NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
1. Organization
Waitr Holdings Inc., a Delaware corporation, together with its wholly owned subsidiaries (the “Company,” “Waitr,” “we,” “us” and “our”), operates an online ordering technology platform (the “Platform”), providing delivery, carryout and dine-in options, connecting restaurants, merchants, drivers and diners in cities across the United States. The Platform uses the “deliver anything ASAP” model making it easy for consumers to order food, alcohol, convenience, grocery, flowers, auto parts and more. The Platform also includes proprietary in-stadium mobile ordering technology, providing an enhanced fan experience at sports and entertainment venues. Additionally, Waitr facilitates access to third parties that provide payment processing solutions for restaurants and other merchants, pursuant to the acquisition of the Cape Payment Companies (as defined below) on August 25, 2021 (see Note 5 – Business Combinations).
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The unaudited interim condensed consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) as they apply to interim financial information. Accordingly, the interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete annual financial statements, although the Company believes that the disclosures made are adequate to make information not misleading. References to the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) included hereafter refer to the ASC and ASUs established by the Financial Accounting Standards Board (the “FASB”) as the source of authoritative GAAP.
The unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). The interim condensed consolidated financial statements are unaudited, but in the Company’s opinion, include all adjustments that are necessary for a fair presentation of the results for the periods presented. The interim results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.
Segments
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker (the “CODM”) in making decisions regarding resource allocation and assessing performance. The Company has determined that its Chief Executive Officer is the CODM of the Company.
Our operations revolve around two primary areas of service: (i) delivery services, which include operations related to the Company’s technology platform for online ordering and delivery (“Delivery Services”), and (ii) third-party payment processing referral services, which include operations related to facilitating access to third parties that provide payment processing solutions for restaurants and other merchants (“Third-Party Payment Processing Referral Services”). Prior to the three months ended September 30, 2022, the Company concluded that we had one operating segment as the operations of Third-Party Payment Processing Referral Services were not material to the Company’s consolidated operations. The CODM monitored performance of the Company on a consolidated basis during such time, with financial data related to Third-Party Payment Processing Referral Services being reviewed primarily for purposes of monitoring the achievement of an earnout provision associated with the acquisition of the Cape Payment Companies (see Note 5 - Business Combinations).
During the three months ended September 30, 2022, as the Third-Party Payment Processing Referral Services area became more significant to the operations of the Company, primarily on a percentage of revenue basis, our CODM began to manage operations and assess the Company’s performance based on the operations of the Delivery Services and Third-Party Payment Processing Referral Services areas separately. We quantitatively and qualitatively reassessed our segment reporting and determined the Third-Party Payment Processing Referral Services Segment is material to the group and now
have two operating segments. See Note 15 – Segment Information for additional information on the Company’s segments and Note 4 - Revenue for additional information on revenue derived by segments.
Reclassifications
Certain amounts from prior periods have been reclassified to conform to the current period presentation.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all wholly owned subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in accordance with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Significant estimates and judgments relied upon in preparing these condensed consolidated financial statements affect the following items:
•incurred loss estimates under our insurance policies with large deductibles or retention levels;
•loss exposure related to claims;
•determination of agent vs. principal classification for revenue recognition purposes;
•income taxes;
•useful lives of tangible and intangible assets;
•equity compensation;
•contingencies;
•goodwill and other intangible assets, including the recoverability of intangible assets with finite lives and other long-lived assets; and
•fair value of assets acquired, liabilities assumed and contingent consideration as part of a business combination.
The Company regularly assesses these estimates and records changes to estimates in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions believed to be reasonable under the circumstances. Changes in the economic environment, financial markets, and any other parameters used in determining these estimates could cause actual results to differ from those estimates.
Significant Accounting Policies
See “Recent Accounting Pronouncements” below for a description of accounting principle changes adopted during the nine months ended September 30, 2022. There have been no material changes to our significant accounting policies described in the 2021 Form 10-K.
Recent Accounting Pronouncements
The Company considered the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on these unaudited condensed consolidated financial statements.
Recently Adopted Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt, resulting in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation.
ASU 2020-06 was effective for and adopted by the Company on January 1, 2022. The adoption of ASU 2020-06 did not have a material impact on the Company’s disclosures or consolidated financial statements.
Pending Accounting Standards
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which creates an exception to the general recognition and measurement principle in ASC 805 by requiring companies to apply ASC 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. The guidance additionally clarifies that companies should apply the definition of a performance obligation in ASC 606 when recognizing contract liabilities assumed in a business combination. ASU 2021-08 is effective for the Company on January 1, 2023. The Company does not expect ASU 2021-08 will have a material impact on the Company’s disclosures or consolidated financial statements.
3. Going Concern
Pursuant to the requirements of ASC 205-40, Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will sufficiently mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
The Company has had recurring losses from operations and declines in cash positions. As reflected in the accompanying unaudited condensed consolidated financial statements, the Company has an accumulated deficit of $531,484 as of September 30, 2022. The Company has had a trend of negative cash flow from operations during each quarter of 2022. For the nine months ended September 30, 2022, the Company had negative cash flow from operations of $21,701. Additionally, the Company’s cash position was impacted by the utilization of $20,000 in cash to pay down debt in May 2022. The Company’s cash position has declined from $60,111 at December 31, 2021 to $20,118 as of September 30, 2022. In an effort to alleviate these conditions, management is implementing certain initiatives with the goal to improve revenue and its cash position, including a comprehensive rebranding, consolidation of the Company’s technology platforms into a single application and cost reductions. The initiatives include (i) collaborations with convenience stores, (ii) delivery from retailers in a variety of industries, (iii) the entry into new markets, (iv) the development of a proprietary stadium ordering application and (v) the entry into sponsorship agreements to serve as the exclusive mobile ordering platform at certain stadiums and arenas. Additionally, management evaluated its existing cost structure and implemented cost saving initiatives to reduce operating costs and plans to continue to implement further cost saving initiatives where appropriate. Management also plans to raise additional capital through equity raises, including under the ATM Program (see Note 13 – Stockholders’ Equity).
The Company’s plans are designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the date these financial statements are issued; however, the plans are dependent on conditions and factors, many of which are outside of the Company’s control. There can be no assurance that we will be able to generate positive cash flow from operations in any future period. Additionally, we may be unable to raise additional equity capital or enter into any financing arrangements when needed on favorable terms or at all. Accordingly, management could not conclude that it was probable that the plans will sufficiently mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern. As such, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business for the twelve-month period following the date the financial statements are issued. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might result should the Company be unable to continue as a going concern.
4. Revenue
The following table presents our revenue disaggregated by offering. Revenue consists of the following for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Delivery Services Segment: | | | | | | | |
| Delivery Transaction Fees | $ | 21,806 | | | $ | 41,411 | | | $ | 81,138 | | | $ | 140,138 | |
| Other revenue | 491 | | | 1,028 | | | 2,077 | | | 2,398 | |
| Total Delivery Services Segment | 22,297 | | | 42,439 | | | 83,215 | | | 142,536 | |
Third-Party Payment Processing Referral Services Segment(1) | 2,844 | | | 1,009 | | | 8,137 | | | 1,009 | |
| | | | | | | |
| | | | | | | |
| Total Revenue | $ | 25,141 | | | $ | 43,448 | | | $ | 91,352 | | | $ | 143,545 | |
(1) Amounts for the three and nine months ended September 30, 2021 include revenue from the Cape Payment Companies beginning on the acquisition date of August 25, 2021, through September 30, 2021.
Revenue from Contracts with Customers
Delivery Services Segment
The Delivery Services Segment includes operations related to the Company’s technology platform for online ordering and delivery. While food ordering and delivery is the primary component of the Delivery Services Segment, the Company recently added online ordering and delivery of various other products such as flowers, auto parts, alcohol and luxury goods. The Company generates revenue (“Delivery Transaction Fees”) in the Delivery Services Segment primarily when diners or customers place an order on the Platform.
Delivery Transaction Fees represent the revenue recognized from the Company’s obligation to process orders on the Platform. The performance obligation is satisfied when the Company successfully processes an order placed on the Platform and the restaurant receives the order at their location. The obligation to process orders on the Platform represents a series of distinct performance obligations satisfied over time that the Company combines into a single performance obligation. Consistent with the recognition objective in ASC 606, Revenue from Contracts with Customers, the variable consideration due to the Company for processing orders is recognized on a daily basis. As an agent of the restaurant in the transaction, the Company recognizes Delivery Transaction Fees earned from the restaurant on the Platform on a net basis. Delivery Transaction Fees also include a fee charged to the end user customer when they request the order be delivered to their location. Revenue is recognized for diner fees once the delivery service is completed. The contract period for substantially all restaurant contracts is one month as both the Company and the restaurant have the ability to unilaterally terminate the contract by providing notice of termination.
In addition to Delivery Transaction Fees, revenue in the Delivery Services Segment includes other revenue sources such as paid placement revenue for prominent positioning of a restaurant on the Platform and revenue related to fees received for the early distribution of earnings to independent contractor drivers.
