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x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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27-5026540
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1 Montgomery Street, Suite 1500
San Francisco, CA
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94104
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(Address of Principal Executive Offices)
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(Zip Code)
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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x
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Smaller reporting company
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¨
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Emerging growth company
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¨
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Page No
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ITEM 1.
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FINANCIAL STATEMENTS
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October 27, 2018
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July 28, 2018
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||||
Assets
|
|
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|
||||
Current assets:
|
|
|
|
||||
Cash & cash equivalents
|
$
|
173,341
|
|
|
$
|
297,516
|
|
Restricted cash
|
250
|
|
|
250
|
|
||
Short-term investments
|
84,985
|
|
|
—
|
|
||
Inventory, net
|
106,701
|
|
|
85,092
|
|
||
Prepaid expenses and other current assets
|
33,036
|
|
|
34,148
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|
||
Total current assets
|
398,313
|
|
|
417,006
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|
||
Long-term investments
|
83,870
|
|
|
—
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|
||
Property and equipment, net
|
37,629
|
|
|
34,169
|
|
||
Deferred tax assets
|
15,234
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|
|
14,107
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|
||
Restricted cash, net of current portion
|
12,600
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|
12,600
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||
Other long-term assets
|
3,146
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|
|
3,703
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|
||
Total assets
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$
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550,792
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$
|
481,585
|
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Liabilities, Convertible Preferred Stock and Stockholders’ Equity
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
105,662
|
|
|
$
|
79,782
|
|
Accrued liabilities
|
67,098
|
|
|
43,037
|
|
||
Gift card liability
|
6,268
|
|
|
6,814
|
|
||
Deferred revenue
|
11,206
|
|
|
8,870
|
|
||
Other current liabilities
|
1,761
|
|
|
3,729
|
|
||
Total current liabilities
|
191,995
|
|
|
142,232
|
|
||
Deferred rent, net of current portion
|
15,635
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|
|
15,288
|
|
||
Other long-term liabilities
|
9,659
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|
|
8,993
|
|
||
Total liabilities
|
217,289
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|
|
166,513
|
|
||
Commitments and contingencies (Note 6)
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|
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|
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Stockholders’ equity:
|
|
|
|
||||
Preferred stock, $0.00002 par value – 20,000,000 shares authorized as of October 27, 2018 and July 28, 2018; zero shares issued and outstanding as of October 27, 2018 and July 28, 2018
|
—
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|
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—
|
|
||
Class A common stock, $0.00002 par value – 2,000,000,000 shares authorized as of October 27, 2018 and July 28, 2018; 41,856,617 and 35,756,628 shares issued and outstanding as of October 27, 2018 and July 28, 2018, respectively
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1
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|
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1
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|
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Class B common stock, $0.00002 par value – 100,000,000 shares authorized as of October 27, 2018 and July 28, 2018; 57,577,608 and 63,043,233 shares issued and outstanding as of October 27, 2018 and July 28, 2018, respectively
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1
|
|
|
1
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|
||
Additional paid-in capital
|
243,086
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|
|
235,312
|
|
||
Accumulated other comprehensive loss
|
(56
|
)
|
|
—
|
|
||
Retained earnings
