metrics that we use to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions. You should read these metrics in conjunction with our financial statements. We define and determine our key customer metrics as follows: 

 

Orders

We define Orders as the number of paid orders by our Customers across our meal, wine and market products sold on our e-commerce platforms in any reporting period, inclusive of orders that may have eventually been refunded or credited to customers.

 

Customers

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We determine our number of Customers by counting the total number of individual customers who have paid for at least one Order from Blue Apron across our meal, wine or market products sold on our e-commerce platforms in a given reporting period. 

 

Average Order Value

We define Average Order Value as our net revenue from our meal, wine and market products sold on our e-commerce platforms in a given reporting period divided by the number of Orders in that period. 

 

Orders per Customer

We define Orders per Customer as the number of Orders in a given reporting period divided by the number of Customers in that period. 

 

Average Revenue per Customer

We define Average Revenue per Customer as our net revenue from our meal, wine and market products sold on our e-commerce platforms in a given reporting period divided by the number of Customers in that period.

 

 

Media Contact

press@blueapron.com

 

Investor Contact

investor.relations@blueapron.com 

aprn@jcir.com

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BLUE APRON HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

    

March  31,

    

December 31, 

 

 

2020 

 

2019

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,505

 

$

43,531

Accounts receivable, net

 

 

209

 

 

248

Inventories, net

 

 

24,712

 

 

25,106

Prepaid expenses and other current assets

 

 

13,644

 

 

8,864

Total current assets

 

 

68,070

 

 

77,749

Property and equipment, net

 

 

138,314

 

 

181,806

Other noncurrent assets

 

 

4,868

 

 

6,510

TOTAL ASSETS

 

$

211,252

 

$

266,065

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Accounts payable

 

$

26,539

 

$

23,972

Accrued expenses and other current liabilities

 

 

25,743

 

 

30,366

Deferred revenue

 

 

7,814

 

 

6,120

Total current liabilities

 

 

60,096

 

 

60,458

Long-term debt

 

 

53,646

 

 

53,464

Facility financing obligation

 

 

35,976

 

 

71,689

Other noncurrent liabilities

 

 

10,873

 

 

12,455

TOTAL LIABILITIES

 

 

160,591

 

 

198,066

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

50,661

 

 

67,999

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

$

211,252

 

$

266,065

 

8

 

 

BLUE APRON HOLDINGS, INC.

Condensed Consolidated Statement of Operations

(In thousands, except share and per-share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

Net revenue

 

$

101,857

 

$

141,890

Operating expenses:

 

 

 

 

 

 

Cost of goods sold, excluding depreciation and amortization

 

 

60,638

 

 

82,704

Marketing

 

 

15,032

 

 

14,234

Product, technology, general, and administrative

 

 

34,217

 

 

39,148

Depreciation and amortization

 

 

6,753

 

 

8,604

Other operating expense

 

 

3,198

 

 

230

Total operating expenses

 

 

119,838

 

 

144,920

Income (loss) from operations

 

 

(17,981)

 

 

(3,030)

Interest income (expense), net

 

 

(2,155)

 

 

(2,232)

Income (loss) before income taxes

 

 

(20,136)

 

 

(5,262)

Benefit (provision) for income taxes

 

 

(9)

 

 

(13)

Net income (loss)

 

$

(20,145)

 

$

(5,275)

 

 

 

 

 

 

 

Net income (loss) per share – basic*

 

$

(1.51)

 

$

(0.41)

Net income (loss) per share – diluted*

 

$

(1.51)

 

$

(0.41)

Weighted average shares outstanding – basic*

 

 

13,305,805 

 

 

12,979,900 

Weighted average shares outstanding – diluted*

 

 

13,305,805 

 

 

12,979,900 

 

*Reflects the 1-for-15 reverse stock split that became effective on June 14, 2019.

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BLUE APRON HOLDINGS, INC.

