10-Q 1 aprn-20170630x10q.htm 10-Q aprn_Current_Folio_10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2017.

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to

 

Commission file number 001-38134

 

Blue Apron Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

Delaware

    

81‑4777373

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

5 Crosby Street, New York, New York

 

10013

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code (347) 719‑4312

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☐  No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer ☐

Accelerated filer ☐

Smaller reporting company ☐

Emerging growth company 

 

 

 

 

Non-accelerated filer        (Do not check if a smaller reporting company)

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).    Yes ☐  No 

 

Indicate the number of shares outstanding of each class of the issuer’s common stock as of the latest practicable date.

 

 

 

 

 

Class

Number of Shares Outstanding

Class A Common Stock, $0.0001 par value

30,042,687 shares outstanding as of July 31, 2017

Class B Common Stock, $0.0001 par value

160,008,946 shares outstanding as of July 31, 2017

Class C Capital Stock, $0.0001 par value

0 shares outstanding as of July 31, 2017

 

 

 


 

BLUE APRON HOLDINGS, INC.

TABLE OF CONTENTS

 

 

    

 

 

PART I 

 

FINANCIAL INFORMATION

 

4

 

 

Item 1.

Consolidated Financial Statements (unaudited)

 

4

 

 

 

Consolidated Balance Sheets

 

4

 

 

 

Consolidated Statements of Operations

 

5

 

 

 

Consolidated Statements of Comprehensive Income (Loss)

 

6

 

 

 

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

7

 

 

 

Consolidated Statements of Cash Flows

 

8

 

 

 

Notes to Consolidated Financial Statements

 

9

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

 

 

Item 3.

Quantitative and Qualitative Disclosures

 

41

 

 

Item 4.

Controls and Procedures

 

42

 

 

 

 

 

 

 

PART II 

 

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

42

 

 

Item 1A. 

Risk Factors

 

43

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

70

 

 

Item 3.

Defaults Upon Senior Securities

 

71

 

 

Item 4.

Mine Safety Disclosures

 

71

 

 

Item 5.

Other Information

 

71

 

 

Item 6.

Exhibits

 

71

 

 

 

 

 

 

 

SIGNATURES 

 

 

73

 

INDEX TO EXHIBITS 

 

74

 

 

 

 

 

 

 

1


 

 

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans, and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as "may," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential," or "continue," or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the "Risk Factors" section and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:

·

our expectations regarding our expenses and revenue, our ability to maintain and grow adjusted EBITDA, the sufficiency of our cash resources, and needs for additional financing;

·

our ability to cost-effectively attract new customers and retain existing customers;

·

our ability to expand our product offerings;

·

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

·

our ability to manage our growth;

·

our expectations regarding, and the stability of, our supply chain, including potential shortages or interruptions in the supply or delivery of ingredients;

·

our ability to maintain food safety and prevent food-borne illness incidents;

·

changes in consumer tastes and preferences or in consumer spending;

·

our ability to effectively compete;

·

our ability to attract and retain qualified employees and key personnel;

·

our ability to comply with modified or new laws and regulations applying to our business;

·

our vulnerability to adverse weather conditions or natural disasters; and

·

our ability to obtain and maintain intellectual property protection.

2


 

While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.

3


 

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

BLUE APRON HOLDINGS, INC.

 

Consolidated Balance Sheets

 

(In thousands, except share and per-share data) 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro Forma

 

 

 

 

 

June 30, 

 

June 30, 

 

December 31, 

 

 

2017

 

2017

 

2016

ASSETS

 

 

  

 

 

  

 

 

  

CURRENT ASSETS:

 

 

  

 

 

  

 

 

  

Cash and cash equivalents

 

$

61,628

 

$

61,628

 

$

81,468

Accounts receivable

 

 

526

 

 

526

 

 

485

Inventories, net

 

 

46,923

 

 

46,923

 

 

42,887

Prepaid expenses and other current assets

 

 

12,556

 

 

12,556

 

 

8,267

Other receivables

 

 

1,513

 

 

1,513

 

 

4,991

Total current assets

 

 

123,146

 

 

123,146

 

 

138,098

Restricted cash

 

 

2,371

 

 

2,371

 

 

3,966

Property and equipment, net

 

 

233,356

 

 

233,356

 

 

130,961

Other noncurrent assets

 

 

416

 

 

416

 

 

382

TOTAL ASSETS

 

$

359,289

 

$

359,289

 

$

273,407

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

  

 

 

 

 

 

  

CURRENT LIABILITIES:

 

 

  

 

 

 

 

 

  

Accounts payable

 

$

67,659

 

$

67,659

 

$

49,549

Accrued expenses and other current liabilities

 

 

51,317

 

 

38,455

 

 

40,911

Convertible notes

 

 

31,525

 

 

 —

 

 

 —

Deferred revenue

 

 

14,331

 

 

14,331

 

 

24,278

Total current liabilities

 

 

164,832

 

 

120,445

 

 

114,738

Long-term debt

 

 

124,593

 

 

124,593

 

 

44,533

Facility financing obligation

 

 

60,739

 

 

60,739

 

 

49,809

Other noncurrent liabilities

 

 

7,691

 

 

7,691

 

 

2,858

TOTAL LIABILITIES

 

 

357,855

 

 

313,468

 

 

211,938

Commitments and contingencies (Note 9)

 

 

  

 

 

 

 

 

  

Convertible preferred stock, par value of $0.0001 per share — 17,371,402 shares authorized as of June 30, 2017 and December 31, 2016; 14,500,938 issued and outstanding as of June 30, 2017 and December 31, 2016; aggregate liquidation preference of $195,317 as of June 30, 2017 and December 31, 2016, actual; 0 shares issued and outstanding, pro forma

 

 

194,869

 

 

 —

 

 

194,869

STOCKHOLDERS’ EQUITY (DEFICIT):

 

 

  

 

 

 

 

 

  

Class A common stock, par value of $0.0001 per share — 177,000,000 shares authorized as of June 30, 2017 and December 31, 2016; 42,687 shares and 0 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively, actual; 42,687 shares issued and outstanding, pro forma

 

 

 —

 

 

 —

 

 

 —

Class B common stock, par value of $0.0001 per share — 175,000,000 shares authorized as of June 30, 2017 and December 31, 2016; 67,792,476 and 67,095,128 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively, actual; 160,006,228 shares issued and outstanding, pro forma

 

 

 7

 

 

16

 

 

 7

Class C common stock, par value of $0.0001 per share — 2,000,000 shares authorized as of June 30, 2017 and December 31, 2016; 0 shares issued and outstanding as of June 30, 2017 and December 31, 2016, actual; 0 shares issued and outstanding, pro forma

 

 

 —

 

 

 —

 

 

 —

Additional paid-in capital

 

 

28,934

 

 

285,911

 

 

5,147

Accumulated deficit

 

 

(222,376)

 

 

(240,106)

 

 

(138,554)

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

(193,435)

 

 

45,821

 

 

(133,400)

TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

$

359,289

 

$

359,289

 

$

273,407

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

4


 

BLUE APRON HOLDINGS, INC.