|
90,471
|
|
|
79,758
|
|
||
Total stockholders’ equity
|
333,503
|
|
|
315,072
|
|
||
Total liabilities, convertible preferred stock and stockholders’ equity
|
$
|
550,792
|
|
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$
|
481,585
|
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For the Three Months Ended
|
||||||
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October 27, 2018
|
|
October 28, 2017
|
||||
Revenue, net
|
$
|
366,236
|
|
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$
|
295,563
|
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Cost of goods sold
|
201,068
|
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|
166,548
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|
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Gross profit
|
165,168
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|
|
129,015
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Selling, general and administrative expenses
|
154,271
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|
119,471
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|
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Operating income
|
10,897
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|
|
9,544
|
|
||
Remeasurement of preferred stock warrant liability
|
—
|
|
|
(9,071
|
)
|
||
Interest income
|
(1,399
|
)
|
|
(17
|
)
|
||
Other income, net
|
(120
|
)
|
|
—
|
|
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Income before income taxes
|
12,416
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|
|
18,632
|
|
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Provision for income taxes
|
1,738
|
|
|
5,144
|
|
||
Net income
|
$
|
10,678
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|
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$
|
13,488
|
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Other comprehensive income (loss):
|
|
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|
||||
Change in unrealized loss on available-for-sale securities, net of tax
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(82
|
)
|
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—
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|
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Foreign currency translation
|
26
|
|
|
—
|
|
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Total other comprehensive loss, net of tax
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(56
|
)
|
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—
|
|
||
Comprehensive income
|
$
|
10,622
|
|
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$
|
13,488
|
|
Net income attributable to common stockholders:
|
|
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|
||||
Basic
|
$
|
10,664
|
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$
|
3,915
|
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Diluted
|
$
|
10,665
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|
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$
|
1,347
|
|
Earnings per share attributable to common stockholders:
|
|
|
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|
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Basic
|
$
|
0.11
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$
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0.15
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Diluted
|
$
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0.10
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$
|
0.04
|
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Weighted-average shares used to compute earnings per share attributable to common stockholders:
|
|
|
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Basic
|
98,965,274
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26,329,495
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Diluted
|
104,539,452
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|
33,262,082
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|
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Convertible
Preferred Stock
|
|
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Common Stock
|
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Additional
Paid-In
Capital
|
|
Accumulated Other Comprehensive Loss
|
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Retained
Earnings
|
|
Total
Stockholders’
Equity
|
|||||||||||||||||||
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Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|||||||||||||||||||
Balance as of July 29, 2017
|
59,511,055
|
|
|
$
|
42,222
|
|
|
|
26,834,535
|
|
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$
|
1
|
|
|
$
|
27,002
|
|
|
$
|
—
|
|
|
$
|
34,858
|
|
|
$
|
61,861
|
|
|
Issuance of common stock upon exercise of stock options
|
—
|
|
|
—
|
|
|
|
211,236
|
|
|
—
|
|
|
444
|
|
|
—
|
|
|
—
|
|
|
444
|
|
|||||||
Repurchase of common stock related to early exercised options
