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, 2022.
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-38134
Blue Apron Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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.
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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 | 39,578,600 shares outstanding as of October 15, 2022 | |||
Class B Common Stock, $0.0001 par value | 0 shares outstanding as of October 15, 2022 | |||
Class C Capital Stock, $0.0001 par value | 0 shares outstanding as of October 15, 2022 | |||
BLUE APRON HOLDINGS, INC.
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | ||||
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1
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans, and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:
| ● | the sufficiency of our cash resources and ability to operate as a going concern in the event that the RJB Partners, LLC private placement and the Joseph N. Sanberg affiliate gift card transaction do not close or we are unable to realize the anticipated benefits from identified, and to be identified, expense reductions or alternative financing options are not identified and consummated, our expectations regarding its expenses and revenue, our ability to foreclose upon the pledged securities securing the RJB private placement obligation in a private or other sale and receive proceeds sufficient to satisfy amounts owed to us from Mr. Sanberg’s affiliates, the outcome of discussions with our lenders in the event we breach a covenant under our note purchase agreement; 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 of our growth strategy on our anticipated timelines; |
| ● | our ability, including the timing and extent, to successfully support the execution of our growth strategy, (including the ability to successfully increase marketing and technology improvements on our planned timeline, if at all), our ability to cost-effectively attract new customers and retain existing customers, including our ability to sustain any increase in demand, our ability to continue to expand our product offerings and distribution channels, our ability to sustain any increase in demand and/or our ability to continue to execute operational efficiency practices; |
| ● | our expectations regarding, and the stability of, our supply chain, including potential shortages, interruptions or continued 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 inflation or otherwise; |
| ● | our ability to further invest in marketing; changes in consumer behaviors, tastes, and preferences that could lead to changes in demand, including as a result of, among other things, the impact of inflation or other macroeconomic factors¸ and to some extent, long-term impacts on consumer behavior, and spending habits; |
| ● | our ability to attract and retain qualified employees and personnel in sufficient numbers; |
2
| ● | our ability to effectively compete; |
| ● | our ability to maintain and grow the value of our brand and reputation; |
| ● | any material and adverse impact of any resurgences and/or new variants of the COVID-19 virus on our operations and results, such as challenges in employee recruiting and retention, any prolonged closures, or series of temporary closures, of one or both of our fulfillment centers, supply chain or carrier interruptions or delays, and any resulting need to cancel or shift customer orders; |
| ● | our ability to achieve our environmental, sustainability and corporate governance goals (“ESG”) on our anticipated timeframe, if at all; |
| ● | our ability to maintain food safety and prevent food-borne illness incidents and our susceptibility to supplier-initiated recalls; |
| ● | 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 vulnerability to adverse weather conditions, natural disasters, wars, and public health crises, including pandemics; |
| ● | our ability to protect the security and integrity of our data and protect against data security risks and breaches; and |
| ● | our ability to obtain and maintain intellectual property protection. |
While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.
3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BLUE APRON HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands, except share and per-share data)
(Unaudited)
September 30, | December 31, | ||||
2022 | 2021 | ||||
ASSETS |
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CURRENT ASSETS: |
|
|
| ||
Cash and cash equivalents | $ | 30,977 | $ | 82,160 | |
Accounts receivable, net |
| 19 |
| 234 | |
Inventories, net |
| 30,789 |
| 24,989 | |
Prepaid expenses and other current assets |
| 18,023 |
| 12,249 | |
Total current assets |
| 79,808 |
| 119,632 | |
Property and equipment, net |
| 97,346 |
| 108,355 | |
Other noncurrent assets |
| 6,984 |
| 3,719 | |
TOTAL ASSETS | $ | 184,138 | $ | 231,706 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable | $ | 29,002 | $ | 27,962 | |
Current portion of related party payables | 3,000 | — | |||
Current portion of long-term debt | — | 3,500 | |||
Accrued expenses and other current liabilities |
| 28,955 |
| 31,951 | |
Deferred revenue |
| 20,866 |
| 7,958 | |
Warrant obligation | — | 8,001 | |||
Total current liabilities |
| 81,823 |
| 79,372 | |
Long-term debt | 27,365 | 25,886 | |||
Facility financing obligation | 35,799 | 35,886 | |||
Related party payables | 2,500 | — | |||
Other noncurrent liabilities |
| 8,359 |
| 10,509 | |
TOTAL LIABILITIES |
| 155,846 |
| 151,653 | |
Commitments and contingencies (Note 10) |
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STOCKHOLDERS’ EQUITY: |
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Class A common stock, par value of $0.0001 per share — 1,500,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 34,955,828 and 31,694,400 shares and as of September 30, 2022 and December 31, 2021, respectively | 3 | 3 | |||
Class B common stock, par value of $0.0001 per share — 175,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021 |
| — |
| — | |
Class C capital stock, par value of $0.0001 per share — 500,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021 | — | — | |||
Additional paid-in capital |
| 782,125 |
| 746,564 | |
Accumulated deficit |
| (753,836) |
| (666,514) | |
TOTAL STOCKHOLDERS’ EQUITY |
| 28,292 |
| 80,053 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 184,138 | $ | 231,706 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
4
BLUE APRON HOLDINGS, INC.