Condensed Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

    

2020

    

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income (loss)

 

$

(20,145)

 

$

(5,275)

Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

 

6,753

 

 

8,604

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

 

 

(425)

 

 

(671)

Share-based compensation

 

 

2,240

 

 

2,835

Non-cash interest expense

 

 

182

 

 

125

Changes in operating assets and liabilities

 

 

(3,721)

 

 

(590)

Net cash from (used in) operating activities

 

 

(12,604)

 

 

5,138

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

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

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

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BLUE APRON HOLDINGS, INC.

Reconciliation of Non-GAAP Financial Measures

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

December 31,

 

March 31,

 

    

2020

    

2019

    

2019

Reconciliation of net income (loss) to adjusted EBITDA

 

 

 

 

 

 

 

 

    

Net income (loss)

 

$

(20,145)

 

$

(21,862)

 

$

(5,275)

Share-based compensation

 

 

2,240

 

 

2,301

 

 

2,835

Depreciation and amortization

 

 

6,753

 

 

6,921

 

 

8,604

Other operating expense

 

 

3,198

 

 

2,080

 

 

230

Interest (income) expense, net

 

 

2,155

 

 

2,225

 

 

2,232

Provision (benefit) for income taxes

 

 

9

 

 

 

 

13

Adjusted EBITDA

 

$

(5,790)

 

$

(8,327)

 

$

8,639

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

    

2020

    

2019

Reconciliation of net cash from (used in) operating activities to free cash flow

 

 

 

 

 

 

Net cash from (used in) operating activities

 

$

(12,604) 

 

$

5,138

Purchases of property and equipment

 

 

(1,611)

 

 

(1,734)

Free cash flow

 

(14,215)

 

$

3,404

 

Second Quarter 2020 Outlook

 

 

 

 

 

Three Months Ended

 

June 30, 2020 

 

Low

Reconciliation of net income (loss) to adjusted EBITDA

 

 

Net income (loss)

$

(6,000)

Share-based compensation

 

2,500

Depreciation and amortization

 

7,000

Other operating expense

 

Interest (income) expense, net

 

1,500

Provision (benefit) for income taxes

 

0

Adjusted EBITDA

$

5,000

 

11

 


The following information was filed by Blue Apron Holdings, Inc. (APRN) on Wednesday, April 29, 2020 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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

    

81‑4777373

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

28 Liberty Street, New York, New York

 

10005

(Address of Principal Executive Offices)

 

(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

 

Trading Symbol

 

Name of Exchange on Which Registered

Class A Common Stock, $0.0001 par value per share

 

APRN

 

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 

 

 

 

 

Non-accelerated filer ☐ 

 

 

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.

TABLE OF CONTENTS

 

 

    

 

 

PART I 

 

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Consolidated Financial Statements (unaudited)

 

4

 

 

 

Consolidated Balance Sheets

 

4

 

 

 

Consolidated Statements of Operations

 

5

 

 

 

Consolidated Statement of Stockholders’ Equity (Deficit)

 

6

 

 

 

Consolidated Statements of Cash Flows

 

7

 

 

 

Notes to Consolidated Financial Statements

 

8

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

37

 

 

Item 4.

Controls and Procedures

 

37

 

 

 

 

 

 

 

PART II 

 

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

39

 

 

Item 1A.

Risk Factors

 

41

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

74

 

 

Item 3.

Defaults Upon Senior Securities

 

74

 

 

Item 4.

Mine Safety Disclosures

 

74

 

 

Item 5.

Other Information

 

74

 

 

Item 6.

Exhibits

 

75

 

 

 

 

 

 

 

SIGNATURES 

 

 

76

 

 

 

 

 

 

 

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;

·

the potential adverse impact of the COVID-19 pandemic on our operations and results, including as a result of the loss of adequate labor, any prolonged closures, or series of temporary closures, of one or more fulfillment centers, supply chain or carrier interruptions or delays, or changes in consumer behaviors, both when stay-at-home and restaurant restriction orders are lifted and/or as a result of the COVID-19 pandemic’s impact on financial markets and economic conditions;

·

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

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

BLUE APRON HOLDINGS, INC.