|
—
|
|
|
—
|
|
|
|
(19,479
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Vesting of early exercised options
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
315
|
|
|
—
|
|
|
—
|
|
|
315
|
|
|||||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
2,159
|
|
|
—
|
|
|
—
|
|
|
2,159
|
|
|||||||
Net income
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,488
|
|
|
13,488
|
|
|||||||
Balance as of October 28, 2017
|
59,511,055
|
|
|
$
|
42,222
|
|
|
|
27,026,292
|
|
|
|
$
|
1
|
|
|
$
|
29,920
|
|
|
$
|
—
|
|
|
$
|
48,346
|
|
|
$
|
78,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Convertible
Preferred Stock
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated Other Comprehensive Loss
|
|
Retained
Earnings
|
|
Total
Stockholders’
Equity
|
|||||||||||||||||||
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|||||||||||||||||||
Balance as of July 28, 2018
|
—
|
|
|
—
|
|
|
|
98,799,861
|
|
|
$
|
2
|
|
|
$
|
235,312
|
|
|
$
|
—
|
|
|
$
|
79,758
|
|
|
$
|
315,072
|
|
||
Cumulative effect of adopting accounting standards
(1)
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
35
|
|
|||||||
Issuance of common stock upon exercise of stock options
|
—
|
|
|
—
|
|
|
|
578,107
|
|
|
—
|
|
|
2,000
|
|
|
—
|
|
|
—
|
|
|
2,000
|
|
|||||||
Issuance of restricted stock units, net of tax withholdings
|
—
|
|
|
—
|
|
|
|
56,257
|
|
|
—
|
|
|
(1,363
|
)
|
|
—
|
|
|
—
|
|
|
(1,363
|
)
|
|||||||
Vesting of early exercised options
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
90
|
|
|
—
|
|
|
—
|
|
|
90
|
|
|||||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
7,047
|
|
|
—
|
|
|
—
|
|
|
7,047
|
|
|||||||
Net income
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,678
|
|
|
10,678
|
|
|||||||
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
(56
|
)
|
|
—
|
|
|
(56
|
)
|
||||||
Balance as of October 27, 2018
|
—
|
|
|
$
|
—
|
|
|
|
99,434,225
|
|
|
$
|
2
|
|
|
$
|
243,086
|
|
|
$
|
(56
|
)
|
|
$
|
90,471
|
|
|
$
|
333,503
|
|
|
|
For the Three Months Ended
|
||||||
|
October 27, 2018
|
|
October 28, 2017
|
||||
Cash Flows from Operating Activities
|
|
|
|
|
|
||
Net income
|
$
|
10,678
|
|
|
$
|
13,488
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||
Deferred income taxes
|
(1,061
|
)
|
|
(1,366
|
)
|
||
Remeasurement of preferred stock warrant liability
|
—
|
|
|
(9,071
|
)
|
||
Inventory reserves
|
1,563
|
|
|
4,224
|
|
||
Stock-based compensation expense
|
6,637
|
|
|
2,038
|
|
||
Depreciation and amortization
|
3,175
|
|
|
2,270
|
|
||
Loss on disposal of property and equipment
|
—
|
|
|
131
|
|
||
Change in operating assets and liabilities:
|
|
|
|
|
|||
Inventory
|
(23,172
|
)
|
|
(24,208
|
)
|
||
Prepaid expenses and other assets
|
1,252
|
|
|
4,084
|
|
||
Accounts payable
|
26,008
|
|
|
13,967
|
|
||
Accrued liabilities
|
24,360
|
|
|
16,942
|
|
||
Deferred revenue
|
2,532
|
|
|
1,663
|
|
||
Gift card liability
|
(141
|
)
|
|
(119
|
)
|
||
Other liabilities
|
(865
|
)
|
|
748
|
|
||
Net cash provided by operating activities
|
50,966
|
|
|
24,791
|
|
||
Cash Flows from Investing Activities
|
|
|
|
|
|
||
Purchases of property and equipment
|
(6,985
|
)
|
|
(4,180
|
)
|
||
Purchases of securities available-for-sale
|
(169,095
|
)
|
|
—
|
|
||
Sales of securities available-for-sale
|
302
|
|
|
—
|
|
||
Net cash used in investing activities
|
(175,778
|
)
|
|
(4,180
|
)
|
||
Cash Flows from Financing Activities
|
|
|
|
|
|
||
Proceeds from the exercise of stock options
|
637
|
|
|
444
|
|
||
Repurchase of Class B common stock related to early exercised options
|
—
|
|
|
(39
|
)
|
||
Payment of deferred offering costs
|
—
|
|
|
(528
|
)
|
||
Net cash provided by (used in) financing activities
|
637
|
|
|
(123
|
)
|
||
Net increase (decrease) in cash, cash equivalents and restricted cash
|
(124,175
|
)
|
|
20,488
|
|
||
Cash, cash equivalents and restricted cash at beginning of period
|
310,366
|
|
|
119,958
|
|
||
Cash, cash equivalents and restricted cash at end of period
|
$
|
186,191
|
|
|
$
|
140,446
|
|
Components of cash, cash equivalents and restricted cash
|
|
|
|
|
|
||
Cash and cash equivalents
|
$
|
173,341
|
|
|
$
|
131,096
|
|
Restricted cash – current portion
|
250
|
|
|
250
|
|
||
Restricted cash – long-term portion
|
12,600
|
|
|
9,100
|
|
||
Total cash, cash equivalents and restricted cash
|
$
|
186,191
|
|
|
$
|
140,446
|
|
Supplemental Disclosure
|
|
|
|
|
|
||
Cash paid for income taxes
|
$
|
42
|
|
|
$
|
—
|
|
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
||
Purchases of property and equipment included in accounts payable and accrued liabilities
|
$
|
224
|
|
|
$
|
1,022
|
|
Capitalized stock-based compensation
|
$
|
410
|
|
|
$
|
121
|
|
Vesting of early exercised options
|
$
|
90
|
|
|
$
|
315
|
|
Deferred offering costs included in accrued liabilities
|
$
|
—
|
|
|
$
|
920
|
|
1.
|
Description of Business
|
2.
|
Summary of Significant Accounting Policies
|
3.