Consolidated Statements of Operations

(In thousands, except share and per-share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

Net revenue

 

$

238,057

 

$

201,924

 

$

482,900

 

$

374,022

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold, excluding depreciation and amortization

 

 

163,520

 

 

127,322

 

 

332,051

 

 

239,845

 

Marketing

 

 

34,519

 

 

32,031

 

 

95,124

 

 

57,444

 

Product, technology, general, and administrative

 

 

65,673

 

 

35,307

 

 

128,883

 

 

64,997

 

Depreciation and amortization

 

 

5,383

 

 

1,774

 

 

9,563

 

 

3,259

 

Total operating expenses

 

 

269,095

 

 

196,434

 

 

565,621

 

 

365,545

 

Income (loss) from operations

 

 

(31,038)

 

 

5,490

 

 

(82,721)

 

 

8,477

 

Interest income (expense), net

 

 

(3,052)

 

 

71

 

 

(3,522)

 

 

128

 

Other income (expense), net

 

 

2,567

 

 

 —

 

 

2,567

 

 

 —

 

Income (loss) before income taxes

 

 

(31,523)

 

 

5,561

 

 

(83,676)

 

 

8,605

 

Provision for income taxes

 

 

(105)

 

 

(28)

 

 

(146)

 

 

(55)

 

Net income (loss)

 

$

(31,628)

 

$

5,533

 

$

(83,822)

 

$

8,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to Class A, Class B, and Class C common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.47)

 

$

 —

 

$

(1.25)

 

$

 —

 

Diluted

 

$

(0.47)

 

$

 —

 

$

(1.25)

 

$

 —

 

Weighted-average shares used to compute net income (loss) per share attributable to Class A, Class B, and Class C common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

67,387,634

 

 

65,846,620

 

 

67,239,640

 

 

63,909,934

 

Diluted

 

 

67,387,634

 

 

69,693,228

 

 

67,239,640

 

 

69,506,396

 

Pro forma net income (loss) per share attributable to Class A, Class B, and Class C common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.20)

 

 

 

 

$

(0.53)

 

 

 

 

Diluted

 

$

(0.20)

 

 

 

 

$

(0.53)

 

 

 

 

Pro forma weighted-average shares used to compute net income (loss) per share attributable to Class A, Class B, and Class C common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

159,601,386

 

 

 

 

 

159,453,392

 

 

 

 

Diluted

 

 

159,601,386

 

 

 

 

 

159,453,392

 

 

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

5


 

BLUE APRON HOLDINGS, INC.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2017

    

2016

 

2017

    

2016

 

 

 

 

 

 

 

Net income (loss)

 

$

(31,628)

 

$

5,533

 

$

(83,822)

 

$

8,550

 

Other comprehensive income (loss):

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Comprehensive income (loss)

 

$

(31,628)

 

$

5,533

 

$

(83,822)

 

$

8,550

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

6


 

BLUE APRON HOLDINGS, INC.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Convertible

 

 

Class A, Class B, and Class C

 

Additional

 

 

 

 

Other

 

 

 

 

Total

 

 

Preferred Stock

 

 

Common Stock

 

Paid-In

 

Treasury

 

Comprehensive

 

Accumulated

 

Stockholders'

 

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Stock

    

Loss

    

Deficit

    

Equity (Deficit)

Balance — December 31, 2015

 

14,500,938

 

$

194,869

 

 

66,565,002

 

$

 7

 

$

1,727

 

$

 —

 

$

 —

 

$

(83,668)

 

$

(81,934)

Share-based compensation

 

 

 

 

 

 

 

 

 

3,018

 

 

 

 

 

 

 

 

3,018

Issuance of common stock upon exercise of stock options

 

 

 

 

 

530,126

 

 

 

 

402

 

 

 

 

 

 

 

 

402

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54,886)

 

 

(54,886)

Balance — December 31, 2016

 

14,500,938

 

$

194,869

 

 

67,095,128

 

$

 7

 

$

5,147

 

$

 —

 

$

 —

 

$

(138,554)

 

$

(133,400)

Share-based compensation

 

 

 

 

 

 

 

 

 

3,066

 

 

 

 

 

 

 

 

3,066

Issuance of common stock upon exercise of stock options

 

 

 

 

 

697,348

 

 

 —

 

 

781

 

 

 

 

 

 

 

 

781

Issuance of common stock upon acquisition

 

 —

 

 

 —

 

 

42,687

 

 

 —

 

 

373

 

 

 —

 

 

 —

 

 

 —

 

 

373

Issuance of convertible notes

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

19,567

 

 

 —

 

 

 —

 

 

 —

 

 

19,567

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(83,822)

 

 

(83,822)

Balance — June 30, 2017

 

14,500,938

 

$

194,869

 

 

67,835,163

 

$

 7

 

$

28,934

 

$

 —

 

$

 —

 

$

(222,376)

 

$

(193,435)

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

7


 

BLUE APRON HOLDINGS, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

 

2017

    

2016

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income (loss)

 

$

(83,822)

 

$

8,550

 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

 

8,364

 

 

2,628

 

Amortization of capitalized software development costs

 

 

1,199

 

 

632

 

Loss on disposal of property and equipment

 

 

23

 

 

 —

 

Changes in reserves and allowances

 

 

552

 

 

1,226

 

Share-based compensation

 

 

2,992

 

 

1,289

 

Debt discount and issuance cost amortization

 

 

2,234

 

 

 —

 

Fair value adjustment on derivative

 

 

(2,567)

 

 

 —

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(41)

 

 

103

 

Inventories

 

 

(2,603)

 

 

(10,159)

 

Prepaid expenses and other current assets

 

 

108

 

 

1,717

 

Other receivables

 

 

(3,844)

 

 

98

 

Other noncurrent assets

 

 

(34)

 

 

(190)

 

Accounts payable

 

 

14,725

 

 

(3,665)

 

Accrued expenses and other current liabilities

 

 

(2,862)

 

 

24,567

 

Deferred revenue

 

 

(9,947)

 

 

(1,337)

 

Other noncurrent liabilities

 

 

4,832

 

 

581

 

Net cash provided by (used in) operating activities

 

 

(70,691)

 

 

26,040

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Capitalized software development costs

 

 

(1,848)

 

 

(1,351)

 

Decrease (increase) in restricted cash

 

