Item 1. Financial Statements.
Casper Sleep Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
Assets
|
March 31, 2021
|
|
December 31, 2020
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
61,626
|
|
|
$
|
88,922
|
|
Restricted Cash
|
—
|
|
|
3,162
|
|
Accounts receivable, net
|
24,536
|
|
|
27,663
|
|
Prepaid expenses and other current assets
|
12,840
|
|
|
11,026
|
|
Inventory, net
|
46,840
|
|
|
35,531
|
|
Total current assets
|
145,842
|
|
|
166,304
|
|
Property and equipment, net
|
66,193
|
|
|
66,529
|
|
Other assets
|
1,363
|
|
|
1,368
|
|
Total assets
|
$
|
213,398
|
|
|
$
|
234,201
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
48,130
|
|
|
$
|
47,612
|
|
Accrued expenses
|
56,238
|
|
|
54,741
|
|
Deferred revenue
|
4,109
|
|
|
7,430
|
|
Other current liabilities
|
10,001
|
|
|
9,498
|
|
Total current liabilities
|
118,478
|
|
|
119,281
|
|
Long-term Debt
|
62,966
|
|
|
65,546
|
|
Other liabilities
|
23,833
|
|
|
23,907
|
|
Total liabilities
|
205,277
|
|
|
208,734
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
Common stock, $0.000001 par value - 170,000 and 170,000 shares authorized; 41,425 and 40,539 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
|
—
|
|
|
—
|
|
Additional paid-in capital
|
444,063
|
|
|
440,248
|
|
Accumulated other comprehensive income
|
53
|
|
|
34
|
|
Accumulated deficit
|
(435,995)
|
|
|
(414,815)
|
|
Total stockholders’ equity
|
8,121
|
|
|
25,467
|
|
Total liabilities and stockholders’ equity
|
$
|
213,398
|
|
|
$
|
234,201
|
|
See accompanying notes to consolidated financial statements (unaudited).
Casper Sleep Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
|
Revenue
|
$
|
127,678
|
|
|
$
|
113,044
|
|
|
|
|
Cost of goods sold
|
60,995
|
|
|
60,080
|
|
|
|
|
Gross profit
|
66,683
|
|
|
52,964
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
Sales and marketing expenses
|
40,530
|
|
|
37,474
|
|
|
|
|
General and administrative expense
|
44,504
|
|
|
46,987
|
|
|
|
|
Restructuring expenses
|
401
|
|
|
1,311
|
|
|
|
|
Total operating expenses
|
85,435
|
|
|
85,772
|
|
|
|
|
Loss from operations
|
(18,752)
|
|
|
(32,808)
|
|
|
|
|
Other (income) expense
|
|
|
|
|
|
|
Net interest expense
|
2,516
|
|
|
2,156
|
|
|
|
|
Other (income) expense, net
|
(107)
|
|
|
(514)
|
|
|
|
|
Total other expenses, net
|
2,409
|
|
|
1,642
|
|
|
|
|
Loss before income taxes
|
(21,161)
|
|
|
(34,450)
|
|
|
|
|
Income tax expense
|
19
|
|
|
16
|
|
|
|
|
Net loss
|
(21,180)
|
|
|
(34,466)
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
Currency translation adjustment
|
19
|
|
|
447
|
|
|
|
|
Total comprehensive loss
|
$
|
(21,161)
|
|
|
$
|
(34,019)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders, basic and diluted
|
$
|
(0.52)
|
|
|
$
|
(1.23)
|
|
|
|
|
Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted
|
40,808,328
|
|
|
27,909,141
|
|
|
|
|
See accompanying notes to consolidated financial statements (unaudited).
Casper Sleep Inc. and Subsidiaries
Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity/(Deficit)
(In thousands, except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock
|
|
Casper Sleep Inc, Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Class A common stock
|
Class B common stock
|
|
Additional paid-in capital
|
|
Accumulated other comprehensive income
|
|
Accumulated deficit
|
|
Total stockholders’ equity
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
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|
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|
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|
|
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|
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|
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|
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|
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
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|
|
|
|
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|
|
|
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|
|
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|
|
|
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|
|
|
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|
|
|
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|
|
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|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
—
|
|
|
—
|
|
|
40,538,644
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
—
|
|
|
$
|
—
|
|
|
$
|
440,248
|
|
|
$
|
34
|
|
|
$
|
(414,815)
|
|
|
$
|
25,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of employee stock options
|
—
|
|
|
—
|
|
|
130,925
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
3,786
|
|
|
—
|
|
|
—
|
|
|
3,786
|
|
Issuance of Common Stock pursuant to the 2020 Equity Plan
|
—
|
|
|
—
|
|
|
755,623
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
19
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,180)
|
|
|
(21,180)
|
|
Balance at March 31, 2021
|
—
|
|
|
—
|
|
|
41,425,192
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
—
|
|
|
$
|
—
|
|
|
$
|
444,063
|
|
|
$
|
53
|
|
|
$
|
(435,995)
|
|
|
$
|
8,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock
|
|
Casper Sleep Inc, Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Class A common stock
|
Class B common stock
|
|
Additional paid-in capital
|
|
Accumulated other comprehensive income
|
|
Accumulated deficit
|
|
Total stockholders’ equity / (deficit)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
19,212,912
|
|
|
$
|
319,961
|
|
|
—
|
|
|
$
|
—
|
|
|
9,190,858
|
|
|
$
|
—
|
|
1,466,078
|
|
|
$
|
—
|
|
|
$
|
18,097
|
|
|
$
|
69
|
|
|
$
|
(325,260)
|
|
|
$
|
(307,094)
|
|
Initial public offering, net of issuance costs of $11.8 million
|
—
|
|
|
—
|
|
|
8,350,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
88,206
|
|
|
—
|
|
|
—
|
|
|
88,206
|
|
Conversion of redeemable convertible preferred stock to common stock
|
(19,212,912)
|
|
|
(319,961)
|
|
|
20,485,054
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
319,961
|
|
|
—
|
|
|
—
|
|
|
319,961
|
|
Common stock conversion
|
—
|
|
|
—
|
|
|
10,656,936
|
|
|
—
|
|
|
(9,190,858)
|
|
|
—
|
|
(1,466,078)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercise of employee stock options
|
—
|
|
|
—
|
|
|
4,332
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
47
|
|
|
—
|
|
|
—
|
|
|
47
|
|
Exercise of stock warrants
|
—
|
|
|
—
|
|
|
181,133
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Stock based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
2,661
|
|
|
—
|
|
|
—
|
|
|
2,661
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
447
|
|
|
—
|
|
|
447
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(34,466)
|
|
|
(34,466)
|
|
Balance at March 31, 2020
|
—
|
|
|
$
|
—
|
|
|
39,677,455
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
—
|
|
|
$
|
—
|
|
|
$
|
428,975
|
|
|
$
|
516
|
|
|
$
|
(359,726)
|
|
|
$
|
69,765
|
|
See accompanying notes to consolidated financial statements (unaudited).
Casper Sleep Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(In thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2021
|
|
2020
|
Cash flows used in operating activities:
|
|
|
|
Net loss
|
$
|
(21,180)
|
|
|
$
|
(34,466)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
Depreciation and amortization 1
|
3,823
|
|
|
4,129
|
|
Stock based compensation expense
|
3,786
|
|
|
2,661
|
|
Other
|
768
|
|
|
423
|
|
Changes in assets and liabilities:
|
|
|
|
Accounts receivable, net
|
3,127
|
|
|
10,637
|
|
Prepaid expenses and other current assets
|
(1,815)
|
|
|
110
|
|
Inventory, net
|
(11,914)
|
|
|
486
|
|
Other assets
|
(1)
|
|
|
95
|
|
Accounts payable
|
913
|
|
|
7,113
|
|
Accrued expenses
|
1,497
|
|
|
(17,771)
|
|
Deferred revenue
|
(3,322)
|
|
|
(5,842)
|
|
Other liabilities
|
692
|
|
|
(643)
|
|
Net cash used in operating activities
|
(23,626)
|
|
|
(33,068)
|
|
Cash flows used in investing activities:
|
|
|
|
Purchases of property and equipment 2
|
(3,881)
|
|
|
(7,090)
|
|
Net cash used in investing activities
|
(3,881)
|
|
|
(7,090)
|
|
Cash flows (used in) provided by financing activities:
|
|
|
|
Exercise of stock options and warrants
|
29
|
|
|
50
|
|
Proceeds from equity issuance
|
—
|
|
|
88,206
|
|
|
|
|
|
Repayment on borrowings
|
(3,000)
|
|
|
—
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
(2,971)
|
|
|
88,256
|
|
Effect of exchange rate changes
|
20
|
|
|
447
|
|
Net change in cash, cash equivalents, and restricted cash
|
(30,458)
|
|
|
48,545
|
|
Cash, cash equivalents, and restricted cash at beginning of period
|
92,084
|
|
|
67,578
|
|
Cash, cash equivalents, and restricted cash at end of the period
|
$
|
61,626
|
|
|
$
|
116,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash paid for:
|
|
|
|
Interest paid
|
$
|
(1,554)
|
|
|
$
|
(1,180)
|
|
|
|
|
|
Supplemental schedule of noncash financing activity:
|
|
|
|
Series Seed preferred units converted to common stock
|
$
|
—
|
|
|
$
|
1,826
|
|
Series A preferred units converted to common stock
|
$
|
—
|
|
|
$
|
12,983
|
|
Series B preferred units converted to common stock
|
$
|
—
|
|
|
$
|
54,895
|
|
Series C preferred units converted to common stock
|
$
|
—
|
|
|
$
|
169,098
|
|
Series D preferred units converted to common stock
|
$
|
—
|
|
|
$
|
81,159
|
|
|
|
|
|
Reclass of deferred financing costs to additional paid in capital
|
$
|
—
|
|
|
$
|
5,481
|
|
Deferred financing costs included in accounts payable and accrued expenses
|
$
|
—
|
|
|
$
|
1,957
|
|
1 Depreciation and amortization for the three months ended March 31, 2021 and 2020 consists of $3,823 and $3,148 recorded in general and administrative expenses and $— and $981 recorded in restructuring expenses, respectively, on the Consolidated Statements of Operations and Comprehensive Loss.
