Blue Apron Holdings, Inc. (APRN) 10-Q Quarterly Report Thu May 06 2021

Net revenue for the fourth quarter of 2020 increased 22% year over year to $115.5 million driven, in part, by the continued execution of the company’s growth strategy, including through product innovation.

●

Key customer metrics’ year-over-year growth continued in the fourth quarter as Average Order Value grew 6% to over $61, the highest reported level since prior to 2015; Orders per Customer rose 15% year over year to 5.3 and Average Revenue per Customer increased 22% to $327.

●

Net loss improved $10.0 million, or 46%, year over year in the fourth quarter to $(11.9) million; adjusted EBITDA improved $6.7 million, or 80%, year over year to $(1.7) million.

●

Strengthened executive team with the appointments of Randy Greben as Chief Financial Officer and Charlean Gmunder as Chief Operating Officer.

●

First quarter 2021 outlook contemplates quarterly sequential and year over year Customer and net revenue growth.

New York, NY – February 18, 2021 – Blue Apron Holdings, Inc. (NYSE: APRN) announced today financial results for the quarter and full year ended December 31, 2020.

“Fourth quarter operating results exceeded guidance as we grew net revenue year over year by 22% to $115.5 million. The fourth quarter marks the third consecutive quarter of double-digit year over year increase in net revenue and highlights our continued operating momentum,” said Linda Findley Kozlowski, Blue Apron’s President and Chief Executive Officer. “Product innovation remains central to our strategy and initiatives to drive customer attraction and engagement. We introduced more new products in 2020 than in any prior year, including the recent launch of our new recipe customization and additional ways for our customers to get more meals from us each week. Both product introductions were well received by our customers and contributed to growth in key customer metrics such as Orders per Customer and Average Order Value, as well as Average Revenue per Customer, which exceeded $300 for the third consecutive quarter. We continue to support our brand and entire range of offerings with more efficient marketing, which is helping us see faster payback periods on customer acquisition.”

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 the ongoing impact of changes in consumer behavior and labor availability as a result of the COVID- 19 pandemic, in addition to other trends of the business and seasonality.

The following information was filed by Blue Apron Holdings, Inc. (APRN) on Thursday, February 18, 2021 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.

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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, 2021.

☐

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			14,657,259 shares outstanding as of March 31, 2021
Class B Common Stock, $0.0001 par value			3,393,791 shares outstanding as of March 31, 2021
Class C Capital Stock, $0.0001 par value			0 shares outstanding as of March 31, 2021

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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 Statements of Stockholders’ Equity	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	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
	Item 4.	Controls and Procedures	37

PART II		OTHER INFORMATION
	Item 1.	Legal Proceedings	38
	Item 1A.	Risk Factors	39
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
	Item 3.	Defaults Upon Senior Securities	72
	Item 4.	Mine Safety Disclosures	72
	Item 5.	Other Information	72
	Item 6.	Exhibits	73

SIGNATURES			74

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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 ability, including the timing and extent, to sufficiently manage costs and to fund investments in our operations from cash from operations and additional equity and/or debt financings in amounts necessary to maintain compliance with financial and other covenants under our indebtedness while continuing to support the execution of our growth strategy;

●

our expectations regarding our expenses and net revenue and our ability to grow adjusted EBITDA and to achieve or maintain profitability;

●

our ability, including the timing and extent, to successfully execute our growth strategy, cost-effectively attract new customers and retain existing customers, including our ability to sustain any increase in demand resulting from both our growth strategy and the COVID-19 (coronavirus) pandemic, and our ability to continue to expand our direct-to-consumer product offerings, and to continue to benefit from the implementation of operational efficiency practices;

●

changes in consumer behaviors that could lead to declines in demand, both as the COVID-19 pandemic’s impact on consumer behavior tapers, particularly as a result of fewer restrictions on dining options, and as COVID-19 vaccines become widely available in the United States, and/or if consumer spending habits are negatively impacted by worsening economic conditions;

●

our ability to attract and retain qualified employees and key personnel in sufficient numbers;

●

our ability to effectively compete;

●

our ability to maintain and grow the value of our brand and reputation;

●

any material and adverse impact of the COVID-19 pandemic on our operations and results, including as a result of our inability to meet demand due to insufficient labor, whether as a result of heightened absenteeism or challenges in recruiting and retention or otherwise, prolonged closures, or series of temporary closures, of one or more fulfillment centers, or supply chain or carrier interruptions or delays;

●

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;

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●

our ability to maintain food safety and prevent food-borne illness incidents and our susceptibility to supplier-initiated recalls;

●

general changes in consumer tastes and preferences or in consumer spending;

●

our ability to comply with modified or new laws and regulations applying to our business;

●

our vulnerability to adverse weather conditions, natural disasters, and public health crises, including 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.

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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,
	2021		2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	29,556	$	44,122
Accounts receivable, net		170		116
Inventories, net		22,531		18,185
Prepaid expenses and other current assets		25,316		23,651
Total current assets		77,573		86,074
Property and equipment, net		121,218		125,208
Other noncurrent assets		2,926		4,053
TOTAL ASSETS	$	201,717	$	215,335
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	31,556	$	23,691
Accrued expenses and other current liabilities		33,651		41,632
Current portion of long-term debt		3,500		3,500
Deferred revenue		7,237		6,269
Total current liabilities		75,944		75,092
Long-term debt		28,087		28,747
Facility financing obligation		35,944		35,957
Other noncurrent liabilities		11,122		11,564
TOTAL LIABILITIES		151,097		151,360
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY:
Class A common stock, par value of $0.0001 per share — 1,500,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 14,657,259 and 14,365,664 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		1		1
Class B common stock, par value of $0.0001 per share — 175,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 3,393,791 and 3,493,791 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		1		1
Class C capital stock, par value of $0.0001 per share — 500,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020		—		—
Additional paid-in capital		644,472		642,106
Accumulated deficit		(593,854)		(578,133)
TOTAL STOCKHOLDERS’ EQUITY		50,620		63,975
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	201,717	$	215,335

The accompanying notes are an integral part of these Consolidated Financial Statements.

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BLUE APRON HOLDINGS, INC.

Consolidated Statements of Operations

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

(Unaudited)


	Three Months Ended
	March 31,
	2021		2020
Net revenue	$	129,706	$	101,857
Operating expenses:
Cost of goods sold, excluding depreciation and amortization		81,592		60,638
Marketing		19,940		15,032
Product, technology, general and administrative		36,551		34,217
Depreciation and amortization		5,620		6,753
Other operating expense		—		3,198
Total operating expenses		143,703		119,838
Income (loss) from operations		(13,997)		(17,981)
Interest income (expense), net		(1,708)		(2,155)
Income (loss) before income taxes		(15,705)		(20,136)
Benefit (provision) for income taxes		(16)		(9)
Net income (loss)	$	(15,721)	$	(20,145)

Net income (loss) per share attributable to Class A and Class B common stockholders:
Basic	$	(0.88)	$	(1.51)
Diluted	$	(0.88)	$	(1.51)
Weighted-average shares used to compute net income (loss) per share attributable to Class A and Class B common stockholders:
Basic		17,939,682		13,305,805
Diluted		17,939,682		13,305,805

The accompanying notes are an integral part of these Consolidated Financial Statements.