Third-Party Payment Processing Referral Services Segment
The Company generates revenue from Third-Party Payment Processing Referral Services by facilitating access to third-party payment processing solution providers. Revenue from such services primarily consists of residual payments received from third-party payment processing solution providers, based on the volume of transactions a payment processing solution provider performs for the merchant. The Company also occasionally receives a bonus up-front fee from third-party payment processing solution providers, paid at the time of a merchant’s initial transaction with a payment processing solution provider, based on a price specified in the agreement between the merchant and the payment processing solution provider.
Third-party payment processing referral fees represent revenue recognized from the Company’s offering of referral services, connecting a merchant with a third-party payment processing service. The Company’s performance obligation in its contracts with payment processors is for an unknown or unspecified quantity of transactions and the consideration received is contingent upon the number of transactions submitted by the merchant and processed by the payment processor. Accordingly, the total transaction price is variable. The performance obligation is satisfied when the third-party payment processor finalizes the processing of a transaction through the payment system and transaction volume is available from the payment processor to the Company. Consistent with the recognition objective in ASC 606, the variable consideration due to the Company for serving as the facilitator of the arrangement between the third-party payment processor and merchant is recognized on a daily basis. The Company is the agent in these arrangements as it establishes the relationship between the third-party payment processor and merchant, and thus, recognizes revenue on a net basis. The third-party payment processor is considered the customer of the Company as no direct contract exists between the merchant and the Company.
Accounts Receivable
The Company records a receivable when it has an unconditional right to the consideration. See Note 6 – Accounts Receivable, Net for additional details on the Company’s accounts receivable.
Costs to Obtain a Contract with a Customer
The Company recognizes an asset for the incremental costs of obtaining a contract with a restaurant and recognizes the expense over the course of the period when the Company expects to recover those costs. The Company has determined that certain internal sales incentives earned at the time when an initial contract is executed meet these requirements. Capitalized sales incentives are amortized to sales and marketing expense on a straight-line basis over the period of benefit, which the Company has determined to be five years. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less.
Deferred costs related to obtaining contracts with restaurants were $3,142 and $2,968 as of September 30, 2022 and December 31, 2021, respectively, out of which $986 and $818, respectively, was classified as current. Amortization of expense for the costs to obtain a contract were $234 and $192 for the three months ended September 30, 2022 and 2021, respectively, and $663 and $514 for the nine months ended September 30, 2022 and 2021, respectively.
Costs to Fulfill a Contract with a Customer
The Company also recognizes an asset for the costs to fulfill a contract with a restaurant when they are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered. The Company has determined that certain costs related to onboarding restaurants onto the Platform meet the capitalization criteria under ASC Topic 340-40, Other Assets and Deferred Costs. Costs related to these implementation activities are deferred and then amortized to operations and support expense on a straight-line basis over the period of benefit, which the Company has determined to be five years.
Deferred costs related to fulfilling contracts with restaurants were $1,844 and $1,385 as of September 30, 2022 and December 31, 2021, respectively, out of which $504 and $352, respectively, was classified as current. Amortization of expense for the costs to fulfill a contract were $121 and $71 for the three months ended September 30, 2022 and 2021, respectively, and $325 and $172 for the nine months ended September 30, 2022 and 2021, respectively.
5. Business Combinations
2021 Acquisitions
Cape Payment Acquisition
On August 25, 2021, the Company completed the acquisition of certain assets and properties of ProMerchant LLC, Cape Cod Merchant Services LLC and Flow Payments LLC (collectively referred to herein as the “Cape Payment Companies”) (the “Cape Payment Acquisition”). The Cape Payment Companies facilitate merchant access to third-party payment processing solution providers and receive residual payments from the payment providers. The purchase price for the Cape Payment Companies consisted of $12,032 in cash and an aggregate of 2,564,103 shares of the Company’s common stock valued at $1.24 per share (the closing price of the Company’s common stock on August 24, 2021). The Cape Payment Acquisition included an earnout provision which provided for a one-time payment to the sellers if the Cape
Payment Companies exceed certain future revenue targets. The earnout provision, if any, is payable no later than March 30, 2023, and was valued at $1,686 as of the acquisition date. As of September 30, 2022 and December 31, 2021, the earnout provision was valued at $1,388 and $1,939, respectively (see Note 14 - Fair Value Measurements).
The Cape Payment Acquisition was considered a business combination in accordance with ASC 805 and was accounted for using the acquisition method. The results of operations of the Cape Payment Companies are included in our condensed consolidated financial statements beginning on the acquisition date, August 25, 2021, and were immaterial at such time. Pro forma results were also deemed immaterial to the Company.
During the three months ended September 30, 2022, our operations related to the business acquired from the Cape Payment Companies became more significant to the operations of the Company. See Note 2 - Basis of Presentation and Summary of Significant Accounting Policies and Note 15 - Segment Information for additional details.
Delivery Dudes Acquisition
On March 11, 2021, the Company completed the acquisition of certain assets and properties from Dude Holdings LLC (“Delivery Dudes”), a third-party delivery business primarily serving the South Florida market, for $11,500 in cash and 3,562,577 shares of the Company’s common stock valued at $2.96 per share (the closing price of the Company’s common stock on March 11, 2021) (the “Delivery Dudes Acquisition”).
The Delivery Dudes Acquisition was considered a business combination in accordance with ASC 805 and was accounted for using the acquisition method. The results of operations of Delivery Dudes are included in our unaudited condensed consolidated financial statements beginning on the acquisition date, March 11, 2021.
Additional Information
Included in general and administrative expenses in the consolidated statement of operations in certain periods are direct and incremental costs, consisting of legal and professional fees, related to business combinations and asset acquisitions. During the three and nine months ended September 30, 2021, the Company incurred direct and incremental costs of $171 and $840, respectively, related to the Delivery Dudes Acquisition.
Pro-Forma Financial Information
The supplemental condensed consolidated results of the Company for the nine months ended September 30, 2021 on an unaudited pro forma basis as if the Delivery Dudes Acquisition had been consummated on January 1, 2021 are included in the table below (in thousands).
| | | | | | | | | | | | | |
| | | | | | | Nine months ended September 30, 2021 |
| | | | | |
| | | | | | | |
| Net revenue | | | | | | | $ | 146,021 | |
| Net income | | | | | | | $ | 3,261 | |
These pro forma results were based on estimates and assumptions, which the Company believes are reasonable. They are not the results that would have been realized had the Company been a consolidated company during the period presented and are not indicative of consolidated results of operations in future periods. Acquisition costs and other non-recurring charges incurred are included in the period presented.
6. Accounts Receivable, Net
Accounts receivable consist of the following (in thousands):
| | | | | | | | | | | |
| September 30,
2022 | | December 31,
2021 |
| Credit card receivables | $ | 1,159 | | | $ | 1,354 | |
| Residual commissions receivable | 1,445 | | | 1,342 | |
| Receivables from restaurants and customers | 778 | | | 660 | |
| Accounts receivable | 3,382 | | | 3,356 | |
| Less: allowance for doubtful accounts and chargebacks | (280) | | | (329) | |
| Accounts receivable, net | $ | 3,102 | | | $ | 3,027 | |
7. Intangibles Assets and Goodwill
Intangible Assets
Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives and include internally developed software, as well as software to be otherwise marketed, and trademarks/trade name/patents and customer relationships. The Company has determined that the trademark intangible asset and domain names related to the rebranding initiative are indefinite-lived assets and therefore are not subject to amortization but are evaluated annually for impairment. The Bite Squad, Delivery Dudes and Cape Payment Companies trade name intangible assets, however, are being amortized over their estimated useful lives.
Intangible assets are stated at cost or acquisition-date fair value less accumulated amortization and consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2022 |
| Gross Carrying
Amount | | Accumulated Amortization | | Accumulated Impairment | | Intangible Assets, Net |
| Intangible assets subject to amortization: | | | | | | | |
| Software | $ | 42,021 | | | $ | (14,017) | | | $ | (11,779) | | | $ | 16,225 | |
| Trademarks/Trade name/Patents | 6,549 | | | (5,948) | | | — | | | 601 | |
| Customer Relationships | 96,510 | | | (17,549) | | | (57,378) | | | 21,583 | |
| Total intangible assets subject to amortization | 145,080 | | | (37,514) | | | (69,157) | | | 38,409 | |
| Trademarks, not subject to amortization | 3,038 | | | — | | | — | | | 3,038 | |
| Total | $ | 148,118 | | | $ | (37,514) | | | $ | (69,157) | | | $ | 41,447 | |
| | | | | | | |
| As of December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Accumulated Impairment | | Intangible Assets, Net |
| Intangible assets subject to amortization: | | | | | | | |
| Software | $ | 35,686 | | | $ | (9,632) | | | $ | (11,779) | | | $ | 14,275 | |
| Trademarks/Trade name/Patents | 6,549 | | | (5,585) | | | — | | | 964 | |
| Customer Relationships | 96,510 | | | (14,256) | | | (57,378) | | | 24,876 | |
| Total intangible assets subject to amortization | 138,745 | | | (29,473) | | | (69,157) | | | 40,115 | |
| Trademarks, not subject to amortization | 3,011 | | | — | | | — | | | 3,011 | |
| Total | $ | 141,756 | | | $ | (29,473) | | | $ | (69,157) | | | $ | 43,126 | |
During the nine months ended September 30, 2022, the Company capitalized approximately $6,335 of software costs related to the development of the Platform.