|
Fair Value Measurements
|
|
|
October 27, 2018
|
||||||||||||||
(in thousands)
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
||||||||
Financial Assets:
|
|
|
|
|
|
|
|
|
||||||||
Investments:
|
|
|
|
|
|
|
|
|
||||||||
U.S. Treasury securities
|
|
$
|
31,808
|
|
|
$
|
—
|
|
|
$
|
(12
|
)
|
|
$
|
31,796
|
|
Commercial paper
|
|
41,431
|
|
|
—
|
|
|
—
|
|
|
41,431
|
|
||||
Asset-backed securities
|
|
34,723
|
|
|
5
|
|
|
(45
|
)
|
|
34,683
|
|
||||
Corporate bonds
|
|
61,042
|
|
|
—
|
|
|
(97
|
)
|
|
60,945
|
|
||||
Total
|
|
$
|
169,004
|
|
|
$
|
5
|
|
|
$
|
(154
|
)
|
|
$
|
168,855
|
|
|
|
October 27, 2018
|
||||||||||||||
(in thousands)
|
|
One Year or Less
|
|
Over One Year Through Five Years
|
|
Over Five Years
|
|
Total
|
||||||||
Financial Assets:
|
|
|
|
|
|
|
|
|
||||||||
Investments:
|
|
|
|
|
|
|
|
|
||||||||
U.S. Treasury securities
|
|
$
|
31,796
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
31,796
|
|
Commercial paper
|
|
41,431
|
|
|
—
|
|
|
—
|
|
|
41,431
|
|
||||
Asset-backed securities
|
|
5,933
|
|
|
28,750
|
|
|
—
|
|
|
34,683
|
|
||||
Corporate bonds
|
|
5,825
|
|
|
55,120
|
|
|
—
|
|
|
60,945
|
|
||||
Total
|
|
$
|
84,985
|
|
|
$
|
83,870
|
|
|
$
|
—
|
|
|
$
|
168,855
|
|
|
|
October 27, 2018
|
||||||||||||||
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash equivalents:
|
|
|
|
|
|
|
|
|
||||||||
Money market funds
|
|
$
|
862
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
862
|
|
Commercial paper
|
|
—
|
|
|
5,993
|
|
|
—
|
|
|
5,993
|
|
||||
Investments:
|
|
|
|
|
|
|
|
|
||||||||
U.S. Treasury securities
|
|
31,796
|
|
|
—
|
|
|
—
|
|
|
31,796
|
|
||||
Commercial paper
|
|
—
|
|
|
41,431
|
|
|
—
|
|
|
41,431
|
|
||||
Asset-backed securities
|
|
—
|
|
|
34,683
|
|
|
—
|
|
|
34,683
|
|
||||
Corporate bonds
|
|
—
|
|
|
60,945
|
|
|
—
|
|
|
60,945
|
|
||||
Total
|
|
$
|
32,658
|
|
|
$
|
143,052
|
|
|
$
|
—
|
|
|
$
|
175,710
|
|
(in thousands)
|
|
For the Three Months Ended October 28, 2017
|
||
Balance at July 29, 2017
|
|
$
|
26,679
|
|
Change in fair value
|
|
(9,071
|
)
|
|
Ending Balance at October 28, 2017
|
|
$
|
17,608
|
|
4.
|
Accrued Liabilities
|
(in thousands)
|
|
October 27, 2018
|
|
July 28, 2018
|
||||
Compensation and related benefits
|
|
$
|
7,019
|
|
|
$
|
10,680
|
|
Advertising
|
|
14,075
|
|
|
10,456
|
|
||
Sales taxes
|
|
8,399
|
|
|
7,066
|
|
||
Shipping and freight
|
|
11,271
|
|
|
4,801
|
|
||
Accrued accounts payable
|
|
6,146
|
|
|
4,567
|
|
||
Inventory purchases
|
|
14,709
|
|
|
506
|
|
||
Other
|
|
5,479
|
|
|
4,961
|
|
||
Total accrued liabilities
|
|
$
|
67,098
|
|
|
$
|
43,037
|
|
5.
|
Preferred Stock Warrant Liability
|
6.
|
Commitments and Contingencies
|
7.
|
Accumulated Other Comprehensive Loss
|
|
|
Changes in Accumulated Other Comprehensive Income
|
||||||||||
(in thousands)
|
|
Available-for-sale Securities
|
|
Foreign Currency Translation
|
|
Total
|
||||||
Balance at July 28, 2018
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other comprehensive income (loss) before reclassifications
(1)
|
|
(82
|
)
|
|
26
|
|
|
(56
|
)
|
|||
Net change in AOCI
|
|
(82
|
)
|
|
26
|
|
|
(56
|
)
|
|||
Balance at October 27, 2018
|
|
$
|
(82
|
)
|
|
$
|
26
|
|
|
$
|
(56
|
)
|
|
|
|
Options Outstanding
|
|||||||||||
|
|
Number of
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Life (in Years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|||||
Balance – July 28, 2018
|
|
9,052,160
|
|
|
$
|
11.74
|
|
|
8.23
|
|
$
|
160,856
|
|
Authorized
|
|
—
|
|
|
|
|
|
|
|
||||
Granted
|
|
105,061
|
|
|
$
|
38.69
|
|
|
|
|
|
||
Exercised
|
|
(578,107
|
)
|
|
$
|
3.39
|
|
|
|
|
|
||
Cancelled
|
|
(175,356
|
)
|
|
$
|
11.20
|
|
|
|
|
|
||
Balance – October 27, 2018
|
|
8,403,758
|
|
|
$
|
12.29
|
|
|
8.11
|
|
$
|
95,008
|
|
|
Unvested RSUs
|
|||||||||||
|
Class A Common Stock
|
|
Weighted-
Average Grant Date Fair Value |
|
Weighted-
Average Remaining Contractual Life (in Years) |
|
Aggregate
Intrinsic Value
(in thousands)
|
|||||
Unvested at July 28, 2018
|
2,432,326
|
|
|
$
|
21.58
|
|