2 Purchases of property and equipment is net of fixed assets purchases that are included in accounts payable amounting to $391 and $938 at March 31, 2021 and 2020, respectively.
See accompanying notes to consolidated financial statements (unaudited)
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
(1) Description of Business
Casper Sleep Inc. and its subsidiaries (the “Company” or “Casper”) design and sell premium sleep products including mattresses, pillows, sheets, and other sleep-centric products. The Company’s head office is located at 175 Greenwich Street, 3 World Trade Center, New York, NY, and the Company has additional office locations in San Francisco, CA, as well as retail locations and pop-up stores throughout the United States (“U.S.”) and Canada.
The Company comprises Casper Sleep Inc. and its wholly-owned subsidiaries, Casper Science LLC, Casper Sleep Retail LLC, and Casper Sleep Limited (“Casper UK Holdco”). Casper UK Holdco wholly-owns Casper Sleep GmbH, Casper Sleep (UK) Limited, and Casper Sleep SAS.
(2) Initial Public Offering
On February 10, 2020, the Company completed the initial public offering (the “IPO”) of its common stock pursuant to a Registration Statement on Form S-1. In the IPO, the Company sold an aggregate of 8,350,000 shares of common stock at a public offering price of $12.00 per share. Upon consummation of the offering on February 10, 2020, the Company received net proceeds of approximately $88,000, after deducting underwriting discounts and commissions of $6,500 and offering expenses of $5,700. Upon the completion of the IPO, all outstanding shares of the Company's convertible preferred stock and Class A and Class B common stock were converted into common stock.
(3) Basis of Presentation
The Company presents its financial statements on a consolidated basis of all its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. All figures expressed, except share and per share amounts, are represented in U.S. dollars in thousands.
The accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our consolidated financial statements for the year ended December 31, 2020. The information included in the accompanying unaudited financial statements reflects all adjustments, all of which are of a normal, recurring nature, that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The information set forth in the accompanying unaudited financial statements may be subject to normal year-end adjustments. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year.
Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the presentation of the current period consolidated financial statements.
(4) Use of Estimates
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; the valuation of deferred income tax assets, deferred revenue, the valuation of stock-based compensation and warrants, the product returns reserve, the inventory obsolescence reserve and accounts receivable allowance for doubtful accounts.
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
(5) Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of less than three months when purchased to be cash equivalents.
(b) Restricted Cash
Restricted cash represents cash balances held in segregated accounts used for collateralizing letters of credit with its bank. During the three months ended March 31, 2021, these letters of credits were closed and the associated restrictions on cash were relieved.
(c) Accounts Receivable, net
At March 31, 2021 and December 31, 2020, accounts receivable, net was composed primarily of amounts due from retail partners, from financial institutions related to credit card sales and other receivables. Accounts receivable is recorded net of an allowance for uncollectible balances related to chargebacks or disputes raised by retail partners. The allowance is recognized in an amount equal to anticipated future uncollectible receivables. Management estimates the allowance for doubtful accounts based on delinquencies, trends and historical experience.
(d) Inventory, net
Inventory primarily consist of merchandise purchased for sale, as well as costs to deliver merchandise to Casper’s logistics providers and retail stores. The Company’s inventory is stated at cost using standard costing. The Company performs an analysis to determine whether it is appropriate or not to maintain a reserve for excess and obsolete inventory. The reserve is based on historical experience related to the disposal of identified inventory, specifically through sales to retail partners, clearance sales and, ultimately, the expected recoverable value. The value of older inventory can be impacted by new product launches, which can make certain older items obsolete. A lower of cost or market assessment is performed on inventory and reserves established when the net realizable value exceeds the historic cost. Most of Casper’s inventory is just-in-time and most products have been recently introduced and in existence for less than two years. The Company performs a review of all on hand inventory to determine if any items are deemed obsolete based on specific facts and circumstances.
Storage costs, indirect administrative overhead and certain selling costs related to inventories are expensed in the period incurred.
Inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Raw materials
|
$
|
155
|
|
|
$
|
386
|
|
Finished goods
|
38,303
|
|
|
31,575
|
|
Inventory in transit
|
8,382
|
|
|
3,570
|
|
|
|
|
|
Total inventory
|
46,840
|
|
35,531
|
|
Raw materials consist of replacement parts and components used in the creation of products. Finished goods is comprised of completed goods including mattresses, pillows, sheets, dog beds, glow lights and furniture.
Inventory in transit is either purchased inventory coming from outside the United States or inventory being transferred between warehouses or from warehouse to retail location.
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
The Company writes down inventory as a result of excess and obsolete inventories, or when it believes that the net realizable value of inventories is less than the carrying value.
(e) Revenue Recognition
Revenue transactions associated with the sale of goods and services comprise a single performance obligation, which consists of the sale of products to customers either to the Company’s retail partners or through its direct-to-consumer (“DTC”) channel. Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the customers, based on the terms of sale. The transfer of control typically occurs at a point in time based on consideration of when the customer has an obligation to pay for the goods, and physical possession of, legal title to, and the risks and rewards of ownership of the goods has been transferred, and the customer has accepted the goods. Revenue from retail partnership transactions is generally recognized at the time products are shipped based on contractual terms with the customer. Revenue from our DTC channel is generally recognized at the point of sale in our retail stores and at the time of delivery for e-commerce transactions.
Revenue is recognized net of estimates of variable consideration, including product returns, customer discounts and allowances. Casper determines these estimates based on contract terms, evaluations of historical experience, anticipated trends, and other factors. The actual amount of customer returns and customer allowances, which is inherently uncertain, may differ from our estimates.
The duration of contractual arrangements with our customers is typically less than one year. Payment terms with retail partners vary depending on creditworthiness and other considerations, with the most common being net 30 days. Payment is due at the time of sale for DTC transactions.
We have elected to account for shipping and handling as fulfillment activities, and not as separate performance obligations. Shipping and handling fees billed to customers are included in net sales. All shipping and handling activity costs are recognized as costs of goods sold at the time the related revenue is recognized. Sales taxes collected from customers and remitted directly to government authorities are excluded from net sales and cost of goods sold.
Revenue is comprised of global sales through our DTC channels and our retail partnerships, and reflects the impact of product returns as well as discounts for certain sales programs and promotions.
Promotions are occasionally offered, primarily in the form of discounts, and are recorded as a reduction of gross revenue at the date of revenue recognition. We typically accept sales returns during a 30 or 100-night trial period, depending on the product, with our mattresses having a 100-night trial period. A sales return accrual is estimated based on historical return rates and is then adjusted for any current trends as appropriate. Returns are netted against the sales allowance reserve for the period. Sales are recognized as deferred revenue at the point of sale and are recognized as revenue upon the delivery to the consumer. Revenue through our DTC channels is recognized upon in-store or home delivery to the consumer, as applicable, and retail partnership revenue is recognized upon the transfer of control, on a per contract basis.
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
Disaggregated Revenue Data
The following table disaggregates our net sales by geography and channel for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2021
|
|
2020
|
North America Region
|
$
|
127,678
|
|
|
$
|
106,359
|
|
EU Region
|
—
|
|
|
6,685
|
|
Total
|
$
|
127,678
|
|
|
$
|
113,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct to Consumer
|
$
|
93,240
|
|
|
$
|
90,304
|
|
Retail Partnerships
|
34,438
|
|
|
22,740
|
|
Total
|
$
|
127,678
|
|
|
$
|
113,044
|
|
(f) Cost of Goods Sold
Cost of goods sold consists of costs of purchased merchandise, including freight, duty, vendor rebates, and nonrefundable taxes incurred in delivering goods and services to customers and distribution centers, packaging and component costs, warehousing and fulfillment costs, damages, and excess and obsolete inventory write-downs.
(g) Sales and Marketing expenses
Sales and marketing expenses consist primarily of advertising and marketing promotions of the Company’s products as well as sponsorship costs, consulting and contractor expenses. Advertising and other promotional costs are expensed as incurred.