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BLUE APRON HOLDINGS, INC.

Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)



	Class A			Class B			Additional				Total
	Common Stock			Common Stock			Paid-In		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Deficit		Equity
2021
Balance — December 31, 2020	14,365,664	$	1	3,493,791	$	1	$	642,106	$	(578,133)	$	63,975
Conversion from Class B to Class A common stock	100,000		0	(100,000)		(0)		—		—		—
Issuance of common stock upon exercise of stock options and vesting of restricted stock, net of tax withholdings	191,595		0	—		—		0		—		—
Share-based compensation	—		—	—		—		2,366		—		2,366
Net income (loss)	—		—	—		—		—		(15,721)		(15,721)
Balance — March 31, 2021	14,657,259	$	1	3,393,791	$	1	$	644,472	$	(593,854)	$	50,620


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, net of tax withholdings	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

The accompanying notes are an integral part of these Consolidated Financial Statements.

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BLUE APRON HOLDINGS, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended
	March 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(15,721)	$	(20,145)
Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:
Depreciation and amortization of property and equipment		5,620		6,753
Loss (gain) on build-to-suit accounting derecognition		—		(4,936)
Loss on impairment		—		7,448
Changes in reserves and allowances		131		(425)
Share-based compensation		2,319		2,240
Non-cash interest expense		215		182
Changes in operating assets and liabilities:
Accounts receivable		(54)		39
Inventories		(4,550)		767
Prepaid expenses and other current assets		(1,793)		(2,992)
Accounts payable		8,051		2,533
Accrued expenses and other current liabilities		(7,828)		(5,964)
Deferred revenue		968		1,694
Other noncurrent assets and liabilities		691		202
Net cash from (used in) operating activities		(11,951)		(12,604)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(1,746)		(1,611)
Proceeds from sale of property and equipment		54		59
Net cash from (used in) investing activities		(1,692)		(1,552)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt		(875)		—
Payments of debt issuance costs		(69)		—
Proceeds from exercise of stock options		—		486
Principal payments on capital lease obligations		(53)		(77)
Net cash from (used in) financing activities		(997)		409
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH		(14,640)		(13,747)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period		45,842		46,443
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period	$	31,202	$	32,696

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	1,490	$	2,088
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	$	70	$	81
Purchases of property and equipment in Accounts payable and Accrued expenses and other current liabilities	$	326	$	354

The accompanying notes are an integral part of these Consolidated Financial Statements.

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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 designs original recipes with fresh, seasonally-inspired produce and high-quality ingredients, which are sent 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. 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, its e-commerce market.

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, 2021 and December 31, 2020, results of operations for the three months ended March 31, 2021 and 2020, and cash flows for the three months ended March 31, 2021 and 2020. 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, 2020 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 23, 2021 (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, 2021, the Company had cash and cash equivalents of $29.6 million and total outstanding debt of $31.6 million, net of unamortized debt issuance costs, of which $28.1 million is classified as long-term debt and $3.5 million is classified as the current portion of long-term debt. On October 16, 2020, the Company entered into a financing agreement which provides for a senior secured term loan in the aggregate principal amount of $35.0 million that matures in March 2023 (the “2020 Term Loan”). The proceeds of the 2020 Term Loan were used, together with cash on hand, to repay in full the outstanding indebtedness under the revolving credit facility and to pay fees and expenses in connection with the transactions contemplated by the 2020 Term Loan. The Company terminated the revolving credit facility effective as of the closing of the 2020 Term Loan.

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The 2020 Term Loan and the 2021 Term Loan (defined below)(together, the “Senior Secured Term Loan”) contain restrictive covenants, financial covenants, and affirmative and financial reporting covenants restricting the Company and the Company’s subsidiaries’ activities. As of March 31, 2021, the financial covenants in the 2020 Term Loan include a requirement to maintain a minimum aggregate liquidity balance of $20.0 million at all times and a minimum subscription count (defined in the Senior Secured Term Loan as the number of all active customers on the Company’s internal account list) of 300,000 on any determination date occurring between the effective date and December 31, 2021, and 320,000 on any determination date occurring thereafter.

On March 18, 2021, the Company’s aggregate liquidity balance, as calculated under the terms of the 2020 Term Loan, fell below the required $20.0 million balance, giving rise to an event of default in respect of the 2020 Term Loan. The Company’s aggregate liquidity balance returned to an amount in excess of $20.0 million the following day, and the agent and the lenders waived the event of default on March 30, 2021.

As of March 31, 2021, the Company was in compliance with all of the covenants under the 2020 Term Loan.

On May 5, 2021 (the “Closing Date”), the Company amended the financing agreement relating to the 2020 Term Loan (the “Amendment”). Among other things, the Amendment:

(i)

provides a new $5.0 million term loan (the “2021 Term Loan”), which bears interest at a rate equal to LIBOR (subject to a 1.50% floor) plus 10.00% per annum and matures at the same time as the 2020 Term Loan, on March 31, 2023. The 2021 Term Loan is prepayable and does not require periodic principal payments;

(ii)

increases the interest rate margin on the 2020 Term Loan by 1.00% per annum, resulting in the 2020 Term Loan bearing interest, from and after the Closing Date, at a rate equal to LIBOR (subject to a 1.50% floor) plus 9.00% per annum;

(iii)

waives the requirement that the borrower prepay the 2020 Term Loan with 50% of the proceeds of equity issuances, provided that the waiver will expire upon the earlier of (i) such time as the cumulative net proceeds from equity issuances of the borrower otherwise requiring such prepayment exceed $30.0 million (calculated net of the prepayment of the 2021 Term Loan described below) or (ii) 60 days after the Closing Date;

(iv)

requires that the borrower prepay the 2021 Term Loan with 100% of the proceeds of equity issuances (in addition to the other mandatory prepayment provisions applicable to the 2020 Term Loan, which also apply to the 2021 Term Loan);

(v)

reduces the minimum liquidity covenant from $20.0 million at all times to $15.0 million at all times until the earlier of (i) May 15, 2022, and (ii) the date on which the 2021 Term Loan and all accrued and unpaid interest thereon is repaid in full (the “Covenant Reset Date”); and

(vi)

charges a $1.0 million closing fee, which (i) was capitalized on the Closing Date as additional indebtedness under the 2021 Term Loan, (ii) bears interest at the same rate as the 2021 Term Loan, and (iii) 50% of which will be forgiven if the 2021 Term Loan (inclusive of the other 50% of the closing fee) is repaid within 60 days after the Closing Date.

The proceeds of the 2021 Term Loan will be held in an escrow account for the benefit of the agent and the proceeds of the 2021 Term Loan will qualify as qualified cash for purposes of the minimum liquidity covenant, such that, in combination, the funding of the 2021 Term Loan and the reduction in the minimum liquidity covenant will provide the Company with an aggregate of $10.0 million in additional flexibility in respect of the minimum liquidity covenant until the Covenant Reset Date. The agent shall not be permitted to remove funds from the escrow account except (i) upon maturity of the 2021 Term Loan, (ii) an event of default that has not been waived or cured, or (iii) upon repayment of the 2021 Term Loan. In the event that the lender withdraws funds from the escrow for any reason, those funds must be applied to repay the 2021 Term Loan or be paid to the Company.