Consolidated Statements of Operations
(In thousands, except share and per-share data)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net revenue | $ | 109,665 | $ | 109,654 | $ | 351,653 | $ | 363,370 | |||
Operating expenses: | |||||||||||
Cost of goods sold, excluding depreciation and amortization |
| 74,367 |
| 73,397 |
| 235,015 |
| 232,574 | |||
Marketing |
| 17,291 |
| 14,852 |
| 66,981 |
| 51,108 | |||
Product, technology, general and administrative |
| 36,980 |
| 35,237 |
| 118,747 |
| 108,590 | |||
Depreciation and amortization | 5,350 | 5,507 | 16,218 | 16,739 | |||||||
Total operating expenses |
| 133,988 |
| 128,993 |
| 436,961 |
| 409,011 | |||
Income (loss) from operations |
| (24,323) |
| (19,339) |
| (85,308) |
| (45,641) | |||
Gain (loss) on extinguishment of debt | — | — | 650 | (4,089) | |||||||
Interest income (expense), net | (1,416) | (1,864) | (4,621) | (6,303) | |||||||
Other income (expense), net |
| — |
| (6,432) |
| 2,033 |
| (5,884) | |||
Income (loss) before income taxes |
| (25,739) |
| (27,635) |
| (87,246) |
| (61,917) | |||
Benefit (provision) for income taxes |
| (11) |
| (1) |
| (76) |
| (27) | |||
Net income (loss) | $ | (25,750) | $ | (27,636) | $ | (87,322) | $ | (61,944) | |||
Net income (loss) per share attributable to Class A and Class B common stockholders: | |||||||||||
Basic | $ | (0.74) | $ | (1.17) | $ | (2.59) | $ | (3.07) | |||
Diluted | $ | (0.74) | $ | (1.17) | $ | (2.59) | $ | (3.07) | |||
Weighted-average shares used to compute net income (loss) per share attributable to Class A and Class B common stockholders: | |||||||||||
Basic | 34,853,137 | 23,709,639 | 33,747,813 | 20,196,442 | |||||||
Diluted | 34,853,137 | 23,709,639 | 33,747,813 | 20,196,442 | |||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
5
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 | ||||||
2022 | ||||||||||||||||||
Balance — December 31, 2021 | 31,694,400 | $ | 3 | — | $ | — | $ | 746,564 | $ | (666,514) | $ | 80,053 | ||||||
Issuance of common stock upon exercise of stock options and vesting of restricted stock, net of tax withholdings | 120,981 | 0 | — | — | 0 | — | — | |||||||||||
Issuance of common stock upon exercise of warrants | 488,055 | 0 | — | — | 4,096 | — | 4,096 | |||||||||||
Issuance of common stock from the February 2022 Private Placement, net of issuance costs | 357,143 | 0 | — | — | 4,809 | — | 4,809 | |||||||||||
Share-based compensation | — | — | — | — | 2,233 | — | 2,233 | |||||||||||
Net income (loss) | — | — | — | — | — | (38,449) | (38,449) | |||||||||||
Balance — March 31, 2022 | 32,660,579 | $ | 3 | — | $ | — | $ | 757,702 | $ | (704,963) | $ | 52,742 | ||||||
Issuance of common stock upon exercise of stock options and vesting of restricted stock, net of tax withholdings | 191,487 | 0 | — | — | 0 | — | — | |||||||||||
Issuance of common stock upon exercise of warrants | 235,329 | 0 | — | — | 953 | — | 953 | |||||||||||
Issuance of common stock from the April 2022 Private Placements, net of issuance costs | 1,708,332 | 0 | — | — | 20,027 | — | 20,027 | |||||||||||
Share-based compensation | — | — | — | — | 1,799 | — | 1,799 | |||||||||||
Net income (loss) | — | — | — | — | — | (23,123) | (23,123) | |||||||||||
Balance — June 30, 2022 | 34,795,727 | $ | 3 | — | $ | — | $ | 780,481 | $ | (728,086) | $ | 52,398 | ||||||
Issuance of common stock upon exercise of stock options and vesting of restricted stock, net of tax withholdings | 160,101 | 0 | — | — | 0 | — | — | |||||||||||
Share-based compensation | — | — | — | — | 1,644 | — | 1,644 | |||||||||||
Net income (loss) | — | — | — | — | — | (25,750) | (25,750) | |||||||||||
Balance — September 30, 2022 | 34,955,828 | $ | 3 | — | $ | — | $ | 782,125 | $ | (753,836) | $ | 28,292 | ||||||
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 issuance 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 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 | |||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
6
BLUE APRON HOLDINGS, INC.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended | ||||||
September 30, | ||||||
2022 |
| 2021 | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
Net income (loss) | $ | (87,322) | $ | (61,944) | ||
Adjustments to reconcile net income (loss) to net cash from (used in) operating activities: | ||||||
Depreciation and amortization of property and equipment |
| 16,218 |
| 16,739 | ||
Loss (gain) on disposal of property and equipment |
| 135 |
| (1,025) | ||
Loss (gain) on extinguishment of debt | (650) | 4,089 | ||||
Loss (gain) upon derecognition of Blue Torch warrant obligation | (214) | — | ||||
Changes in fair value of warrant obligation | (1,819) | 5,884 | ||||
Changes in reserves and allowances |
| (183) |
| 49 | ||
Share-based compensation |
| 5,384 |
| 7,631 | ||
Non-cash interest expense | 597 | 1,092 | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable |
| 210 |
| (30) | ||
Inventories |
| (5,623) |
| (5,356) | ||
Prepaid expenses and other current assets |
| (6,188) |
| 10,534 | ||
Accounts payable |
| 1,028 |
| 13,001 | ||
Current portion of related party payables | 3,000 | — | ||||
Accrued expenses and other current liabilities |
| (4,296) |
| (16,460) | ||
Deferred revenue |
| 12,908 |
| (924) | ||
Related party payables | (3,828) | — | ||||
Other noncurrent assets and liabilities |
| 2,500 |
| (676) | ||
Net cash from (used in) operating activities |
| (68,143) |
| (27,396) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||
Purchases of property and equipment |
| (4,708) |
| (4,084) | ||
Proceeds from sale of property and equipment | 166 | 1,356 | ||||
Net cash from (used in) investing activities |
| (4,542) |
| (2,728) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
Net proceeds from debt issuances | 28,200 | — | ||||
Net proceeds from equity and warrant issuances | 25,500 | 24,571 | ||||
Repayments of debt | (30,625) | (2,625) | ||||
Payments of debt and equity issuance costs | (1,452) | (842) | ||||