(h) General and Administrative expenses
General and administrative expenses consist of personnel-related costs for our retail stores, retail operations, finance, legal, human resources, and IT functions, as well as litigation expenses, credit card fees, professional services, rent and operating costs associated with our retail stores, depreciation and amortization, and other administrative expenses. Research and development expenses are included within general and administrative and consist primarily of personnel-related expenses, consulting and contractor expenses, tooling, test equipment, and prototype materials.
(i) Restructuring expenses
Restructuring expenses consist of costs associated with implementing strategic changes in the companies' business structure including reductions in work force and exiting of certain lines of business or geographies.
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
During 2020, in response to the COVID-19 pandemic, the Company announced a number of restructuring actions focused on cost savings and renewed focus on commercial operations in North America. Restructuring expenses for the three months ended March 31, 2021 relate to costs associated with certain severance and other employee separation costs. Restructuring expenses for the three months ended March 31, 2020 relate to costs associated with restructuring our retail operations and organizational structure, including severance, contract termination costs and other exit activities. Costs associated with these actions amounted to $401 and $1,311 for the three months ended March 31, 2021 and 2020, respectively.
A summary of the charges recorded in connection with these actions during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
|
Three Months Ended March 31, 2020
|
|
EU Closure
|
US
|
Total
|
|
|
EU Closure
|
US
|
Total
|
Severance and benefits
|
$
|
—
|
|
$
|
537
|
|
$
|
537
|
|
|
|
$
|
—
|
|
$
|
10
|
|
$
|
10
|
|
Contract termination
|
—
|
|
|
—
|
|
|
|
—
|
|
320
|
|
320
|
|
Asset impairments
|
—
|
|
—
|
|
—
|
|
|
|
—
|
|
981
|
|
981
|
|
Other expenses
|
(148)
|
|
12
|
|
(136)
|
|
|
|
—
|
|
—
|
|
—
|
|
Total
|
$
|
(148)
|
|
$
|
549
|
|
$
|
401
|
|
|
|
$
|
—
|
|
$
|
1,311
|
|
$
|
1,311
|
|
The Company's accrued liabilities for the restructuring expenses at March 31, 2021 was $1,802, which is presented in accrued expenses in the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring balance as at December 31, 2020
|
|
$
|
1,644
|
|
Charges accrued during the three month period ended March 31, 2021
|
|
401
|
Payments made during the three month period ended March 31, 2021
|
|
(243)
|
|
Accrued Restructuring balance as at March 31, 2021
|
|
$
|
1,802
|
|
(j) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist primarily of prepaid media placement for media campaigns that have not yet run, prepaid rent and office related expenses, and other prepaid expenses. In addition, the Company had tenant allowance receivable of $3,705 and $5,120 as of March 31, 2021 and December 31, 2020, respectively.
(k) Stock-Based Compensation
Compensation cost for all stock-based awards, including options to purchase stock and restricted stock units (“RSUs”) is measured at fair value on the date of grant and recognized over the service period. The fair value of stock options is estimated on the date of grant using a Black-Scholes model.
The fair value of RSUs awarded is estimated on the date of grant based on the fair value of our common stock. Compensation cost is recognized on a straight-line basis over the requisite service period. The Company accounts for forfeitures as they occur, rather than estimating expected forfeitures.
(l) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation expense on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of furniture, fixtures, computers, technology hardware, and machinery and equipment range from 3 to 5 years. The Company’s purchased software is amortized over 7 years. Leasehold improvements are depreciated over the shorter of their useful life or the related lease term (without consideration of option renewal terms).
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Leasehold improvements
|
$
|
55,400
|
|
|
$
|
53,404
|
|
Furniture and fixtures
|
25,883
|
|
|
24,294
|
|
Construction in progress
|
5,739
|
|
|
6,021
|
|
Computer Equipment
|
5,110
|
|
|
4,984
|
|
Computer software
|
2,407
|
|
|
2,405
|
|
Machinery and Equipment
|
910
|
|
|
853
|
|
Property and equipment
|
95,449
|
|
|
91,961
|
|
Less: accumulated depreciation
|
(29,256)
|
|
|
(25,432)
|
|
Property and equipment, net
|
$
|
66,193
|
|
|
$
|
66,529
|
|
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined using various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.
During the three months ended March 31, 2020, the Company recorded an impairment charge related to restructuring actions of $981 as a result of permanently closing three outlet stores, abandoning selected product development activities resulting in impairment of related production assets, and exiting our European operations. This expense is presented within restructuring expenses on the consolidated statement of operations and comprehensive loss. See Note 5(i), Restructuring expenses for additional details.
(m) Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized within the provision for (benefit from) income taxes on the consolidated statement of operations and comprehensive loss in the period that includes the enactment date.
The Company reduces deferred tax assets, by a valuation allowance if it is more likely than not that the Company will not realize some or all of the deferred tax assets. In making such a determination, the Company considers all available positive and negative evidence, including taxable income in prior carryback years (if carryback is permitted under the relevant tax law), the timing of the reversal of existing taxable temporary differences, tax planning strategies, and projected future taxable income. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.
The Company recognizes interest and penalties related to uncertain tax positions within the provision for (benefit from) income taxes in the consolidated statement of operations and comprehensive loss.
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
(n) Deferred Rent
Rental payments under operating leases are expensed on a straight-line basis after consideration of rent holidays, tenant allowances, step rent provisions and escalation clauses. Differences between rental expense (recognized from the date of possession) and actual rental payments are recorded as deferred rent. Deferred rent is presented in other liabilities. See Note 5(q), Other Liabilities for additional information on deferred rent.
(o) Intangibles
The Company’s intangible assets consist of patents and domain names stated at cost. Intangibles are presented in other assets in the consolidated balance sheets.
(p) Other Current Liabilities
Other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
Product return reserve
|
$
|
6,672
|
|
|
$
|
7,112
|
|
Other Taxes
|
2,446
|
|
|
1,501
|
|
Other
|
883
|
|
|
885
|
|
Total Other Current Liabilities
|
$
|
10,001
|
|
|
$
|
9,498
|
|
(q) Other Liabilities
Other liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Tenant Allowance
|
$
|
12,847
|
|
|
$
|
13,006
|
|
Deferred Rent
|
8,894
|
|
|
8,737
|
|
Contract Liability
|
2,000
|
|
|
2,125
|
|
Other
|
92
|
|
39
|
|
Total Other Liabilities
|
$
|
23,833
|
|
|
$
|
23,907
|
|
See Note 7, Debt for additional details.
(r) Basic and Diluted Loss per Common Share
The Company accounts for net income (loss) per common share using the treasury stock method. Basic net income (loss) per common share is computed by dividing net income (loss) for the period by the weighted-average number of common shares outstanding at the end of the period. Diluted net income (loss) per common share reflects the weighted-average number of common shares outstanding during the period used in the basic net income (loss) computation plus dilutive common stock equivalents. The computation of diluted net income (loss) per common share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on net income (loss) per common share.
(s) Foreign Currency
The functional currency of the Company's international operating subsidiaries is the local currency. The Company translates the financial statements of these subsidiaries to U.S. dollars using month-end rates of exchange for assets and liabilities, and average rates for the annual period are derived from month-end spot
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
rates for revenue, costs and expenses. The Company records translation gains and losses in accumulated other comprehensive loss as a component of stockholders' equity. Foreign currency transaction gains and losses are included in net loss for the period.
(t) Convertible Preferred Stock
On February 10, 2020, upon the closing of the Company's IPO, all outstanding shares of convertible preferred stock were automatically converted into an aggregate of 20,485,054 shares of common stock.
(u) Segment Information
During the three months ended March 31, 2021 and 2020, the Company operated in one operating segment within the United States, Canada and Europe, providing sleep products to consumers through various sales channels. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”). The Company’s CODM is its Chief Executive Officer. The role of the CODM is to make decisions about allocating resources and assessing performance. The Company's business operates in one operating segment as all of the Company's sales channels are complementary and are analyzed in an identical way, with the CODM evaluating the Company's financial information, resources and performance of these resources on a consolidated basis. Since the Company operates in one operating segment, all required financial segment information can be found in the consolidated financial statements.
(6) Fair Value of Financial Instruments
The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
•Level 1 inputs are based on quoted prices in active markets for identical assets or liabilities.
•Level 2 inputs are based on observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 inputs are based on unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities, and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. The fair value of the Company’s investments in certain money market funds is their face value. Such instruments are classified as Level 1 and are included in cash, cash equivalents, and restricted cash on the consolidated balance sheets.
At March 31, 2021, the Company's valuation of outstanding warrants was measured using a Black-Scholes option pricing model and considered Level 2 inputs. See Note 14, Warrants for further discussion of the Company's outstanding warrants and assumptions utilized.