 

1,595

 

 

(2,371)

 

Cash paid for acquisition

 

 

(1,177)

 

 

 —

 

Purchases of property and equipment

 

 

(89,906)

 

 

(7,982)

 

Net cash used in investing activities

 

 

(91,336)

 

 

(11,704)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Net proceeds from debt issuances

 

 

144,410

 

 

 —

 

Net proceeds from issuance of Common stock

 

 

781

 

 

85

 

Payments of public offering costs

 

 

(2,909)

 

 

 —

 

Principal payments on capital lease obligations

 

 

(95)

 

 

(146)

 

Net cash provided by (used in) financing activities

 

 

142,187

 

 

(61)

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(19,840)

 

 

14,275

 

CASH AND CASH EQUIVALENTS — Beginning of period

 

 

81,468

 

 

126,860

 

CASH AND CASH EQUIVALENTS — End of period

 

$

61,628

 

$

141,135

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid for income taxes, net of refunds

 

$

190

 

$

220

 

Cash paid for interest

 

$

1,086

 

$

20

 

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:

 

 

 

 

 

 

 

Acquisition (disposal) of property and equipment financed under capital lease obligations

 

$

(8)

 

$

144

 

Non-cash addition to property and equipment related to build-to-suit lease

 

$

10,930

 

$

31,801

 

Purchases of property and equipment included in Accounts payable and Accrued expenses and other current liabilities

 

$

17,592

 

$

2,639

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

8


 

BLUE APRON HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1. Organization and Description of Business

When used in these notes, Blue Apron Holdings, Inc. and its subsidiaries are collectively referred to as the “Company.”

The Company creates original recipes, which are sent along with fresh, high-quality, seasonal ingredients, directly to customers for them to prepare, cook, and enjoy. The Company creates these cooking experiences around original recipes every week based on what’s in-season with farming partners and other suppliers. Customers can choose which recipes they would like to receive in a given week, and the Company delivers those recipes to their doorsteps along with the pre-portioned ingredients required to cook those recipes.

In addition to meals, the Company sells wine through Blue Apron Wine, a direct-to-consumer wine delivery service launched in September 2015. The Company also sells a curated selection of cooking tools, utensils, and pantry items through Blue Apron Market, an e-commerce marketplace launched in November 2014. In addition, in February 2017, the Company acquired BN Ranch, a premium supplier of sustainable beef, poultry and lamb.

In connection with the Corporate Reorganization as discussed in Note 10, Blue Apron Holdings, Inc. was incorporated in Delaware in December 2016, and Blue Apron, Inc., the parent company prior to the Corporate Reorganization, converted into Blue Apron, LLC and became a direct, wholly-owned subsidiary of Blue Apron Holdings, Inc. The Company’s headquarters are in New York, New York.

On July 5, 2017, the Company completed an initial public offering (“IPO”), in which the Company issued and sold 30,000,000 shares of its Class A common stock at a public offering price of $10.00 per share. The Company received approximately $278.5 million in net proceeds after deducting $16.5 million of underwriting discounts and commissions and approximately $5.0 million in offering costs. Upon the closing of the IPO, all of the outstanding shares of convertible preferred stock automatically converted into 85,190,551 shares of Class B common stock at the applicable conversion rates then in effect. Subsequent to the closing of the IPO, there were no shares of preferred stock outstanding. Upon the closing of the IPO, the aggregate principal amount of $64.6 million and all accrued and unpaid interest outstanding on the convertible notes discussed in Note 8 automatically converted into 7,023,201 shares of Class B common stock at the conversion rate then in effect. Subsequent to the closing of the IPO, there were no convertible notes outstanding. The Consolidated Financial Statements as of June 30, 2017, including share and per share amounts, do not give effect to the IPO, conversion of the convertible notes, or the conversion of the convertible preferred stock, as the IPO and such conversions were completed subsequent to June 30, 2017.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The unaudited Consolidated Financial Statements reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2017 and December 31, 2016, results of operations for the three months and six months ended June 30, 2017 and 2016, and cash flows for six months ended June 30, 2017 and 2016. These unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2016 included in the Company’s final prospectus related to the IPO, filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on June 29, 2017  (the “Prospectus”). There have been no material changes in the Company's significant accounting policies from those that were disclosed in the Prospectus.

The accompanying Consolidated Financial Statements include the accounts of Blue Apron Holdings, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The

9


 

Company prepares its Consolidated Financial Statements and related disclosures in conformity with accounting principles generally accepted in the United States (“GAAP”).

Use of Estimates

In preparing its Consolidated Financial Statements in accordance with GAAP, the Company is required to make estimates and assumptions that affect the amounts of assets, liabilities, revenue, costs, and expenses, and disclosure of contingent assets and liabilities which are reported in the Consolidated Financial Statements and accompanying disclosures. The accounting estimates that require the most difficult and subjective judgments include revenue recognition, inventory valuation, leases, recoverability of long-lived assets, the fair value of share-based awards, recoverability of net deferred tax assets and related valuation allowance, and the recognition and measurement of income tax uncertainties and other contingencies. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from the Company’s estimates and assumptions.

Unaudited Pro Forma Information

Upon the completion of the IPO, all outstanding convertible preferred stock and the outstanding aggregate principal amount of, and all accrued and unpaid interest on, the Company's outstanding convertible notes each automatically converted into shares of the Company's Class B common stock. The unaudited pro forma Consolidated Balance Sheet data as of June 30, 2017 has been prepared assuming the automatic conversion of the convertible preferred stock outstanding into 85,190,551 shares of Class B common stock and the automatic conversion of the aggregate principal amount of $64.6 million and all accrued and unpaid interest outstanding on the convertible notes into 7,023,201 shares of Class B common stock upon the completion of the IPO. The unaudited pro forma net income (loss) per share for the three months and six months ended June 30, 2017 assumes the automatic conversion of all outstanding shares of convertible preferred stock into 85,190,551 shares of Class B common stock and the automatic conversion of the aggregate principal amount of $64.6 million and all accrued and unpaid interest outstanding on the convertible notes into 7,023,201 shares of Class B common stock.