See “Impairments” below for details of impairment testing for intangible assets during the nine months ended September 30, 2022. The Company recorded amortization expense of $3,091 and $2,354 for the three months ended September 30, 2022 and 2021, respectively, and $8,041 and $6,419 for the nine months ended September 30, 2022 and 2021, respectively. Estimated future amortization expense of intangible assets subject to amortization as of September 30, 2022 is as follows (in thousands):
| | | | | |
| Amortization |
The remainder of 2022 | $ | 1,948 | |
| 2023 | 11,871 | |
| 2024 | 10,006 | |
| 2025 | 7,420 | |
| 2026 | 3,469 | |
| Thereafter | 3,695 | |
| Total future amortization | $ | 38,409 | |
Goodwill
Prior to the three months ended September 30, 2022, we concluded that we had one reporting unit for purposes of goodwill impairment testing. During the three months ended September 30, 2022, we quantitatively and qualitatively reassessed our segment reporting and determined the Third-Party Payment Processing Referral Services Segment is material to the group and now have two reporting units for purposes of goodwill impairment testing. See Note 2 - Basis of Presentation and Summary of Significant Accounting Policies for additional information.
The following table presents changes in the carrying value of goodwill for the Company’s single reporting unit prior to the allocation of goodwill to segments (in thousands). See “Impairments” below for a discussion of goodwill impairment testing for the reporting unit.
| | | | | | | | |
| Balance as of December 31, 2021 | $ | 130,624 | | |
| March 15, 2022 impairment | (67,190) | | |
| Balance prior to segment allocation | 63,434 | | |
| September 30, 2022 impairment | (51,991) | | |
| Remaining goodwill to be allocated to segments | $ | 11,443 | | |
During the three months ended September 30, 2022, the Company reallocated its goodwill from a single reporting unit to the Delivery Services Segment and the Third-Party Payment Processing Referral Services Segment based on a relative fair value analysis using several probability weighted scenarios. The following table presents changes in the carrying value of goodwill for the Company’s segments (in thousands). See “Impairments” below for a discussion of goodwill impairment for the segments.
| | | | | | | | | | | | | | | | | |
| Delivery Services Segment | | Third-Party Payment Processing Referral Services Segment | | Total |
| Goodwill allocation to segments | $ | 1,907 | | | $ | 9,536 | | | $ | 11,443 | |
| | | | | |
| September 30, 2022 impairment | (1,907) | | | — | | | (1,907) | |
| Balance as of September 30, 2022 | $ | — | | | $ | 9,536 | | | $ | 9,536 | |
Impairments
The Company has historically conducted its goodwill and intangible asset impairment test annually in October, or more frequently if indicators of impairment exist. The Company conducts the impairment test in accordance with FASB ASC Topic 360, Impairment and Disposal of Long-Lived Assets (“ASC 360”) for certain long-lived assets, including capitalized contract costs, developed technology, customer relationships, and trade names, and in accordance with FASB ASC Topic 350, Intangibles – Goodwill and Other (“ASC 350”) for the reporting unit’s goodwill.
ASC 360 requires long-lived assets to be tested for impairment using a three-step impairment test. Step 1 of the test is giving consideration to whether indicators of impairment of long-lived assets are present. If indicators are present, the Company proceeds to Step 2 to determine whether an impairment loss should be recognized. As a part of Step 2, the Company performs a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the long-lived assets in question to their carrying amounts. ASC 350 requires goodwill and other indefinite lived assets to be tested for impairment at the reporting unit level. See the discussion below of impairment testing conducted as of March 15, 2022 and September 30, 2022. Determining the fair value of a reporting unit and intangible assets requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates could change in future periods. There can be no assurance that additional goodwill or intangible assets will not be impaired in future periods.
March 15, 2022 Impairment Analysis
As a result of a significant decline in the Company’s share price and market capitalization in mid-March 2022, as well as other macroeconomic and industry related conditions during the first quarter of 2022, the Company conducted an impairment test as of the valuation date of March 15, 2022. For purposes of testing for goodwill impairment, the Company had one reporting unit at such time. The Company engaged a third-party to assist management in estimating the fair values of long-lived assets and the reporting unit for purposes of impairment testing under ASC 360 and ASC 350.
Given the results of the qualitative assessment and indications of possible impairment, the Company proceeded to Step 2 to determine whether an impairment loss should be recognized. The Company’s primary long-lived assets, customer relationships and developed technology, were tested for impairment under the guidance in ASC 360. The undiscounted cash flows for the long-lived assets were above the carrying amounts and the Company determined that the long-lived asset group was recoverable, and no impairment existed as of March 15, 2022. The customer relationships intangible asset and developed technology assets were valued using an undiscounted cash flow model. The analysis for each of the long-lived assets represents a Level 3 measurement as it was based on unobservable inputs reflecting the Company’s assumptions used in developing a fair value estimate. These inputs required significant judgments and estimates at the time of the valuation.
For ASC 350 testing purposes, the Company compared the fair value of the reporting unit with its carrying amount. The fair value of the reporting unit was estimated giving consideration to the Income Approach, including the discounted cash flow method, and the Market Approach, including the similar transactions method and guideline public company method. Significant inputs and assumptions in the ASC 350 analysis included forecasts (e.g., revenue, operating costs and capital expenditures), discount rate, long-term growth rate and tax rates for the reporting unit under the Income Approach and market-based enterprise value to revenue multiples under the Market Approach. As a result of the ASC 350 analysis, the Company recognized a non-cash pre-tax impairment loss of $67,190 during the three months ended March 31, 2022 to write down the carrying value of goodwill to its implied fair value. There was no goodwill impairment charge recognized during the three months ended June 30, 2022.
September 30, 2022 Impairment Analysis
As a result of continued declines in the Company’s share price and market capitalization during the second and third quarters of 2022, the Company conducted an additional impairment test as of the valuation date of September 30, 2022. The Company engaged a third-party to assist management in estimating the fair values of long-lived assets and the reporting units for purposes of impairment testing under ASC 360 and ASC 350.
Impairment Analysis on Single Reporting Unit Prior to Allocation of Goodwill to Segments
Given the results of the qualitative assessment and indications of possible impairment, the Company proceeded to Step 2 to determine whether an impairment loss should be recognized for the single reporting unit prior to the allocation of goodwill to segments. The Company’s primary long-lived assets, customer relationships and developed technology, were tested for impairment under the guidance in ASC 360. The undiscounted cash flows for the long-lived assets were above the carrying amounts and the Company determined that the long-lived asset group was recoverable, and no impairment existed as of September 30, 2022. The customer relationships intangible asset and developed technology assets were valued using methods in a manner similar to the March 15, 2022 impairment analysis, and represent Level 3 measurements as both were based on unobservable inputs reflecting the Company’s assumptions used in developing a fair value estimate. These inputs required significant judgments and estimates at the time of the valuation.
For ASC 350 testing purposes, the Company estimated the fair value of the single reporting unit giving consideration to the Income Approach and the Market Approach in a manner similar to the March 15, 2022 impairment analysis discussed above. As a result of the ASC 350 analysis, the Company recognized a non-cash pre-tax impairment loss of $51,991 during the three months ended September 30, 2022 to write down the carrying value of goodwill in the reporting unit to its implied fair value.
Impairment Analysis on Segments
In conjunction with the reallocation of goodwill, the Company tested the goodwill at its Delivery Services Segment and Third-Party Payment Processing Referral Services Segment as of September 30, 2022.
The Company’s long-lived assets in each of the segments, including customer relationships and developed technology, were tested for impairment under the guidance in ASC 360. The undiscounted cash flows for the long-lived assets were above the carrying amounts for each segment and the Company determined that the long-lived asset groups were recoverable, and no impairment existed as of September 30, 2022. The customer relationships intangible assets and developed technology assets were valued using methods in a manner similar to the March 15, 2022 impairment analysis discussed above, and represent Level 3 measurements as both were based on unobservable inputs reflecting the Company’s assumptions used in developing a fair value estimate. These inputs required significant judgments and estimates at the time of the valuation.
For ASC 350 testing purposes, the Company estimated the fair value of the Delivery Services Segment and the Third-Party Payment Processing Referral Services Segment giving consideration to the Income Approach and the Market Approach in a manner similar to the March 15, 2022 impairment analysis discussed above. The impairment assessment indicated that the fair value of the Third-Party Payment Processing Referral Services Segment exceeded its carrying value, and therefore did not result in a goodwill impairment. The fair value of the Delivery Services Segment was less than its carrying value, and as a result, the Company recognized a non-cash pre-tax impairment loss of $1,907 during the three months ended September 30, 2022 to write down the carrying value of goodwill in the Delivery Services Segment to its implied fair value.