The following summarizes assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of March 31, 2021 and December 31, 2020:
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Cash, Cash Equivalents, and Restricted Cash
|
|
March 31, 2021
|
|
December 31, 2020
|
|
March 31, 2021
|
|
December 31, 2020
|
Assets
|
|
|
|
|
|
|
|
Cash
|
$
|
61,626
|
|
|
$
|
74,013
|
|
|
$
|
61,626
|
|
|
$
|
74,013
|
|
Level 1:
|
|
|
|
|
|
|
|
Money market funds
|
—
|
|
|
18,071
|
|
|
—
|
|
|
18,071
|
|
Cash, cash equivalents and restricted cash
|
61,626
|
|
|
92,084
|
|
|
61,626
|
|
|
92,084
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Level 2:
|
|
|
|
|
|
|
|
Preferred stock warrant liabilities
|
(53)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
61,573
|
|
|
$
|
92,084
|
|
|
$
|
61,626
|
|
|
$
|
92,084
|
|
As of March 31, 2021 and December 31, 2020, the Company had money market accounts of $— and $18,071, respectively. The money market accounts are presented at fair market value based on quoted market prices and are classified within Level 1.
(7) Debt
Senior Secured Facility
On April 27, 2016, Casper Sleep Inc. and Casper Science LLC entered into a loan and security agreement with Pacific Western Bank (as amended, the “Senior Secured Facility” or “Prior Credit Facility”) for a $15,000 revolving credit line. The line was ultimately amended to a borrowing base of $25,000 and an extended the maturity date of 90 days from September 1, 2020. During the year ended December 31, 2020, the line was refinanced by entering into the Revolving Credit Facility, as defined and described herein.
Revolving Credit Facility
On November 10, 2020, Company refinanced its secured revolving facility with Pacific Western Bank by entering into a credit agreement (the “Credit Agreement”) by and among the Company, Casper Science LLC and Casper Sleep Retail LLC (collectively, the “Loan Parties”), and Wells Fargo Bank, National Association (“Wells Fargo”) providing for a senior secured asset-based revolving credit facility of up to $30,000 (the "Loan Cap"), with an uncommitted accordion of an additional $15,000 (the “Revolving Credit Facility”). The Credit Agreement provides that up to $10,000 of the Revolving Credit Facility is available for issuances of letters of credit, and up to $5,000 is available for swingline loans.
The Company has the option to increase the total commitment under the Revolving Credit Facility from $30,000 to $45,000, subject to certain conditions, including obtaining commitments from one or more lenders. The Company intends to use the proceeds of the Revolving Credit Facility (a) to finance the acquisition of working capital assets of the Company, including the purchase of inventory and equipment, in each case in the ordinary course of business, (b) to finance capital expenditures of the Company, (c) for general corporate purposes of the Loan Parties, (d) to pay fees and expenses in connection with the transactions contemplated by the Credit Agreement, (e) the repayment in full of amounts outstanding under the Prior Credit Facility and (e) for other lawful corporate purposes. The Prior Credit Facility was terminated upon repayment in full of the amounts outstanding thereunder.
The Revolving Credit Facility matures on the earlier of November 10, 2023 and 91 days prior to the earliest maturity date of any borrowing under the Amended Subordinated Facility (as defined below).
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
Borrowings under the Revolving Credit Facility will be subject to an applicable margin of (i) when average daily availability is greater than or equal to 50% of the Loan Cap, 2.50% for LIBOR loans or 1.50% for base rate loans, as well as a letter of credit fee of 2.50%, and (ii) when Average Daily Availability is less than 50% of the Loan Cap, 2.75% for LIBOR loans or 1.75% for base rate loans, as well as a letter of credit fee of 2.75%, in each case subject to adjustments on the first day of each fiscal quarter commencing on January 1, 2021.
The Revolving Credit Facility is secured by substantially all assets of the Loan Parties, including intellectual property, subject to customary exceptions.
The Revolving Credit Facility contains customary covenants that limit, absent lender approval, the ability of the Company to, among other things, pay cash dividends, incur debt, create liens and encumbrances, redeem or repurchase stock, enter into certain transactions, repay certain indebtedness, make investments or dispose of assets. The financial covenant requires that the Loan Cap minus the total outstanding be no less than the greater of (i) 10.0% of the Loan Cap and (ii) $3,000.
The Credit Agreement contains customary events of default including, among other things, failure to pay obligations when due, initiation of bankruptcy or insolvency proceedings, defaults on certain other indebtedness, change of control, incurrence of certain material judgments that are not stayed, satisfied, bonded or discharged within 45 days, certain events related to the Employee Retirement Income Security Act of 1974, invalidity of the credit documents, and violation of affirmative and negative covenants or breach of representations and warranties set forth in the Credit Agreement. Upon an event of default, the lenders may, subject to various customary cure rights and grace periods, require the immediate payment of all amounts outstanding and foreclose on collateral. Casper was in compliance with all terms and covenants in the Revolving Credit Facility as of March 31, 2021.
The Company drew down $16,000 of the Revolving Credit Facility on November 10, 2020. The outstanding balance of the Revolving Line was $13,000 as of March 31, 2021 at an interest rate of 3.50%. During the three months ended March 31, 2021, interest expense incurred on the Revolving Line and the Prior Credit Facility that it replaced was $362.
Amended Subordinated Facility
In connection with the secured growth capital loan facility agreement (the "Subordinated Facility") with TriplePoint Venture Growth BDC Corp., as lender and collateral agent, and TriplePoint Capital LLC, as lender (or, together with TriplePoint Venture Growth BDC Corp., "TriplePoint"), on March 1, 2019, we entered into two warrant agreements with TriplePoint Venture Growth BDC Corp. and TriplePoint Capital LLC for 19,201 shares of Series D preferred stock and 12,801 shares of Series D preferred stock, respectively, at an exercise price per share of $31.24715. TriplePoint’s right under the warrant agreements to purchase the Series D preferred stock will be available for seven years from March 1, 2019, subject to certain exercise conditions. In the event these warrant agreements are exercised, TriplePoint will have the right to purchase under the warrant agreements the common stock into which each share of the Series D preferred stock is convertible at the time of such exercise.
Borrowings under the Subordinated Facility accrued interest at the prime rate (which, as defined in the Subordinated Facility, shall be as published in the Wall Street Journal with a floor of 5.25%) plus an applicable margin set forth in the table of terms. The table of terms sets forth 18 options that range on term, amortization, interest rate and other features that can range from an annual interest rate of the prime rate plus 0.0% margin for a three month interest only term and up to a prime plus 7.25% margin for a 48 month interest only term. End of term payments ranged from 0.25% of each advance for a three-month term up to 8.25% for each advance with a 48 month repayment option. The Subordinated Facility also had a 1.25% one-time facility fee for the committed amount, which is initially $50,000. There was a 1.5% prepayment penalty in the event that the loan is prepaid within the first 18 months with no prepayment penalty thereafter.
The Subordinated Facility contained certain affirmative and negative covenants, including, among others, restrictions on liens, indebtedness, mergers or acquisitions, investments, dividends or distributions, fundamental changes and affiliate transactions. On November 10, 2020, the Company, Casper Science LLC and Casper Sleep Retail LLC entered into an amendment to the agreement governing the Subordinated Facility with TriplePoint
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
Venture Growth BDC Corp., as lender and collateral agent, and TriplePoint Capital LLC, as lender (the “Amended Subordinated Facility”), to, among other things, permit the incurrence of the Revolving Credit Facility.
On August 9, 2019, Casper drew down a $25,000 forty-eight month interest only loan with an interest rate of prime plus 7.25%. The end of term payment is 7.50% of the drawn down amount. As of March 31, 2021, the loan was $25,000. During the three months ended March 31, 2021, interest expense incurred on the loan was $937.
On November 1, 2019, Casper drew down a $25,000 thirty-six month interest only loan with an interest rate of prime plus 6.0%. The end of term payment is 6.25% of the drawn down amount. As of March 31, 2021, the outstanding balance under the loan was $25,000 and interest expense incurred on the loan was $882.
As of March 31, 2021, the Company was in compliance with all covenants under the Amended Subordinated Facility.
See Note 14, Warrants for additional information on warrants issued in conjunction with the Subordinated Facility.
(8) Stock-Based Compensation
Stock-based compensation cost amounted to $3,786 and $2,661 for the three months ended March 31, 2021 and 2020, respectively. These amounts include stock-based compensation to employees and non-employees, and is included within general and administrative expense.
The total number of stock options, restricted stock units (“RSUs”), and performance stock units (“PSUs”) vested during the three months ended March 31, 2021 was 1,506,304 at a total fair value of $10,906.
During the three months ended March 31, 2021, the Company extended the term of certain fully vested stock options for certain employees resulting in the immediate recognition of incremental stock-based compensation expense of $171.
During the three months ended March 31, 2021, the Company granted 167,692 stock options.
During the three months ended March 31, 2021, options to purchase 130,925 shares of common stock were exercised. The intrinsic value, which is the difference between the market value of the stock and the exercise price of the stock options, of those options exercised was $1,131.
As of March 31, 2021, the total unrecognized stock-based compensation expense related to stock options was $11,759. The Company expects to recognize this expense over the remaining weighted-average period of approximately 2.16 years.
