Blue Apron Holdings, Inc. (APRN) 10-Q Quarterly Report Tue Nov 09 2021

Net revenue for the third quarter 2021 decreased approximately 2% year over year to $109.7 million and increased approximately 10% compared to net revenue in the pre-pandemic third quarter of 2019.

●

Continued year over year growth in Average Order Value, which increased over 6% to $62.30, reflecting the benefit of the company’s growth strategy. Average Order Value, Orders per Customer and Average Revenue per Customer all showed strong growth compared to the pre-pandemic third quarter of 2019, despite modest declines in those metrics from a year ago as seasonality returned.

●

Third quarter 2021 net loss was $27.6 million, inclusive of a non-cash charge of approximately $6.4 million related to the change in fair value of the warrant obligation issued to the company’s lenders. Adjusted EBITDA was a loss of $11.7 million.

●

Subsequent to the third quarter, strengthened balance sheet and significantly improved financial flexibility by completing an equity capital raise with gross proceeds of $78.0 million.

●

Plans to use a portion of the net proceeds from the capital raise to significantly increase investments in marketing initiatives in 2022, primarily to drive new customer growth which is expected to result in at least mid-teens percentage year over year net revenue growth.

●

Announced plans for expanded Environmental, Social and Governance (ESG) initiatives.

New York, NY – November 9, 2021 – Blue Apron Holdings, Inc. (NYSE: APRN) announced today financial results for the quarter ended September 30, 2021.

“Our focus on providing increased variety and flexibility to our customers through the continued roll out of product innovations, including Heat & Eat, our first-ever prepared, single-serving meal, has proven to be successful, as evident in the growth of our Average Order Value (AOV) to a third quarter record of $62.30. We are encouraged by 2021 third quarter net revenue of $109.7 million, which marked a more than 10% increase compared to the third quarter of 2019, which we accomplished despite the return to more normal seasonality experienced in Q3, as well as external challenges related to higher labor, food and logistics costs. We also maintained a strong rate of five orders per customer in the quarter, even as travel was cited by customers as the greatest driver of cycle skips in the third quarter and at the highest level since we started tracking the data,” said Linda Findley, Blue Apron’s President and Chief Executive Officer. “Blue Apron’s attractive customer subscription business model combined with an e-commerce go-to-market strategy positions us to build on the strength of our key customer metrics in order to grow consistently. Customers are now ordering from us over 20 times a year on average and are increasingly adding a broader variety of products to each order. Our focus on leveraging product innovation and flexibility to attract, engage and retain higher-value customers has established a foundation for sustainable strength in our key customer metrics.”

“In the 2021 third quarter, we also announced a $78.0 million equity capital raise, which was completed last week. This provides us with capital to continue to invest in our growth strategies, including further strengthening our market position in 2022 and beyond. Throughout the fourth quarter, we are preparing Blue Apron for a series of aggressive marketing initiatives next year, including spend in new customer acquisition channels. Our marketing investments are primarily focused on accelerating new customer growth in 2022 from our total addressable market, which we have identified as approximately 55 million U.S. households based on our key demographics. We remain focused on expanding our customer base and the ongoing execution of our

The following information was filed by Blue Apron Holdings, Inc. (APRN) on Tuesday, November 9, 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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Table of Contents

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 September 30, 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			24,052,784 shares outstanding as of September 30, 2021
Class B Common Stock, $0.0001 par value			0 shares outstanding as of September 30, 2021
Class C Capital Stock, $0.0001 par value			0 shares outstanding as of September 30, 2021

Table of Contents

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	25
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
	Item 4.	Controls and Procedures	46

PART II		OTHER INFORMATION
	Item 1.	Legal Proceedings	48
	Item 1A.	Risk Factors	49
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	82
	Item 3.	Defaults Upon Senior Securities	83
	Item 4.	Mine Safety Disclosures	83
	Item 5.	Other Information	83
	Item 6.	Exhibits	83

SIGNATURES			85

Table of Contents

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 successfully support the acceleration and execution of our growth strategy (including the ability to successfully increase marketing and technology improvements on our planned timeline), 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 execute operational efficiency practices;