The non-cash impairment losses discussed above are included in the unaudited condensed consolidated statement of operations under the caption “goodwill impairment” and totaled $53,898 and $121,088 for the three and nine months ended September 30, 2022, respectively.
8. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
| | | | | | | | | | | |
| September 30,
2022 | | December 31,
2021 |
| Accrued insurance expenses | $ | 6,125 | | | $ | 3,932 | |
| Accrued estimated workers’ compensation expenses | 305 | | | 644 | |
| Accrued medical contingency | 366 | | | 370 | |
| Accrued legal contingency | 1,250 | | | 1,250 | |
| Accrued sales tax payable | 121 | | | 175 | |
| Accrued cash incentives | 160 | | | 3,130 | |
| Other accrued expenses | 3,151 | | | 3,685 | |
| Contingent consideration liability | 1,388 | | | — | |
| Unclaimed property | 2,710 | | | 2,372 | |
| Other current liabilities | 2,907 | | | 3,751 | |
| Total other current liabilities | $ | 18,483 | | | $ | 19,309 | |
9. Debt
The Company’s outstanding debt obligations are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Coupon Rate
Range in 2021
through 3Q22 | | Effective
Interest Rate at
September 30, 2022 | | Maturity | | September 30,
2022 | | December 31,
2021 |
| Term Loan | 5.125% - 7.125% | | 13.51% | | May 2024 | | $ | 15,280 | | | $ | 35,007 | |
| Notes | 4.0% - 6.0% | | 6.37% | | May 2024 | | 42,339 | | | 49,504 | |
| | | | | | | $ | 57,619 | | | $ | 84,511 | |
| Less: unamortized debt issuance costs on Term Loan | | | | | | | (1,433) | | | (2,099) | |
| Less: unamortized debt issuance costs on Notes | | | | | | | (245) | | | (435) | |
| Long term debt - related party | | | | | | | $ | 55,941 | | | $ | 81,977 | |
| | | | | | | | | |
| Short-term loans for insurance financing | 3.99% - 4.85% | | n/a | | August 2022 - March 2023 | | 1,224 | | | 3,142 | |
| Total outstanding debt | | | | | | | $ | 57,165 | | | $ | 85,119 | |
Interest expense related to the Company’s outstanding debt totaled $1,198 and $1,751 for the three months ended September 30, 2022 and 2021, respectively, and $4,363 and $5,333 for the nine months ended September 30, 2022 and 2021, respectively. Interest expense includes interest on outstanding borrowings and amortization of debt issuance costs and debt discount. See Note 17 – Related Party Transactions for additional information regarding the Company’s related party long-term debt.
Term Loan
The Company maintains an agreement with Luxor Capital Group, LP (“Luxor Capital”) (as amended or otherwise modified from time to time, the “Credit Agreement”). The Credit Agreement provides for a senior secured first priority term loan (the “Term Loan”) which is guaranteed by certain subsidiaries of the Company. In connection with the Term Loan, the Company issued to Luxor Capital warrants which are exercisable for 624,989 shares of the Company’s common stock at September 30, 2022 (see Note 13 – Stockholders’ Equity). See Amendments to Loan Agreements below for additional details on the Term Loan and Credit Agreement.
Interest on the Term Loan is payable quarterly, in cash or, at the election of the Company, as a payment-in-kind, with interest paid in-kind being added to the aggregate principal balance. The Company elected to pay the interest payment of $273 due on September 30, 2022 in-kind, resulting in such amount being added to the principal balance of the Term Loan. The Credit Agreement includes a number of customary covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries to incur additional debt, incur liens on assets, engage in mergers or consolidations, dispose of assets, pay dividends or repurchase capital stock and repay certain junior indebtedness. The Credit Agreement also includes customary affirmative covenants, representations and warranties and events of default.
Notes
Additionally, the Company issued unsecured convertible promissory notes (the “Notes”) to Luxor Capital Partners, LP, Luxor Capital Partners Offshore Master Fund, LP, Luxor Wavefront, LP and Lugard Road Capital Master Fund, LP (the “Luxor Entities”) pursuant to an agreement, herein referred to as the “Convertible Notes Agreement”. The net carrying value of the Notes as of September 30, 2022 and December 31, 2021 totaled $42,094 and $49,069, respectively. See Amendments to Loan Agreements and Conversion Agreements below for additional details on the Notes.
Interest on the Notes is payable quarterly, in cash or, at the Company’s election, up to one-half of the dollar amount of an interest payment due can be paid-in-kind. Interest paid-in-kind is added to the aggregate principal balance. The Company elected to pay one-half of the $669 interest payment due on September 30, 2022 in-kind, resulting in
approximately $335 being added to the principal balance of the Notes. Interest expense related to the Notes was comprised of the following for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Contractual interest expense | $ | 669 | | | $ | 666 | | | $ | 2,157 | | | $ | 1,662 | |
| Amortization of debt discount | 37 | | | 147 | | | 138 | | | 735 | |
| $ | 706 | | | $ | 813 | | | $ | 2,295 | | | $ | 2,397 | |
The Notes include customary anti-dilution protection, including broad-based weighted average adjustments for issuances of additional shares. Upon maturity, the outstanding Notes (and any accrued but unpaid interest) will be repaid in cash or converted into shares of common stock, at the holder’s election. The Notes are convertible at the holder’s election into shares of the Company’s common stock at a rate of $8.00 per share at September 30, 2022, subject to certain “blocker” limitations limiting the amount of shares into which the Notes can be converted.
The Company’s payment obligations on the Notes are not guaranteed. The Convertible Notes Agreement contains negative covenants, affirmative covenants, representations and warranties and events of default that are substantially similar to those that are set forth in the Credit Agreement (except those that relate to collateral and related security interests, which are not contained in the Convertible Notes Agreement or otherwise applicable to the Notes).
Amendments to Loan Agreements
On May 9, 2022, the Company entered into an amendment to the Credit Agreement and an amendment to the Convertible Notes Agreement (together, the “May 9, 2022 Amended Loan Agreements”). The May 9, 2022 Amended Loan Agreements provide, among other things, (i) that going forward on a quarterly basis, 50% of the proceeds of any at-the-market public common stock issuances by the Company will be applied to the prepayment of the Term Loan and (ii) a six-month extension of the maturity date of the Credit Agreement and Convertible Notes Agreement until May 15, 2024. Additionally, pursuant to the amendment to the Credit Agreement, the Company made a $20,000 prepayment on the Term Loan on May 9, 2022. See Note 18 - Subsequent Events for details on a Term Loan prepayment made in October 2022.
The Company evaluated the amendments in the May 9, 2022 Amended Loan Agreements under ASC 470-50, “Debt Modification and Extinguishment”, and concluded that the amendments did not meet the characteristics of debt extinguishments under ASC 470-50. Accordingly, the amendments were treated as a debt modification, and thus, no gain or loss was recorded. A new effective interest rate for each of the Term Loan and Notes that equates the revised cash flows to the carrying amount of the original debt is computed and applied prospectively.
On May 12, 2022, the Company entered into an additional amendment to the Convertible Notes Agreement (the “May 12, 2022 Amended Convertible Notes Agreement”) which provides that subsequent to the payment in full of the Term Loan outstanding under the existing Credit Agreement, on a quarterly basis, 50% of the proceeds of any future at-the-market public common stock issuances received by the Company will be applied to prepayment of the Notes under the Convertible Notes Agreement. The provisions of the May 12, 2022 Amended Convertible Notes Agreement did not contain changes to the Convertible Notes Agreement that warranted an evaluation of debt modification or extinguishment.
Conversion Agreements
On May 13, 2022, the Company entered into a conversion agreement (the “May 2022 Conversion Agreement”), pursuant to which the lenders under the Convertible Notes Agreement were permitted to convert $750 of the outstanding principal amount of the Notes into shares of Company common stock at a conversion rate of 5,882 shares of Company common stock per one thousand dollars of principal amount of the Notes (calculated based on a per share price of $0.17 of Company common stock on Nasdaq), notwithstanding the conversion rate then in effect pursuant to the terms of the Notes.
On July 22, 2022, the Company entered into a conversion agreement (the “July 2022 Conversion Agreement”), pursuant to which the lenders under the Convertible Notes Agreement were permitted to convert $6,750 of the outstanding principal amount of the Notes into shares of Company common stock at a conversion rate of 4,000 shares of Company common stock per one thousand dollars of principal amount of the Notes (calculated based on a per share price of $0.25 of Company common stock on Nasdaq), notwithstanding the conversion rate then in effect pursuant to the terms of the Notes.
Accordingly, pursuant to the May 2022 Conversion Agreement, the Luxor Entities converted $750 principal amount of the Notes into 4,411,500 shares of Company common stock during the three months ended June 30, 2022, and pursuant to the July 2022 Conversion Agreement, the Luxor Entities converted $6,750 principal amount of the Notes into 27,000,000 shares of Company common stock during the three months ended September 30, 2022 (see Note 13 - Stockholders’ Equity).