Restricted Stock Units and Performance Stock Units
In February 2020 and in connection with the IPO, the Company's Board of Directors adopted the Company's 2020 Equity Incentive Plan, which became effective upon the filing of the associated Form S-8 on February 11, 2020.
During the three months ended March 31, 2021, the Company granted 1,356,734 restricted stock units (“RSUs”), and 401,464 PSUs,, of which 241,297 units were forfeited. During the three months ended March 31, 2020, the Company granted 1,738,528 RSUs, and 259,616 performance stock units (“PSUs”), of which 3,650 units were forfeited. The fair value of the units granted was equal to the average stock price on the grant date.
Total stock-based compensation expense related to RSUs and PSUs of $2,048 and $607 was recognized for the three months ended March 31, 2021 and 2020, respectively, and is included within general and administrative expense. The Company expects to recognize the expense for RSUs over the vesting period of four years for new hire grants and annual awards issued in 2021, three years for RSUs issued in 2020, and 1 year for director grants.
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
The PSUs earned will vest within two years from the grant date based on the Company's performance. During the three months ended March 31, 2021 and 2020, the Company recognized expense related to PSUs of $302 and $—, respectively.
As of March 31, 2021 the total unrecognized stock-based compensation expense related to RSUs and PSUs was $19,860 and $2,736, respectively. As of March 31, 2021 the Company expects to recognize this expense over the remaining weighted-average period of approximately 3.03 years.
The following table summarizes the activity related to the Company's RSUs and PSUs:
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units and Performance Stock Units
|
Outstanding shares
|
Aggregate Intrinsic Value
|
Weighted Average Grant Date Fair Value
|
Balance as of January 1, 2021
|
2,236,235
|
|
|
$
|
8.16
|
|
Granted
|
1,758,198
|
|
|
$
|
8.29
|
|
Vested and converted to shares
|
(755,623)
|
|
$5,471
|
$
|
8.70
|
|
Forfeited
|
(241,297)
|
|
|
$
|
8.59
|
|
Balance as of March 31, 2021
|
2,997,513
|
|
|
$
|
8.07
|
|
(9) Significant Risks and Uncertainties Including Business and Credit Concentrations
Risks and Uncertainties
In December 2019, the COVID-19 disease caused by the novel coronavirus was reported in the media, and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On March 11, 2020, the WHO characterized COVID-19 as a pandemic. The broader implications of the COVID-19 pandemic on the Company’s results of operations and overall financial performance remain uncertain. The Company has experienced and may continue to experience constrained supply or slowed customer demand that could materially adversely impact the Company’s business, results of operations and overall financial performance in future periods. As there remains a high degree of uncertainty around the impacts of the COVID-19 pandemic, the Company addresses and evaluates the impacts frequently. As the situation surrounding the COVID-19 pandemic remains fluid, we have been and may be required in the future to close or limit service offerings in certain of our retail stores in response to guidance from applicable government and public health officials, which we expect will adversely affect our revenue.
At this stage of the Company's development, the ability to generate positive operating cash flows is a risk. The Company has incurred a net loss from operations and net operating cash outflows for the three months ended March 31, 2021, the years 2020 and 2019 and since inception and has an accumulated deficit. As a result, the Company continues to rely upon investors who contributed cash to cover the Company's current operating expenses and obligations and has the ability to draw down on the line of credit. The Company's success will depend in part on its ability to continue to attract new customers, retain existing customers, and curate and market its products. There can be no assurance that the Company will be able to achieve any or all of these success factors. The Company estimates that it will have adequate liquidity to fund operations through May 14, 2022. In the future, if the Company is unable to attain positive cash flow from operations it will need to raise adequate financing or issue additional debt to maintain its current level of operations and growth.
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash, cash equivalents and restricted cash and accounts receivable, net. The Company places its cash investments with high-credit quality financial institutions. A significant portion of the Company’s accounts receivable, net is
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
with its credit card processors and retail partnerships. The Company believes no significant credit risk exists with respect to these financial instruments.
Concentrations
As of March 31, 2021, three customers comprised 49%, 17% and 13% of the Company's accounts receivable, net balance. As of December 31, 2020, two customers comprised 58% and 15% of the Company’s accounts receivable, net balance.
Revenue within North America and Europe was approximately $127,678 and $—, respectively, for the three months ended March 31, 2021. Revenue within North America and Europe was approximately $106,359 and $6,685, for the three months ended March 31, 2020.
One customer accounted for 13% of the Company’s revenue for the three months ended March 31, 2021. One customer accounted for 11% of the Company’s revenue for the three months ended March 31, 2020.
(10) Leases
Rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Rental expense for operating leases were $5,387 and $5,635 for the three months ended March 31, 2021 and 2020, respectively.
As of March 31, 2021, future minimum lease payments under non-cancelable operating leases consisted of the following:
|
|
|
|
|
|
2021 (remaining nine months)
|
$
|
15,914
|
|
2022
|
21,477
|
|
2023
|
21,386
|
|
2024
|
17,657
|
|
2025
|
14,270
|
|
Thereafter
|
71,664
|
|
Total minimum lease payments
|
$
|
162,368
|
|
The Company maintains leases for its office spaces and retail locations in each location as described in Note 1, Description of Business.
(11) Income Taxes
Effective Tax Rate
The Company’s effective tax rate, which is calculated by dividing each period’s income tax provision by pretax income, was 0.08% and 0.05% for the three months ended March 31, 2021 and 2020, respectively. The effective tax rates for the periods ended March 31, 2021 generally differ from the U.S. federal statutory tax rate primarily due to a full valuation allowance related to the Company’s U.S. deferred tax assets.
Unrecognized Tax Benefits and Other Considerations
The Company records liabilities related to its uncertain tax positions. Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority.
The Company has operations and taxable presence in multiple jurisdictions in the U.S. and outside of the U.S. Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions around the world. The Company currently considers U.S. federal and state to be major tax jurisdictions.
Future Changes in Unrecognized Tax Benefits
The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, settlements of ongoing tax audits and assessments and the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, the Company does not anticipate that the balance of gross unrecognized tax benefits, excluding interest and penalties, will change significantly during the next twelve months. However, changes in the occurrence, expected outcomes, and timing of such events could cause the Company's current estimate to change materially in the future.
(12) Accrued Expense
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Marketing
|
$
|
19,532
|
|
|
$
|
17,479
|
|
Tax fees
|
13,932
|
|
|
13,723
|
|
General trade
|
10,907
|
|
|
10,592
|
|
Other
|
11,867
|
|
|
12,947
|
|
Total Accrued Expenses
|
$
|
56,238
|
|
|
$
|
54,741
|
|
(13) Convertible Preferred Stock, Common Stock, and Stockholders’ Equity
(a) Common Stock
On February 10, 2020, in connection with our IPO, all Class A common stock and Class B common stock were converted into common stock with a par value of $0.000001, per share and we issued and sold 8,350,000 shares of our common stock at a price to the public of $12.00 per share resulting in net proceeds to us of approximately $88,000 after deducting the underwriting discount of approximately $6,500 and offering expenses of approximately $5,700.
As of March 31, 2021, the company had 170,000,000 shares of authorized common stock. Each holder of the Company's common stock is entitled to one vote per share on all matters to be voted upon by the stockholders. There are no cumulative rights. Subject to any preferential rights of any outstanding preferred stock, holders of the Company's common stock are entitled to receive ratably the dividends, if any, as may be declared from time to time by the Company's board of Directors out of legally available funds. If there is a liquidation, dissolution or winding up of the Company, holders of the Company's common stock would be entitled to share in the Company's assets remaining after the payment of liabilities and any preferential rights of any outstanding preferred stock.
(b) Convertible Preferred Stock
On February 10, 2020, upon the closing of the Company's IPO, all outstanding shares of convertible preferred stock were automatically converted into an aggregate of 20,485,054 shares of common stock.
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
(14) Warrants
In connection with the Subordinated Facility, as described in Note 7, Debt, on March 1, 2019, Casper entered into two warrant agreements with TriplePoint Venture Growth BDC Corp. and TriplePoint Capital LLC for 19,201 shares of Series D preferred stock and 12,801 shares of Series D preferred stock, respectively, at an exercise price per share of $31.24715, (the “TPC Warrants”). TriplePoint’s right under the warrant agreements to purchase the Series D preferred stock will be available for seven years from March 1, 2019, subject to certain exercise conditions. In the event these warrant agreements are exercised, TriplePoint will have the right to purchase under the warrant agreements the common stock into which each share of the Series D preferred stock is convertible at the time of such exercise. As of March 31, 2021, TriplePoint's right under these warrant agreements to purchase 32,002 shares of common stock were still outstanding and will be available for seven years from March 1, 2019, subject to certain exercise conditions.
(15) Recently Issued Accounting Pronouncements
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Accounting pronouncements not listed below were assessed and determined to be not applicable or are expected to have minimal impact on the consolidated financial statements.