Emerging Growth Company Status

The Company is an "emerging growth company," as defined in the Jumpstart Our Business Startups (JOBS) Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies." The Company may take advantage of these exemptions until the Company is no longer an "emerging growth company." Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, its financial statements may not be comparable to companies that comply with public company effective dates. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of the IPO or such earlier time that it is no longer an emerging growth company. The Company would cease to be an emerging growth company if it has more than $1.07 billion in annual revenue, has more than $700.0 million in market value of its stock held by non-affiliates (and it has been a public company for at least 12 months, and has filed one annual report on Form 10-K), or it issues more than $1.0 billion of non-convertible debt securities over a three-year period.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606). ASU 2014-09 affects any entity that enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The new guidance will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. The new standard also includes enhanced disclosures which are significantly more comprehensive than those in existing revenue standards. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Principal versus Agent Considerations), to clarify the implementation guidance on principal versus agent considerations. In April

10


 

2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Identifying Performance Obligations and Licensing), to clarify the implementation guidance on identifying performance obligations and licensing. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Narrow-Scope Improvements and Practical Expedients), to clarify the implementation guidance on assessing collectibility, presentation of sales taxes, noncash consideration and completed contracts, and contract modifications at transition. In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, (Revenue from Contracts with Customers), to clarify the guidance or to correct unintended application of guidance. For the Company, the guidance is effective for annual periods beginning after December 15, 2018. Non-public entities are permitted to adopt the standard as early as annual reporting periods beginning after December 15, 2016 and interim periods therein. The Company is evaluating the impact this new guidance may have on its Consolidated Financial Statements.

In July 2015, the FASB issued Accounting Standards Update No. 2015-11 (“ASU 2015‑11”), Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 requires inventory to be measured at the lower of cost and net realizable value, and defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. For the Company, the amendments in ASU 2015-11 are effective for annual periods beginning after December 15, 2016, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In February 2016, the FASB issued its final standard on lease accounting, Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), which supersedes Topic 840, Leases. The new accounting standard requires the recognition of right-of-use assets and lease liabilities for all long-term leases, including operating leases, on the balance sheet. The new standard also provides additional guidance on the measurement of the right-of-use assets and lease liabilities and will require enhanced disclosures about the Company’s leasing arrangements. For the Company, the new standard is effective for annual periods beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the impact this new guidance may have on its Consolidated Financial Statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09 (“ASU 2016-09”), Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas of simplification apply only to non-public entities. For the Company, the amendments in ASU 2016-09 are effective for annual periods beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact this new guidance may have on its Consolidated Financial Statements.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18 (“ASU 2016-18”), Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). The standard is intended to eliminate diversity in practice in the treatment of restricted cash in the statement of cash flows and requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. For the Company, the amendments in ASU 2016-18 are effective for annual periods beginning after December 15, 2018, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

 

In May 2017, the FASB issued Accounting Standards Update No. 2017-09 (“ASU 2017-09”), Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting. The standard is intended to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. For the Company, the amendments in ASU 2017-09 are effective for annual periods beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact this new guidance may have on its Consolidated Financial Statements.

 

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3. Inventories, Net

Inventories, net consist of the following:

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

 

 

 

(In thousands)

 

Fulfillment

 

$

8,221

 

$

5,758

 

Product

 

 

38,702

 

 

37,129

 

Inventories, net

 

$

46,923

 

$

42,887

 

Product inventory primarily consists of bulk and prepped food, containers, and products available for resale. Fulfillment inventory consists of packaging used for shipping and handling. Product and fulfillment inventories are recognized as components of Cost of goods sold, excluding depreciation and amortization in the accompanying Consolidated Statements of Operations when sold.

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

 

 

 

(In thousands)

 

Deferred public offering costs

 

$

4,665

 

$

 —

 

Deposits

 

 

2,129

 

 

1,122

 

Prepaid marketing

 

 

1,759

 

 

3,940

 

Prepaid rent

 

 

1,415

 

 

1,430

 

Other current assets

 

 

2,588

 

 

1,775

 

Prepaid expenses and other current assets

 

$

12,556

 

$

8,267

 

 

 

 

5. Property and Equipment, Net

Property and equipment, net consists of the following:

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

    

 

 

(In thousands)

 

Computer equipment

 

$

11,160

 

$

6,468

 

Capitalized software

 

 

6,823

 

 

5,448

 

Fulfillment equipment

 

 

36,809

 

 

12,525

 

Furniture and fixtures

 

 

4,498

 

 

1,491

 

Leasehold improvements

 

 

43,618

 

 

23,660

 

Building(1)

 

 

112,938

 

 

 —

 

Construction in process(1) (2)

 

 

38,712

 

 

93,092

 

Property and equipment, gross

 

 

254,558

 

 

142,684

 

Less: accumulated depreciation and amortization

 

 

(21,202)

 

 

(11,723)

 

Property and equipment, net

 

$

233,356

 

$

130,961

 


(1)

Included in Buildings and Construction in process are buildings related to build-to-suit lease arrangements where the Company is considered the owner for accounting purposes, of which, as of June 30, 2017 and December 31, 2016, the fair value was  $55.3 million and $45.0 million, respectively. Costs incurred directly by the Company relating to these arrangements were  $82.9 million and $37.6 million as of June 30, 2017 and December 31, 2016, respectively.

(2)

Construction in process includes all costs capitalized related to projects that have not yet been placed in service. Included in construction in process are buildings related to build-to-suit lease arrangements where the Company is considered the owner for accounting purposes.

 

 

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6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

    

 

 

(In thousands)

 

Accrued compensation

 

$

10,145

 

$

11,069

 

Accrued credits and refunds reserve

 

 

1,699

 

 

1,235

 

Accrued marketing expenses

 

 

9,335

 

 

5,424

 

Accrued product expenses

 

 

1,540

 

 

10,965

 

Accrued shipping expenses

 

 

7,668

 

 

4,930

 

Derivative liability related to convertible notes

 

 

12,862

 

 

 —

 

Other current liabilities

 

 

8,068

 

 

7,288

 

Accrued expenses and other current liabilities

 

$

51,317

 

$

40,911

 

 

 

 

7. Deferred Revenue

Deferred revenue consists of the following:

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

    

 

    

2017

 

2016

    

 

 

(In thousands)

 

Cash received prior to fulfillment

 

$

4,694

 

$

10,107

 

Gift cards, prepaid orders, and other

 

 

9,637

 

 

14,171

 

Deferred revenue

 

$

14,331

 

$

24,278

 

 

 

8. Debt

Revolving Credit Facility

On August 26, 2016, the Company entered into a revolving credit and guaranty agreement (the “revolving credit facility”). The revolving credit facility matures in August 2019 and advances under it are secured by certain of the Company’s tangible and intangible assets. Absent any default, the revolving credit facility can be terminated at the Company’s discretion. The maximum amount available to borrow under the revolving credit facility was $150.0 million. In May 2017 and in June 2017, the Company executed amendments to the agreement that each increased the total commitment by $25.0 million, resulting in a total commitment of $200.0 million.

As of June 30, 2017 and December 31, 2016, the Company had $125.0 million and $45.0 million, respectively, in outstanding borrowings and $1.4 million and $0.3 million, respectively, in issued letters of credit under the revolving credit facility. The remaining amount available to borrow as of June 30, 2017 and December 31, 2016 was $73.6 million and $104.7 million, respectively. The Company incurred and capitalized $0.5 million in deferred financing costs in long-term debt in connection with the revolving credit facility.