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In connection with the Amendment, the Company agreed to grant warrants (the “Warrants”) to the Lenders. Under the terms of the Amendment, so long as the 2020 Term Loan or 2021 Term Loan remain outstanding, on the first day of each quarter beginning on or after July 1, 2021, the Company will issue a Warrant to the Lenders to purchase at an exercise price of $0.01 per share such number of shares of Class A common stock of the Company as equals 0.50% of the then outstanding fully-diluted shares of Common Stock of the Company. The number of shares issuable upon exercise of each Warrant is subject to increase each time the Company issues or sells any shares of Common Stock, Common Stock equivalents, options, or convertible securities for a consideration per share (including upon exercise, exchange, or conversion) of less than the fair market value per share of the Class A common stock as of the Closing Date. The Warrants will expire five years after the applicable issuance date and will be exercisable on a cash basis or, at the election of the holder, on a cashless basis.

The Company has a history of net losses and negative operating cash flows. In addition, the Company has experienced significant negative trends in its net revenue. While year-over-year trends in net revenue, net losses and operating cash flows have improved during the three months ended March 31, 2021, that improvement is, in part, due to changes in consumer behaviors as a result of the COVID-19 pandemic, and by the continued execution of the Company’s growth strategy. These positive trends on the Company’s operating results may not continue at current levels, and could decline in future periods as COVID-19 restrictions begin to be lifted and as vaccines become more widely available throughout the United States or if the Company is unable to continue to sustain the revenue growth resulting from its growth strategy.

The Company is continuing to pursue its growth strategy to drive customer and revenue growth through product innovation. The Company’s ability, including the timing and extent, to successfully execute its growth strategy is inherently uncertain and is dependent on continued sufficiency of cash resources, and its ability 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 growth strategy, manage liquidity and/or to cost effectively attract new customers and retain existing customers, the Company may not be able to maintain compliance with the minimum liquidity and minimum subscription count covenants which may result in an event of default under the Company’s Senior Secured Term Loan. 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 Senior Secured Term Loan 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.

If the Company is unable to sufficiently execute its growth strategy, it believes it has plans to effectively manage liquidity and customer acquisition and retention in order to maintain compliance with its debt covenants. This includes implementing operational process driven changes to more cost-effectively source the products the Company offers, potential significant expense reductions in areas identified by the Company in product, technology, general and administrative costs and capital expenditures to achieve savings and reinvest in the business. This further includes modifying and balancing its marketing investments, as needed, to maintain the minimum subscription covenant, while also maintaining sufficient cash to meet the minimum liquidity covenant.

A significant portion of the Company’s costs are discretionary in nature and, if needed, the Company has the ability to reduce or delay spending in order to reduce expenses and improve liquidity. While reductions in spending, particularly in marketing and capital expenditures, may negatively impact net revenue, the Company plans to execute such reductions to the extent needed to comply with its debt covenants. The Company has previously demonstrated an ability to implement various cost reduction initiatives, including workforce reductions and other cost optimizing initiatives. As a result of these initiatives, the Company’s year-over-year product, technology, general and administrative expenses, as a percentage of net revenue, were reduced by approximately 540 basis points in the three months ended March 31, 2021.

Based on the current facts and circumstances, the additional financial flexibility provided through the Amendment discussed above, the Company’s financial planning process, and its historical ability to implement cost reductions and adjust marketing strategies, the Company believes it is probable it can effectively manage liquidity and subscription count in order to maintain compliance with the financial covenants under its Senior Secured Term Loan for at least the next 12 months. As a result, the Company has concluded that, after consideration of management’s plans, it

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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 December 31, 2022 (the last day of the fiscal year following the fifth anniversary of the initial public offering, or the “IPO”), 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, 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 reduced disclosure requirements for smaller reporting companies.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued its standard on lease accounting, Accounting Standards Update No. 2016-02, Leases (Topic 842), which supersedes Topic 840, Leases. Subsequent to February 2016, the FASB issued ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments, ASU No. 2018-10, Codification Improvements to Topic 842, Leases, ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, ASU No. 2019-01, Leases (Topic 842): Codification Improvements, ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, and ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, to improve and clarify certain aspects of ASU No. 2016-02, as well as to defer its effective date for certain entities. For the Company, the new standard is effective for annual periods beginning January 1, 2022, and interim periods beginning January 1, 2023. Upon adoption of this standard, the Company expects to recognize, on a discounted basis, its minimum commitments under non-cancelable operating leases on the Consolidated Balance Sheets resulting in the recording of right-of-use assets and lease obligations. The Company is currently evaluating any additional impacts this guidance will have on its Consolidated Financial Statements.

In August 2018, the FASB issued Accounting Standards Update No. 2018-15 (“ASU 2018-15”), Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs

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Incurred in a Cloud Computing Arrangement That Is a Service Contract. The standard is intended to clarify the accounting for implementation costs of a hosting arrangement that is a service contract. For the Company, the amendments in ASU 2018-15 are effective for annual periods beginning January 1, 2021, and interim periods beginning January 1, 2022. The Company is evaluating the impact this new guidance may have on its Consolidated Financial Statements.

In December 2019, the FASB issued Accounting Standards Update No. 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, as well as improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For the Company, the amendments in ASU 2019-12 are effective for annual periods beginning January 1, 2022, and interim periods beginning January 1, 2023. The Company is evaluating the impact this new guidance may have on its Consolidated Financial Statements.

Recently Adopted Accounting Pronouncements

In March 2020, the FASB issued Accounting Standards Update No. 2020-04 (“ASU 2020-04”), Reference Rate Reform (“ASC 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard is intended to provide optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. The guidance was effective upon issuance, and may be applied prospectively through December 31, 2022. The application of the guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

3. Inventories, Net

Inventories, net consist of the following:


	March 31,		December 31,
	2021		2020

	(In thousands)
Fulfillment	$	2,927	$	3,366
Product		19,604		14,819
Inventories, net	$	22,531	$	18,185

Product inventory primarily consists of bulk and prepped food, containers, products available for resale, and wine products. Fulfillment inventory consists of packaging used for shipping and handling. Product and fulfillment inventories are recognized as components of Cost of goods sold, excluding depreciation and amortization in the accompanying Consolidated Statements of Operations when sold.

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:


	March 31,		December 31,
	2021		2020

	(In thousands)
Insurance proceeds receivable	$	11,250	$	11,250
Prepaid insurance		8,026		7,092
Other current assets		6,040		5,309
Prepaid expenses and other current assets	$	25,316	$	23,651

Estimated insurance proceeds recoveries related to accrued legal settlements in Accrued expenses and other current liabilities are reflected as assets in the Company’s Consolidated Balance Sheets when it is determined that the recovery of such amounts is probable, and the amount can be reasonably determined. See Note 10 for further discussion of the insurance proceeds receivable.