Measurement of Credit Losses
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which was further updated and clarified by the FASB through issuance of additional related ASUs. This guidance replaces the existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost based on expected credit losses. The estimate of expected credit losses requires the incorporation of historical information, current conditions, and reasonable and supportable forecasts. The standard is effective for our interim and annual financial periods beginning January 1, 2023. This standard is to be applied utilizing a modified retrospective approach. We are currently evaluating the impact of this standard on our accounts receivable, cash, cash equivalents and restricted cash, and any other financial assets measured at amortized cost and do not expect that adoption will have a material impact on our consolidated financial statements or related disclosures.
Lease Guidance
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which supersedes the existing lease guidance under current U.S. GAAP. ASU 2016-02 is based on the principle that entities should recognize assets and liabilities arising from leases. The new standard does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard and leases continue to be classified as finance or operating. ASU 2016-02’s primary change is the requirement for entities to recognize a lease liability for payments and a right-of-use (“ROU”) asset representing the right to use the leased asset during the term of an operating lease arrangement. Lessees are permitted to make an accounting policy election not to recognize the asset and liability for leases with a term of 12 months or less. In addition, ASU 2016-02 expands the disclosure requirements of lease arrangements. Upon adoption, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
approach. In July 2018, the FASB issued ASU 2018-11, “Targeted Improvements”, which allows for a new, optional transition method that provides the option to use the effective date as the date of initial application on transition. Under this option, the comparative periods would continue to apply the legacy guidance in Accounting Standard Codification (“ASC”) 840, including the disclosure requirements, and a cumulative effect adjustment would be recognized in the period of adoption rather than the earliest period presented. Under this transition option, comparative reporting would not be required, and the provisions of the standard would be applied prospectively to leases in effect at the date of adoption. The Company is currently working to complete the design of new processes and internal controls, which include the implementation of a software solution and finalizing the evaluation of Casper’s population of leased assets to assess the effect of the new guidance on the financial statements. On April 8, 2020 the FASB extended the implementation deadline of ASC 842 for companies following the private company adoption calendar. As such, the Company plans to adopt the new guidance effective January 1, 2022, but has not determined which transition method will be utilized. The new standard provides a number of optional practical expedients in transition. The Company expects to elect the “package of practical expedients” which permits us not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements (the latter is not applicable to us). Casper expects the adoption of the new standard to have a material effect on the Consolidated Financial Statements upon adoption. While the Company continues to assess all of the effects of the adoption, it currently believes the most significant effects relate to the recognition of new ROU assets and lease liabilities on the consolidated balance sheets for operating leases, as well as providing significant new disclosures about leasing activities.
(16) Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31, 2021
|
|
March 31, 2020
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
Historical Net loss
|
$
|
(21,180)
|
|
|
$
|
(34,466)
|
|
|
|
|
|
Numerator for basic and diluted loss per share
|
$
|
(21,180)
|
|
|
$
|
(34,466)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
Historical denominator for basic and diluted net loss per share—weighted-average shares
|
40,808,328
|
|
|
27,909,141
|
|
|
|
|
|
Denominator for basic and diluted net loss per share
|
40,808,328
|
|
|
27,909,141
|
|
|
|
|
|
Basic and diluted loss per share
|
$
|
(0.52)
|
|
|
$
|
(1.23)
|
|
|
|
|
|
Since the Company was in a loss position for all periods presented, basic net loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders as the inclusion of all potential common shares outstanding would have been anti-dilutive.
The following securities have been excluded from the calculation of weighted average common shares outstanding because the effect is anti-dilutive for the three months ended March 31, 2021 and 2020.
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31, 2021
|
|
March 31, 2020
|
|
|
|
|
Warrants to purchase common stock
|
32,002
|
|
|
33,311
|
|
|
|
|
|
Stock options and RSUs
|
6,681,716
|
|
|
7,649,063
|
|
|
|
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with "Selected Consolidated Financial and Other Data" and our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K"), and other factors set forth in other parts of this Quarterly Report on Form 10-Q.
Overview
As a pioneer of the evolving business of sleep, or what we call the Sleep Economy, we bring the benefits of cutting-edge sleep technology, data, and insights directly to consumers. We focus on building direct relationships, providing a human experience, and making shopping for sleep joyful. We meet consumers wherever they are, online and in person, providing a fun and engaging experience, while reducing the hassles associated with traditional purchases.
Our products seek to address real life sleep challenges by optimizing for a variety of factors that impact sleep, like: the microclimate under the covers by regulating humidity and temperature; comfort and support, through the use of high-quality materials and ergonomic designs; and the ambience and sleep environment, through smart devices that provide sleep-conducive lighting. We also work to address “the little things” in our products, offering innovative features to make the sleep experience better and less stressful. Casper Labs, home to our fabrication and test space, features state-of-the-art capabilities to test against a wide range of factors affecting sleep quality, driving our innovation throughout the Sleep Economy. Casper Labs controls every aspect of our product offerings, including design and construction, material performance requirements, manufacturing protocols, supplier selection, packaging specifications, and quality assurance. We believe that no other company in the category has our level of product development talent, resources, or expertise.
We distribute our products through a flexible, multi-channel approach combining our direct-to-consumer channel, including our e-commerce platform and retail stores, with our retail partnerships. Our multi-channel approach enables us to meet consumers where they want to shop, servicing them throughout their entire purchase journey. We believe our channels are complementary and creates a synergistic “network effect” that increases sales as a whole, As of March 31, 2021, we distributed our products directly to our customers in North America through our e-commerce platform, 69 of our 70 total Casper stores (one was temporarily closed for renovations), and more than 20 retail partners, including with Amazon, Costco, Hudson's Bay Company, and Target.
Please see “Factors Affecting our Financial Condition and Results of Operations” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2020 Form 10-K, for a discussion of the factors that generally are expected to impact our business.
Impact of COVID-19 Pandemic
Casper continues to closely monitor how the spread of the COVID-19 pandemic caused by the novel coronavirus is affecting its employees, customers and business operations. We have developed and implemented preparedness plans to help protect the safety of our employees and customers, while safely continuing business operations.
In order to protect the health and safety of our employees, particularly given the ongoing severity of the pandemic in New York and California, we have continued to limit access to our corporate offices and our corporate workforce has spent and continues to spend a significant amount of time working from home during this period. Access to our offices will remain limited until we are able to safely and responsibly re-open them on a broader basis
in accordance with governmental and public health guidance, as well as health and safety policies tailored to our operations.
As of the date of this Quarterly Report on Form 10-Q, 71 of our 72 total Casper stores are open and operating (with one temporarily closed for renovations), with each offering walk-in shopping, private in-store appointments, curbside pick-up services, and virtual appointments. The health and safety of our customers and employees remain our top priority, and we have implemented and continuously update a suite of COVID-19-related operating policies and protocols as part of our retail operations, including, where appropriate, limiting in-store hours and capacity consistent with public health guidance and best practices. We also continuously monitor developments related to COVID-19 in locations where we have retail operations, and have developed procedures to enable us to responsibly and efficiently open or close our stores and adjust our service offerings as needed in response to changing COVID-19 conditions and applicable guidance from government and public health officials. During the three months ended March 31, 2021, the COVID-19 pandemic continued to adversely impact sales in our retail stores, primarily due to limitations in service offerings and significant reductions in retail foot traffic as a result of restrictions on retail businesses and shifting consumer preferences in response to COVID-19.
We also continue to work with our manufacturing, logistics and other supply chain partners to build communication and monitoring processes for key aspects of our product and delivery supply chain. During the first quarter of 2021, we experienced certain upstream supply chain disruptions due to industry-wide components and raw materials constraints, labor shortages and shipping delays resulting, in part, from the ongoing COVID-19 pandemic as well as severe weather in the southern region of the United States in the first quarter of 2021, among other factors. To mitigate the impacts of these disruptions, we have worked closely with our suppliers to reallocate production and increase our levels of safety stock inventory. As a result of these efforts, during the three months ended March 31, 2021, we did not experience any material delays in delivery times for our mattress products or any material impact on our capacity to fulfill orders from our retail partners or in our direct-to consumer channel. There remains significant uncertainty, however, around the impact of the COVID-19 pandemic on the global supply chain, and it is possible that certain upstream supply chain disruptions may continue to impact our suppliers and logistics providers. We continue to partner closely with these providers to mitigate any potential product or delivery supply chain constraints in future quarters.
Substantially all of our retail partners, including our largest partners, remained open for business, both in-store and online, during the first quarter of 2021, and as of the date of this Quarterly Report on Form 10-Q, substantially all of our retail partners have resumed their in-store operations. Accordingly, we have not experienced any material issues to date with respect to our accounts receivable from our retail partners or needed to materially increase our allowances for accounts receivable balances. We are, however, continuing to work closely with our retail partners to monitor the situation.