Receipt of funds held in escrow | — | 5,000 | ||||
Release of funds held in escrow | — | (5,000) | ||||
Principal payments on capital lease obligations |
| (120) |
| (101) | ||
Net cash from (used in) financing activities |
| 21,503 |
| 21,003 | ||
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH |
| (51,182) |
| (9,121) | ||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period |
| 83,597 |
| 45,842 | ||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period | $ | 32,415 | $ | 36,721 | ||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||
Cash paid for income taxes, net of refunds | $ | 65 | $ | 61 | ||
Cash paid for interest | $ | 4,091 | $ | 4,977 | ||
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION: | ||||||
Acquisition (disposal) of property and equipment financed under capital lease obligations | $ | 325 | $ | — | ||
Non-cash additions to property and equipment | $ | 299 | $ | 391 | ||
Purchases of property and equipment in Accounts payable and Accrued expenses | $ | 449 | $ | 392 | ||
The accompanying notes are an integral part of these Consolidated Financial Statements.
7
BLUE APRON HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Description of Business
When used in these notes, Blue Apron Holdings, Inc. and its subsidiaries are collectively referred to as the “Company.”
The Company 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, 2022 and December 31, 2021, results of operations for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. 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, 2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2022 (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”).
Liquidity and Going Concern Evaluation
Under Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company is required to evaluate whether there is substantial doubt regarding its ability to continue as a going concern each reporting period, including interim periods.
In this evaluation, management considered the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within twelve months of the issuance date of this Quarterly Report on Form 10-Q, and considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows, and the Company’s conditional and unconditional obligations before such date.
8
Results and Liquidity
The Company has a history of significant net losses, including $87.3 million and $61.9 million for the nine months ended September 30, 2022, and 2021, respectively, and operating cash flows of $(68.1) million and $(27.4) million for the nine months ended September 30, 2022, and 2021, respectively. The Company's current operating plan indicates it will continue to incur net losses and generate negative cash flows from operating activities.
As of September 30, 2022, the Company had cash and cash equivalents of $31.0 million and total outstanding debt of $27.4 million, net of unamortized debt issuance costs, all of which was classified as long-term debt. On October 6, 2022, the Company completed an “at-the-market” equity offering, pursuant to its universal shelf registration statement filed with the SEC on April 29, 2020. As a result of the offering, the Company issued and sold 4,622,772 shares of its Class A common stock, resulting in approximately $14.1 million of proceeds, net of commissions and offering costs.
Debt Covenants
On May 5, 2022, the Company entered into a note purchase and guarantee agreement (the “note purchase agreement”), the proceeds of which were used, together with cash on hand, to repay in full and terminate its previous financing agreement. The note purchase agreement contains two financial maintenance covenants: (i) a minimum liquidity covenant that is set between $15.0 million and $25.0 million, depending on the results of the most recently performed Asset Valuation (as defined in the note purchase agreement), for any date subsequent to June 30, 2022, including within required cash flow forecasts provided to the noteholders, and (ii) a covenant requiring a minimum Asset Coverage Ratio (as defined in the note purchase agreement) of at least 1.25 to 1.00.
As a result of the Company’s initial Asset Valuation completed on August 31, 2022, the minimum liquidity covenant is currently set at $25.0 million. The Company was in compliance with all of the covenants under the note purchase agreement as of September 30, 2022.
RJB Private Placement
On April 29, 2022, the Company entered into a purchase agreement with RJB Partners LLC (“RJB”)(the “RJB Purchase Agreement”), an affiliate of Joseph N. Sanberg, an existing stockholder of the Company. Under the agreement, the Company agreed to issue and sell 3,333,333 shares of Class A common stock for an aggregate purchase price of $40.0 million (or $12.00 per share), of which 1,666,666 shares of Class A common stock were issued and sold to an affiliate of Joseph N. Sanberg for an aggregate purchase price of $20.0 million concurrently with the execution of the agreement, and with the remainder to be issued and sold under a second closing, initially expected to close by May 30, 2022 or such other date as agreed to by the parties.
On August 7, 2022, the Company amended the RJB Purchase Agreement, pursuant to which RJB agreed to purchase from the Company (i) the 1,666,667 shares of Class A common stock remaining to be issued and sold under the initial RJB Purchase Agreement at a $5.00 price per share, instead of $12.00 per share, and (ii) an additional 8,333,333 shares of Class A common stock at a $5.00 price per share (the “RJB Second Closing”). Upon execution, the RJB Second Closing comprised in the aggregate a purchase price of $50.0 million and 10,000,000 shares of Class A common stock to be issued and sold, as well as agreeing to extend the date of the second closing to on or before August 31, 2022. In addition, pursuant to the amendment, Joseph N. Sanberg agreed to personally guarantee the payment of the aggregate purchase price.