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5. Restricted Cash

Restricted cash reflects pledged cash deposited into savings accounts that is used as security primarily for fulfillment centers and office space leases, and as of March 31, 2020 and December 31, 2019, cash held in escrow related to a pending legal judgment that was returned to the Company in the second quarter of 2020 following final resolution of the case.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same amounts reported in the Consolidated Statements of Cash Flows:


	March 31,		December 31,
	2021		2020

	(in thousands)
Cash and cash equivalents	$	29,556	$	44,122
Restricted cash included in Prepaid expenses and other current assets		536		610
Restricted cash included in Other noncurrent assets		1,110		1,110
Total cash, cash equivalents, and restricted cash	$	31,202	$	45,842

	March 31,		December 31,
	2020		2019

	(in thousands)
Cash and cash equivalents	$	29,505	$	43,531
Restricted cash included in Prepaid expenses and other current assets		1,842		—
Restricted cash included in Other noncurrent assets		1,349		2,912
Total cash, cash equivalents, and restricted cash	$	32,696	$	46,443

6. Property and Equipment, Net

Property and equipment, net consists of the following:


	March 31,		December 31,
	2021		2020

	(In thousands)
Computer equipment	$	11,278	$	11,110
Capitalized software		21,711		21,318
Fulfillment equipment		51,452		51,096
Furniture and fixtures		3,408		3,408
Leasehold improvements		33,136		32,969
Buildings⁽¹⁾		114,877		114,877
Construction in process		1,987		1,442
Property and equipment, gross		237,849		236,220
Less: accumulated depreciation and amortization		(116,631)		(111,012)
Property and equipment, net	$	121,218	$	125,208

(1)

Buildings includes a build-to-suit lease arrangement in Linden, New Jersey where the Company is considered the owner for accounting purposes, and as of March 31, 2021 and December 31, 2020, contains $31.3 million of the capitalized fair value of the building, $80.8 million of costs incurred directly by the Company relating to this arrangement, and $2.8 million of capitalized interest for related construction projects.

Fairfield Lease Termination

In October 2017, the Company performed a review of its real estate needs and decided to no longer pursue its planned build-out of the Fairfield facility and as a result, pursued potential alternatives for the leased Fairfield property. On March 30, 2020 (the “termination date”), the Company terminated the lease, effective immediately, for its Fairfield facility (the “Fairfield lease termination”). In connection with the Fairfield lease termination, the Company agreed to a

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termination fee in the amount of $1.5 million, recognized upon the termination date and paid in the second quarter of 2020, which released the Company from all future minimum lease payments related to this facility in the amount of $32.9 million, which otherwise would have expired in 2028.

For accounting purposes, the Company had been deemed to be the owner of this arrangement and followed build-to-suit accounting. Therefore, the Company had capitalized the fair value of the building and direct construction costs incurred and recorded a corresponding facility financing obligation. Prior to the lease termination, the net carrying value of the build-to-suit assets totaled $31.1 million, the facility financing obligation totaled $35.7 million, and the Company had deferred rent of $1.8 million. Accordingly, as of the termination date, the Company derecognized the net carrying value of the build-to-suit assets and liabilities and the deferred rent balance. As a result, the Company recorded a non-cash gain of $4.9 million, net of the lease termination fee, in Other operating expense during the first quarter of 2020.

Impairment Charges on Long-Lived Assets

In February 2020, the Company announced the closure of its fulfillment center in Arlington, Texas and the consolidation of production volume from the Arlington, Texas fulfillment center to the Company’s fulfillment centers in Linden, New Jersey and Richmond, California in order to more efficiently continue to service the Company’s national footprint while also enabling the Company to redirect financial resources into other parts of the business, including growth initiatives.

The Company concluded that this change in operations represented a triggering event with respect to its long-lived assets at the Arlington fulfillment center and therefore performed an impairment test in accordance with Accounting Standards Codification (“ASC 360”), Property, Plant, and Equipment. The carrying amount of the Company’s long-lived assets at the Arlington fulfillment center was $11.5 million and the fair value was $4.1 million as of the impairment date, resulting in an impairment of $7.4 million, primarily consisting of leasehold improvements and equipment, recorded in Other operating expense during the first quarter of 2020. The Company recorded an impairment charge on an additional piece of equipment at the Arlington fulfillment center of $0.2 million in Other operating expense during the second quarter of 2020. The fair value was primarily determined based on estimated market prices of the assets and represented a Level 3 valuation in the fair value hierarchy.

In May 2020, the transition of production volume to the Linden and Richmond fulfillment centers was completed, with the Company’s Arlington fulfillment center equipment primarily having been relocated to the Company’s other fulfillment centers. The Company temporarily reopened its Arlington fulfillment center beginning in January 2021 to leverage existing assets to meet forecasted demand while continuing to implement operating efficiencies at its other fulfillment centers. In April 2021, the Company closed down the temporary Arlington fulfillment center, with all production volume consolidated at its other fulfillment centers. The closure of the Arlington fulfillment center after its temporary reopening did not have a material impact on the Company’s Consolidated Financial Statements. In addition, the Company has future non-cancelable minimum lease payments of approximately $1.7 million through 2024 relating to its Arlington facility. The Company is pursuing a sublease for the facility, which is not expected to have a material impact on the Company’s Consolidated Financial Statements.

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7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:


	March 31,		December 31,
	2021		2020

	(In thousands)
Accrued compensation	$	7,992	$	17,189
Accrued credits and refunds reserve		1,474		1,547
Accrued legal settlements		11,250		12,250
Accrued marketing expenses		2,812		2,006
Accrued shipping expenses		2,117		2,060
Other current liabilities		8,006		6,580
Accrued expenses and other current liabilities	$	33,651	$	41,632

Accrued legal settlements reflect contingencies for which the Company has concluded the loss is probable and reasonably estimable. The Company determined that insurance recovery was probable related to $11.3 million of a legal settlement and recognized the full recovery amount in Prepaid expenses and other current assets. See Note 10 for further discussion of the accrued legal settlements.

8. Deferred Revenue

Deferred revenue consists of the following:


	March 31,		December 31,
	2021		2020

	(In thousands)
Cash received prior to fulfillment	$	4,773	$	1,550
Gift cards, prepaid orders, and other		2,464		4,719
Deferred revenue	$	7,237	$	6,269

Under ASC 606, Revenue from Contracts with Customers, the Company has two types of contractual liabilities: (i) cash collections from its customers prior to delivery of products purchased, which are included in Deferred revenue on the Consolidated Balance Sheet, and are recognized as revenue upon transfer of control of its products, and (ii) unredeemed gift cards and other prepaid orders, which are included in Deferred revenue on the Consolidated Balance Sheet, and are recognized as revenue when gift cards are redeemed and the products are delivered. Certain gift cards are not expected to be redeemed, also known as breakage, and are recognized as revenue over the expected redemption period, subject to requirements to remit balances to governmental agencies.

Contractual liabilities included in Deferred revenue on the Consolidated Balance Sheets were $7.2 million and $6.3 million as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021, the Company recognized $4.3 million to Net revenue from the Deferred revenue at December 31, 2020.

9. Debt

In August 2016, the Company entered into the revolving credit facility with a maximum amount available to borrow of $150.0 million. The borrower under the revolving credit facility was the Company’s wholly-owned subsidiary, Blue Apron, LLC. Between 2017 and 2020, the Company amended and refinanced the revolving credit facility to, among other things, reduce the aggregate lender commitments to $55.0 million and extend the final maturity date to August 26, 2021.