As of June 30, 2017 and December 31, 2016, outstanding borrowings in long-term debt consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31,

 

 

    

Maturity Date

 

2017

    

2016

 

 

 

 

 

(In thousands)

 

Revolving credit facility

 

2019

 

$

125,000

 

$

45,000

 

Weighted average interest rate

 

 

 

 

3.27

%

 

2.84

%

Borrowings under the revolving credit facility bear interest, at the Company’s option, at (1) a base rate based on the highest of prime rate, the federal funds rate plus 0.50% and an adjusted LIBOR rate for a one month interest period

13


 

plus 1.00%, plus in each case a margin ranging from 0.50% to 1.00% (the “base rate”) or (2) an adjusted LIBOR rate plus a margin ranging from 1.50% to 2.00%, based on the Company’s total leverage ratio for the preceding four fiscal quarters and the Company’s status as a public or non-public company (the “adjusted LIBOR rate”). As of June 30, 2017 and December 31, 2016, the Company had outstanding borrowings of  $120.0 million and $40.0 million, respectively, under the revolving credit facility utilizing the adjusted LIBOR rate. As of June 30, 2017 and December 31, 2016, the Company had outstanding borrowings of $5.0 million utilizing the base rate. The Company is also obligated under the revolving credit facility to pay customary fees, including an unused commitment fee on undrawn amounts of 0.15%.

The Company incurred unused commitment fees related to the revolver of $0.0 million during each of the three and six months ended June 30, 2017 and 2016.

 

The obligations under the revolving credit facility are guaranteed by each of the guarantors as defined in the credit agreement. The revolving credit facility contains certain restrictive covenants, including limitations on the incurrence of indebtedness and liens, restrictions on affiliate transactions, restrictions on the sale or other disposition of collateral, and limitations on dividends and stock repurchases. As of June 30, 2017 and December 31, 2016, the Company was in compliance with all of the covenants under the revolving credit facility.

Convertible Notes

In May 2017 and June 2017, the Company issued and sold $63.5 million and $1.1 million, respectively, in aggregate principal amount of convertible promissory notes (the “convertible notes”). The total net proceeds from the convertible notes, after deducting initial debt issuance costs of $0.2 million, was approximately $64.4 million. The convertible notes are unsecured general obligations and are subordinated to all of the Company’s current or future senior debt, including indebtedness under the revolving credit facility. The convertible notes mature on May 3, 2019 and bear interest at a rate of 3.5% per annum, compounded annually.  

 

Upon maturity, the Company may repay the convertible notes in cash or through the issuance of shares of its Series D preferred stock valued at $13.3269 per share (currently convertible into Class B common stock on a one for one basis and representing a Class B common stock equivalent purchase price of $13.3269 per share). If the Company elects to repay all or a portion of the convertible notes in cash, the holders may nonetheless elect to receive shares of Series D preferred stock (valued at $13.3269 per share) in lieu of cash. At the issuance date, the conversion price per share was less than the fair value of one share of Series D Preferred Stock. In accordance with accounting guidance on beneficial conversion features, the Company recorded the portion of the debt proceeds equal to the intrinsic value of the optional conversion feature, and recorded $19.6 million as a beneficial conversion feature in stockholders’ equity.

 

Upon the closing of a qualified initial public offering, the convertible notes automatically convert into an aggregate number of shares of Class B common stock at a price per share equal to the initial public offering price of the Class A common stock, less a specified discount to such price. If the Company were to consummate a change of control transaction, immediately prior to such change of control transaction, the convertible notes would convert into shares of Class B common stock on terms (including a discount based on the amount of time that has elapsed prior to such transaction) that are similar to the conversion terms in connection with a qualified initial public offering. In accordance with accounting guidance on embedded conversion features, the Company fair valued and bifurcated the automatic conversion features from the respective host debt instrument, and recorded a debt derivative of $15.4 million at date of issuance which has been classified in Accrued expenses and other current liabilities. The derivative liability will be revalued at each reporting date with changes in fair value recorded as a component of Other income and expense. The resulting debt discount from the derivative liability and beneficial conversion feature is amortized to interest expense using the effective interest rate method.

During the three and six months ended June 30, 2017, the Company recorded a gain of $2.6 million in Other income (expense), net due to the change in value of the derivative liability during the period. During the three and six months ended June 30, 2017, the Company incurred $2.1 million of interest expense related to amortization of debt discount and initial debt issuance costs. As of June 30, 2017, the net carrying value of convertible notes, net of the discount, was $31.5 million.  

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On July 5, 2017, upon the closing of the IPO, the outstanding principal amount and all accrued and unpaid interest on the convertible notes were automatically converted into 7,023,201 shares of Class B common stock. Upon the conversion of the convertible notes, the outstanding principal, derivative, accrued interest, and discount was settled, resulting in a loss on extinguishment of approximately $18 million. The fair value of the shares issued upon conversion will be recorded in stockholder’s equity (deficit).

Facility Financing Obligation

As of June 30, 2017 and December 31, 2016, the Company has recorded a facility financing obligation of $60.7 million and $49.8 million, respectively, related to leased fulfillment centers in New Jersey and California under the build-to-suit accounting guidance. See Note 9 for further discussion.

9. Commitments and Contingencies

Lease and Other Commitments

The Company leases fulfillment centers and office space under non-cancelable operating lease arrangements that expire on various dates through 2027. These arrangements require the Company to pay certain operating expenses, such as taxes, repairs, and insurance, and contain renewal and escalation clauses. The Company recognizes rent expense under these arrangements on a straight-line basis over the term of the lease.

The Company leases certain equipment under capital lease arrangements that expire at various dates through 2020. The current portion of the Company’s capital lease obligations is a component of other current liabilities on the Consolidated Balance Sheets and the noncurrent portion of the Company’s capital lease obligations is a component of Other noncurrent liabilities on the Consolidated Balance Sheets.

In March 2016, the Company signed a lease for a new fulfillment center in New Jersey and in August 2016 the Company signed a lease for a new fulfillment center in California, which expire in 2026 and 2027, respectively. The total non-cancelable minimum lease payments for these leases are $40.8 million and $38.5 million, respectively. As a result of the nature of the Company’s involvement in the construction of these leased fulfillment centers, the Company is considered to be the owner for accounting purposes. The Company follows build-to-suit accounting for these arrangements and capitalizes the fair value of the buildings and direct construction costs incurred along with a corresponding facility financing liability. If upon completion of construction, the arrangement does not meet the sale-leaseback criteria, the Company will continue to be considered the owner of the buildings for accounting purposes.