In accordance with ASC 470-20, “Debt with Conversion and Other Options”, the fair value of the securities transferred in the induced conversion over the fair value of securities issuable pursuant to the original conversion terms is recognized as induced conversion expense. Accordingly, (i) upon the induced conversion related to the May 2022 Conversion Agreement, the Company recognized $930 of expense with a corresponding entry to equity of $1,673 and a net reduction of the Notes of $743, consisting of the $750 of principal, net of related discount, and (ii) upon the induced conversion related to the July 2022 Conversion Agreement, the Company recognized $8,569 of expense with a corresponding entry to equity of $15,275 and a net reduction of the Notes of $6,706, consisting of the $6,750 of principal, net of related discount.
Induced conversion expense is included in other expense in the unaudited condensed consolidated statement of operations and totaled $8,569 and $9,499 for the three and nine months ended September 30, 2022, respectively.
Short-Term Loans
The Company has outstanding short-term loans as of September 30, 2022 for the purpose of financing portions of its annual insurance premium obligations. The loans are payable in monthly installments until maturity.
10. Income Taxes
The Company provides for income taxes using an asset and liability approach under which deferred income taxes are provided for based upon enacted tax laws and rates applicable to periods in which the taxes become payable. The Company recorded income tax expense of $14 and $25 for the three months ended September 30, 2022 and 2021, respectively, and $47 and $82 for the nine months ended September 30, 2022 and 2021, respectively. The Company’s income tax expense is entirely related to state taxes in various jurisdictions. The Company recorded a full valuation allowance against net deferred tax assets as of September 30, 2022 and December 31, 2021 as the Company has historically generated net operating losses, and the Company did not consider future book income as a source of taxable income when assessing if a portion of the deferred tax assets is more likely than not to be realized.
During 2020, the Company was permitted to defer payment of the employer portion of certain payroll taxes under the Coronavirus Aid, Relief and Economic Security (CARES) Act. The Company did not defer any payroll taxes after December 31, 2020. As of September 30, 2022, the Company has $667 of employer payroll tax deferrals outstanding, all of which will be paid in 2022. This amount is reflected in other current liabilities in the accompanying unaudited condensed consolidated balance sheet.
11. Commitments and Contingent Liabilities
Sponsorship Agreement
On July 23, 2022 (the “Effective Date”), the Company entered into a multi-year sponsorship agreement (the “MetLife Sponsorship Agreement”) with New Meadowlands Stadium Company, LLC (“NMSC”), pursuant to which the Company will be the exclusive mobile ordering platform used at MetLife Stadium. Pursuant to the MetLife Sponsorship Agreement, NMSC agrees to provide the Company with certain promotions, programs and benefits throughout each Contract Year of the agreement. The term “Contract Year” under the MetLife Sponsorship Agreement refers to each year of the agreement with the first Contract Year beginning on the Effective Date and ending on March 31, 2023, and each subsequent Contract Year beginning on April 1 and ending on the last day of the following March. The term of the MetLife Sponsorship Agreement is five Contract Years and will expire on March 31, 2027. The MetLife Sponsorship Agreement provides for customary representations, warranties, and indemnification from the parties.
In connection with the MetLife Sponsorship Agreement, the Company has committed to pay an aggregate of $9,128 in sponsorship fees which will be amortized over the performance period on a straight-line basis. The sponsorship fees are generally payable in quarterly installments and include the following amounts by Contract Year: $1,650 in year one, $1,732 in year two, $1,820 in year three, $1,920 in year four and $2,006 in year five.
Included in the unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2022, is $413 of sales and marketing expense related to the MetLife Sponsorship Agreement.
Workers Compensation and Auto Policy Claims
We establish a liability under our workers’ compensation and auto insurance policies for claims incurred within our self-insured retention levels and an estimate for claims incurred but not yet reported. As of September 30, 2022 and December 31, 2021, $6,360 and $4,305, respectively, in outstanding workers’ compensation and auto policy reserves are included in the unaudited condensed consolidated balance sheet.
Legal Matters
In July 2016, Waiter.com, Inc. filed a lawsuit against Waitr Inc. in the United States District Court for the Western District of Louisiana, alleging trademark infringement based on Waitr’s use of the “Waitr” trademark and logo, Civil Action No.: 2:16-CV-01041. The plaintiff sought injunctive relief and damages relating to Waitr’s use of the “Waitr” name and logo. During the third quarter of 2020, the trial date was rescheduled to June 2021. On June 22, 2021, the Company entered into a License, Release and Settlement Agreement (the “Settlement”) to settle all claims related to this lawsuit. Pursuant to the Settlement, the Company paid the plaintiff $4,700 in cash on July 1, 2021. In connection with the Settlement, we agreed to adopt a new trademark or tradename to replace the Waitr trademark and to discontinue use of the Waitr trademark in connection with the marketing, sale or provision of any web-based or mobile app-based delivery, pick-up, carry-out or dine-in services using the Waitr trademark by June 22, 2022, unless extended by eight additional months in exchange for a one-time payment of $800. During the three months ended March 31, 2022, the Company accrued an $800 reserve in connection with its option to extend the license period by an additional eight months. The $800 legal reserve and $4,700 legal settlement are included in other expense in the unaudited condensed consolidated statement of operations for the nine months ended September 30, 2022 and 2021, respectively.
In April 2019, the Company was named as a defendant in a class action complaint filed by certain current and former restaurant partners, captioned Bobby’s Country Cookin’, LLC, et al v. Waitr Holdings Inc., which is currently pending in the United States District Court for the Western District of Louisiana. The plaintiffs assert claims for breach of contract and violation of the duty of good faith and fair dealing, and they seek recovery on behalf of themselves and two separate classes. Based on the current class definitions, as many as 10,000 restaurant partners could be members of the two separate classes at issue. In February 2022, the parties reached a proposed settlement in principle to resolve the litigation in its entirety and requested a stay of the pending litigation. This proposed settlement in principle was subject to District Court approval and entry into a settlement agreement between the parties, and contemplated a total potential settlement fund of $2,500 of Company shares of common stock. Ultimately, no settlement agreement was executed by the parties nor was District Court approval obtained. Consequently, the stay of the litigation was briefly lifted until the District Court certified its ruling on a motion for summary judgment for immediate appeal. The litigation is currently stayed while the matter proceeds on appeal. Based on the settlement negotiations, the Company accrued a $1,250 reserve in connection with this lawsuit during the three months ended December 31, 2021. The accrued legal contingency is included in other current liabilities in the unaudited condensed consolidated balance sheet at September 30, 2022.
In September 2019, Christopher Meaux, David Pringle, Jeff Yurecko, Tilman J. Fertitta, Richard Handler, Waitr Holdings Inc. f/k/a Landcadia Holdings Inc., Jefferies Financial Group, Inc. and Jefferies, LLC were named as defendants in a putative class action lawsuit entitled Walter Welch, Individually and on Behalf of all Others Similarly Situated vs. Christopher Meaux, David Pringle, Jeff Yurecko, Tilman J. Fertitta, Richard Handler, Waitr Holdings Inc. f/k/a Landcadia Holdings Inc., Jefferies Financial Group, Inc. and Jefferies, LLC. The case was filed in the Western District of Louisiana, Lake Charles Division. In the lawsuit, the plaintiff asserts putative class action claims alleging, inter alia, that various defendants made false and misleading statements in securities filings, engaged in fraud, and violated accounting and securities rules, seeking damages based upon these allegations. A similar putative class action lawsuit, entitled Kelly Bates, Individually and on Behalf of all Others Similarly Situated vs. Christopher Meaux, David Pringle, Jeff Yurecko, Tilman J. Fertitta, Richard Handler, Waitr Holdings Inc. f/k/a Landcadia Holdings Inc., Jefferies Financial Group, Inc. and Jefferies, LLC, was filed in that same court in November 2019. These two cases were consolidated, and an amended complaint was filed in October 2020. The Company filed a motion to dismiss in February 2021. The Court assigned that motion to the Magistrate Judge, who issued her Report and Recommendation to the District Court Judge that the motion be granted in all respects. On August 10, 2022, the Court ruled in favor of the Company and its former officers and directors on all claims and dismissed the case with prejudice. The deadline for appeal has passed with no action from plaintiffs; the judgment dismissing the case with prejudice is now final.
In October, 2017, the Company was named as a defendant in the matter of Michael Boone and Jennifer Walters, individually and on behalf of their minor child Grace Boone, vs. Waitr Inc., pending in the 22nd Judicial District Court for the Parish of St. Tammany, State of Louisiana. The action arises from a pedestrian/vehicle collision that occurred in November 2016, and the alleged substantial damages as a result thereof. This matter was not resolved through mediation. A trial date has not been set and discovery is ongoing. The Company intends to vigorously defend this lawsuit.
In May 2020, the Company was named as a defendant in Mary Ritchey, Individually and as Conservator for A.M., a minor, vs. Kristi Rando, Waitr Holdings, Inc., et al., Civil No. 1CCV-20-0722 LWC, and Robert P. McPherson vs. Kristi Rando, Waitr Holdings, Inc., et al., Civil No. 1CCV-20-0764 LWC, consolidated and which is currently pending in the Circuit Court of the First Circuit, State of Hawaii. This action is a result of an automobile accident that occurred in October 2018 involving an employee of a Company subsidiary and the alleged substantial injuries and damages as a result thereof. Discovery is ongoing, as well as the motion practice. Trial is currently set for 2023. The Company intends to vigorously defend this lawsuit.