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On October 16, 2020 (the “effective date”), the Company entered into a financing agreement which provided for the 2020 Term Loan. The proceeds of the 2020 Term Loan were used, together with cash on hand, to repay in full the outstanding indebtedness of $43.8 million under the revolving credit facility, and to pay fees and expenses in connection with the transactions contemplated by the 2020 Term Loan. The Company terminated the revolving credit facility effective as of the closing of the 2020 Term Loan. In May 2021, the Company amended its 2020 Term Loan to amend certain provisions and to provide for a new $5.0 million term loan. See Note 2 for further discussion of this Amendment and the 2021 Term Loan.

As of March 31, 2021, the 2020 Term Loan bore interest at a rate equal to LIBOR (subject to a 1.50% floor) plus 8.00% per annum. The principal amount of the 2020 Term Loan is repayable in equal quarterly installments of $875,000 through December 31, 2022, with the remaining unpaid principal amount of the 2020 Term Loan repayable on March 31, 2023. The Company is also obligated under the 2020 Term Loan to pay customary fees, including an anniversary fee equal to 1.00% of the average daily principal amount of the 2020 Term Loan outstanding over the past 12 months.

In connection with entering into the financing agreement that provided for the 2020 Term Loan, the Company incurred and capitalized $2.1 million in deferred financing costs in Long-term debt, which are being amortized using the effective interest method over the remaining term. The following table summarizes the presentation of the Company’s debt balances in the Consolidated Balance Sheets as of the dates indicated below:


	March 31,		December 31,
	2021		2020

	(In thousands)
Senior secured term loan		33,250		34,125
Deferred financing costs, net		(1,663)		(1,878)
Total debt outstanding, net of debt issuance costs		31,587		32,247
Less: current portion of long-term debt		3,500		3,500
Long-term debt	$	28,087	$	28,747

The borrower under the 2020 Term Loan is the Company’s wholly-owned subsidiary, Blue Apron, LLC. The obligations under the 2020 Term Loan are guaranteed by Blue Apron Holdings, Inc. and its subsidiaries other than the borrower, and secured by substantially all of the assets of the borrower and the guarantors. The 2020 Term Loan contains certain restrictive covenants, financial covenants, and affirmative and financial reporting covenants restricting the Company and the Company’s subsidiaries’ activities. Restrictive covenants include limitations on the incurrence of indebtedness and liens, restrictions on affiliate transactions, restrictions on the sale or other disposition of collateral, and limitations on dividends and stock repurchases. The Company will be required to make mandatory prepayments under certain circumstances, and will have the option to make prepayments under the 2020 Term Loan subject to certain prepayment premiums through the first anniversary of the effective date. As of March 31, 2021, financial covenants included a requirement to maintain a minimum aggregate liquidity balance of $20.0 million at all times and a minimum subscription count (defined in the 2020 Term Loan as the number of all active customers on the Company’s internal account list) of 300,000 on any determination date occurring between the effective date and December 31, 2021, and 320,000 on any determination date occurring thereafter.

Non-compliance with the covenants under the 2020 Term Loan would result in an event of default upon which the lender could declare all outstanding principal and interest to be due and payable immediately and foreclose against the assets securing the borrowings. On March 18, 2021, the Company’s aggregate liquidity balance, as calculated under the terms of the 2020 Term Loan, fell below the required $20.0 million balance, giving rise to an event of default in respect of the 2020 Term Loan. The Company’s aggregate liquidity balance returned to an amount in excess of $20.0 million the following day, and the agent and the lenders waived the event of default on March 30, 2021. As of March 31, 2021, the Company was in compliance with all of the covenants under the 2020 Term Loan.

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Facility Financing Obligation

As of March 31, 2021 and December 31, 2020, the Company had a facility financing obligation of $35.9 million and $36.0 million, respectively, related to the leased facility in Linden under the build-to-suit accounting guidance.

10. Commitments and Contingencies

Legal Proceedings

The Company records accruals for loss contingencies associated with legal matters when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. If the Company determines that a loss is reasonably possible, the Company discloses the matter, and, if estimable, the amount or range of the possible loss in the notes to the Consolidated Financial Statements.

The Company is subject to a consolidated putative class action lawsuit in the U.S. District Court for the Eastern District of New York alleging federal securities law violations in connection with the Company’s IPO. The amended complaint alleges that the Company and certain current and former officers and directors made material misstatements or omissions in the Company’s registration statement and prospectus that caused the stock price to drop. Pursuant to a stipulated schedule entered by the parties, defendants filed a motion to dismiss the amended complaint on May 21, 2018. Plaintiffs filed a response on July 12, 2018 and defendants filed a reply on August 13, 2018. On April 22, 2020, the Court entered an order (i) denying the motion to dismiss insofar as Plaintiffs’ allegations pertained to certain of the disclosures in the registration statement and prospectus claimed by plaintiff, and (ii) narrowing the factual issues in the case. On August 11, 2020, the parties held a mediation after which they entered into a memorandum of understanding on August 14, 2020 regarding a proposed settlement. Discovery has been stayed since August 14, 2020. The Company entered into a stipulation and agreement of settlement to resolve the class action litigation on October 28, 2020, which was subsequently amended on November 12, 2020. Under the terms of the settlement, a payment of $13.3 million is to be made by the Company and/or its insurers in exchange for the release of claims against the defendants and other released parties by the lead plaintiff and all settlement class members and for the dismissal of the action with prejudice. The court granted preliminary approval of the settlement on February 1, 2021 and the Company has paid approximately $1.0 million of the settlement amount into escrow, with the remaining $11.3 million balance of the settlement to be funded by the Company’s insurers. The Company’s contribution to the settlement represents the portion of its insurance retention amount, less the $1.0 million which had been paid by the Company as of December 31, 2020 to cover legal fees relating to this case and the related cases described below, as well as the settlement of the state court action described below. The court has scheduled a hearing for the final approval of settlement for May 10, 2021. If the court does not grant final approval of the settlement, the cases will continue. The Company is also subject to a putative class action lawsuit alleging federal securities law violations in connection with the IPO, which is substantially similar to the above-referenced federal court action. The action is currently pending in the New York Supreme Court. The Company was subject to another state court action that was originally filed in the New York Supreme Court, but was voluntarily dismissed by plaintiffs on September 15, 2020 and subsequently re-filed in the U.S. District Court for the Eastern District of New York on October 2, 2020. On December 2, 2020, the Company settled this lawsuit, which did not have a material impact on the Company’s Consolidated Financial Statements. The Company is unable to provide any assurances as to the ultimate outcome of any of these lawsuits or that an adverse resolution of any of these lawsuits would not have a material adverse effect on the Company’s consolidated financial position or results of operations.

In June 2020, certain of the Company’s current and former officers and directors were named as defendants in a shareholder derivative action filed in the Eastern District of New York, captioned Jeffrey Peters v. Matthew B. Salzberg, et al., 1:20-cv-02627. The complaint seeks contribution from the officer and director defendants for any damages that the Company may incur as a result of the above-referenced class action lawsuit, attorneys’ fees, and other costs, as well as an order directing the Company to reform and improve its corporate governance and internal procedures to comply with applicable laws. On September 11, 2020, this case was stayed pending resolution of the federal securities case. The Company is unable to provide any assurances as to the ultimate outcome of this lawsuit or that an adverse resolution of this lawsuit would not have a material adverse effect on the Company’s consolidated financial position or results of operations.