On September 7, 2022, the Company further amended the RJB Purchase Agreement to extend the RJB Second closing date to September 30, 2022 or such earlier date as may be agreed to by the Company and RJB, and to change the price per share to $5.65 for the purchase of the 10,000,000 shares of Class A common stock remaining to be sold and issued, for an aggregate purchase price of $56.5 million (the “Outstanding Obligated Amount”).
On November 6, 2022, the Company entered into an agreement (the “Pledge Agreement”) with an affiliate of Joseph N. Sanberg, pursuant to which the Sanberg affiliate (i) guaranteed the Outstanding Obligated Amount and (ii) granted the Company security interests in certain privately-held companies (the “Pledged Shares”) in order to secure its obligation to pay the Outstanding Obligated Amount. If the Outstanding Obligated Amount remains unpaid after
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November 30, 2022, or if the Sanberg affiliate breaches the Pledge Agreement prior to that date, the Company is permitted to exercise remedies in respect to the Pledged Shares.
See Note 16 for further details regarding the Pledge Agreement.
The RJB Second Closing has not closed as of the date of this Quarterly Report on Form 10-Q.
Sponsorship Gift Cards
On May 5, 2022, the Company entered into a gift card sponsorship agreement with an affiliate of Joseph N. Sanberg (the “Sponsorship Gift Cards Agreement”), pursuant to which such affiliate agreed to pay the Company a $20.0 million net sponsorship fee to support a marketing program through which the Company will distribute gift cards (the “May Sponsorship Gift Cards”), at the Company’s sole discretion, in order to support its growth strategy. On August 7, 2022, the Company amended the Sponsorship Gift Cards Agreement to extend the funding date to on or before August 31, 2022, and pursuant to which, Joseph N. Sanberg personally guaranteed his affiliate’s obligation.
On September 7, 2022, the Sponsorship Gift Cards Agreement was further amended to reduce the net sponsorship fee to $18.5 million and extend its due date to September 19, 2022. As of the date of this Quarterly Report on Form 10-Q, the Sanberg affiliate has paid $5.6 million of its commitment under said agreement, with $12.9 million remaining to be paid.
Management Evaluation
Without the liquidity provided by the RJB Second Closing and the funding of the remainder of the Sponsorship Gift Cards Agreement (collectively, the “liquidity transactions”), the Company's forecast of future cash flows indicates that such cash flows would not be sufficient for the Company to maintain compliance under its minimum liquidity covenant throughout the second half of the fourth quarter of 2022, which would result in an event of default under the note purchase agreement. Upon such event of default, the noteholders could declare all outstanding principal and interest be due and payable immediately and foreclose against the assets securing the borrowings. If the Company would be unable to obtain a waiver or successfully renegotiate the terms of its note purchase agreement, and the noteholders enforced one or more of their rights upon default, the Company would be unable to meet its current obligations.
While management was able to obtain personal guarantees from Joseph N. Sanberg relating to his affiliates’ obligations to fund the liquidity transactions via the executed amendments above, as well as the Pledged Shares from a Sanberg affiliate, there is no assurance that the liquidity transactions will be consummated in a timely manner, or that we will be able to sell the Pledged Shares in amounts that are sufficient to maintain the Company's compliance under its minimum liquidity covenant, or on terms acceptable to the Company, or at all.
Although the Company has been reviewing a number of potential alternatives regarding maintaining compliance with its minimum liquidity covenant, including cost reduction initiatives, renegotiating the terms of its note purchase agreement, and/or alternative sources for additional financing, such alternatives may not be achievable on favorable conditions, or at all, and these conditions and events in the aggregate raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s Consolidated Financial Statements do not include any adjustments that may result from the outcome of this uncertainty and have been prepared assuming the Company will 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, the fair value of share-based awards, the fair value of the Blue Torch warrant obligation, 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
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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. This classification has allowed the Company to elect to take advantage of the extended transition period afforded for the implementation of new or revised accounting standards. The Company expects to lose its emerging growth company status on December 31, 2022, and as a result, will adopt all accounting pronouncements currently deferred under the emerging growth company election according to public company standards beginning with its Annual Report on Form 10-K for the year ending December 31, 2022, including interim period disclosures within that filing. The adoption dates for the new accounting pronouncements disclosed below have been presented accordingly.
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 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 adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
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3. Inventories, Net
Inventories, net consist of the following:
September 30, | December 31, | ||||
2022 |
| 2021 | |||
(In thousands) | |||||
Fulfillment | $ | 2,751 | $ | 1,879 | |
Product |
| 28,038 |
| 23,110 | |
Inventories, net | $ | 30,789 | $ | 24,989 | |
Product inventory primarily consists of bulk and prepped food, containers, pre-made meals, 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, | ||||
2022 |
| 2021 | |||
(In thousands) | |||||
Prepaid insurance | $ | 6,805 | $ | 6,929 | |
Other current assets |
| 11,218 |
| 5,320 | |
Prepaid expenses and other current assets | $ | 18,023 | $ | 12,249 | |
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.
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:
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6. Property and Equipment, Net
Property and equipment, net consists of the following:
| (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, 2022 and December 31, 2021, contained $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. The Company capitalized the cost of interest for the related construction projects based on the applicable capitalization rate for the project. |
| (2) | Construction in process includes all costs capitalized related to projects that have not yet been placed in service. |
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
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8. Deferred Revenue
Deferred revenue consists of the following:
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 Sheets, 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 Sheets, 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 $20.9 million and $8.0 million as of September 30, 2022 and December 31, 2021, respectively. During the nine months ended September 30, 2022, the Company recognized $6.6 million to Net revenue from the Deferred revenue as of December 31, 2021.