In addition to the lawsuits described above, Waitr is involved in other litigation arising from the normal course of business activities, including, without limitation, vehicle accidents involving employees and independent contractor drivers resulting in claims alleging personal injuries and medical expenses, labor and employment claims, allegations of intellectual property infringement, and workers’ compensation benefit claims as a result of alleged conduct involving its employees, independent contractor drivers, and third-party negligence. Although Waitr believes that it maintains insurance with standard deductibles that generally covers liability for potential damages in many of these matters where coverage is available on acceptable terms (it is not maintained for claims involving intellectual property), insurance coverage is not guaranteed, there are limits to insurance coverage and in certain instances claims are met with denial of coverage positions by the carriers; accordingly, we could suffer material losses as a result of these claims, the denial of coverage for such claims, or damages awarded for any such claim that exceeds coverage. Litigation is unpredictable and we may determine in the future that certain existing claims have greater exposure or liability than previously understood.
12. Stock-Based Awards and Cash-Based Awards
In June 2021, the Company’s stockholders approved the Waitr Holdings Inc. Amended and Restated 2018 Omnibus Incentive Plan (the “2018 Incentive Plan”), which permits the granting of awards in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based awards, and other stock-based or cash-based awards. As of September 30, 2022, there were 5,903,757 shares of common stock available for future grants pursuant to the 2018 Incentive Plan. The Company also has outstanding equity awards under the 2014 Stock Plan (as amended in 2017, the “Amended 2014 Plan”). Total compensation expense related to awards under the Company’s incentive plans was $1,338 and $1,635 for the three months ended September 30, 2022 and 2021, respectively, and $4,588 and $6,100 for the nine months ended September 30, 2022 and 2021, respectively.
Stock-Based Awards
Stock Options
During the nine months ended September 30, 2021, 500,000 stock options were granted under the 2018 Incentive Plan and were subsequently forfeited during such period. There were no grants of stock options during the nine months ended September 30, 2022. The Company determines the fair value of stock option grants on the grant date using an option-pricing model with various assumptions regarding the risk-free rate, volatility and expected term. As of March 31, 2022, all outstanding stock options were fully vested and there was no remaining unrecognized compensation cost related to stock options. The Company recognized compensation expense for stock options of $258 for the three months ended September 30, 2021, and $13 and $950 for the nine months ended September 30, 2022 and 2021, respectively.
The stock option activity under the Company’s incentive plans during the nine months ended September 30, 2022 and 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2021 |
| Number of
Shares | | Weighted
Average
Exercise Price | | Weighted
Average
Grant Date
Fair Value | | Number of
Shares | | Weighted
Average
Exercise Price | | Weighted
Average
Grant Date
Fair Value |
| Balance, beginning of period | 9,656,928 | | | $ | 0.39 | | | $ | 0.28 | | | 9,753,257 | | | $ | 0.43 | | | $ | 0.33 | |
| Granted | — | | | — | | | — | | | 500,000 | | | 2.78 | | | 2.19 | |
| Exercised | — | | | — | | | — | | | (12,012) | | | 0.92 | | | 4.36 | |
| Forfeited | (26,911) | | | 3.30 | | | 4.44 | | | (524,830) | | | 2.95 | | | 2.32 | |
| Expired | — | | | — | | | — | | | (34,151) | | | 7.19 | | | 5.10 | |
| Balance, end of period | 9,630,017 | | | $ | 0.38 | | | $ | 0.27 | | | 9,682,264 | | | $ | 0.39 | | | $ | 0.29 | |
Outstanding stock options, which were fully vested and expected to vest and exercisable are as follows as of September 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2022 | | As of December 31, 2021 |
| Options Fully
Vested and
Expected to Vest | | Options
Exercisable | | Options Fully
Vested and
Expected to Vest | | Options
Exercisable |
| Number of Options | 9,630,017 | | | 9,630,017 | | | 9,656,928 | | | 4,870,026 | |
| Weighted-average remaining contractual term (years) | 2.28 | | 2.28 | | 3.03 | | 3.06 |
| Weighted-average exercise price | $ | 0.38 | | | $ | 0.38 | | | $ | 0.39 | | | $ | 0.40 | |
| Aggregate Intrinsic Value (in thousands) | $ | — | | | $ | — | | | $ | 3,543 | | | $ | 1,773 | |
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the fair value of the common stock and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options on each date. This amount will change in future periods based on the fair value of the Company’s stock and the number of options outstanding. There were no exercises of stock options during the nine months ended September 30, 2022. The aggregate intrinsic value of awards exercised during the three and nine months ended September 30, 2021 was $1 and $21, respectively.
Restricted Stock
The Company’s restricted stock grants include performance-based and time-based vesting awards. The fair value of restricted shares is typically determined based on the closing price of the Company’s common stock on the date of grant.
Performance-Based Awards
As of September 30, 2022, there were 3,134,325 performance-based RSUs outstanding under the Company’s 2018 Incentive Plan. Such RSUs were granted to the Company’s chief executive officer, Carl Grimstad, in April 2020 (the “Grimstad RSU Grant”). The Grimstad RSU Grant has an aggregate grant date fair value of $3,542 and vests in full in the event of a change of control, as defined in Mr. Grimstad’s employment agreement with the Company, subject to his continuous employment with the Company through the date of a change of control; provided, however, that the Grimstad RSU Grant shall fully vest in the event that Mr. Grimstad terminates his employment for good reason or he is terminated by the Company for reason other than misconduct. No stock-based compensation expense will be recognized for the Grimstad RSU Grant until such time that is probable that the performance goal will be achieved, or at the time that Mr. Grimstad terminates his employment for good reason or he is terminated by the Company for reason other than misconduct, should either occur.
Awards with Time-Based Vesting
During the nine months ended September 30, 2022, 8,790,000 RSUs with time-based vesting were granted pursuant to the 2018 Incentive Plan (with an aggregate grant fair value of value of $3,545). The RSUs generally vest over three years in accordance with the terms specified in the applicable award agreements, all of which accelerate and vest upon a change of control.
The Company recognized compensation expense for restricted stock of $1,338 and $1,377 during the three months ended September 30, 2022 and 2021, respectively, and $4,575 and $5,150 during the nine months ended September 30, 2022 and 2021, respectively. Unrecognized compensation cost related to unvested time-based RSUs as of September 30, 2022 totaled $12,055, with a weighted average remaining vesting period of approximately 2.3 years. The total fair value of restricted shares that vested during the three months ended September 30, 2022 and 2021 was $323 and $1,219, respectively, and $544 and $6,605 during the nine months ended September 30, 2022 and 2021, respectively.
The activity for restricted stock with time-based vesting under the Company’s incentive plans is as follows for the nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2021 |
| Number of
Shares | | Weighted
Average
Grant Date
Fair Value | | Weighted
Average Remaining
Contractual
Term (years) | | Number of
Shares | | Weighted
Average
Grant Date
Fair Value | | Weighted
Average Remaining
Contractual
Term (years) |
| Nonvested, beginning of period | 8,614,746 | | | $ | 2.15 | | | 2.50 | | 4,558,603 | | | $ | 2.23 | | | 1.71 |
| Granted | 8,790,000 | | | 0.40 | | | | | 7,885,960 | | | 2.12 | | | |
| Shares vested | (2,280,232) | | | 1.96 | | | | | (2,840,230) | | | 2.22 | | | |
| Forfeitures | (1,679,505) | | | 1.09 | | | | | (671,592) | | | 2.25 | | | |
| Nonvested, end of period | 13,445,009 | | | $ | 1.17 | | | 2.29 | | 8,932,741 | | | $ | 2.13 | | | 2.68 |
Cash-Based Awards
Performance Bonus Agreement
On April 2020, the Company entered into a performance bonus agreement with Mr. Grimstad, which was extended through January 3, 2025 in connection with the extension of his employment agreement. Pursuant to the performance bonus agreement, upon the occurrence of a change of control in which the holders of the Company’s common stock receive per share consideration that is equal to or greater than $2.00, subject to adjustment in accordance with the 2018 Incentive Plan, the Company shall pay Mr. Grimstad an amount equal to $5,000 (the “Bonus”). In order to receive the Bonus, Mr. Grimstad must remain continuously employed with the Company through the date of the change of control; provided, however, that in the event Mr. Grimstad terminates his employment for good reason or the Company terminates his employment other than for misconduct, Mr. Grimstad will be entitled to receive the Bonus provided the change of control occurs on or before January 3, 2025. Compensation expense related to the bonus agreement will not be recognized until such time that is probable that the performance goal will be achieved.
13. Stockholders’ Equity
Common Stock
At September 30, 2022 and December 31, 2021, there were 249,000,000 shares of common stock authorized and 206,420,738 and 146,094,300 shares of common stock issued and outstanding, respectively, with a par value of $0.0001. The Company did not hold any shares as treasury shares as of September 30, 2022 or December 31, 2021. The Company’s common stockholders are entitled to one vote per share.