●

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

●

changes in consumer behaviors that could lead to declines in demand, including as the COVID-19 pandemic’s impact on consumer behavior, such as travel and dining out, continues to taper;

●

our ability to attract and retain qualified employees and personnel in sufficient numbers, both generally and in light of ongoing nationwide labor shortages;

●

our expectations regarding, and the stability of, our supply chain, including potential shortages, interruptions and/or increased costs in the supply or delivery of ingredients, and parcel and freight carrier interruptions or delays and/or higher freight or fuel costs, as a result of the COVID-19 pandemic or otherwise;

●

our ability to effectively compete;

●

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

●

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, including as a result of inflation or other negative economic factors, whether as a result of the COVID-19 pandemic or otherwise;

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●

any material and adverse impact of the COVID-19 pandemic on our operations and results, such as the need to cancel or shift customer orders, whether as a result of challenges in employee recruiting and retention, any prolonged closures, or series of temporary closures, of one or both of our fulfillment centers, or supply chain or carrier interruptions or delays;

●

our ability, including the timing and extent, to sufficiently manage costs and to fund investments in our operations in amounts necessary to maintain compliance with financial and other covenants under our indebtedness while continuing to support the execution and acceleration of our growth strategy;

●

our ability to comply with modified or new laws and regulations applying to our business, or the impact that such compliance may have on our business;

●

our ability to achieve our environmental, sustainability and corporate governance goals and to adopt our planned corporate governance reforms, in our anticipated timeframe or at all;

●

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)



	September 30,		December 31,
	2021		2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	35,282	$	44,122
Accounts receivable, net		146		116
Inventories, net		23,257		18,185
Prepaid expenses and other current assets		12,624		23,651
Total current assets		71,309		86,074
Property and equipment, net		112,656		125,208
Other noncurrent assets		4,063		4,053
TOTAL ASSETS	$	188,028	$	215,335
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	36,572	$	23,691
Accrued expenses and other current liabilities		24,948		41,632
Current portion of long-term debt		3,500		3,500
Deferred revenue		5,345		6,269
Warrant obligation		7,003		—
Total current liabilities		77,368		75,092
Long-term debt		26,487		28,747
Facility financing obligation		35,913		35,957
Other noncurrent liabilities		14,289		11,564
TOTAL LIABILITIES		154,057		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 September 30, 2021 and December 31, 2020; 24,052,784 and 14,365,664 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		2		1
Class B common stock, par value of $0.0001 per share — 175,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 0 and 3,493,791 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		—		1
Class C capital stock, par value of $0.0001 per share — 500,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020		—		—
Additional paid-in capital		674,046		642,106
Accumulated deficit		(640,077)		(578,133)
TOTAL STOCKHOLDERS’ EQUITY		33,971		63,975
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	188,028	$	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				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net revenue	$	109,654	$	112,253	$	363,370	$	345,150
Operating expenses:
Cost of goods sold, excluding depreciation and amortization		73,397		74,499		232,574		213,005
Marketing		14,852		10,862		51,108		37,455
Product, technology, general and administrative		35,237		33,687		108,590		100,397
Depreciation and amortization		5,507		5,871		16,739		18,799
Other operating expense		—		1,100		—		4,567
Total operating expenses		128,993		126,019		409,011		374,223
Income (loss) from operations		(19,339)		(13,766)		(45,641)		(29,073)
Gain (loss) on extinguishment of debt		—		—		(4,089)		—
Interest income (expense), net		(1,864)		(1,482)		(6,303)		(5,178)
Other income (expense), net		(6,432)		—		(5,884)		—
Income (loss) before income taxes		(27,635)		(15,248)		(61,917)		(34,251)
Benefit (provision) for income taxes		(1)		(14)		(27)		(42)
Net income (loss)	$	(27,636)	$	(15,262)	$	(61,944)	$	(34,293)

Net income (loss) per share attributable to Class A and Class B common stockholders:
Basic	$	(1.17)	$	(0.96)	$	(3.07)	$	(2.41)
Diluted	$	(1.17)	$	(0.96)	$	(3.07)	$	(2.41)
Weighted-average shares used to compute net income (loss) per share attributable to Class A and Class B common stockholders:
Basic		23,709,639		15,861,948		20,196,442		14,206,273
Diluted		23,709,639		15,861,948		20,196,442		14,206,273

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
Conversion from Class B to Class A common stock	83		0	(83)		(0)		—		—		—
Issuance of common stock upon exercise of stock options and vesting of restricted stock, net of tax withholdings	138,389		0	—		—		0		—		—
Issuance of common stock, net of offering costs	5,411,900		1	—		—		21,143		—		21,144
Share-based compensation	—		—	—		—		3,300		—		3,300
Net income (loss)	—		—	—		—		—		(18,587)		(18,587)
Balance — June 30, 2021	20,207,631	$	2	3,393,708	$	1	$	668,915	$	(612,441)	$	56,477
Conversion from Class B to Class A common stock	3,393,708		0	(3,393,708)		(1)		—		—		(1)
Issuance of common stock upon exercise of stock options and vesting of restricted stock, net of tax withholdings	151,445		0	—		—		—		—		—
Issuance of common stock from the Salzberg Private Placement, net of issuance costs	300,000		0	—		—		2,799		—		2,799
Share-based compensation	—		—	—		—		2,332		—		2,332
Net income (loss)	—		—	—		—		—		(27,636)		(27,636)
Balance — September 30, 2021	24,052,784	$	2	—	$	—		674,046		(640,077)		33,971

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
Conversion from Class B to Class A common stock	101		0	(101)		(0)		—		—		—
Issuance of common stock upon exercise of stock options and vesting of restricted stock, net of tax withholdings	159,260		0	—		—		0		—		—
Share-based compensation	—		—	—		—		2,094		—		2,094
Net income (loss)	—		—	—		—		—		1,114		1,114
Balance — June 30, 2020	9,886,644	$	1	3,654,147	$	1	$	604,877	$	(551,010)	$	53,869
Conversion from Class B to Class A common stock	327		0	(327)		(0)		—		—		—
Issuance of common stock upon exercise of stock options and vesting of restricted stock, net of tax withholdings	145,015		0	—		—		(7)		—		(7)
Issuance of common stock, net of offering costs	4,000,000		0	—		—		32,867		—		32,867
Share-based compensation	—		—	—		—		2,181		—		2,181
Net income (loss)	—		—	—		—		—		(15,262)		(15,262)
Balance — September 30, 2020	14,031,986	$	1	3,653,820	$	1	$	639,918	$	(566,272)	$	73,648

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)


	Nine Months Ended
	September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(61,944)	$	(34,293)
Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:
Depreciation and amortization of property and equipment		16,739		18,799
Loss (gain) on disposal of property and equipment		(1,025)		—
Loss (gain) on build-to-suit accounting derecognition		—		(4,936)
Loss on impairment		—		7,662
Loss on extinguishment of debt		4,089		—
Change in fair value of warrant obligation		5,884		—
Changes in reserves and allowances		49		(235)
Share-based compensation		7,631		6,338
Non-cash interest expense		1,092		546
Changes in operating assets and liabilities:
Accounts receivable		(30)		136
Inventories		(5,356)		6,326
Prepaid expenses and other current assets		10,534		(13,966)
Accounts payable		13,001		3,388
Accrued expenses and other current liabilities		(16,460)		4,249
Deferred revenue		(924)		(347)
Other noncurrent assets and liabilities		(676)		2,281
Net cash from (used in) operating activities		(27,396)		(4,052)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(4,084)		(4,777)
Proceeds from sale of property and equipment		1,356		165
Net cash from (used in) investing activities		(2,728)		(4,612)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of offering costs		21,144		32,867
Proceeds from the Salzberg Private Placement, net of issuance costs		2,799		—
Receipt of funds held in escrow		5,000		—
Release of funds held in escrow		(5,000)		—
Repayments of debt		(2,625)		(10,846)
Payments of debt issuance costs		(214)		—
Proceeds from exercise of stock options		—		477
Principal payments on capital lease obligations		(101)		(166)
Net cash from (used in) financing activities		21,003		22,332
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH		(9,121)		13,668
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period		45,842		46,443
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period	$	36,721	$	60,111