 

Consolidated Balance Sheets

 

(In thousands, except share and per-share data)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

2020

 

2019

ASSETS

 

 

  

 

 

  

CURRENT ASSETS:

 

 

  

 

 

  

Cash and cash equivalents

 

$

29,505

 

$

43,531

Accounts receivable, net

 

 

209

 

 

248

Inventories, net

 

 

24,712

 

 

25,106

Prepaid expenses and other current assets

 

 

13,644

 

 

8,864

Total current assets

 

 

68,070

 

 

77,749

Property and equipment, net

 

 

138,314

 

 

181,806

Other noncurrent assets

 

 

4,868

 

 

6,510

TOTAL ASSETS

 

$

211,252

 

$

266,065

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

  

 

 

  

CURRENT LIABILITIES:

 

 

  

 

 

  

Accounts payable

 

$

26,539

 

$

23,972

Accrued expenses and other current liabilities

 

 

25,743

 

 

30,366

Deferred revenue

 

 

7,814

 

 

6,120

Total current liabilities

 

 

60,096

 

 

60,458

Long-term debt

 

 

53,646

 

 

53,464

Facility financing obligation

 

 

35,976

 

 

71,689

Other noncurrent liabilities

 

 

10,873

 

 

12,455

TOTAL LIABILITIES

 

 

160,591

 

 

198,066

Commitments and contingencies (Note 9)

 

 

  

 

 

  

STOCKHOLDERS’ EQUITY (DEFICIT):

 

 

  

 

 

  

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

 

 

 1

 

 

 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

 

 

 1

 

 

 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

 

 

 —

 

 

 —

Additional paid-in capital

 

 

602,783

 

 

599,976

Accumulated deficit

 

 

(552,124)

 

 

(531,979)

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

50,661

 

 

67,999

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

$

211,252

 

$

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)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

Net revenue

 

$

101,857

 

$

141,890

Operating expenses:

 

 

 

 

 

 

Cost of goods sold, excluding depreciation and amortization

 

 

60,638

 

 

82,704

Marketing

 

 

15,032

 

 

14,234

Product, technology, general and administrative

 

 

34,217

 

 

39,148

Depreciation and amortization

 

 

6,753

 

 

8,604

Other operating expense

 

 

3,198

 

 

230

Total operating expenses

 

 

119,838

 

 

144,920

Income (loss) from operations

 

 

(17,981)

 

 

(3,030)

Interest income (expense), net

 

 

(2,155)

 

 

(2,232)

Income (loss) before income taxes

 

 

(20,136)

 

 

(5,262)

Benefit (provision) for income taxes

 

 

(9)

 

 

(13)

Net income (loss)

 

$

(20,145)

 

$

(5,275)

 

 

 

 

 

 

 

Net income (loss) per share attributable to Class A, Class B, and Class C common stockholders*:

 

 

 

 

 

 

Basic

 

$

(1.51)

 

$

(0.41)

Diluted

 

$

(1.51)

 

$

(0.41)

Weighted-average shares used to compute net income (loss) per share attributable to Class A, Class B, and Class C common stockholders*:

 

 

 

 

 

 

Basic

 

 

13,305,805

 

 

12,979,900

Diluted

 

 

13,305,805

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

Class B

 

Class C

 

Additional

 

 

 

 

Total

 

 

Common Stock *

 

Common Stock *

 

Common Stock *

 

Paid-In

 

Accumulated

 

Stockholders'

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity (Deficit)

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — December 31, 2019

 

7,799,093

 

$

 1

 

5,464,196

 

$

 1

 

 —

 

$

 —

 

$

599,976

 

$

(531,979)

 

$

67,999

Conversion from Class B to Class A common stock

 

1,835,947

 

 

0

 

(1,835,947)

 

 

0

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of common stock upon exercise of stock options and vesting of restricted stock

 

92,243

 

 

0

 

25,999

 

 

0

 

 —

 

 

 —

 

 

486

 

 

 —

 

 

486

Share-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

 

2020

    

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income (loss)

$

(20,145)

 

$

(5,275)

 

Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

6,753

 

 

8,604

 

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

 

(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

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

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

 

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

BLUE APRON HOLDINGS, INC.

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

8

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