Upon substantial completion of the construction phase of the build out of the new fulfillment center in New Jersey in June 2017, the Company performed a sale-leaseback analysis pursuant to Accounting Standards Codification (“ASC”) 840 – Leases, to determine the appropriateness of removing the previously capitalized assets from the Consolidated Balance Sheets. The Company concluded that components of “continuing involvement" were evident as a result of this analysis, thereby failing the sale-leaseback test which precludes the derecognition of the related assets from the Consolidated Balance Sheets. In conjunction with the lease, the Company also recorded a facility financing obligation equal to the fair market value of the assets received from the landlord. At the end of the lease term, including exercise of any renewal options, the net remaining facility financing obligation over the net carrying value of the fixed asset will be recognized as a non-cash gain on sale of the property. The Company does not report rent expense for the lease. Rather, rental payments under the lease are recognized as a reduction of the financing obligation and interest expense and the associated asset capitalized throughout the construction project is depreciated over its determined useful life.

In May 2017, we commenced a non-cancellable purchase commitment with a food supplier. Based on projected minimum purchase volumes and expected pricing, our minimum purchase obligation is estimated to be approximately $42.5 million in the aggregate through 2020.  Total purchases under the contract may be higher than the minimum non-cancellable commitment.  In addition, in May 2017, we amended the lease for one of our principal executive offices in New York, New York to extend the term through October 2019 and lease additional office space at the location.  The amendment resulted in an increase of $7.6 million in the minimum lease payments required over the remaining term of the lease arrangement.

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10. Common Stock

Blue Apron Holdings, Inc., was incorporated in Delaware in December 2016 to enable Blue Apron, Inc. to implement a holding company organizational structure, effected by a merger conducted pursuant to Section 251(g) of the General Corporation Law of the State of Delaware, as described below. The Company refers to this transaction as its “Corporate Reorganization.”

Immediately prior to the Corporate Reorganization, Blue Apron Holdings, Inc. was a direct, wholly-owned subsidiary of Blue Apron, Inc., and Blue Apron Merger Sub, Inc., a Delaware corporation, which is referred to as “Merger Sub”, was a direct, wholly-owned subsidiary of Blue Apron Holdings, Inc. Both Blue Apron Holdings, Inc. and Merger Sub were organized for the sole purpose of implementing the Corporate Reorganization. In December 2016, Merger Sub merged with and into Blue Apron, Inc., with Blue Apron, Inc. continuing as the surviving corporation. Each issued and outstanding share of common stock of Blue Apron, Inc. was converted into one share of common stock of Blue Apron Holdings, Inc. and each issued and outstanding share of preferred stock of Blue Apron, Inc. was converted into one share of preferred stock of Blue Apron Holdings, Inc. The separate corporate existence of Merger Sub ceased and all of the issued and outstanding shares of Blue Apron Holdings, Inc. owned by Blue Apron, Inc. were automatically canceled and retired. As a result of the Corporate Reorganization, each stockholder of Blue Apron, Inc. became a stockholder of Blue Apron Holdings, Inc., holding the same proportional equity interests as immediately prior to the Corporate Reorganization, and Blue Apron, Inc. became a direct, wholly-owned subsidiary of Blue Apron Holdings, Inc. The certificate of incorporation and bylaws of Blue Apron Holdings, Inc. were amended and restated in order to be identical to those of Blue Apron, Inc. prior to the Corporate Reorganization, and the initial directors and executive officers of Blue Apron Holdings, Inc. were the same individuals who were directors and executive officers of Blue Apron, Inc. immediately prior to the Corporate Reorganization. In December 2016, immediately after the merger, Blue Apron, Inc. converted into Blue Apron, LLC, a Delaware limited liability company.

In connection with the Corporate Reorganization, Blue Apron Holdings, Inc. assumed the 2012 Equity Incentive Plan, as previously amended, and then amended and restated the plan in its entirety. The Company refers to the Restated Blue Apron, Inc. 2012 Equity Incentive Plan, as so amended and restated, as the Blue Apron Holdings, Inc. 2012 Equity Incentive Plan, or the 2012 Equity Incentive Plan. Blue Apron Holdings, Inc. also assumed Blue Apron, LLC’s obligations under the various investor agreements that had been entered into in connection with the Series D preferred stock financing of Blue Apron, Inc. in May 2015. The other liabilities of Blue Apron, LLC, including under its revolving credit facility, were not assumed by Blue Apron Holdings, Inc. in the Corporate Reorganization and therefore continue to be obligations of Blue Apron, LLC, and the assets of Blue Apron, LLC were not transferred to Blue Apron Holdings, Inc. and continue to be assets of Blue Apron, LLC.

In connection with the Corporate Reorganization, the Company also implemented a tri-class capital structure consisting of two classes of voting common stock, Class A common stock and Class B common stock, and one class of non-voting stock, Class C capital stock (“Class C common stock”). To implement the tri-class capital structure, all then-outstanding shares of common stock, having one vote per share, were reclassified into shares of Class B common stock, having ten votes per share, and all then-outstanding securities convertible or exercisable for common stock became convertible or exercisable for Class B common stock. Class A common stock is entitled to one vote per share. Each outstanding share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, whether or not for value and whether voluntary or involuntary or by operation of law, except for certain exceptions and permitted transfers, or other events as described in the Company’s restated certificate of incorporation.

The Company is required to reserve and keep available out of its authorized shares of common stock a number of shares sufficient to effect the conversion of all outstanding shares of convertible preferred stock, shares issued under, the exercise of options granted under, and share-based compensation awards available for grant under the 2017 and 2012

16


 

Equity Incentive Plans. Shares of common stock, on an as-converted basis, are outstanding or reserved for issuance as follows:

 

 

 

 

 

 

 

 

June 30, 

 

December 31,

 

 

    

2017

    

2016

 

Conversion of authorized Series A convertible preferred stock

 

37,120,450

 

37,120,450

 

Conversion of authorized Series B convertible preferred stock

 

22,761,000

 

22,761,000

 

Conversion of authorized Series C convertible preferred stock

 

15,007,240

 

15,007,240

 

Conversion of authorized Series D convertible preferred stock

 

13,172,325

 

13,172,325

 

Outstanding common stock issued and stock options granted under equity incentive plans

 

17,090,819

 

15,041,498

 

Shares reserved for future option grants and restricted stock grants under 2012 Equity Incentive Plan

 

 —

 

2,689,682

 

Shares reserved for future option grants and restricted stock grants under 2017 Equity Incentive Plan

 

25,640,361

 

 —

 

Total common stock outstanding or reserved for issuance under equity incentive plans and convertible preferred stock

 

130,792,195

 

105,792,195

 

 

In May 2017, the Company issued 42,687 shares of Class A common stock in exchange for an equal number of shares of outstanding Class C common stock and agreed to hold back an additional 10,285 shares of Class A common stock as security for potential claims for indemnification related to its acquisition of certain assets of BN Ranch, LLC, rather than an equal number of shares of Class C common stock.