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	61	$	60
Cash paid for interest	$	4,977	$	4,991
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Acquisition (disposal) of property and equipment financed under capital lease obligations	$	—	$	(565)
Non-cash additions to property and equipment	$	391	$	261
Purchases of property and equipment in Accounts payable and Accrued expenses and other current liabilities	$	392	$	119

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 (the “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 September 30, 2021 and December 31, 2020, results of operations for the three months and nine months ended September 30, 2021 and 2020, and cash flows for the nine months ended September 30, 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, except those additional significant policies as described within the accompanying notes to the Consolidated Financial Statements.

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”).

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, the fair value of share-based awards, the fair value of the Blue Torch warrant obligation (discussed in Note 14), 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.

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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, 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, and ASU No. 2021-05, Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments. 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 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 adoption of this guidance is not expected to have a material impact on the Company’s 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.

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In March 2020, the FASB issued Accounting Standards Update No. 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 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:


	September 30,		December 31,
	2021		2020

	(In thousands)
Fulfillment	$	2,839	$	3,366
Product		20,418		14,819
Inventories, net	$	23,257	$	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:


	September 30,		December 31,
	2021		2020

	(In thousands)
Insurance proceeds receivable	$	—	$	11,250
Prepaid insurance		7,125		7,092
Other current assets		5,499		5,309
Prepaid expenses and other current assets	$	12,624	$	23,651

Estimated insurance proceeds recoveries 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.

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 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.

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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:


	September 30,		December 31,
	2021		2020

	(in thousands)
Cash and cash equivalents	$	35,282	$	44,122
Restricted cash included in Prepaid expenses and other current assets		279		610
Restricted cash included in Other noncurrent assets		1,160		1,110
Total cash, cash equivalents, and restricted cash	$	36,721	$	45,842

	September 30,		December 31,
	2020		2019

	(in thousands)
Cash and cash equivalents	$	58,722	$	43,531
Restricted cash included in Prepaid expenses and other current assets		279		—
Restricted cash included in Other noncurrent assets		1,110		2,912
Total cash, cash equivalents, and restricted cash	$	60,111	$	46,443

6. Property and Equipment, Net

Property and equipment, net consists of the following:


	September 30,		December 31,
	2021		2020

	(In thousands)
Computer equipment	$	11,450	$	11,110
Capitalized software		23,490		21,318
Fulfillment equipment		52,064		51,096
Furniture and fixtures		2,730		3,408
Leasehold improvements		32,331		32,969
Buildings⁽¹⁾		114,877		114,877
Construction in process		1,553		1,442
Property and equipment, gross		238,495		236,220
Less: accumulated depreciation and amortization		(125,839)		(111,012)
Property and equipment, net	$	112,656	$	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 September 30, 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 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

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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 $11.7 million and the fair value was $4.1 million as of the impairment date, resulting in an impairment of $7.6 million, primarily consisting of leasehold improvements and equipment, recorded in Other operating expense during the nine months ended September 30, 2020.

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. Additionally, in May 2021, the Company entered into an agreement to sublease the remainder of its Arlington fulfillment center. The sublease continues through the duration of the Company’s existing lease for the fulfillment center and entitles the Company to future minimum sublease payments of approximately $2.4 million as of September 30, 2021. The Company has non-cancelable future minimum lease payments of approximately $1.4 million to the original lessor of the fulfillment center as of September 30, 2021.

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:


	September 30,		December 31,
	2021		2020

	(In thousands)
Accrued compensation	$	11,178	$	17,189
Accrued credits and refunds reserve		1,312		1,547
Accrued legal settlements		—		12,250
Accrued marketing expenses		2,155		2,006
Accrued shipping expenses		2,363		2,060
Other current liabilities		7,940		6,580
Accrued expenses and other current liabilities	$	24,948	$	41,632

Accrued legal settlements reflect contingencies for which the Company has concluded the loss is probable and reasonably estimable. As of December 31, 2020, 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 as of December 31, 2020. The insurance proceeds receivable was recovered in full by the Company in the second quarter of 2021 following final resolution of the case. See Note 10 for further discussion of the accrued legal settlements.