At-the-Market Offering
In November 2021, the Company entered into a third amended and restated open market sale agreement with respect to an at-the-market offering program (the “ATM Program”) under which the Company could offer and sell, from
time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $50,000, through Jefferies LLC (“Jefferies”) as its sales agent. There were no sales of common stock pursuant to the third amended and restated open market sale agreement after April 12, 2022. In August 2022, the Company entered into a fourth amended and restated open market sale agreement with respect to the ATM Program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $50,000. The issuance and sale of shares by the Company under the open market sales agreements were made pursuant to the Company’s effective registration statements on Form S-3. Details of sales pursuant to the ATM Program are included in the table below. See Note 18 - Subsequent Events for additional details on the August 2022 ATM Program.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Sales during nine months ended September 30, 2022 | |
| | | | | November 2021 ATM Program | | August 2022 ATM Program | | Total | |
| | | | | | | | | | |
| Total shares sold | | | | | 12,074,990 | | | 14,966,669 | | | 27,041,659 | | |
| Average sales price per share | | | | | $ | 0.60 | | | $ | 0.22 | | | $ | 0.39 | | |
| Gross proceeds (in thousands) | | | | | $ | 7,211 | | | $ | 3,225 | | | $ | 10,436 | | |
| Net proceeds (in thousands) | | | | | $ | 7,120 | | | $ | 3,146 | | | $ | 10,266 | | |
Preferred Stock
At September 30, 2022 and December 31, 2021, the Company was authorized to issue 1,000,000 shares of preferred stock ($0.0001 par value per share). There were no issued or outstanding preferred shares as of September 30, 2022 or December 31, 2021.
Notes
The Company has outstanding Notes which are convertible into shares of the Company’s common stock at a rate of $8.00 per share. See Note 9 – Debt for additional information regarding the Notes.
Pursuant to the May 2022 Conversion Agreement, the Luxor Entities converted $750 principal amount of the Notes into 4,411,500 shares of Company common stock during the three months ended June 30, 2022, calculated based on a per share price of $0.17, notwithstanding the conversion rate then in effect pursuant to the terms of the Notes. In connection with the conversion, the Company recognized $930 of induced conversion expense (see Note 9 - Debt).
Pursuant to the July 2022 Conversion Agreement, the Luxor Entities converted $6,750 principal amount of the Notes into 27,000,000 shares of Company common stock during the three months ended September 30, 2022, calculated based on a per share price of $0.25, notwithstanding the conversion rate then in effect pursuant to the terms of the Notes. In connection with the conversion, the Company recognized $8,569 of induced conversion expense (see Note 9 - Debt).
Warrants
In November 2018, the Company issued to Luxor Capital warrants which are exercisable for 624,989 shares of the Company’s common stock at September 30, 2022, with an exercise price of $8.00 per share (the “Debt Warrants”). The Debt Warrants expire on November 15, 2022 and include customary anti-dilution protection, including broad-based weighted average adjustments for certain issuances of additional shares. Additionally, holders of the Debt Warrants have customary registration rights with respect to the shares underlying the Debt Warrants.
14. Fair Value Measurements
Medical Contingency
Included in other income in the unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2021 is $16,715 related to the change in estimate of a medical contingency (the “Medical Contingency”). The death of the individual in August 2021 associated with the Medical Contingency was new information the Company deemed a change in accounting estimate for the total liability.
The estimated loss exposure for the Medical Contingency as of December 31, 2021 was measured at fair value on a recurring basis and reflected the liability for unpaid medical expenses and dependent death benefits, totaling $423. The analysis used in the measurement of the reserve for the Medical Contingency reflected the Company’s assumptions regarding unpaid medical expenses and estimated death benefits used in developing the fair value estimate and was a Level 3 measurement. These inputs required significant judgments and estimates at the time of the valuation.
At March 31, 2022, management no longer deemed the Medical Contingency a liability requiring fair value measurement estimation as the remaining liability at such time consisted entirely of discrete costs related to certain unpaid medical expenses. Accordingly, the Medical Contingency was transferred out the Level 3 fair value hierarchy.
Contingent Consideration
The fair value of contingent consideration is measured at acquisition date, and at the end of each reporting period through the term of the arrangement, using the Black Scholes option-pricing model with assumptions for volatility and risk-free rate. Contingent consideration relates to the earnout provision in the Company’s acquisition of the Cape Payment Companies in August 2021 and the future contingent payment based on the achievement of certain revenue targets (see Note 5 – Business Combinations). The contingent consideration liability was valued at $1,939 at December 31, 2021 and is included in other non-current liabilities on the condensed consolidated balance sheet. As of September 30, 2022, the contingent consideration liability is valued at $1,388 and is included in other current liabilities on the condensed consolidated balance sheet.
Expected volatility is based on a blended weighted average of the volatility rates for a number of similar publicly-traded companies. The risk-free rates are based on U.S. Treasury securities with similar maturities as the expected term of the earnout provision at the date of valuation. The fair value measurement was based on significant inputs not observable in the market and thus, represents Level 3 measurements within the fair value hierarchy. These inputs required significant judgments and estimates at the time of the valuation. The Company engaged a third-party specialist to assist management in estimating the fair value of the contingent consideration obligation.
Summary by Fair Value Hierarchy
The following table presents the Company’s liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Liabilities | | | | | | | |
| | | | | | | |
| Contingent consideration | $ | — | | | $ | — | | | $ | 1,388 | | | $ | 1,388 | |
| Total liabilities measured and recorded at fair value | $ | — | | | $ | — | | | $ | 1,388 | | | $ | 1,388 | |
| | | | | | | |
| As of December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Liabilities | | | | | | | |
| Accrued medical contingency | $ | — | | | $ | — | | | $ | 423 | | | $ | 423 | |
| Contingent consideration | — | | | — | | | 1,939 | | | 1,939 | |
| Total liabilities measured and recorded at fair value | $ | — | | | $ | — | | | $ | 2,362 | | | $ | 2,362 | |
The Company had no assets required to be measured at fair value on a recurring basis at September 30, 2022 or December 31, 2021.
Adjustments to the fair value of the accrued Medical Contingency were recognized in other income on the condensed consolidated statement of operations. The following table presents a reconciliation of the accrued Medical Contingency liability which was classified as a Level 3 financial instrument prior to March 31, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Medical Contingency |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Balance, beginning of the period | $ | — | | | $ | 17,182 | | | $ | 423 | | | $ | 17,435 | |
| Increases/additions | — | | | — | | | — | | | 84 | |
| Reductions/settlements | — | | | (16,759) | | | (53) | | | (17,096) | |
| Transfers out of Level 3 | — | | | — | | | (370) | | | — | |
| Balance, end of the period | $ | — | | | $ | 423 | | | $ | — | | | $ | 423 | |
Adjustments to the fair value of the contingent consideration liability at the end of each reporting period are recognized in income (loss) from operations in the condensed consolidated statement of operations. The following table presents a reconciliation of the contingent consideration liability classified as a Level 3 financial instrument for the three and nine months ended September 30, 2022 (in thousands):
| | | | | | | | | | | |
| Contingent Consideration |
| Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| Balance, beginning of the period | $ | 2,043 | | | $ | 1,939 | |
| Additions | — | | | — | |
| Decrease in fair value | (655) | | | (551) | |
| Reductions/settlements | — | | | — | |
| Balance, end of the period | $ | 1,388 | | | $ | 1,388 | |
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record certain assets and liabilities at fair value on a non-recurring basis. The Company generally applies fair value concepts in recording assets and liabilities acquired in business combinations and asset acquisitions (see Note 5 – Business Combinations). Fair value concepts are also generally applied in estimating the fair value of long-lived assets and a reporting unit in connection with impairment analyses. See Note 7 – Intangible Assets and Goodwill, for further discussion of the fair value of long-lived assets and the reporting unit associated with impairment testing conducted at March 15, 2022 and August 31, 2022. Additionally, in connection with the induced conversion of the Notes during the three months ended June 30, 2022 and the three months ended September 30, 2022, the Company applied fair value concepts. See Note 9 - Debt for further discussion.
15. Segment Information
As of September 30, 2022, the Company operates through two reportable operating segments based on two primary areas of service: (i) Delivery Services, which include operations related to the Company’s technology platform for online ordering and delivery, and (ii) Third-Party Payment Processing Referral Services, which include operations related to facilitating access to third parties that provide payment processing solutions for restaurants and other merchants. For additional information about how our reportable segments derive revenue, refer to Note 4 – Revenue.
The accounting policies of the operating segments are the same as those described in our Annual Report on Form 10-K for the year ended December 31, 2021. The CODM does not evaluate operating segments using asset information and, accordingly, we do not report asset information by segment. There are no internal revenue transactions between our reportable segments.