 

In connection with the IPO, the Company’s board of directors adopted the 2017 Equity Incentive Plan as discussed in Note 12. Additionally, in connection with the IPO, on July 5, 2017, the Company issued 30,000,000 shares of Class A common stock and all outstanding shares of convertible preferred stock converted into Class B common stock, as discussed in Note 11.

 

 

11. Convertible Preferred Stock

In connection with the IPO, on July 5, 2017, all outstanding shares of convertible preferred stock converted into Class B common stock.

In connection with the Corporate Reorganization as discussed in Note 10, each issued and outstanding share of preferred stock of Blue Apron, Inc. was converted into one share of preferred stock of Blue Apron Holdings, Inc. Blue Apron Holdings, Inc. also assumed Blue Apron, LLC’s obligations under the various investor agreements that had been entered into in connection with the Series D preferred stock financing of Blue Apron, Inc. in 2015.

The following tables summarize the Company’s authorized, issued and outstanding convertible preferred stock as of June 30, 2017 and December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017 and December 31, 2016

 

  

 

  

Shares Issued

  

 

 

  

 

 

  

Aggregate

  

 

 

 

Shares

 

and

 

 

 

 

Liquidation

 

Liquidation

 

Conversion

Convertible Preferred Stock:

    

Authorized

    

Outstanding

    

Net Proceeds

    

Price Per Share

    

Preference

    

Price Per Share

 

 

(In thousands, except share and per-share data)

Series A

 

742,409

 

742,409

 

$

2,974

 

$

4.0751

 

$

3,025

 

$

0.0815

Series B

 

455,220

 

455,220

 

 

4,939

 

 

10.9837

 

 

5,000

 

 

0.2197

Series C

 

3,001,448

 

3,001,448

 

 

49,824

 

 

16.6586

 

 

50,000

 

 

3.3317

Series D

 

13,172,325

 

10,301,861

 

 

137,132

 

 

13.3269

 

 

137,292

 

 

13.3269

Convertible preferred stock

 

17,371,402

 

14,500,938

 

$

194,869

 

 

  

 

$

195,317

 

 

 

The Company recorded the convertible preferred stock at fair value on the dates of issuance, net of issuance costs. The Company classifies its convertible preferred stock outside of stockholders’ equity (deficit) because, in the event certain circumstances were to occur in connection with certain liquidation events, the shares would become redeemable at the option of the holders. The Company did not adjust the carrying values of the convertible preferred

17


 

stock to the deemed liquidation values of such shares since a liquidation event was not probable at the balance sheet dates. Subsequent adjustments to increase or decrease the carrying values to the ultimate liquidation values will be made if and when it becomes probable that such a liquidation event will occur.

The holders of the Company’s preferred stock have various rights, preferences, and privileges as follows:

Conversion Rights

Each share of the Company’s Series A convertible preferred stock (“Series A”), Series B convertible preferred stock (“Series B”), Series C convertible preferred stock (“Series C”), and Series D convertible preferred stock (“Series D”) is convertible, at the option of the holder, at any time and without the payment of additional consideration, into Class B common stock determined by dividing the original issue price by the applicable conversion price, as described below. The original issue price per share is $4.0751 for the Series A, $10.9837 for the Series B, $16.6586 for the Series C, and $13.3269 for the Series D (in each case, as adjusted for certain recapitalizations, splits, combinations, common stock dividends, or similar events). At June 30, 2017 and December 31, 2016, the conversion prices per share are $0.0815 for the Series A, $0.2197 for the Series B, $3.3317 for the Series C, and $13.3269 for the Series D. As of June 30, 2017 and December 31, 2016, at the current conversion ratio, the Series A will convert on a 50-for-1 basis into Class B common stock, the Series B will convert on a 50-for-1 basis into Class B common stock, the Series C will convert on a 5-for-1 basis into Class B common stock, and the Series D will convert on a 1-for-1 basis into Class B common stock. The conversion price per share for the preferred stock shall be adjusted for certain recapitalizations, splits, combinations, dividends, or similar events, as discussed below.

All of the Company’s shares of convertible preferred stock will automatically convert into Class B common stock at the respective conversion price effective immediately prior to the earlier of: (a) the closing of an underwritten initial public offering of the Company’s common stock resulting in at least $50.0 million of gross proceeds to the Company and the listing of its common stock on an internationally recognized stock exchange, and (b) a date specified by vote or written consent of the holders of the majority of the Company’s then outstanding shares of convertible preferred stock (voting together as a single class on an as-converted to common stock basis), provided, however, that the conversion of the Series C and Series D shall also require the consent of the holders of a majority of the shares of the Series C and Series D, respectively.

Conversion Price Adjustments

The conversion price per share of the Series A, Series B, Series C, and Series D will be reduced if the Company issues additional stock or rights to acquire stock (subject to certain limitations) without consideration or for consideration per share less than the Series A, Series B, Series C, and Series D conversion price in effect for that series.

Voting Rights

Each share of Class B common stock is entitled to ten votes. Each holder of preferred stock is entitled to ten votes for each whole share of Class B common stock into which the shares of preferred stock held by such holder are convertible. The holders of the Series B, voting exclusively and as a separate class, have the right to elect one director. The holders of the Series C, voting exclusively and as a separate class, have the right to elect one director. The holders of the Class B common stock, voting exclusively and as a separate class, have the right to elect four directors. The board of directors, by majority vote, has the right to elect the one remaining director.

Liquidation Rights

In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company, including a Deemed Liquidation Event (as defined below), the holders of the Series D then outstanding shall be entitled to be paid out of the assets available for distribution to the Company’s stockholders, before any payment shall be made to the holders of Series A, Series B, Series C, or common stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the Series D original issue price, plus any dividend declared but unpaid thereon, and (ii) such amount per share as would have been payable had all shares of Series D been converted into Class B common stock immediately prior to such liquidation, dissolution or winding-up (or such Deemed Liquidation Event).

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After the payment of the liquidation amount to be paid to the holders of Series D, the holders of the Series A, Series B, and Series C then outstanding shall be entitled to be paid on a pari passu basis out of the remaining assets available for distribution to the Company’s stockholders, before any payment shall be made to the holders of common stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the applicable original issue price, plus any dividend declared but unpaid thereon, and (ii) such amount per share as would have been payable had all shares of the applicable series of Series A, Series B, and Series C had been converted into Class B common stock immediately prior to such liquidation, dissolution or winding-up (or Deemed Liquidation Event). As of June 30, 2017 and December 31, 2016, the liquidation amount was $4.0751 per share for the Series A, $10.9837 per share for the Series B, $16.6586 per share for the Series C, and $13.3269 per share for the Series D.