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Although the Company believes that it is reasonably possible that it may incur losses in these cases, the Company is currently unable to estimate the amount of such losses, except as noted above, due to the early stages of certain of the litigations, among other factors.

In addition, from time to time the Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. Although the results of such litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on its business, operating results, financial condition or cash flows.

11. Share-based Compensation

The Company recognized share-based compensation for share-based awards in Cost of goods sold, excluding depreciation and amortization, and Product, technology, general and administrative expenses as follows:


	Three Months Ended
	March 31,
	2021		2020

	(In thousands)
Cost of goods sold, excluding depreciation and amortization	$	16	$	30
Product, technology, general and administrative		2,303		2,210
Total share-based compensation	$	2,319	$	2,240

12. Earnings per Share

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding for the period.

Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted-average number of common shares, including potential dilutive common shares assuming the dilutive effect of outstanding common stock options and restricted stock units. For periods in which the Company has reported net loss, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, because dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

The rights, including the liquidation and dividend rights, of the Class A common stock, Class B common stock, and Class C capital stock are substantially the same, other than voting rights. For the three months ended March 31, 2021 and 2020, the Company did not have any outstanding shares of Class C capital stock.

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	Three Months Ended March 31,
	2021				2020
	Class A		Class B		Class A		Class B

(In thousands, except share and per-share data)
Numerator:
Net income (loss) attributable to common stockholders	$	(12,707)	$	(3,014)	$	(13,363)	$	(6,782)
Denominator:
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders—basic		14,500,335		3,439,347		8,826,116		4,479,689
Effect of dilutive securities		—		—		—		—
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders—diluted		14,500,335		3,439,347		8,826,116		4,479,689

Net income (loss) per share attributable to common stockholders—basic ⁽¹⁾	$	(0.88)	$	(0.88)	$	(1.51)	$	(1.51)
Net income (loss) per share attributable to common stockholders—diluted ⁽¹⁾	$	(0.88)	$	(0.88)	$	(1.51)	$	(1.51)

(1)

Net income (loss) per share attributable to common stockholders — basic and net income (loss) per share attributable to common stockholders — diluted may not recalculate due to rounding.

The following have been excluded from the computation of diluted net income (loss) per share attributable to common stockholders as their effect would have been antidilutive:


	Three Months Ended March 31,
	2021		2020
	Class A	Class B	Class A	Class B
Stock options	—	51,897	22,529	184,350
Restricted stock units	1,994,341	—	1,682,990	—
Total anti-dilutive securities	1,994,341	51,897	1,705,519	184,350

13. Fair Value of Financial Instruments

The fair value of financial instruments is determined based on assumptions that market participants would use when pricing an asset or liability at the balance sheet date. Certain assets are categorized based on the following fair value hierarchy of market participant assumptions:

Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2 — Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value of the asset or liability and supported by little or no market activity.

The Company uses observable market data when available, and minimizes the use of unobservable inputs when determining fair value.

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The following are the major categories of assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2) and significant unobservable inputs (Level 3):


	March 31, 2021
	Level 1		Level 2		Level 3		Total

	(In thousands)
Financial Assets:
Money market accounts	$	2,635	$	—	$	—	$	2,635
Total financial assets	$	2,635	$	—	$	—	$	2,635


	December 31, 2020
	Level 1		Level 2		Level 3		Total

	(In thousands)
Financial Assets:
Money market accounts	$	42,408	$	—	$	—	$	42,408
Total financial assets	$	42,408	$	—	$	—	$	42,408

As of March 31, 2021 and December 31, 2020, the Company has $2.6 million and $42.4 million, respectively, in financial assets held in money market accounts, all of which were classified as Level 1 in the fair value hierarchy. The Company measured the money market accounts at fair value. The Company classified its money market accounts as Level 1 because the values of these assets are determined using unadjusted quoted prices in active markets for identical assets.

As of March 31, 2021 and December 31, 2020, the Company did not have any assets or liabilities classified as Level 2 or Level 3 in the fair value hierarchy.

14. Restructuring Costs

As a result of the action, which was completed in May 2020, the Company recorded $0.8 million in total restructuring costs in Other operating expense during the first half of 2020, substantially all of which resulted in cash expenditures. During the three months ended March 31, 2020, the Company recorded $0.7 million in restructuring costs, including $0.6 million of employee-related expenses, primarily consisting of severance payments, and $0.1 million of other exit costs. In addition, the Company recorded non-cash impairment charges of $7.6 million during the first half of 2020, of which $7.4 million were recorded in the three months ended March 31, 2020, primarily consisting of leasehold improvements and equipment. See Note 6 for further discussion of the impairment charges.

The Company temporarily reopened its Arlington fulfillment center beginning in January 2021 to leverage existing assets to meet forecasted demand while continuing to implement operating efficiencies at its other fulfillment centers. In April 2021, the Company closed down the temporary Arlington fulfillment center, with all production volume consolidated at its other fulfillment centers. The closure of the Arlington fulfillment center after its temporary reopening did not have a material impact on the Company’s Consolidated Financial Statements.

15. Subsequent Events

On May 5, 2021, the Company amended the financing agreement relating to the 2020 Term Loan to amend certain provisions and to provide for a new $5.0 million term loan. See Note 2 for further discussion of this Amendment and the 2021 Term Loan.

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on February 23, 2021. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the section titled “Risk Factors” under Part II, Item 1A, below. In this discussion, we use financial measures that are considered non-GAAP financial measures under Securities and Exchange Commission rules. These rules require supplemental explanation and reconciliation, which is included elsewhere in this Quarterly Report on Form 10-Q. Investors should not consider non-GAAP financial measures in isolation from or in substitution for financial information presented in compliance with U.S. generally accepted accounting principles. In the below discussion, we use the term basis points to refer to units of one-hundredth of one percent.

Overview

Blue Apron’s vision is “better living through better food.” Founded in 2012, we are on a mission to spark discovery, connection, and joy through cooking. We offer fresh, chef-designed recipes that empower our customers to embrace their culinary curiosity and challenge their abilities to see what a difference cooking quality food can make in their lives.

Our core product is the meal experience we help our customers create. These experiences extend from discovering new recipes, ingredients, and cooking techniques to preparing meals with families and loved ones to sharing photos and stories of culinary triumphs. Central to these experiences are the original recipes we design with fresh, seasonally-inspired produce and high-quality ingredients sent directly to our customers. We do this by employing technology and expertise across many disciplines – demand planning, recipe creation, procurement, recipe merchandising, fulfillment operations, distribution, customer service, and marketing – to drive our end-to-end value chain. We offer our customers three weekly meal plans—a Two-Serving Plan, a Four-Serving Plan, and Meal Prep Plan. We also sell wine, which can be paired with our meals, through Blue Apron Wine, our direct-to-consumer wine delivery service. Through Blue Apron Market, our e-commerce market, we sell a curated selection of cooking tools, utensils, pantry items, add-on products for different culinary occasions, which are tested and recommended by our culinary team, and à la carte wine offerings.