See Notes 2 and 13 for further information regarding the March Sponsorship Gift Cards and May Sponsorship Gift Cards.
9. Debt
2020 and 2021 Term Loans
On October 16, 2020, the Company entered into a financing agreement which provided for a senior secured term loan in the aggregate principal amount of $35.0 million (the “2020 Term Loan”). The 2020 Term Loan bore interest at a rate equal to LIBOR (subject to a 1.50% floor) plus 8.00% per annum, with the principal amount repayable in equal quarterly installments of $875,000 through December 31, 2022, and the remaining unpaid principal amount of the 2020 Term Loan due on March 31, 2023.
2020 Term Loan Amendment and Debt Extinguishment
On May 5, 2021 (the “closing date”), the Company amended the financing agreement (the “May 2021 Amendment”), which modified certain provisions of the financing agreement, such as increasing 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. In addition, the amendment provided for a $5.0 million term loan (the “2021 Term Loan”) that was funded into an escrow account and subsequently released in full from the escrow account to the lenders upon the Company’s completion of an underwritten public offering in June 2021.
The Company evaluated the May 2021 Amendment under ASC 470-50 regarding the modification of an existing debt instrument, 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 below, and (ii) a $0.1 million loss related to fees paid on
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behalf of the lender, which were 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.
The 2020 Term Loan was repaid in full on May 5, 2022 with the proceeds of the senior secured notes issued under the note purchase agreement described below.
Blue Torch Warrant Obligation
In connection with the May 2021 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 remained outstanding, on the first day of each quarter beginning on July 1, 2021, the Company issued 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 equaled 0.50% of the then outstanding shares of common stock of the Company, on a fully-diluted 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 did not meet the criteria to be classified in stockholders’ equity. The Blue Torch warrant obligation was 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 Blue Torch warrant obligation was terminated within the termination of the Company’s financing agreement, as discussed below.
Senior Secured Notes and Blue Torch Warrant Obligation Termination
On May 5, 2022 (the “issue date”), the Company entered into a note purchase and guarantee agreement (the “note purchase agreement”), which provides for, among other things, the issuance of $30.0 million in aggregate principal amount of senior secured notes due May 5, 2027 (the “senior secured notes”) at a purchase price equal to 94.00% thereof. The proceeds of the senior secured notes were used, together with cash on hand, to repay in full the outstanding amount under the 2020 Term Loan and pay fees and expenses in connection with the transactions contemplated by the note purchase agreement. The Company subsequently terminated its financing agreement, effective as of the issue date, which also resulted in the termination of the Blue Torch warrant obligation.
2020 Term Loan Debt Extinguishment
The Company evaluated the termination of the financing agreement under ASC 470-50 regarding the extinguishment of debt, which states that the difference between the reacquisition price and the net carrying amount of the extinguished debt shall be recognized in the current period as an extinguishment gain or loss. Accordingly, the Company recorded a $0.7 million extinguishment gain in the Consolidated Statements of Operations, which consisted of (i) a $2.6 million gain related to the allocation of the reacquisition price between the 2020 Term Loan and the Blue Torch warrant obligation, as discussed below, partially offset by (ii) a $0.9 million loss related to the 2020 Term Loan prepayment fee, (iii) a $0.9 million loss related to the derecognition of unamortized debt issuance costs, and (iv) a $0.1 million loss related to legal and consulting fees incurred.
In addition, ASC 470-50 states that if upon extinguishment of debt the parties also exchange unstated (or stated) rights or privileges, the portion of the consideration exchanged allocable to such unstated (or stated) rights or privileges shall be given appropriate accounting recognition. As such, the Company allocated a portion of the reacquisition price to the exchange of the Blue Torch warrant obligation, which resulted in a $0.2 million gain recorded in Other income (expense), net in the Consolidated Statements of Operations upon its derecognition.
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August 2022 Note Purchase Agreement Amendment
On August 30, 2022, the Company amended the note purchase agreement, which will be effective the first date that a minimum of $50.0 million of the equity proceeds are received under the RJB Second Closing, amongst other closing conditions. The amendment would, among other things:
| ● | allow the Company to voluntarily prepay the senior secured notes within 18 months of the issue date, subject to an Applicable Premium (as defined within the amendment) penalty; |
| ● | allow for the Company to repurchase up to $25.0 million of its outstanding equity interests, subject to certain conditions; and |
| ● | add certain limitations to the definition of Cash Flow Forecast (as defined within the amendment). |
As of the date of this Quarterly Report on Form 10-Q, the closing conditions of the amendment have not been met, and as such, the amendment is not currently effective.
Senior Secured Notes Terms and Covenants
After receiving a minimum specified bond rating after the issue date, as specified within the terms of the note purchase agreement, the senior secured notes bear interest at a rate equal to 8.875% per annum, payable in arrears on June 30 and December 31 of each calendar year. The senior secured notes will amortize semi-annually in equal installments of $1.5 million beginning on December 31, 2025, with the remaining unpaid principal amount of the senior secured notes due on May 5, 2027.
The note purchase agreement contains two financial maintenance covenants:
• a minimum liquidity covenant of:
| i. | for any date ending prior to or ending on June 30, 2022, including those within required cash flow forecasts provided to the noteholders, $15.0 million; |
ii. | for any date thereafter, including those within required 13-week cash flow forecasts provided to the noteholders: |
• $15.0 million if the most recent Asset Valuation (as defined in the note purchase agreement) is greater than $25.0 million;
• $20.0 million if the most recent Asset Valuation is greater than $20.0 million but less than $25.0 million; or
• $25.0 million if the most recent Asset Valuation is less than or equal to $20.0 million, or is as of yet uncompleted; and
• a covenant requiring a minimum Asset Coverage Ratio (as discussed below) of at least 1.25 to 1.00.