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8. Deferred Revenue

Deferred revenue consists of the following:


	September 30,		December 31,
	2021		2020

	(In thousands)
Cash received prior to fulfillment	$	3,349	$	1,550
Gift cards, prepaid orders, and other		1,996		4,719
Deferred revenue	$	5,345	$	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 $5.3 million and $6.3 million as of September 30, 2021 and December 31, 2020, respectively. During the nine months ended September 30, 2021, the Company recognized $5.1 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 2021.

On October 16, 2020 (the “effective date”), the Company entered into a financing agreement which provided 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 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.

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)

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

(ii)

increased 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)

waived the requirement that the borrower prepay the 2020 Term Loan with 50% of the proceeds of equity issuances, provided that the waiver expired 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;

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(iv)

required 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 applied to the 2021 Term Loan); and

(v)

reduced 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 proceeds of the 2021 Term Loan were held in an escrow account and were considered qualified cash for purposes of the minimum liquidity covenant.

Pursuant to the Amendment, the net proceeds of the June 2021 offering (discussed in Note 11) were not subject to the mandatory prepayment provision of the 2020 Term Loan. However, the Amendment required that the 2021 Term Loan be released in full from escrow to the lenders upon completion of the June 2021 offering, upon which the minimum liquidity covenant was reset to $20.0 million at all times. The Company also repaid $0.5 million of the $1.0 million closing fee charged under the Amendment, which (i) bore interest at the same rate as of the 2021 Term Loan, and (ii) 50% of which was forgiven because the 2021 Term Loan was repaid within 60 days after the closing date.

As of September 30, 2021, the 2020 Term Loan bore interest at a rate equal to LIBOR (subject to a 1.50% floor) plus 9.00% 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 the Amendment, the Company agreed to prospectively grant warrants (the “Blue Torch warrant obligation”) to the lenders. Under the terms of the Blue Torch warrant obligation, so long as the 2020 Term Loan remains 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 shares of common stock of the Company, on a fully-diluted basis. Subject to limited exceptions, subsequent to their respective issuance date 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 applicable issuance date in accordance with the Amendment. 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 Blue Torch warrant obligation was accounted for in accordance with ASC 815-40, Contracts in an Entity’s Own Equity, as a liability recognized at fair value as of the closing date, due to certain settlement provisions within the corresponding warrant obligation provisions under the financing agreement that do not meet the criteria to be classified in stockholders’ equity. The short-term portion of warrants to be issued, as well as the portion of warrants issued and exercisable for shares of Class A common stock, under the Blue Torch warrant obligation were recorded within Warrant Obligation, and the long-term portion within Other noncurrent liabilities on the Consolidated Balance Sheets. The Blue Torch warrant obligation is remeasured to fair value at each balance sheet date, with changes in fair value recorded in Other income (expense), net in the Consolidated Statements of Operations.

The Company evaluated the Amendment under ASC 470-50, Modifications and Extinguishments, which states that if the modification of the terms of an existing debt agreement is considered substantial, the transaction shall be accounted for as an extinguishment, with the amended debt instrument then initially recorded at fair value. The Company concluded that the modification was considered substantial, and qualified for extinguishment accounting under such guidance. Accordingly, the Company recorded a $4.1 million extinguishment loss in the Consolidated Statements of Operations, which consisted of (i) a $4.6 million loss related to the contemporaneous issuance of the Blue Torch warrant obligation, as discussed above, (ii) a $0.1 million loss related to fees paid on behalf of the lender, partially offset by (iii) a $0.6 million gain related to the difference between the fair value of the modified debt instrument and the net carrying value of the debt immediately before extinguishment.

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In connection with the extinguishment accounting, the Company derecognized all related unamortized debt issuance costs, and simultaneously recorded additional debt issuance costs of $2.0 million within 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:


	September 30,			December 31,
	2021

Blue Apron Holdings, Inc. (APRN) SEC Filing 10-Q Quarterly Report for the period ending Thursday, September 30, 2021

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