|
3.50
|
|
$
|
71,778
|
|
Granted
|
759,776
|
|
|
$
|
40.73
|
|
|
|
|
|
||
Vested
|
(56,257
|
)
|
|
$
|
19.38
|
|
|
|
|
|
||
Forfeited
|
(95,337
|
)
|
|
$
|
23.45
|
|
|
|
|
|
||
Unvested at October 27, 2018
|
3,040,508
|
|
|
$
|
26.38
|
|
|
3.51
|
|
$
|
71,969
|
|
|
For the Three Months Ended
|
||||
|
October 27, 2018
|
|
October 28, 2017
|
||
Expected term (in years)
|
5.1 - 6.2
|
|
|
5.6 - 6.5
|
|
Volatility
|
41.7 - 42.0%
|
|
|
42.1 - 43.5%
|
|
Risk free interest rate
|
2.8 - 3.0%
|
|
|
1.9 - 2.0%
|
|
Dividend yield
|
—
|
%
|
|
—
|
%
|
9.
|
Income Taxes
|
|
|
For the Three Months Ended
|
||||||
(in thousands)
|
|
October 27, 2018
|
|
October 28, 2017
|
||||
Income before income taxes
|
|
$
|
12,416
|
|
|
$
|
18,632
|
|
Provision for income taxes
|
|
1,738
|
|
|
5,144
|
|
||
Effective tax rate
|
|
14.0
|
%
|
|
27.6
|
%
|
10.
|
Earnings Per Share Attributable to Common Stockholders
|
|
|
For the Three Months Ended
|
||||||||||
|
|
October 27, 2018
|
|
October 28, 2017
|
||||||||
(in thousands, except share and per share amounts)
|
|
Class A
|
|
Class B
|
|
Class B
|
||||||
Numerator:
|
|
|
|
|
|
|
|
|
|
|||
Net income
|
|
$
|
4,084
|
|
|
$
|
6,594
|
|
|
$
|
13,488
|
|
Less: noncumulative dividends to preferred stockholders
|
|
—
|
|
|
—
|
|
|
(635
|
)
|
|||
Less: undistributed earnings to participating securities
|
|
(5
|
)
|
|
(9
|
)
|
|
(8,938
|
)
|
|||
Net income attributable to common stockholders - basic
|
|
4,079
|
|
|
6,585
|
|
|
3,915
|
|
|||
Less: change in fair value of preferred stock warrant liability (net of tax)
|
|
—
|
|
|
—
|
|
|
(9,071
|
)
|
|||
Add: adjustments to undistributed earnings to participating securities
|
|
1
|
|
|
—
|
|
|
6,503
|
|
|||
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares
|
|
6,585
|
|
|
—
|
|
|
—
|
|
|||
Reallocation of undistributed earnings to Class B shares
|
|
—
|
|
|
85
|
|
|
—
|
|
|||
Net income attributable to common stockholders - diluted
|
|
$
|
10,665
|
|
|
$
|
6,670
|
|
|
$
|
1,347
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|||
Weighted-average shares of common stock - basic
|
|
37,850,643
|
|
|
61,114,631
|
|
|
26,329,495
|
|
|||
Conversion of Class B to Class A common shares outstanding
|
|
61,114,631
|
|
|
—
|
|
|
—
|
|
|||
Effect of dilutive stock options and restricted stock units
|
|
5,574,178
|
|
|
4,260,911
|
|
|
5,876,621
|
|
|||
Effect of potentially dilutive preferred stock warrants
|
|
—
|
|
|
—
|
|
|
1,055,966
|
|
|||
Weighted-average shares of common stock - diluted
|
|
104,539,452
|
|
|
65,375,542
|
|
|
33,262,082
|
|
|||
Earnings per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|||
Basic
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
$
|
0.15
|
|
Diluted
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.04
|
|
|
For the Three Months Ended
|
||||
|
October 27, 2018
|
|
October 28, 2017
|
||
Convertible preferred stock
|
—
|
|
|
59,511,055
|
|
Preferred stock warrants
|
—
|
|
|
—
|
|
Restricted stock units
|
750,607
|
|
|
—
|
|
Stock options to purchase Class A common stock
|
351,184
|
|
|
—
|
|
Stock options to purchase Class B common stock
|
2,239
|
|
|
954,706
|
|
Total
|
1,104,030
|
|
|
60,465,761
|
|
ITEM 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
our non-GAAP net income, adjusted EBITDA and non-GAAP EPS – diluted measures exclude the remeasurement of the preferred stock warrant liability, which is a non-cash expense incurred in the periods prior to the completion of our IPO;
|
•
|
adjusted EBITDA excludes the recurring, non-cash expenses of depreciation and amortization of property and equipment and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future;
|
•
|
adjusted EBITDA does not reflect our tax provision, which reduces cash available to us;
|
•
|
adjusted EBITDA excludes interest income and other income, net, as these items are not components of our core business; and
|
•
|
free cash flow does not represent the total residual cash flow available for discretionary purposes and does not reflect our future contractual commitments.