As a result of the Company’s initial Asset Valuation completed on August 31, 2022, the minimum liquidity covenant is currently set at $25.0 million. Subsequent to the initial report, the Asset Valuation is required to be provided to the noteholders no later than 30 days after June 30 and December 31 of each fiscal year.
The Asset Coverage Ratio is measured as of each quarter-end, and represents the ratio of (a) the aggregate amount of Adjusted Eligible Collateral (as defined within the note purchase agreement) to (b) the aggregate outstanding principal amount of the senior secured notes at such time.
The Company has also agreed to use commercially reasonable efforts to cause 90% of the packaging for its meal kit boxes to be recyclable, reusable, or compostable (the “ESG KPI Goal”). If the Company fails to achieve the ESG KPI Goal prior to the date on which the senior secured notes are due, the Company will be required to pay a fee equal to 1% of the principal amount of the senior secured notes.
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The borrower under the note purchase agreement is the Company’s wholly-owned subsidiary, Blue Apron, LLC. The obligations under the note purchase agreement 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 note purchase agreement contains additional restrictive 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.
As of September 30, 2022, the Company was in compliance with all of the covenants under the note purchase agreement.
In connection with the note purchase agreement, the Company capitalized $2.9 million in deferred financing costs in Long-term debt, which are being amortized using the effective interest method over the life of the debt, in accordance with ASC 835-30, Imputation of Interest. The following table summarizes the presentation of the Company’s debt balances in the Consolidated Balance Sheets as of the dates indicated below:
Facility Financing Obligation
As of September 30, 2022 and December 31, 2021, the Company had a facility financing obligation of $35.8 million and $35.9 million, respectively, related to the leased facility in Linden, New Jersey under the build-to-suit accounting guidance.
10. Commitments and Contingencies
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.
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 there are no ordinary course matters that will have a material adverse effect on its business, operating results, financial conditions, or cash flows.
11. Stockholders’ Equity (Deficit)
April 2022 Private Placements
On April 29, 2022, the Company entered into the RJB Purchase Agreement, which provided for, among other things, 3,333,333 shares of Class A common stock for an aggregate purchase price of $40.0 million (or $12.00 per share). Long Live Bruce, LLC, an affiliate of Joseph N. Sanberg, was assigned RJB’s rights to 1,666,666 shares of Class
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A common stock for an aggregate purchase price of $20.0 million under the RJB Purchase Agreement, which was issued and sold concurrently with the execution of the purchase agreement (the “first closing”). The remainder of the Class A common shares under the RJB Purchase Agreement were to be issued and sold under the RJB Second Closing, initially expected to close by May 30, 2022 or such other date as agreed to by the parties.
In addition, on April 29, 2022, the Company entered into a purchase agreement with Linda Findley, a director of the Company and its President and Chief Executive Officer, under which the Company agreed to issue and sell to Ms. Findley in a separate private placement, which closed concurrently with the execution of the first closing, 41,666 shares of Class A common stock for an aggregate purchase price of $0.5 million (or $12.00 per share) (the “Findley Private Placement”).
The first closing of the RJB Purchase Agreement and the concurrent closing of the Findley Private Placement (collectively, the “April 2022 Private Placements”) resulted in $20.1 million of proceeds, net of issuance costs.
On August 7, 2022, the Company amended the RJB Purchase Agreement, pursuant to which RJB agreed to purchase from the Company (i) the 1,666,667 shares of Class A common stock remaining to be issued and sold under the initial RJB Purchase Agreement at a $5.00 price per share, instead of a $12.00 price per share, and (ii) an additional 8,333,333 shares of Class A common stock at a $5.00 price per share. Upon execution, the RJB Second Closing comprised in the aggregate a purchase price of $50.0 million and 10,000,000 shares of Class A common stock to be issued and sold, as well as agreeing to extend the date of the second closing to on or before August 31, 2022. In addition, pursuant to the amendment, Joseph N. Sanberg agreed to personally guarantee the payment of the aggregate purchase price.
On September 7, 2022, the Company further amended the RJB Purchase Agreement to extend the closing date to September 30, 2022 or such earlier date as may be agreed to by the Company and RJB, and to change the price per share to $5.65, instead of a $5.00 price per share, for the purchase of the 10,000,000 shares of Class A common stock remaining to be sold and issued, for an aggregate purchase price of $56.5 million pursuant to the August 2022 amendment to the RJB Purchase Agreement.
On November 6, 2022, the Company entered into the Pledge Agreement with an affiliate of Joseph N. Sanberg regarding the Outstanding Obligated Amount. See Note 2 and Note 16 for further details.
RJB has not funded and closed its $56.5 million equity commitment as of the date of this Quarterly Report on Form 10-Q.
February 2022 Private Placement
On February 14, 2022, the Company entered into a purchase agreement with RJB under which the Company agreed to issue and sell to RJB units consisting of Class A common stock and warrants to purchase shares of Class A common stock in a private placement (the “February 2022 Private Placement”) which closed concurrently with the execution of the purchase agreement for an aggregate purchase price of $5.0 million (or $14.00 per unit). In the aggregate, RJB received (i) 357,143 shares of Class A common stock, and (ii) warrants to purchase 500,000 shares of Class A common stock at exercise prices of $15.00 per share, $18.00 per share, and $20.00 per share, resulting in $4.8 million of proceeds, net of issuance costs.