After the payment of the liquidation amounts to be paid to the holders of the Series A, Series B, and Series C, the remaining assets available for distribution to the Company’s stockholders shall be distributed among the holders of the common stock, pro rata based on the number of shares held by each such holder.

A “Deemed Liquidation Event” is in general defined for this purpose as any acquisition of the Company by means of merger or other form of corporate reorganization in which the Company’s outstanding shares are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring corporation or its subsidiary (other than a reincorporation transaction) or a sale of all or substantially all of the Company’s assets.

Dividend Rights

The convertible preferred stockholders are entitled to receive dividends at a rate of $0.326 per annum for each share of Series A, $0.879 per annum for each share of Series B, $1.333 per annum for each share of Series C, and $1.06615 per annum for each share of Series D (in each case, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations, or the like). Such dividends are payable out of assets legally available therefore, are payable only when, as, and if declared by the board of directors and are not cumulative. No dividends may be paid on the Series A, Series B, Series C, or common stock until the Series D has received its dividend preference. After payment of the foregoing dividends to the holders of the Series D, no dividends may be paid on the common stock until the Series A, Series B, and Series C have received their dividend preference which is distributed in proportion to the number of shares of Class B common stock that would be held by each stockholder if all shares of preferred stock were converted to Class B common stock. After the payment of the foregoing dividends to the holders of convertible preferred stock, any additional dividends declared by the board of directors out of funds legally available shall be shared equally among all outstanding shares on an as-converted basis. No dividends have been declared to date.

Redemption Rights

The Company’s convertible preferred stock does not contain any fixed or determinable redemption features, except in connection with a Deemed Liquidation Event.

12. Share-based Compensation

The Company recognized share-based compensation for share-based awards of $1.8 million and $0.7 million during the three months ended June 30, 2017 and 2016, respectively. The Company recognized share-based compensation for share-based awards of $3.0 million and $1.3 million during the six months ended June 30, 2017 and 2016, respectively. Share-based compensation is primarily included as a component of product, technology, general, and administrative expenses in the accompanying Consolidated Statements of Operations.

Market Grant

In February 2016, the Company granted an option to purchase 481,123 shares of its Class B common stock with an exercise price of $62.35 to one of its executive officers (the “Market Grant”). In addition to the typical vesting requirements of the 2012 Equity Incentive Plan, this grant allows for acceleration of vesting including full and immediate vesting upon certain termination events. As this grant was determined to include a market condition, the Company utilized the Monte Carlo simulation valuation model to value the grant. The total grant date fair value of the Market Grant was $0.5 million and is recognized as expense over the derived service period of 5.7 years.

19


 

Equity Incentive Plan

In connection with the IPO, the Company’s board of directors adopted the 2017 Equity Incentive Plan for the purpose of granting incentive stock options, non-qualified stock options, restricted stock, restricted stock units, and other share-based awards to employees, directors, and consultants. Options may be granted at a price per share not less than 100% of the fair market value at the date of grant. If, at the time the Company grants an incentive stock option, the optionee owns stock that holds more than 10% of the total combined voting power of all classes of the Company’s stock (“10% stockholder”), the exercise price must be at least 110% of the fair value of the common stock on the grant date. Options granted are exercisable over a maximum term of ten years from the date of grant, or five years from the date of grant for a 10% stockholder and generally vest over a period of four years.

In August 2012, the Company’s board of directors adopted the 2012 Equity Incentive Plan for the purpose of granting incentive stock options, non-qualified stock options, restricted stock, and restricted stock units to employees, directors, and consultants. Options may be granted at a price per share not less than 100% of the fair market value at the date of grant. If, at the time the Company grants an incentive stock option, the optionee owns stock that holds more than 10% of the total combined voting power of all classes of the Company’s stock (“10% stockholder”), the exercise price must be at least 110% of the fair value of the common stock on the grant date. Options granted are exercisable over a maximum term of ten years from the date of grant, or five years from the date of grant for a 10% stockholder and generally vest over a period of four years.

In connection with the Corporate Reorganization as discussed in Note 10, Blue Apron Holdings, Inc. assumed Blue Apron, Inc.’s Restated 2012 Equity Incentive Plan, as previously amended, and then amended and restated the plan in its entirety. Following the assumption of the 2012 Equity Incentive Plan, outstanding options to purchase Blue Apron, Inc.’s common stock were automatically converted into options to purchase an equal number of shares of Class B common stock of Blue Apron Holdings, Inc. with no change in the applicable exercise price, vesting schedule, or term.

Equity Awards to Hourly Fulfillment Center Employees

In July 2017, upon the closing of the IPO, the Company granted approximately 1.1 million Class A restricted stock units under the 2017 Equity Incentive Plan to substantially all of the Company’s hourly fulfillment center employees. These grants vest on the second anniversary of their issuance.

Restricted Stock Unit Awards

In July 2017, upon the closing of the IPO, the Company granted approximately 2.2 million Class A restricted stock units under the 2017 Equity Incentive Plan to certain other employees, including the Company’s executive officers. These restricted stock units will vest as follows: 10% on the first anniversary of issuance, 20% on the second anniversary of issuance, 30% on the third anniversary of issuance, and 40% on the fourth anniversary of issuance. In August 2017, the Company amended the vesting schedule for substantially all of the restricted stock units granted in July 2017 to vest as follows: 25% on the first anniversary of the date of grant,  25% on the second anniversary of the date of grant,  25% on the third anniversary of the date of grant, and 25% on the fourth anniversary of the date of grant. This amendment represents a Type 1 accounting modification as the vesting of the award is considered probable both before and after the modification. Accordingly, the Company will continue to record stock-based compensation expense based on the original grant date fair value prior to the modification.

13. Earnings per Share

The Company follows the two-class method when computing net income (loss) per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. For the three and six months ended June 30, 2016, the Company did not have any outstanding shares of Class A or Class C common stock. The rights, including the

20


 

liquidation and dividend rights, of the Class A, Class B, and Class C common stock are substantially the same, other than voting rights.

The Company’s convertible preferred stock does not contractually require the holders of such shares to participate in losses of the Company. Accordingly, the two-class method does not apply for periods in which the Company reports a net loss.

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period.

Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares, including potential dilutive common shares assuming the dilutive effect of outstanding common stock options and convertible preferred stock. For periods in which the Company has reported net loss, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, because dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

Class A

    

Class B

    

Class C

 

Class B

 

Class A