The CODM evaluates segment performance primarily based on segment adjusted EBITDA. Segment adjusted EBITDA is defined as revenue less the following expenses: operations and support, sales and marketing, research and development, general and administrative and certain non-operating expenses associated with our segments. Excluded from segment adjusted EBITDA are non-cash items and other items that do not reflect our core operations. The following table
presents information about our segments, with a reconciliation of total segments adjusted EBITDA to income (loss) from operations of the consolidated Company (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Segments adjusted EBITDA: | | | | | | | |
| Delivery Services Segment | $ | (4,737) | | | $ | 2,758 | | | $ | (10,366) | | | $ | 13,554 | |
| Third-Party Payment Processing Referral Services Segment | 67 | | | 310 | | | 294 | | | 310 | |
| Total segments adjusted EBITDA | (4,670) | | | 3,068 | | | (10,072) | | | 13,864 | |
| Reconciling items: | | | | | | | |
| Interest expense | (1,198) | | | (1,751) | | | (4,363) | | | (5,333) | |
| Income taxes | (14) | | | (25) | | | (47) | | | (82) | |
| Depreciation and amortization expense | (3,599) | | | (3,070) | | | (9,664) | | | (8,952) | |
| Goodwill impairment | (53,898) | | | — | | | (121,088) | | | — | |
| Stock-based compensation expense | (1,338) | | | (1,635) | | | (4,588) | | | (6,100) | |
| (Gain) loss on disposal of assets | (55) | | | (11) | | | 33 | | | (170) | |
| Intangible and other asset impairments | — | | | (186) | | | — | | | (186) | |
| Induced conversion expense related to Notes | (8,569) | | | — | | | (9,499) | | | — | |
| Change in fair value of contingent consideration liability | 655 | | | — | | | 551 | | | — | |
| Medical contingency change in estimate | — | | | 16,715 | | | — | | | 16,715 | |
| Transaction related expenditures and other non-recurring adjustments | (776) | | | (855) | | | (2,812) | | | (2,159) | |
| Accrued legal contingency and reserve | — | | | — | | | (800) | | | (4,700) | |
| Net income (loss) from continuing operations | $ | (73,462) | | | $ | 12,250 | | | $ | (162,349) | | | $ | 2,897 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
16. Earnings (Loss) Per Share Attributable to Common Stockholders
The calculation of basic and diluted earnings (loss) per share attributable to common stockholders for the three and nine months ended September 30, 2022 and 2021 is as follows (in thousands, except share and per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Basic earnings (loss) per share: | | | | | | | |
| Net income (loss) attributable to common stockholders - basic | $ | (73,462) | | | $ | 12,250 | | | $ | (162,349) | | | $ | 2,897 | |
| Weighted average number of shares outstanding | 183,766,396 | | | 119,823,181 | | | 166,086,439 | | | 115,961,454 | |
| Basic earnings (loss) per common share | $ | (0.40) | | | $ | 0.10 | | | $ | (0.98) | | | $ | 0.02 | |
| | | | | | | |
| Diluted earnings (loss) per share: | | | | | | | |
| Net income (loss) attributable to common stockholders - diluted | $ | (73,462) | | | $ | 12,250 | | | $ | (162,349) | | | $ | 2,897 | |
| Weighted average number of shares outstanding | 183,766,396 | | | 119,823,181 | | | 166,086,439 | | | 115,961,454 | |
| Effect of dilutive securities: | | | | | | | |
| Stock options | — | | | 6,733,754 | | | — | | | 7,604,969 | |
| Restricted stock units | — | | | 3,610,361 | | | — | | | 4,713,397 | |
| Warrants | — | | | — | | | — | | | — | |
| Weighted average diluted shares | 183,766,396 | | | 130,167,296 | | | 166,086,439 | | | 128,279,820 | |
| Diluted earnings (loss) per common share | $ | (0.40) | | | $ | 0.09 | | | $ | (0.98) | | | $ | 0.02 | |
The Company has outstanding Notes which are convertible into shares of the Company’s common stock. See Note 9 – Debt for additional details on the Notes. Based on the conversion price in effect at the end of the respective periods, the Notes were convertible into 5,292,316 and 4,737,237 shares, respectively, of the Company’s common stock at September 30, 2022 and 2021. During the three and nine months ended September 30, 2021, the Company’s weighted average common stock price was below the Notes conversion price for such periods. Accordingly, the shares were not considered in the dilutive earnings per share calculation. For the three and nine months ended September 30, 2022, the shares were excluded from the fully diluted calculations because the Company had net losses for such periods and the effect on net loss per common share would have been anti-dilutive.
Additionally, the following table includes securities outstanding at the end of the respective periods, which have been excluded from the fully diluted calculations because the effect on net loss per common share would have been antidilutive:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Antidilutive shares underlying stock-based awards: | | | | | | | |
| Stock options | 9,630,017 | | | 19,800 | | | 9,630,017 | | | 19,800 | |
| Restricted stock units | 16,579,334 | | | 6,838,412 | | | 16,579,334 | | | 6,838,412 | |
Debt Warrants (see Note 13 - Stockholders’ Equity) | 624,989 | | | 497,507 | | | 624,989 | | | 497,507 | |
17. Related-Party Transactions
Credit Agreement and Convertible Notes Agreement
In November 2018, the Company entered into the Credit Agreement, and in January 2019, the Company entered into an amendment to the Credit Agreement, and an amendment to the Convertible Notes Agreement with the Luxor Entities. In addition, on each of May 21, 2019, July 15, 2020, March 9, 2021 and May 9, 2022, the Company entered into amendments to the Credit Agreement with Luxor Capital and amendments to the Convertible Notes Agreement with the Luxor Entities. Additionally, on May 12, 2022, the Company entered into an amendment to the Convertible Notes Agreement with the Luxor Entities.
On May 1, 2020, the Company entered into a Limited Waiver and Conversion Agreement with respect to the Credit Agreement and Convertible Notes Agreement. On May 13, 2022, the Company entered into the May 2022 Conversion Agreement, and on July 22, 2022, the Company entered into the July 2022 Conversion Agreement, with respect to the Convertible Notes Agreement.
Pursuant to the May 9, 2022 amendment to the Credit Agreement, the Company made a $20,000 prepayment on the Term Loan on such date.
Jonathan Green, a board member of the Company, is a partner at Luxor Capital. See Note 9 - Debt for additional details on related-party debt.
Other Transactions with Related Parties
As of September 30, 2022, we had over 30,000 restaurants on our Platform, some of which are affiliated with one current and one prior member of our board of directors (the “Board”). We estimate that we generated total revenue, inclusive of diner fees, of approximately $60 and $147 during the three months ended September 30, 2022 and September 30, 2021, respectively, and $237 and $610 during the nine months ended September 30, 2022 and 2021, respectively, from such restaurants that are affiliated with those current and prior members of our Board. Such restaurants enter into customary master service agreements with the Company, which are generally consistent with the other national partner agreements.
18. Subsequent Events
August 2022 ATM Program
In October 2022, the Company sold 1,378,498 shares of common stock pursuant to the August 2022 ATM for net proceeds of $206. As of November 9, 2022, $46,566 remained unsold under the August 2022 ATM.
Pursuant to a provision in the May 2022 amended loan agreement, the Company made a $1,676 prepayment on the Term Loan on October 5, 2022, representing 50% of the net proceeds received by the Company for sales under the August 2022 ATM. As of November 9, 2022, the outstanding principal amount of the Term Loan totaled $13,604.
Reverse Stock Split
On October 20, 2022, the Company reconvened its special meeting of stockholders, whereby the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation to effect a reverse stock split, within a set range, without reducing the authorized number of shares of Company common stock, if and when determined by the Board in its sole discretion. The Board has since exercised such discretion and adopted resolutions on November 2, 2022 approving a reverse stock split at a ratio of 1:20 (the “Reverse Stock Split”). It is expected that the Reverse Stock Split will occur on or prior to 11:59 p.m. Eastern Time on November 21, 2022.
Amended Loan Agreements
On November 8, 2022, ASAP Inc. (f/k/a Waitr Inc.), Waitr Intermediate Holdings, LLC, the lenders party thereto and Luxor Capital entered into an amendment to the Credit Agreement (the “November 2022 Amended Credit Agreement”) and the Company, the lenders party thereto and Luxor Capital entered into an amendment to the Convertible Notes Agreement (the “November 2022 Amended Convertible Notes Agreement”).
Pursuant to the November 2022 Amended Credit Agreement, commencing with the fiscal quarter ending December 31, 2022, the portion of the proceeds of any ATM public common stock issuances to be applied to the prepayment of the Term Loan under the Credit Agreement increases from 50% to 60%. The November 2022 Amended Convertible Notes Agreement includes (i) a reduction of the interest rate under the Convertible Notes Agreement from 6% to 4.5% per annum and (ii) an adjustment of the portion of an interest payment that can be paid in-kind, if elected by the Company, from 50% to approximately 33%. Additionally, pursuant to the November 2022 Amended Convertible Notes Agreement, subsequent to the payment in full of the Term Loan outstanding under the Credit Agreement, the portion of the proceeds of any future ATM public common stock issuances to be applied to the prepayment of the Notes under the Convertible Notes Agreement increases from 50% to 60%.