The shares of Class A common stock and warrants were issued separately and constitute separate securities. The Company conducted an assessment of the classification of the warrants issued in the February 2022 Private Placement and, based on their terms, concluded the warrants were equity-classified. Accordingly, the net proceeds were recorded within Additional paid-in capital.
Warrant Terms
Each equity-classified warrant issued by the Company has a term of seven years from the date of issuance. Each such warrant may only be exercised for cash, except in connection with certain fundamental transactions, and no fractional shares will be issued upon exercise of the warrants. The warrants are non-transferable, except in limited circumstances, and have not been and will not be listed or otherwise trade on any stock exchange. The number of shares
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issuable upon exercise of the warrants and the applicable exercise prices is subject to adjustment upon the occurrence of certain events.
As of September 30, 2022, the equity-classified warrants issued by the Company were as follows:
Exercise Price | Issued | Exercised | Outstanding as of September 30, | ||||
$ | 15.00 | 6,525,714 | — | 6,525,714 | |||
$ | 18.00 | 3,262,857 | — | 3,262,857 | |||
$ | 20.00 | 1,631,429 | — | 1,631,429 |
12. 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:
Nine Months Ended | |||||
September 30, | |||||
2022 |
| 2021 | |||
(In thousands) | |||||
Cost of goods sold, excluding depreciation and amortization | $ | 2 | $ | 40 | |
Product, technology, general and administrative | 5,382 | 7,591 | |||
Total share-based compensation | $ | 5,384 | $ | 7,631 | |
In February 2022, the Company granted 247,161 shares of performance-based restricted stock units of its Class A common stock to certain employees, including the Company’s executive officers. Such units are subject to vesting conditions that are tied to the performance of the Company's stock price relative to the performance of a peer group of publicly traded companies’ stock price over a performance period beginning February 25, 2022 through February 25, 2025. The Company utilized the Monte Carlo simulation valuation model to value the grant as it was determined to include a market condition. The total grant date fair value was $1.3 million, and will be recognized on a straight-line basis over the performance period of three years.
13. Related Party Transactions
Due to their status as beneficial owners of more than 10 percent (10%) of the voting power of the outstanding capital stock of the Company, Joseph N. Sanberg and his affiliates meet the definition of “related parties” per ASC 850, Related Party Disclosures.
Feeding America Bulk Sale
On June 23, 2022, the Company entered into a purchase agreement with Feeding America for a bulk purchase of meal kit boxes and other bulk product items (the “Feeding America bulk sale”) for an aggregate net purchase price of $10.0 million, funded by a donation from an affiliate of Joseph N. Sanberg.
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Gift Card Sponsorship Agreements
March and May Sponsorship Gift Cards
On March 11, 2022, the Company entered into a gift card sponsorship agreement with an affiliate of Joseph N. Sanberg, pursuant to which such affiliate agreed to pay the Company a $9.0 million net sponsorship fee to support a marketing program through which the Company would distribute gift cards (the “March Sponsorship Gift Cards”), at the Company’s sole discretion, in order to support its growth strategy.
On May 5, 2022, the Company entered into the Sponsorship Gift Cards Agreement with an affiliate of Joseph N. Sanberg, pursuant to which such affiliate agreed to pay the Company a $20.0 million net sponsorship fee to support a marketing program through which the Company will distribute gift cards, at the Company’s sole discretion, in order to support its growth strategy. On August 7, 2022, the Company amended the Sponsorship Gift Cards Agreement to extend the funding date to on or before August 31, 2022, and pursuant to which, Joseph N. Sanberg personally guaranteed his affiliate’s obligation.
On September 7, 2022, the Sponsorship Gift Cards Agreement was further amended to reduce the net sponsorship fee to $18.5 million and extend the due date to September 19, 2022. As of the date of this Quarterly Report on Form 10-Q, the Sanberg affiliate has paid $5.6 million of its commitment under said agreement, with $12.9 million remaining to be paid.
Accounting Recognition
As the Company concluded the remaining amount to be paid under the Sponsorship Gift Cards Agreement did not meet the collectability criterion under ASC 606, Revenue from Contracts with Customers, as of the date of this Quarterly Report on Form 10-Q, the $12.9 million receivable was not recognized within the Consolidated Financial Statements.
ASC 105, Generally Accepted Accounting Principles (“ASC 105”), describes the decision-making framework when no guidance exists in GAAP for a particular transaction. Specifically, ASC 105 instructs companies to look for guidance for a similar transaction within GAAP and apply that guidance by analogy.
While these agreements are not considered contracts with a customer based on the terms thereof, the Company evaluated the terms of the agreements and, as these services are the output of the Company’s ordinary activities, has analogized to ASC 606, Revenue from Contracts with Customers, and more specifically, the recognition of the Company’s unredeemed gift cards and other prepaid orders. See Note 2 to the Consolidated Financial Statements of the Annual Report on Form 10-K for a description of the Company’s revenue recognition accounting policy.
Sustainability and Carbon Credit Agreement
On March 31, 2022, the Company entered into a Sustainability and Carbon Credit Agreement (the “Sustainability Agreement”) with an affiliate of Joseph N. Sanberg. Under the terms of the agreement, the Company purchased and subsequently retired $3.0 million of carbon offsets, which were recognized in Product, technology, general and administrative expenses during the three months ended March 31, 2022.
Such affiliate also performed the assessment of the Company’s 2021 annual carbon footprint that provided it with the basis for determining the amount of carbon offsets the Company needed to purchase. The fee for these services was waived as a condition of entering into the Sustainability Agreement.