Key Financial and Operating Metrics

We use the following key financial and operating metrics 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 the key financial and operating metrics in conjunction with the following discussion of our results of operations and financial condition together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q.

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	Three Months Ended
	March 31,
	2021		2020

	(In thousands)
Net revenue	$	129,706	$	101,857
Adjusted EBITDA	$	(6,058)	$	(5,790)
Net cash from (used in) operating activities	$	(11,951)	$	(12,604)
Free cash flow	$	(13,697)	$	(14,215)


	Three Months Ended
	March 31,		June 30,		September 30,		December 31,		March 31,
	2020		2020		2020		2020		2021
Orders (in thousands)		1,763		2,152		1,917		1,879		2,104
Customers (in thousands)		376		396		357		353		391
Average Order Value	$	57.68	$	60.88	$	58.56	$	61.43	$	61.63
Orders per Customer		4.7		5.4		5.4		5.3		5.4
Average Revenue per Customer	$	271	$	331	$	314	$	327	$	331

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. Orders, together with Average Order Value, is an indicator of the net revenue we expect to recognize in a given period. We view Orders delivered as a key indicator of our scale and financial performance. Orders has limitations as a financial and operating metric as it does not reflect the product mix chosen by our customers or the purchasing behavior of our customers. Because of these and other limitations, we consider, and you should consider, Orders in conjunction with our other metrics, including net revenue, net income (loss), adjusted EBITDA, net cash from (used in) operating activities, free cash flow, Average Order Value, and Orders per Customer.

Customers

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. For example, the number of Customers in the three months ended March 31, 2021 was determined based on the total number of individual customers who paid for at least one Order across our meal, wine, or market products in the quarter ended March 31, 2021. We view the number of Customers as a key indicator of our scale and financial performance. Customers has limitations as a financial and operating metric as it does not reflect the product mix chosen by our customers, Order frequency, or the purchasing behavior of our customers. Because of these and other limitations, we consider, and you should consider, Customers in conjunction with our other metrics, including net revenue, net income (loss), adjusted EBITDA, net cash from (used in) operating activities, free cash flow, Orders per Customer, and Average Revenue per Customer.

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. We view Average Order Value as a key indicator of the mix of our product offerings chosen by our customers, the mix of promotional discounts, and the purchasing behavior of our customers.

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. We view Orders per Customer as a key indicator of our customers’ purchasing patterns, including their repeat purchase behavior.

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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. We view Average Revenue per Customer as a key indicator of our customers’ purchasing patterns, including their repeat purchase behavior.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure defined by us as net income (loss) before interest income (expense), net, other operating expense, benefit (provision) for income taxes, depreciation and amortization, and share-based compensation expense. We have presented adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital. In particular, we believe that the exclusion of certain items in calculating adjusted EBITDA can produce a useful measure for period-to-period comparisons of our business. Accordingly, we believe that adjusted EBITDA provides useful information in understanding and evaluating our operating results. Please see “Non-GAAP Financial Measures” for a discussion of the use of non-GAAP financial measures and for a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable measure calculated in accordance with GAAP.

Free Cash Flow

Free cash flow is a non-GAAP financial measure that is calculated as net cash from (used in) operating activities less purchases of property and equipment. We have presented free cash flow in this Quarterly Report on Form 10-Q because it is used by our management and board of directors as an indicator of the amount of cash we generate or use and to evaluate our ability to satisfy current and future obligations and to fund future business opportunities. Accordingly, we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our ability to satisfy our financial obligations and pursue business opportunities, and allowing for greater transparency with respect to a key financial metric used by our management in their financial and operational decision-making. Free cash flow is not a measure of cash available for discretionary expenditures since we have certain non-discretionary obligations such as debt repayments or capital lease obligations that are not deducted from the measure. Additionally, other companies, including companies in our industry, may calculate free cash flow differently, which reduces its usefulness as a comparative measure. Please see “Non-GAAP Financial Measures” for a discussion of the use of non-GAAP financial measures and for a reconciliation of free cash flow to net cash from (used in) operating activities, the most directly comparable measure calculated in accordance with GAAP.

Impact of COVID-19 on our Business

Since late in the first quarter of 2020, the COVID-19 pandemic has resulted, and is expected to continue to result for at least the near and immediate term, in significant economic disruptions and changes to consumer behaviors in the United States, which has impacted and is expected to continue to impact our business, at least to some degree.

In particular, since late March 2020, we have experienced an increase in demand due in part, as a result of changes to consumer behaviors resulting from the various restrictions that have been enacted throughout much of the United States in response to the COVID-19 pandemic. As these restrictions begin to be lifted and as vaccines become more widely available in the United States, this increased demand may not be sustained.

In 2020, in response to increased demand, we took action to manage and increase capacity at our fulfillment centers, including continuing to hire new personnel, temporarily reducing variety in menu options, closing some weekly offering cycles early, and delaying certain new product offerings. In addition, in January 2021, we temporarily reopened our fulfillment center in Arlington, Texas. At the same time, we have taken a variety of safety and sanitation measures following federal, state, and local guidelines at our fulfillment centers’ operations. Furthermore, in response to the increased demand, we intentionally reduced marketing spend for portions of 2020 to manage capacity, but we increased

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our marketing spend at the end of the second quarter of 2020 and we have reengaged, and expect to continue to reengage, in additional marketing spend in 2021 as part of our growth strategy to retain existing and attract new customers.

The COVID-19 pandemic may have other adverse effects on our business, operations, and financial results and condition, including, among other things, as a result of adverse impacts on labor availability, our fulfillment center operations, consumer behaviors, and on the overall economy. Significant uncertainty exists regarding the magnitude and duration of the economic and social effects of the COVID-19 pandemic, and therefore we cannot predict the full extent of the positive or negative impacts the pandemic will have on our business, operations, and financial results and condition in future periods. In particular, the positive trends on our operating results relating to changes in consumer behaviors relating to the pandemic that we saw in the three months ended March 31, 2021 may not continue at current levels, and could decline in future periods.

Please see “Risk Factors” under Part II, Item 1A for further discussion regarding risks associated with the COVID-19 pandemic.

Components of Our Results of Operations

Net Revenue

We generate net revenue primarily from the sale of meals to customers through our Two-Serving, Four-Serving, and Meal Prep Plans. We also generate net revenue through sales of Blue Apron Wine, and through sales on Blue Apron Market. For each of the three months ending March 31, 2021 and 2020, we derived substantially all of our net revenue from sales of our meals through our direct-to-consumer platform. We deduct promotional discounts, actual customer credits and refunds as well as customer credits and refunds expected to be issued to determine net revenue. Customers who receive a damaged meal or wine order or are dissatisfied with a meal or wine order and contact us within seven days of receipt of the order may receive a full or partial refund, full or partial credit against future purchase, or replacement, at our sole discretion. Credits only remain available for customers who maintain a valid account with us. Customers who return an unused, undamaged Blue Apron Market product within 30 days of receipt receive a full refund.