|
|
|
For the Three Months Ended
|
||||||
(in thousands)
|
|
October 27, 2018
|
|
October 28, 2017
|
||||
Adjusted EBITDA reconciliation:
|
|
|
|
|
|
|
||
Net income
|
|
$
|
10,678
|
|
|
$
|
13,488
|
|
Add (deduct):
|
|
|
|
|
|
|
||
Interest income
|
|
(1,399
|
)
|
|
(17
|
)
|
||
Other income, net
|
|
(120
|
)
|
|
—
|
|
||
Provision for income taxes
|
|
1,738
|
|
|
5,144
|
|
||
Depreciation and amortization
|
|
3,394
|
|
|
2,270
|
|
||
Remeasurement of preferred stock warrant liability
|
|
—
|
|
|
(9,071
|
)
|
||
Adjusted EBITDA
|
|
$
|
14,291
|
|
|
$
|
11,814
|
|
|
|
For the Three Months Ended
|
||||||
(in thousands)
|
|
October 27, 2018
|
|
October 28, 2017
|
||||
Non-GAAP net income reconciliation:
|
|
|
|
|
|
|
||
Net income
|
|
$
|
10,678
|
|
|
$
|
13,488
|
|
Add (deduct):
|
|
|
|
|
|
|
||
Remeasurement of preferred stock warrant liability
|
|
—
|
|
|
(9,071
|
)
|
||
Non-GAAP net income
|
|
$
|
10,678
|
|
|
$
|
4,417
|
|
|
|
For the Three Months Ended
|
||||||
(in dollars)
|
|
October 27, 2018
|
|
October 28, 2017
|
||||
Non-GAAP earnings per share
–
diluted reconciliation:
|
|
|
|
|
|
|
||
Earnings (loss) per share attributable to common stockholders - diluted
|
|
$
|
0.10
|
|
|
$
|
0.04
|
|
Per share impact of the remeasurement of preferred stock warrant liability
(1)
|
|
—
|
|
|
—
|
|
||
Non-GAAP earnings per share attributable to common stockholders
–
diluted
|
|
$
|
0.10
|
|
|
$
|
0.04
|
|
|
|
|
For the Three Months Ended
|
||||||
(in thousands)
|
|
October 27, 2018
|
|
October 28, 2017
|
||||
Free cash flow reconciliation:
|
|
|
|
|
|
|
||
Cash flows from operating activities
|
|
$
|
50,966
|
|
|
$
|
24,791
|
|
Deduct:
|
|
|
|
|
|
|
||
Purchases of property and equipment
|
|
(6,985
|
)
|
|
(4,180
|
)
|
||
Free cash flow
|
|
$
|
43,981
|
|
|
$
|
20,611
|
|
Cash flows used in investing activities
|
|
$
|
(175,778
|
)
|
|
$
|
(4,180
|
)
|
Cash flows from (used in) financing activities
|
|
$
|
637
|
|
|
$
|
(123
|
)
|
|
|
For the Three Months Ended
|
|
%
|
|||||||
(in thousands)
|
|
October 27, 2018
|
|
October 28, 2017
|
|
Change
|
|||||
Revenue, net
|
|
$
|
366,236
|
|
|
$
|
295,563
|
|
|
23.9
|
%
|
Cost of goods sold
|
|
201,068
|
|
|
166,548
|
|
|
20.7
|
%
|
||
Gross profit
|
|
165,168
|
|
|
129,015
|
|
|
28.0
|
%
|
||
Selling, general and administrative expenses
|
|
154,271
|
|
|
119,471
|
|
|
29.1
|
%
|
||
Operating income
|
|
10,897
|
|
|
9,544
|
|
|
14.2
|
%
|
||
Remeasurement of preferred stock warrant liability
|
|
—
|
|
|
(9,071
|
)
|
|
(100.0
|
)%
|
||
Interest income
|
|
(1,399
|
)
|
|
(17
|
)
|
|
*
|
|
||
Other income, net
|
|
(120
|
)
|
|
—
|
|
|
100.0
|
%
|
||
Income before income taxes
|
|
12,416
|
|
|
18,632
|
|
|
(33.4
|
)%
|
||
Provision for income taxes
|
|
1,738
|
|
|
5,144
|
|
|
(66.2
|
)%
|
||
Net income
|
|
$
|
10,678
|
|
|
$
|
13,488
|
|
|
(20.8
|
)%
|
|
|
|
For the Three Months Ended
|
||||
|
|
October 27, 2018
|
|
October 28, 2017
|
||
Revenue, net
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of goods sold
|
|
54.9
|
%
|
|
56.3
|
%
|
Gross margin
|
|
45.1
|
%
|
|
43.7
|
%
|
Selling, general and administrative expenses
|
|
42.1
|
%
|
|
40.5
|
%
|
Operating income
|
|
3.0
|
%
|
|
3.2
|
%
|
Remeasurement of preferred stock warrant liability
|
|
—
|
%
|
|
(3.1
|
)%
|
Interest income
|
|
(0.4
|
)%
|
|
—
|
%
|
Other income, net
|
|
—
|
%
|
|
—
|
%
|
Income before income taxes
|
|
3.4
|
%
|
|
6.3
|
%
|
Provision for income taxes
|
|
0.5
|
%
|
|
1.7
|
%
|
Net income
|
|
2.9
|
%
|
|
4.6
|
%
|
|
|
For the Three Months Ended
|
||||||
(in thousands)
|
|
October 27, 2018
|
|
October 28, 2017
|
||||
Income before income taxes
|
|
$
|
12,416
|
|
|
$
|
18,632
|
|
Provision for income taxes
|
|
1,738
|
|
|
5,144
|
|
||
Effective tax rate
|
|
14.0
|
%
|
|
27.6
|
%
|
|
|
For the Three Months Ended
|
||||||
(in thousands)
|
|
October 27, 2018
|
|
October 28, 2017
|
||||
Net cash provided by operating activities
|
|
$
|
50,966
|
|
|
$
|
24,791
|
|
Net cash used in investing activities
|
|
(175,778
|
)
|
|
(4,180
|
)
|
||
Net cash provided by (used in) financing activities
|
|
637
|
|
|
(123
|
)
|
||
Net increase (decrease) in cash and restricted cash
|
|
$
|
(124,175
|
)
|
|
$
|
20,488
|
|
ITEM 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
ITEM 4.
|
Controls and Procedures
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
•
|
cost-effectively acquire new clients and engage with existing clients;
|
•
|
increase consumer awareness of our brand and maintain our reputation;
|
•
|
successfully expand our offering and geographic reach;
|
•
|
anticipate and respond to changing style trends and consumer preferences;
|
•
|
manage our inventory effectively;
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•
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anticipate and respond to macroeconomic changes;
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•
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compete effectively;
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•
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avoid interruptions in our business from information technology downtime, cybersecurity breaches or labor stoppages;
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•
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effectively manage our growth;
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•
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continue to enhance our personalization capabilities;
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•
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hire, integrate and retain talented people at all levels of our organization;
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•
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maintain the quality of our technology infrastructure;
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•
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develop new features to enhance the client experience; and
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•
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retain our existing merchandise vendors and attract new vendors.
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•
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effectively differentiating our service and value proposition from those of our competitors;
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•
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attracting new clients and engaging with existing clients;
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•
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our direct relationships with our clients and their willingness to share personal information with us;
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•
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further developing our data science capabilities;
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•
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maintaining favorable brand recognition and effectively marketing our services to clients;
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•
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delivering merchandise that each client perceives as personalized to him or her;
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•
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the amount, diversity and quality of brands and merchandise that we or our competitors offer;
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•
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our ability to expand and maintain appealing Exclusive Brands and exclusive-to-Stitch Fix merchandise;
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•
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the price at which we are able to offer our merchandise;
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•
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the speed and cost at which we can deliver merchandise to our clients and the ease with which they can use our services to return merchandise; and
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•
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anticipating and quickly responding to changing apparel trends and consumer shopping preferences.
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•
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the need to localize our merchandise offerings, including translation into foreign languages and adaptation for local practices;
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•
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different consumer demand dynamics, which may make our model and the merchandise we offer less successful compared to the United States;
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•
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competition from local incumbents that understand the local market and may operate more effectively;
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•
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regulatory requirements, taxes, trade laws, trade sanctions and economic embargoes, tariffs, export quotas, custom duties or other trade restrictions or any unexpected changes thereto;
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•
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laws and regulations regarding anti-bribery and anti-corruption compliance;
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•
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differing labor regulations where labor laws may be more advantageous to employees as compared to the United States and result in increased labor costs;
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•
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more stringent regulations relating to privacy and data security and access to, or use of, commercial and personal information, particularly in Europe;
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•
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changes in a specific country’s or region’s political or economic conditions; and
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•
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risks resulting from changes in currency exchange rates.
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•
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difficulties in integrating the technologies, operations, existing contracts and personnel of an acquired company;
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•
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difficulties in supporting and transitioning clients and suppliers, if any, of an acquired company;
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•
|
diversion of financial and management resources from existing operations or alternative acquisition opportunities;
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•
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failure to realize the anticipated benefits or synergies of a transaction;
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•
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failure to identify all of the problems, liabilities or other shortcomings or challenges of an acquired company or technology, including issues related to intellectual property, regulatory compliance practices, revenue recognition or other accounting practices, or employee or client issues;
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•
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risks of entering new markets in which we have limited or no experience;
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•
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potential loss of key employees, clients, vendors and suppliers from either our current business or an acquired company’s business;
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•
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inability to generate sufficient revenue to offset acquisition costs;
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•
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additional costs or equity dilution associated with funding the acquisition; and
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•
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possible write-offs or impairment charges relating to acquired businesses.
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•
|
actual or anticipated fluctuations in our client base, the level of client engagement, revenue or other operating results;
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•
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variations between our actual operating results and the expectations of securities analysts, investors and the financial community;
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•
|
any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information or our failure to meet expectations based on this information;
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•
|
actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors;
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•
|
whether investors or securities analysts view our stock structure unfavorably, particularly our dual-class structure and the significant voting control of our executive officers, directors and their affiliates;
|
•
|
additional shares of our Class A common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales;
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•
|
announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;
|
•
|
changes in operating performance and stock market valuations of companies in our industry, including our vendors and competitors;
|
•
|
price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
|
•
|
lawsuits threatened or filed against us;
|
•
|
developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; and
|
•
|
other events or factors, including those resulting from war or incidents of terrorism, or responses to these events.
|
•
|
establish a classified board of directors so that not all members of our board of directors are elected at one time;
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•
|
permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships;
|
•
|
provide that directors may only be removed for cause;
|
•
|
require super-majority voting to amend some provisions in our certificate of incorporation and bylaws;
|
•
|
authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
|
•
|
eliminate the ability of our stockholders to call special meetings of stockholders;
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•
|
prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
|
•
|
provide that the board of directors is expressly authorized to make, alter or repeal our bylaws;
|
•
|
restrict the forum for certain litigation against us to Delaware;
|
•
|
reflect the dual class structure of our common stock; and
|
•
|
establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
|
•
|
any derivative action or proceeding brought on our behalf;
|
•
|
any action asserting a breach of fiduciary duty;
|
•
|
any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; and
|
•
|
any action asserting a claim against us that is governed by the internal affairs doctrine.
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
ITEM 5.
|
OTHER INFORMATION
|
ITEM 6.
|
EXHIBITS
|
|
|
|
Stitch Fix, Inc.
|
|
Date:
|
December 11, 2018
|
|
By:
|
/s/ Paul Yee
|
|
|
|
|
Paul Yee
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
(Principal Financial and Accounting Officer)
|
1.
|
Annual Board Service Retainer
:
|
3.
|
Annual Committee Chair Service Retainer (in lieu of Committee Member Service Retainer)
:
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Stitch Fix, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
December 11, 2018
|
/s/ Katrina Lake
|
|
|
Katrina Lake
|
|
|
Founder, Chief Executive Officer and Director
|
|
|
(Principal Executive Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Stitch Fix, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
December 11, 2018
|
/s/ Paul Yee
|
|
|
Paul Yee
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial and Accounting Officer)
|
1.
|
The Periodic Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and
|
2.
|
The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
|
||
|
|
|
|
/s/ Katrina Lake
|
|
|
|
|
Katrina Lake
|
|
|
|
|
Founder, Chief Executive Officer and Director
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
||
|
|
|
|
/s/ Paul Yee
|
|
|
|
|
Paul Yee
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
(Principal Financial and Accounting Officer)
|