On June 30, 2022, the Company entered into a statement of work under the Sustainability Agreement, through which the affiliate transferred to the Company a sufficient amount of carbon offsets for its estimated 2023 and 2024 emissions based upon its 2021 annual carbon footprint, for a purchase price of $6.0 million, which will be paid in twenty-four equal monthly installments beginning on July 31, 2022.
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2022 Private Placements
See Notes 2, 11, and 16 for further discussion of the RJB Private Placement and Findley Private Placement during the nine months ended September 30, 2022.
The following table summarizes the composition and amounts of the transactions in the Company’s Consolidated Statements of Operations involving its related parties:
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2022 |
| 2021 | 2022 |
| 2021 | ||||||
(In thousands) | |||||||||||
Net revenue: | |||||||||||
Feeding America bulk sale | $ | - | $ | - | $ | 10,000 | $ | - | |||
March Sponsorship Gift Cards | $ | 2,563 | $ | - | $ | 3,046 | $ | - | |||
Cost of goods sold, excluding depreciation and amortization | $ | 1,726 | $ | - | $ | 7,194 | $ | - | |||
Product, technology, general and administrative | $ | - | $ | - | $ | 3,000 | $ | - | |||
14. 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, restricted stock units, and warrants. 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.
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| (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:
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
| Class A |
| Class B |
| Class A |
| Class B | |
Stock options | 32,900 | — | 48,542 | — | ||||
Restricted stock units | 2,378,797 | — | 2,262,173 | — | ||||
Warrants | 11,408,117 | — | 550,350 | — | ||||
Total anti-dilutive securities | 13,819,814 | — | 2,861,065 | — | ||||
15. Fair Value Measurements
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs are developed using market data, such as publicly available information about actual events or transactions, and reflect the assumptions that market participants would use when pricing the asset or liability. Unobservable inputs are inputs for which market data is not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability.
The fair value hierarchy consists of the following three levels:
Level 1 — Quoted market prices in active markets for identical assets or liabilities.
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Level 2 — Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 — Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets.
The Company uses observable market data when available, and minimizes the use of unobservable inputs when determining fair value.
The following are the major categories of assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):
December 31, 2021 | ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
(In thousands) | ||||||||||||
Assets: |
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents: | ||||||||||||
Money market accounts | $ | 2,635 | $ | — | $ | — | $ | 2,635 | ||||
Total assets measured at fair value | $ | 2,635 | $ | — | $ | — | $ | 2,635 | ||||
Liabilities: |
|
|
|
|
|
|
|
| ||||
Warrant obligation | $ | — | $ | — | $ | 8,001 | $ | 8,001 | ||||
Other noncurrent liabilities: | ||||||||||||
Warrant obligation | — | — | 1,588 | 1,588 | ||||||||
Total liabilities measured at fair value | $ | — | $ | — | $ | 9,589 | $ | 9,589 | ||||
Money market accounts
Money market accounts are classified within Level 1 of the fair value hierarchy as they are valued using observable inputs that reflect quoted prices for identical assets in active markets. The carrying amount of the Company’s money market accounts approximates fair value due to their short-term maturities. The Company closed its money market accounts during the three months ended June 30, 2022.
Warrant obligation
The Blue Torch warrant obligation issued in conjunction with the Amendment, as discussed in Note 9, was accounted for in accordance with ASC 815-40, Contracts in an Entity’s Own Equity, as a liability recognized at fair value, and is remeasured as of each balance sheet date with changes in fair value recorded in Other income (expense), net in the Consolidated Statements of Operations. The amount of each warrant to be issued under the obligation set forth in the financing agreement was based upon 0.50% of the then-outstanding shares of the Company’s common stock on a fully-diluted basis on the first day of each quarter, beginning on July 1, 2021, so long as the 2020 Term Loan remained outstanding. As such, the fair value of the Blue Torch warrant obligation was calculated using the estimated amount of
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warrants to be issued over the life of the financing agreement multiplied by the price of the Company’s stock as of the closing date, less $0.01 per share to represent each warrant’s exercise price. The estimated amount of shares to be issued was derived from the Company’s estimate of shares of the Company’s common stock on a fully-diluted basis over the life of the financing agreement.
On May 5, 2022, the Company fully repaid the 2020 Term Loan with the proceeds of its senior secured notes and cash on hand and terminated its financing agreement effective as of the same date, which also resulted in the termination of the warrant obligation. As of May 5, 2022, all warrants that had been issued under the Blue Torch warrant obligation had been exercised in full, resulting in no liability-classified warrants outstanding. See Note 9 for further discussion.
The following table summarizes the changes of the Blue Torch warrant obligation as of September 30, 2022 and December 31, 2021:
16. Subsequent Events
Equity Offering
On October 6, 2022, the Company completed an “at-the-market” equity offering, pursuant to its universal shelf registration statement filed with the SEC on April 29, 2020. As a result of the offering, the Company issued and sold 4,622,772 shares of its Class A common stock, resulting in approximately $14.1 million of proceeds, net of commissions and offering costs.
Pledge Agreement
On November 6, 2022, the Company entered into the Pledge Agreement with an affiliate of Joseph N. Sanberg, pursuant to which the Sanberg affiliate (i) guaranteed the Outstanding Obligated Amount and (ii) granted the Company security interests in the Pledged Shares in order to secure its obligation to pay the Outstanding Obligated Amount. If the Outstanding Obligated Amount remains unpaid after November 30, 2022, or if the Sanberg affiliate breaches the Pledge Agreement prior to that date, the Company is permitted to exercise remedies in respect to the Pledged Shares.
As the Pledg