Our business is seasonal in nature and, as a result, our revenue and expenses and associated revenue trends fluctuate from quarter to quarter. We anticipate that the first quarter of each year will generally represent our strongest quarter in terms of customer engagement. Conversely, during the summer months and the end of year holidays, when people are vacationing more often or have less predictable weekly routines, we generally anticipate lower customer engagement. In 2020 the economic and social impact of the COVID-19 pandemic masked, in part, the seasonal fluctuations in our operating results as we saw our strongest quarter in the second quarter of 2020. We believe that historical seasonal trends have affected and will continue to affect our quarterly results in the future, however, we cannot predict the ongoing impact, if any, that the COVID-19 pandemic may have on seasonality. We also anticipate that our net revenue will be impacted by the timing and success of our ongoing product expansion initiatives.

In addition, our net revenue is impacted by our marketing strategies, including the timing and amount of paid advertising and promotional activity. For example, prior to the impact of the COVID-19 pandemic on demand for our products, our deliberate reduction in marketing expenses to focus on the marketing channels we believe to be the most efficient and target consumers that we believe will exhibit higher affinity and retention negatively impacted our net revenue. In addition, in order to manage heightened demand, we made a decision to temporarily cut back on certain existing product offerings and delay certain future new product offerings to meet increased demand relating to the COVID-19 pandemic, which may impact net revenue in future periods.

Credit card charges are recorded in deferred revenue until the criteria for revenue recognition have been met. Because we generally charge credit cards in advance of shipment and, historically, customers have most frequently requested delivery of their meals earlier in the week, our deferred revenue balance at the end of a financial reporting period may fluctuate significantly based on the day of the week on which that period ends. Consequently, large changes in deferred revenue at any particular time are not meaningful indicators of our financial results or future revenue trends.

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Cost of Goods Sold, excluding Depreciation and Amortization

Cost of goods sold, excluding depreciation and amortization, consists of product and fulfillment costs. Product costs include the cost of food, packaging for food that is portioned prior to delivery to customers, labor and related personnel costs incurred to portion food for our meals, inbound shipping costs, and cost of products sold through Blue Apron Wine and Blue Apron Market. Fulfillment costs consist of costs incurred in the shipping and handling of inventory including the shipping costs to our customers, labor and related personnel costs related to receiving, inspecting, warehousing, picking inventory, and preparing customer orders for shipment, and the cost of packaging materials and shipping supplies. In the near-term we expect that these expenses will be higher because of the various actions taken to increase capacity in our fulfillment centers in response to the COVID-19 pandemic, as well as due to ongoing investments in product innovation to provide product variety, flexibility, and additional choice for our customers. Over time, we expect such expenses to decrease as a percentage of net revenue as we continue to focus on operational improvements and optimizing our fulfillment center operations.

Marketing

Our marketing expenses consist primarily of costs incurred to acquire new customers, retain existing customers, and build our brand awareness through various online and offline paid channels, including digital and social media, television, direct mail, radio and podcasts, email, brand activations, and certain variable and fixed payments to strategic brand partnerships. Also included in marketing expenses are the costs of orders through our customer referral program, in which certain existing customers may invite others to receive a complimentary meal kit, as well as costs paid to third parties to market our products. The cost of the customer referral program is based on our costs incurred for fulfilling a complimentary meal delivery, including product and fulfillment costs.

We expect marketing expenses to continue to comprise a significant portion of our operating expenses in support of our growth strategy, while also continuing to focus on efficiency and our customer acquisition strategy to target consumers that we believe will exhibit high affinity and retention through marketing channels we believe to be the most efficient. We anticipate that our marketing strategies, including the timing and extent of our marketing investments, will be informed by our strategic priorities, including our ability to implement our growth strategy, the sufficiency of our cash resources, the seasonal trends in our business, and the competitive landscape of our market, and will fluctuate from quarter-to-quarter and have a significant impact on our quarterly results of operations. We currently expect that our quarterly marketing expense for each of the remaining three quarters of 2021 will be slightly lower than the seasonally-high level in the first quarter of 2021, as a percentage of net revenue and on an absolute basis, but higher than in each of the quarters in 2020. We also anticipate that our near-term marketing strategies and investments may continue to be impacted by the COVID-19 pandemic, and we may reduce or increase marketing expenditures in future periods to continue to help us manage demand to alleviate future capacity constraints. Additionally, we may reduce or adjust our marketing investments, as needed, to manage liquidity and remain in compliance with the minimum liquidity covenant in our senior secured term loan, or to further increase customer acquisition in order to maintain compliance with the minimum subscription count covenant. See Note 2 and Note 9 to the Consolidated Financial Statements for further discussion on the senior secured term loan.

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Product, Technology, General and Administrative

Product, technology, general and administrative expenses consist of costs related to the development of our products and technology, general and administrative expenses, and overhead expenses, which include: payroll and related expenses for employees involved in the application, production, and maintenance of our platform and other technology infrastructure costs; payroll and related expenses for employees performing corporate and other managerial functions; facilities’ costs such as occupancy and rent costs for our corporate offices and fulfillment centers; and payment processing fees, professional fees, and other general corporate and administrative costs. Over time, we expect such expenses to decrease as a percentage of net revenue reflecting our continued focus on expense management and as we continue to scale our business.

Depreciation and Amortization

Depreciation and amortization consists of depreciation expense for our property and equipment and amortization expense for capitalized software development costs.

Other Operating Expense

Other operating expense includes charges related to the Arlington fulfillment center closure announced in February 2020 partially offset by a non-cash gain, net of a termination fee, on the Fairfield lease termination in March 2020.

Interest Income (Expense), Net

Interest income and expense consists primarily of interest expense on our outstanding borrowings, capital lease financings, and build-to-suit lease financings partially offset by interest income on cash and cash equivalents balances.

Benefit (Provision) for Income Taxes

Our benefit (provision) for income taxes and our effective tax rates are affected by permanent differences between GAAP and statutory tax laws, certain one-time items, and the impact of valuation allowances. For the three months ended March 31, 2021 and 2020, we recorded nominal tax expense, resulting in an effective tax rate of (0.1)% and (0.0)%, respectively. We continue to maintain a valuation allowance for federal and state tax jurisdictions. Our tax provision results from state taxes in a jurisdiction in which net operating losses were not available to offset our tax obligation.

As of December 31, 2020, we had U.S. federal and state net operating loss carryforwards of $397.5 million and $153.2 million, respectively. Of the $397.5 million of federal net operating loss carryforwards, $221.5 million was generated before January 1, 2018 and is subject to a 20-year carryforward period. The remaining $176.0 million can be carried forward indefinitely, but is subject to an 80% taxable income limitation in any future taxable year. The pre-2018 federal and all state net operating losses will begin to expire in 2032 and 2033, respectively, if not utilized.

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Results of Operations

The following sets forth our consolidated statements of operations data for each of the periods indicated:


	Three Months Ended
	March 31,
	2021		2020

	(In thousands)
Net revenue	$	129,706	$	101,857
Operating expenses:
Cost of goods sold, excluding depreciation and amortization		81,592		60,638
Marketing		19,940		15,032
Product, technology, general and administrative		36,551		34,217
Depreciation and amortization		5,620		6,753
Other operating expense		—		3,198
Total operating expenses		143,703		119,838
Income (loss) from operations		(13,997)

Blue Apron Holdings, Inc. (APRN) SEC Filing 10-Q Quarterly Report for the period ending Wednesday, March 31, 2021

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