The COVID-19 pandemic has impacted, and we expect will continue to impact, our revenues, results of operations and financial condition. At this time, however, there remains significant uncertainty relating to the trajectory of the COVID-19 pandemic and impact of related responses. We will continue to closely monitor the impact of COVID-19 on our business, including with respect to our customers, employees, supply chain, and retail partners. The future impact that COVID-19 will have on our financial position and operating results, remains subject to numerous uncertainties, including the efficacy and rate of adoption of vaccination programs, the spread of new variants of COVID-19, duration of the pandemic, governmental and public health actions, impacts on our supply chain, the effect on customer demand, and changes to our operations. See “Risk Factors—The COVID-19 pandemic has affected, and could continue to adversely affect, our business, financial condition and results of operations” in Part I, Item 1.A. of our 2020 Form 10-K.
Components of our Results of Operations
Revenue
Revenue is comprised of global sales through our direct-to-consumer channels and our retail partnerships. Revenue reflects the impact of product returns as well as discounts for certain sales programs and promotions.
Revenue comprises the consideration received or receivable for the sale of goods and services in the ordinary course of our activities net of estimates of variable consideration, including product returns, customer discounts and allowances.
Promotions are occasionally offered, primarily in the form of discounts, and are recorded as a reduction of gross revenue at the date of revenue recognition. We typically accept sales returns during a 30- or 100-night trial period, depending on the product, with our mattresses having a 100-night trial period. A sales return accrual is estimated based on historical return rates and is then adjusted for any current trends as appropriate. Returns are netted against the sales allowance reserve for the period. Sales are recognized as deferred revenue at the point of sale and are recognized as revenue upon the delivery to the consumer. Revenue through our direct-to-consumer channels is recognized upon in-store or home delivery to the consumer, as applicable, and retail partnership revenue is recognized upon the transfer of control, on a per contract basis.
Cost of Goods Sold
Cost of goods sold consists of costs of purchased merchandise, including freight, duty, and non-refundable taxes incurred in delivering goods to our consumers and distribution centers, packaging and component costs, warehousing and fulfillment costs, damages, and excess and obsolete inventory write-downs.
Gross Profit and Gross Margin
We calculate gross profit as revenue less cost of goods sold. We calculate gross margin as gross profit divided by net revenue for a specific period of time. Gross margin in our direct-to-consumer channel, including company-owned retail stores and e-commerce sales, is generally higher than that on sales to our retail partnerships.
Our gross margin may in the future fluctuate from period to period based on a number of factors, including cost of purchased merchandise and components, the mix of products and services we sell and the mix of channels through which we sell our products. We have historically experienced that gross margin, by product, tends to increase over time as we realize cost efficiencies as a result of economies of scale, sourcing strategies and product re-engineering programs. In addition, our ability to continue to reduce the cost of our products is critical to increasing our gross margin over the long-term.
Operating Expenses
Operating expenses consist of sales and marketing, and general and administrative expenses, including research and development.
Sales and Marketing. Sales and marketing expenses represent the largest component of our operating expenses and consist primarily of advertising and marketing promotions of our products and services as well as consulting and contractor expenses. We expect our sales and marketing expenses to increase in absolute dollars as we continue to promote our offerings. At the same time, we also anticipate that these expenses will decrease as a percentage of our sales revenue over time, as we improve marketing efficiencies and grow channels that require lower sales and marketing support.
General and Administrative. General and administrative expenses consist of personnel-related costs for our retail operations, finance, legal, human resources, and IT functions, as well as litigation expenses, credit card fees, professional services, rent and operating costs associated with our retail stores, depreciation and amortization, and other administrative expenses. General and administrative expenses also include research and development expenses consisting primarily of personnel related expenses, consulting and contractor expenses, tooling, test equipment and prototype materials. We expect our general and administrative expenses to increase in absolute dollars due to the growth of our business and related infrastructure as well as legal, accounting, insurance, investor
relations and other compliance costs associated with becoming a public company. However, we expect our general and administrative expenses to decrease as a percentage of our sales revenue over time, as we scale our business.
Restructuring. Restructuring expenses relate to costs associated with strategic shifts in our business structure including exiting certain lines of business and geographies. Such costs include severance and other employee separation costs, contract termination expenses and asset impairment.
Income Tax Expense
We account for income taxes in accordance with ASC Topic 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We classify all deferred income tax assets and liabilities as noncurrent on our balance sheet. The effect of a change in tax rates on deferred tax assets and liabilities is recognized within the provision for (benefit from) income taxes on the consolidated statement of operations and comprehensive loss in the period that includes the enactment date.
We reduce deferred tax assets, if necessary, by a valuation allowance if it is more likely than not that we will not realize some or all of the deferred tax assets. In making such a determination, we consider all available positive and negative evidence, including taxable income in prior carryback years (if carryback is permitted under the relevant tax law), the timing of the reversal of existing taxable temporary differences, tax-planning strategies and projected future taxable income. Please refer to Note 11, Income Taxes to our unaudited consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for additional information on the composition of these valuation allowances and for information on the impact of U.S. tax reform legislation. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.
We recognize interest and penalties related to uncertain tax positions within the provision for (benefit from) income taxes on our consolidated statement of operations and comprehensive loss.
Seasonality and Quarterly Comparability
Our revenue includes a seasonal component, with the highest sales activity normally occurring during the second and third quarters of the year due to back-to-school, home moves and other seasonal factors, along with seasonal promotions we offer during these quarters. The timing of on-boarding new retail partnerships, which typically launch with large inventory buy-ins, and the timing of launching new products may also impact comparability between periods. These factors can also impact our working capital and/or inventory balances in a given period. In 2020, the COVID-19 pandemic as well as certain supply chain disruptions unfavorably impacted our quarterly comparability. The full extent to which the COVID-19 pandemic and supply chain disruptions may continue to impact our seasonality and quarterly comparability will depend on numerous evolving factors that we are not able to accurately predict due to the uncertainty related to the pandemic, unusual weather conditions and other economic uncertainties as of the date of this Quarterly Report on Form 10-Q.
Results of Operations
Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
The following table sets forth information comparing the components of operations and comprehensive loss for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31
|
|
Period over Period Change
|
|
Three months ended March 31
|
|
2021
|
|
2020
|
|
Dollar
|
|
Percentage
|
|
2021
|
|
2020
|
|
(in thousands, except percentages)
|
|
(as a % of Revenue)
|
Revenue
|
$
|
127,678
|
|
|
$
|
113,044
|
|
|
$
|
14,634
|
|
|
12.9
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of goods sold
|
60,995
|
|
|
60,080
|
|
|
915
|
|
|
1.5
|
%
|
|
47.8
|
%
|
|
53.1
|
%
|
Gross profit
|
66,683
|
|
|
52,964
|
|
|
13,719
|
|
|
25.9
|
%
|
|
52.2
|
%
|
|
46.9
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
40,530
|
|
|
37,474
|
|
|
3,056
|
|
|
8.2
|
%
|
|
31.7
|
%
|
|
33.1
|
%
|
General and administrative
|
44,504
|
|
|
46,987
|
|
|
(2,483)
|
|
|
(5.3)
|
%
|
|
34.9
|
%
|
|
41.6
|
%
|
Restructuring
|
401
|
|
|
1,311
|
|
|
(910)
|
|
|
(69.4)
|
%
|
|
0.3
|
%
|
|
1.2
|
%
|
Total operating expenses
|
85,435
|
|
|
85,772
|
|
|
(337)
|
|
|
(0.4)
|
%
|
|
66.9
|
%
|
|
75.9
|
%
|
Loss from operations
|
(18,752)
|
|
|
(32,808)
|
|
|
14,056
|
|
|
(42.8)
|
%
|
|
(14.7)
|
%
|
|
(29.0)
|
%
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
2,516
|
|
|
2,156
|
|
|
360
|
|
|
16.7
|
%
|
|
2.0
|
%
|
|
1.9
|
%
|
Other (income) expense, net
|
(107)
|
|
|
(514)
|
|
|
407
|
|
|
(79.1)
|
%
|
|
(0.1)
|
%
|
|
(0.5)
|
%
|
Total other expenses, net
|
2,409
|
|
|
1,642
|
|
|
767
|
|
|
46.7
|
%
|
|
1.9
|
%
|
|
1.5
|
%
|
Loss before income taxes
|
(21,161)
|
|
|
(34,450)
|
|
|
13,289
|
|
|
(38.6)
|
%
|
|
(16.6)
|
%
|
|
(30.5)
|
%
|
Income tax (benefit) expense
|
19
|
|
|
16
|
|
|
3
|
|
|
18.4
|
%
|
|
—
|
%
|
|
—
|
%
|
Net loss
|
$
|
(21,180)
|
|
|
$
|
(34,466)
|
|
|
$
|
13,286
|
|
|
(38.5)
|
%
|
|
(16.6)
|
%
|
|
(30.5)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Revenue
Revenue was $127.7 million for the three months ended March 31, 2021, an increase of $14.6 million, or 12.9%, compared to $113.0 million for the three months ended March 31, 2020. Revenue increased as a result of higher sales through our direct-to-consumer and retail partnership channels and the introduction of new products, partially offset by our European operations which did not contribute to revenue for the three months ended March 31, 2021, as a result of the closure of these operations in the second quarter of 2020. North America revenue was up $21.3 million, or 20.0%, for the three months ended March 31, 2021 compared to the same period in the prior year. Sales from our European operations, which did not contribute to revenue for the three months ended March 31, 2021, had revenue of $6.7 million for the three months ended March 31, 2020. Direct-to-consumer revenue increased $2.9 million, or 3.3%, compared to the three months ended March 31, 2020, driven primarily by higher sales in our North America e-commerce channel, partially offset by our European operations which did not contribute to revenue for the three months ended March 31, 2021and reduced sales in our retail stores due to limited store hours and offerings as well as depressed retail foot traffic due to the COVID-19 pandemic. Although 69 stores of our 70 stores were open and operating as of the end of the first quarter of 2021 (with one temporarily closed for renovations), operations were limited due to public health and government pandemic orders. North America direct-to-consumer revenue increased $9.3 million or 11.1%, compared to the three months ended March 31, 2020. Sales to retail partners were up $11.7 million, or 51.4%, compared to the three months ended March 31, 2020. This increase was driven by revenue growth with our existing partners, the introduction of new partners compared to the same period in the prior year to end the quarter with more than 20 partners, and the expansion of our product offerings. North America retail partnership revenue increased $12.0 million, or 53.7%, compared to the three months ended March 31, 2020.
Gross Profit and Cost of Goods Sold
Gross profit was $66.7 million for the three months ended March 31, 2021, an increase of $13.7 million, or 25.9%, compared to $53.0 million for the three months ended March 31, 2020. Cost of goods sold was $61.0 million for the three months ended March 31, 2021, an increase of $0.9 million, or 1.5%, compared to $60.1 million for the three months ended March 31, 2020. Gross margin for the three months ended March 31, 2021 was 52.2% compared to 46.9% for the three months ended March 31, 2020. The increase in gross margin was driven by favorable product
mix related to our new mattress line launched in March 2020, supply chain initiatives designed to reduce product unit costs, and lower logistics costs compared to the prior year period. First quarter 2020 gross margin was also impacted by a 130 basis points charge associated with a change in our logistics providers. These improvements were partially offset by a shift in channel mix to lower margin retail partnerships in the three months ended March 31, 2021 compared to the prior year period.
Sales and Marketing
Sales and marketing expenses were $40.5 million for the three months ended March 31, 2021, an increase of $3.1 million, or 8.2%, compared to $37.5 million for the three months ended March 31, 2020. Sales and marketing expenses increased as we continued to invest in advertising spend to drive traffic to our e-commerce website, market our products to consumers and build our brand. Sales and marketing expenses as a percentage of revenue was 31.7% for the three months ended March 31, 2021, compared to 33.1% for the three months ended March 31, 2020, due to improved marketing efficiencies and the growth of our retail partnership channel which requires lower sales and marketing support.
General and Administrative
General and administrative expenses were $44.5 million for the three months ended March 31, 2021, a decrease of $2.5 million, or 5.3%, compared to $47.0 million for the three months ended March 31, 2020. General and administrative expenses decreased primarily due to lower payroll and operating expenses associated with our corporate workforce working from home coupled with limited store operations, partially offset by increased expenses related to being a public company. General and administrative expenses as a percentage of revenue were 34.9% for the three months ended March 31, 2021 compared to 41.6% for the three months ended March 31, 2020 due primarily to the lower payroll and operating expenses.
Restructuring
Restructuring expenses were $0.4 million for the three months ended March 31, 2021, a decrease of $0.9 million compared to $1.3 million for the three months ended March 31, 2020. The decrease in restructuring expenses relates to the wind down of our European operations in 2020, partially offset by North American severance costs incurred in the first quarter of 2021.
Total Other Expense, Net
Total other expenses, net were $2.4 million for the three months ended March 31, 2021, an increase of $0.8 million, or 46.7%, compared to $1.6 million for the three months ended March 31, 2020. The increase in total other expenses, net was due to interest incurred on higher outstanding balances of our debt facilities.
Key Operating Metrics and Non-GAAP Financial Measures
We prepare and analyze operating and financial data to assess the performance of our business and allocate our resources. The key operating performance and financial metrics and indicators we use are set forth below. The following table sets forth our key performance indicators for the three months ended March 31, 2021 and 2020, respectively.
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Three months ended
March 31,
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(in thousands, except percentages)
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2021
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2020
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Gross margin
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52.2
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%
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46.9
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%
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Adjusted EBITDA
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$
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(10,636)
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$
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(22,887)
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Gross Margin. Gross margin is defined as gross profit divided by revenue.
Adjusted EBITDA. Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP.
We define Adjusted EBITDA as net loss before interest (income) expense, income tax expense and depreciation and amortization as further adjusted to exclude the impact of stock-based compensation expense, restructuring costs, costs associated with legal settlements and transactions costs incurred in connection with our initial public offering. We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate Adjusted EBITDA in the same manner. We present Adjusted EBITDA because we consider it to be an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations.
Management uses Adjusted EBITDA:
• as a measurement of operating performance because it assists us in comparing the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations;
• for planning purposes, including the preparation of our internal annual operating budget and financial projections;
• to evaluate the performance and effectiveness of our operational strategies; and
• to evaluate our capacity to expand our business.
By providing this non-GAAP financial measure, together with the reconciliation, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, or a substitute for net income or other financial statement data presented in our consolidated financial statements as indicators of financial performance. Some of the limitations are:
• such measure does not reflect our cash expenditures;
• such measure does not reflect changes in, or cash requirements for, our working capital needs;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and
• other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.
Due to these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using this non-GAAP measure only supplementally. As noted in the table below, Adjusted EBITDA includes adjustments to exclude the impact of stock-based compensation expense and material infrequent items, including but not limited to the costs of our initial public offering, restructuring, and costs associated with
legal settlements, among other items. It is reasonable to expect that these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and may complicate comparisons of our internal operating results and operating results of other companies over time. In addition, Adjusted EBITDA includes adjustments for other items that we do not expect to regularly record following our initial public offering. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.
The following table reconciles Adjusted EBITDA to the most directly comparable GAAP financial performance measure, which is net loss:
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Three months ended
March 31,
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(in thousands)
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2021
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2020
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Net loss
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$
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(21,180)
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$
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(34,466)
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Income tax expense
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19
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16
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Interest (income) expense
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2,516
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2,156
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Depreciation and amortization
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3,823
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3,148
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Stock based compensation(a)
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3,786
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2,661
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Restructuring(b)
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401
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1,311
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Legal settlements(c)
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—
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1,500
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Transaction costs(d)
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—
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787
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Adjusted EBITDA
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$
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(10,636)
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$
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(22,887)
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(a) Represents non-cash stock-based compensation expense.
(b) Represents costs associated with strategic shifts in our business structure including exiting certain lines of business and geographies. Associated costs include severance and other employee separation costs, contract termination expenses and asset impairment.
(c) Amounts related to litigation settlements.
(d) Represents expenses incurred for professional, consulting, legal, and accounting services performed in connection with our initial public offering, which are not indicative of our ongoing costs and which were discontinued following the completion of our initial public offering.
Liquidity and Capital Resources
Sources of Funds
Our principal sources of liquidity are our cash and cash equivalents our Revolving Credit Facility (as defined herein), our Amended Subordinated Facility (as defined herein), and working capital from operations. Cash, cash equivalents and restricted cash consist primarily of cash on deposit with banks. As of March 31, 2021 we had $61.6 million of cash and cash equivalents.
Funding Requirements
Our primary requirements for liquidity and capital are to fund operating losses as we continue to scale our business, for increased working capital requirements and inventory management to meet increased consumer
demand, for increased capital expenditures to grow our retail store presence, as well as for general corporate needs. Historically, these cash requirements have been met through funds raised by the sale of common equity, utilization of our Revolving Credit Facility, our Amended Subordinated Facility and cash on hand.
We believe that our sources of liquidity and capital will be sufficient to finance our growth strategy and resulting operations, planned capital expenditures and the additional expenses we expect to incur for at least the next 12 months. However, we cannot assure you that cash provided by operating activities or cash, cash equivalents and restricted cash will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants and higher interest rates that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all. See “Risk Factors—Risks Related to Our Business—Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing” in our 2020 Form 10-K.
While the extent to which the COVID-19 pandemic will continue to impact our business, financial condition and results of operations is uncertain, we believe the $61.6 million in cash and cash equivalents on our balance sheet as of March 31, 2021, together with certain restructuring initiatives undertaken in 2020 in response to the COVID-19 pandemic, will further strengthen our balance sheet position and provide us with the flexibility and resilience to weather the ongoing COVID-19 pandemic. See “Risk Factors—The COVID-19 pandemic has affected, and could continue to adversely affect, our business, financial condition and results of operations” in Part I, Item 1.A. of our 2020 Form 10-K.
Our capital expenditures consist primarily of retail infrastructure, leasehold improvements, product development and computers and hardware. In December 2018, we signed an agreement for a headquarters in New York for a period of 15 years with a five-year renewal option. Rent payments began on the new headquarters in January 2020.
Historical Cash Flows
The following table shows summary cash flow information for the three months ended March 31, 2021 and 2020: