10-Q 1 aprn-20180630x10q.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, 2018.

 

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.)

 

 

 

40 West 23rd Street, New York, New York

 

10010

(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

62,222,905 shares outstanding as of June 30, 2018

Class B Common Stock, $0.0001 par value

130,277,391 shares outstanding as of June 30, 2018

Class C Capital Stock, $0.0001 par value

0 shares outstanding as of June 30, 2018

 

 

 


 

BLUE APRON HOLDINGS, INC.

TABLE OF CONTENTS

 

 

    

 

 

PART I 

 

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Consolidated Financial Statements (unaudited)

 

3

 

 

 

Consolidated Balance Sheets

 

3

 

 

 

Consolidated Statements of Operations

 

4

 

 

 

Consolidated Statements of Comprehensive Income (Loss)

 

5

 

 

 

Consolidated Statement of Stockholders’ Equity (Deficit)

 

6

 

 

 

Consolidated Statements of Cash Flows

 

7

 

 

 

Notes to Consolidated Financial Statements

 

8

 

 

Item 2.

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

 

19

 

 

Item 3.

Quantitative and Qualitative Disclosures

 

33

 

 

Item 4.

Controls and Procedures

 

34

 

 

 

 

 

 

 

PART II 

 

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

35

 

 

Item 1A.

Risk Factors

 

36

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

63

 

 

Item 3.

Defaults Upon Senior Securities

 

63

 

 

Item 4.

Mine Safety Disclosures

 

64

 

 

Item 5.

Other Information

 

64

 

 

Item 6.

Exhibits

 

64

 

 

 

 

 

 

 

SIGNATURES 

 

 

65

 

 

 

 

 

 

 

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 and to achieve profitability, 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 and distribution channels;

·

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

·

our ability to resume revenue growth or to manage future growth effectively;

·

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.

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.

2


 

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

BLUE APRON HOLDINGS, INC.

 

Consolidated Balance Sheets

 

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

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2018

 

2017

ASSETS

 

 

  

 

 

  

CURRENT ASSETS:

 

 

  

 

 

  

Cash and cash equivalents

 

$

180,822

 

$

228,514

Accounts receivable, net

 

 

1,619

 

 

1,945

Inventories, net

 

 

37,194

 

 

41,927

Prepaid expenses and other current assets

 

 

10,322

 

 

7,824

Other receivables

 

 

1,516

 

 

2,539

Total current assets

 

 

231,473

 

 

282,749

Restricted cash

 

 

1,689

 

 

2,371

Property and equipment, net

 

 

222,249

 

 

230,828

Other noncurrent assets

 

 

1,623

 

 

1,761

TOTAL ASSETS

 

$

457,034

 

$

517,709

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

  

 

 

  

CURRENT LIABILITIES:

 

 

  

 

 

  

Accounts payable

 

$

27,077

 

$

30,448

Accrued expenses and other current liabilities

 

 

38,074

 

 

32,615

Deferred revenue

 

 

19,333

 

 

27,646

Total current liabilities

 

 

84,484

 

 

90,709

Long-term debt

 

 

124,781

 

 

124,687

Facility financing obligation

 

 

71,553

 

 

70,347

Other noncurrent liabilities

 

 

7,098

 

 

8,116

TOTAL LIABILITIES

 

 

287,916

 

 

293,859

Commitments and contingencies (Note 9)

 

 

  

 

 

  

STOCKHOLDERS’ EQUITY (DEFICIT):

 

 

  

 

 

  

Class A common stock, par value of $0.0001 per share — 1,500,000,000 shares authorized as of June 30, 2018 and December 31, 2017; 62,222,905 and 37,657,649 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively

 

 

 6

 

 

 4

Class B common stock, par value of $0.0001 per share — 175,000,000 shares authorized as of June 30, 2018 and December 31, 2017; 130,277,391 and 153,727,228 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively

 

 

13

 

 

15

Class C common stock, par value of $0.0001 per share — 500,000,000 shares authorized as of June 30, 2018 and December 31, 2017; 0 shares issued and outstanding as of June 30, 2018 and December 31, 2017

 

 

 —

 

 

 —

Additional paid-in capital

 

 

582,689

 

 

572,528

Accumulated deficit

 

 

(413,590)

 

 

(348,697)

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

169,118

 

 

223,850

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

$

457,034

 

$

517,709

 

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

3


 

 

 

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, 

 

 

    

2018

    

2017

    

2018

    

2017

 

Net revenue

 

$

179,556

 

$

238,057

 

$

376,246

 

$

482,900

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold, excluding depreciation and amortization

 

 

116,156

 

 

163,520

 

 

245,488

 

 

332,051

 

Marketing

 

 

34,581

 

 

34,519

 

 

73,910

 

 

95,124

 

Product, technology, general, and administrative

 

 

51,100

 

 

65,673

 

 

100,588

 

 

128,883

 

Depreciation and amortization

 

 

8,685

 

 

5,383

 

 

17,089

 

 

9,563

 

Total operating expenses

 

 

210,522

 

 

269,095

 

 

437,075

 

 

565,621

 

Income (loss) from operations

 

 

(30,966)

 

 

(31,038)

 

 

(60,829)

 

 

(82,721)

 

Interest income (expense), net

 

 

(1,848)

 

 

(3,052)

 

 

(3,625)

 

 

(3,522)

 

Other income (expense), net

 

 

 —

 

 

2,567

 

 

 —

 

 

2,567

 

Income (loss) before income taxes

 

 

(32,814)

 

 

(31,523)

 

 

(64,454)

 

 

(83,676)

 

Benefit (provision) for income taxes

 

 

(22)

 

 

(105)

 

 

(47)

 

 

(146)

 

Net income (loss)

 

$

(32,836)

 

$

(31,628)

 

$

(64,501)

 

$

(83,822)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.17)

 

$

(0.47)

 

$

(0.34)

 

$

(1.25)

 

Diluted

 

$

(0.17)

 

$

(0.47)

 

$

(0.34)

 

$

(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

 

 

192,039,300

 

 

67,387,634

 

 

191,768,174

 

 

67,239,640

 

Diluted

 

 

192,039,300

 

 

67,387,634

 

 

191,768,174

 

 

67,239,640

 

 

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

4


 

BLUE APRON HOLDINGS, INC.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2018

    

2017

 

2018

    

2017

Net income (loss)

 

$

(32,836)

 

$

(31,628)

 

$

(64,501)

 

$

(83,822)

Other comprehensive income (loss)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Comprehensive income (loss)

 

$

(32,836)

 

$

(31,628)

 

$

(64,501)

 

$

(83,822)

 

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

 

 

5


 

BLUE APRON HOLDINGS, INC.

Consolidated Statement of Stockholders’ Equity (Deficit)

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Class A

 

Class B

 

Class C

 

Additional

 

 

 

 

Other

 

 

 

 

Total

 

 

Common Stock

 

Common Stock

 

Common Stock

 

Paid-In

 

Treasury

 

Comprehensive

 

Accumulated

 

Stockholders'

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Stock

 

Loss

 

Deficit

 

Equity (Deficit)

Balance — December 31, 2017

 

37,657,649

 

$

 4

 

153,727,228

 

$

15

 

 —

 

$

 —

 

$

572,528

 

$

 —

 

$

 —

 

$

(348,697)

 

$

223,850

Conversion from Class B to Class A common stock

 

23,702,778

 

 

 2

 

(23,702,778)

 

 

(2)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of common stock upon exercise of stock options and vesting of restricted stock

 

852,193

 

 

 —

 

252,941

 

 

 —

 

 —

 

 

 —

 

 

152

 

 

 —

 

 

 —

 

 

 —

 

 

152

Share-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

9,617

 

 

 —

 

 

 —

 

 

 —

 

 

9,617

Impact of adoption of accounting standard update

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

392

 

 

 —

 

 

 —

 

 

(392)

 

 

 —

Settlement of acquisition holdback

 

10,285

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net income (loss)

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(64,501)

 

 

(64,501)

Balance — June 30, 2018

 

62,222,905

 

$

 6

 

130,277,391

 

$

13

 

 —

 

$

 —

 

$

582,689

 

$

 —

 

$

 —

 

$

(413,590)

 

$

169,118

 

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

 

 

6


 

BLUE APRON HOLDINGS, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30, 

 

 

 

2018

    

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income (loss)

 

$

(64,501)

 

$

(83,822)

 

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

 

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

 

17,089

 

 

9,563

 

Loss (gain) on disposal of property and equipment

 

 

775

 

 

23

 

Changes in reserves and allowances

 

 

(132)

 

 

552

 

Share-based compensation

 

 

8,986

 

 

2,992

 

Non-cash interest expense

 

 

1,300

 

 

2,234

 

Loss (gain) on convertible notes

 

 

 —

 

 

(2,567)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables

 

 

703

 

 

(3,885)

 

Inventories

 

 

5,495

 

 

(2,603)

 

Prepaid expenses and other current assets

 

 

(1,906)

 

 

108

 

Accounts payable

 

 

(2,262)

 

 

14,725

 

Accrued expenses and other current liabilities

 

 

5,043

 

 

(2,862)

 

Deferred revenue

 

 

(8,313)

 

 

(9,947)

 

Other noncurrent assets and liabilities

 

 

(880)

 

 

4,798

 

Net cash from (used in) operating activities

 

 

(38,603)

 

 

(70,691)

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Cash paid for acquisition

 

 

(250)

 

 

(1,177)

 

Decrease (increase) in restricted cash

 

 

125

 

 

1,595

 

Purchases of property and equipment

 

 

(9,652)

 

 

(91,754)

 

Proceeds from sale of property and equipment

 

 

684

 

 

 —

 

Net cash from (used in) investing activities

 

 

(9,093)

 

 

(91,336)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Net proceeds from debt issuances

 

 

 —

 

 

144,410

 

Proceeds from exercise of stock options

 

 

152

 

 

781

 

Principal payments on capital lease obligations

 

 

(148)

 

 

(95)

 

Payments of public offering costs

 

 

 —

 

 

(2,909)

 

Net cash from (used in) financing activities

 

 

 4

 

 

142,187

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(47,692)

 

 

(19,840)

 

CASH AND CASH EQUIVALENTS — Beginning of period

 

 

228,514

 

 

81,468

 

CASH AND CASH EQUIVALENTS — End of period

 

$

180,822

 

$

61,628

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid for income taxes, net of refunds

 

$

110

 

$

190

 

Cash paid for interest, net of amounts capitalized

 

$

2,786

 

$

1,086

 

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:

 

 

 

 

 

 

 

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

 

$

184

 

$

(8)

 

Non-cash additions to property and equipment

 

$

631

 

$

10,930

 

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

 

$

806

 

$

17,952

 

 

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

 

 

7


 

BLUE APRON HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1. Organization and Description of Business

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

The Company 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 meal experiences around original recipes every week based on what’s in-season with farming partners and other suppliers. Customers can choose which recipes they would like to receive in a given week, and the Company delivers those recipes to their doorsteps along with the pre-portioned ingredients required to cook those recipes.

In addition to meals, the Company sells wine through Blue Apron Wine, a direct-to-consumer wine delivery service 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.

 

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The unaudited interim Consolidated Financial Statements have been prepared on the same basis as the audited Consolidated Financial Statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2018 and December 31, 2017, results of operations for the three months and six months ended June 30, 2018 and 2017, and cash flows for the six months ended June 30, 2018 and 2017. 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, 2017 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 22, 2018 (the “Annual Report”). There have been no material changes in the Company's significant accounting policies from those that were disclosed in the Annual Report.

The accompanying Consolidated Financial Statements include the accounts of Blue Apron Holdings, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company prepares its Consolidated Financial Statements and related disclosures in conformity with accounting principles generally accepted in the United States (“GAAP”).

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.

8


 

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 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. In September 2017, the FASB issued ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments, to add SEC paragraphs pursuant to an SEC Staff Announcement made at the July 20, 2017 Emerging Issues Task Force (EITF) meeting. 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 February 2016, the FASB issued its final standard on lease accounting, Accounting Standards Update No. 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. In September 2017, the FASB issued ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments, to add SEC paragraphs pursuant to an SEC Staff Announcement made at the July 20, 2017 Emerging Issues Task Force (EITF) meeting. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, to improve and clarify certain aspects of ASU No. 2016-02. For the Company, the new standard is effective for annual periods beginning after December 15, 2019, with early

9


 

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.

Recently Adopted Accounting Pronouncements

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. The Company adopted ASU 2016-09 as of January 1, 2018 using a modified retrospective approach electing to recognize gross stock compensation expense with actual forfeitures recognized as they occur, with a cumulative-effect adjustment to accumulated deficit of $0.4 million.

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. The Company adopted ASU 2017-09 as of January 1, 2018. The adoption of this guidance did not impact the Company’s Consolidated Financial Statements.

.

 

3. Inventories, Net

Inventories, net consist of the following:

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2018

    

2017

 

 

(In thousands)

Fulfillment

 

$

4,389

 

$

7,358

Product

 

 

32,805

 

 

34,569

Inventories, net

 

$

37,194

 

$

41,927

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.

10


 

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2018

    

2017

 

 

(In thousands)

Deposits

 

$

1,761

 

$

2,346

Prepaid marketing

 

 

797

 

 

1,604

Prepaid rent

 

 

1,067

 

 

1,348

Prepaid insurance

 

 

4,455

 

 

 —

Other current assets

 

 

2,242

 

 

2,526

Prepaid expenses and other current assets

 

$

10,322

 

$

7,824

 

 

 

5. Property and Equipment, Net

Property and equipment, net consists of the following:

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2018

    

2017

 

 

(In thousands)

Computer equipment

 

$

10,951

 

$

10,883

Capitalized software

 

 

12,438

 

 

10,427

Fulfillment equipment

 

 

50,688

 

 

45,581

Furniture and fixtures

 

 

4,188

 

 

4,188

Leasehold improvements

 

 

40,537

 

 

40,173

Buildings(1)

 

 

148,507

 

 

148,507

Construction in process

 

 

5,129

 

 

4,563

Property and equipment, gross

 

 

272,438

 

 

264,322

Less: accumulated depreciation and amortization

 

 

(50,189)

 

 

(33,494)

Property and equipment, net

 

$

222,249

 

$

230,828


(1)

Includes build-to-suit lease arrangements in Linden, New Jersey and Fairfield, California where the Company is considered the owner for accounting purposes, of which $62.1 million was included in Buildings as of June 30, 2018 and December 31, 2017. Costs incurred directly by the Company relating to these arrangements were $82.3 million as of June 30, 2018 and December 31, 2017. The Company also capitalized the cost of interest for construction projects related to build-to-suit lease arrangements of $4.2 million as of June 30, 2018 and December 31, 2017.

In October 2017, the Company performed a review of its real estate needs and decided to no longer pursue its planned build-out of the Fairfield facility. As a result, the Company is continuing to evaluate potential alternatives for the leased Fairfield property. As of June 30, 2018, the Company had future non-cancelable minimum lease payments of $38.2 million through 2028 related to this facility.

 

 

 

11


 

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2018

    

2017

 

 

(In thousands)

Accrued compensation

 

$

11,855

 

$

13,009

Accrued credits and refunds reserve

 

 

1,709

 

 

1,079

Accrued marketing expenses

 

 

9,923

 

 

5,739

Accrued product expenses

 

 

2,110

 

 

 —

Accrued shipping expenses

 

 

3,333

 

 

5,319

Other current liabilities

 

 

9,144

 

 

7,469

Accrued expenses and other current liabilities

 

$

38,074

 

$

32,615

 

 

 

7. Deferred Revenue

Deferred revenue consists of the following:

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2018

 

2017

 

 

(In thousands)

Cash received prior to fulfillment

 

$

5,876

 

$

10,635

Gift cards, prepaid orders, and other

 

 

13,457

 

 

17,011

Deferred revenue

 

$

19,333

 

$

27,646

 

 

8. Debt

Revolving Credit Facility

In August 2016, the Company entered into a revolving credit and guaranty agreement (the “revolving credit facility”). The revolving credit facility matures on August 26, 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 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, 2018 and December 31, 2017, the Company had $125.0 million in outstanding borrowings and $1.4 million in issued letters of credit under the revolving credit facility. The remaining amount available to borrow as of June 30, 2018 and December 31, 2017 was $73.6 million. 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, 2018 and December 31, 2017, the total unamortized deferred financing costs in long-term debt was $0.2 million and $0.3 million, respectively.

As of June 30, 2018 and December 31, 2017, outstanding borrowings of long-term debt consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31,

 

 

    

Maturity Date

 

2018

    

2017

 

 

 

 

 

(In thousands)

 

Revolving credit facility

 

August 2019

 

$

125,000

 

$

125,000

 

Weighted average interest rate

 

 

 

 

4.24

%

 

3.47

%

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 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

12


 

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, 2018 and December 31, 2017, the Company had outstanding borrowings of $120.0 million utilizing the adjusted LIBOR rate. As of June 30, 2018 and December 31, 2017, 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 revolving credit facility of $0.0 million during the three months ended June 30, 2018 and June 30, 2017, respectively, and $0.1 million and $0.0 million during the six months ended June 30, 2018 and June 30, 2017, respectively.

The obligations under the revolving credit facility are guaranteed by the guarantor as defined in the credit agreement, Blue Apron Holdings, Inc. The Company’s obligations under the revolving credit facility are secured by substantially all of the assets of the Company and certain of its subsidiaries. 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, 2018 and December 31, 2017, the Company was in compliance with all of the covenants under the revolving credit facility.

Facility Financing Obligation

As of June 30, 2018 and December 31, 2017, the Company has recorded a facility financing obligation of $71.6 million and $70.3 million, respectively, related to leased facilities in Linden and Fairfield under the build-to-suit accounting guidance.

9. Commitments and Contingencies

The Company records accruals for loss contingencies associated with legal matters when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. If the Company determines that a loss is reasonably possible, the Company discloses the matter, and, if estimable, the amount or range of the possible loss in the notes to the Consolidated Financial Statements. 

The Company is subject to a consolidated putative class action lawsuit in the U.S. District Court for the Eastern District of New York alleging federal securities law violations in connection with the Company’s June 2017 initial public offering, or the IPO.  The amended complaint alleges that the Company and certain current and former officers and directors made material misstatements or omissions in the Company’s registration statement and prospectus that caused the stock price to drop.  Pursuant to a stipulated schedule entered by the parties, defendants filed a motion to dismiss the amended complaint on May 21, 2018.  Plaintiffs filed a response on July 13, 2018.  Defendants’ replies are due on August 13, 2018.  The Company is unable to provide any assurances as to the ultimate outcome of this lawsuit or that an adverse resolution of this lawsuit would not have a material adverse effect on the Company’s consolidated financial position or results of operations.

The Company is subject to a shareholder derivative action filed in the Delaware Court of Chancery.  Plaintiff seeks a declaratory judgment challenging the validity of a provision of the Company’s Certification of Incorporation that requires shareholders to bring claims under the Securities Act of 1933 solely in federal court.  Pursuant to a stipulation entered by the parties, the parties filed cross-motions for summary judgment on May 16, 2018.  The parties filed responses on July 16, 2018.  A hearing on the motions has been set for August 27, 2018.  The Company is unable to provide any assurances as to the ultimate outcome of this lawsuit or that an adverse resolution of this lawsuit would not have a material adverse effect on the Company’s consolidated financial position or results of operations. 

The Company is subject to a lawsuit filed in California Superior Court under the Private Attorneys General Act on behalf of certain non-exempt employees in the Company’s Richmond, California fulfillment center.  The complaint was filed on October 16, 2017, and alleges that the Company failed to pay wages and overtime, provide required meal and rest breaks, provide suitable resting facilities and provide accurate wage statements, to non-exempt employees in violation of California law.  The parties are presently engaged in discovery.  The Company is currently unable to provide any assurances as to the ultimate outcome of this lawsuit or that an adverse resolution of this lawsuit would not have a material adverse effect on the Company’s consolidated financial position or results of operations.

13


 

On July 20, 2018, one of the Company’s suppliers, West Liberty Foods, L.L.C., (i) made an arbitration demand against the Company with JAMS, and (ii) together with certain related entities, filed a lawsuit against the Company in Iowa state court.  The arbitration demand alleges breach of contract, fraud, and other common law claims in connection with, among other things, a dispute under the supply agreement between the parties related to the purchase of certain beef and poultry inventory of the supplier.  The lawsuit alleges breach of contract, fraud, breach of fiduciary duty, and other state common law claims in connection with a purported agreement between the Company and the supplier relating to the supplier’s acquisition of another company.  The Company is in the preliminary stages of reviewing the allegations made in this matter and, as a result, is unable to provide any assurances as to the ultimate outcome of this matter or that an adverse resolution of this matter would not have a material adverse effect on the Company’s consolidated financial position or results of operations.

Although the Company believes that it is reasonably possible that it may incur losses in these cases, the Company is currently unable to estimate the amount of such losses due to the early stages of the litigation, among other factors. 

In addition, from time to time the Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business.  Although the results of such litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on its business, operating results, financial condition or cash flows.

On June 21, 2018, the U.S. Supreme Court decided, in South Dakota v. Wayfair, Inc., that state and local jurisdictions may, at least in certain circumstances, enforce a sales and use tax collection obligation on remote vendors that have no physical presence in the jurisdiction.  A number of states have already begun, or have positioned themselves to begin, requiring sales and use tax collection by remote vendors and/or by online marketplaces.  The details and effective dates of these collection requirements vary from state to state. The Company in the process of determining how and when our collection practices will need to change in other jurisdictions.  It is possible that one or more jurisdictions may assert that the Company has liability for periods for which it has not collected sales, use or other similar taxes, and if such an assertion or assertions were successful it could result in substantial tax liabilities, including for past sales as well as penalties and interest, which could materially adversely affect the Company’s business, financial condition and operating results.

10. Share-based Compensation

The Company recognized share-based compensation for share-based awards of $4.8 million and $1.8 million during the three months ended June 30, 2018 and 2017, respectively. For the three months ended June 30, 2018 and 2017, the Company recognized $4.5 million and $1.8 million of share-based compensation in Product, technology, general, and administrative expenses and $0.3 million and $0.0 million in Cost of goods sold, excluding depreciation and amortization, respectively. The Company recognized share-based compensation for share-based awards of $9.0 million and $3.0 million during the six months ended June 30, 2018 and 2017, respectively. For the six months ended June 30, 2018 and 2017, the Company recognized $8.2 million and $3.0 million of share-based compensation in Product, technology, general, and administrative expenses and $0.8 million and $0.0 million in Cost of goods sold, excluding depreciation and amortization, respectively.

Performance Stock Options

In February 2018, the Company granted options to purchase 1,594,162 shares of its Class A common stock with an exercise price of $3.10 to certain employees, including the Company’s executive officers. In May 2018, the Company granted additional options to purchase 428,905 shares of its Class A common stock with an exercise price of $3.05. Such options are subject to vesting conditions that are tied to the achievement of certain stock price targets through June 30, 2020 and financial targets through December 31, 2019. The fair value of the stock price target options was determined utilizing the Monte Carlo simulation valuation model resulting in a total grant date fair value of $0.4 million. The fair value of the financial target options was determined utilizing the Black-Scholes option-pricing model resulting in a total grant date fair value of $1.6 million.

 

14


 

11. Earnings per Share

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

Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares, including potential dilutive common shares assuming the dilutive effect of outstanding common stock options 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.

For the three months and six months ended June 30, 2018, the Company did not have any outstanding shares of Class C common stock. The rights, including the liquidation and dividend rights, of the Class A, Class B, and Class C common stock are substantially the same, other than voting rights.

For the three months and six months ended June 30, 2017, the Company followed the two-class method when computing net income (loss) per share as the Company had 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. The Company’s convertible preferred stock did 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 had reported a net loss.

Upon the closing of the Company’s IPO on July 5, 2017, 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. Accordingly, the two-class method is not applicable for the three months and six months ended June 30, 2018 as the participating securities were converted into Class B common stock.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

  

2018

 

2017

 

 

Class A

  

Class B

  

Class C

 

Class A

 

Class B

 

Class C

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

 

 

 

 

 

Numerator:

 

 

  

 

 

  

 

 

  

 

 

 

 

 

 

 

 

  

Net income (loss)

 

$

(10,279)

 

$

(22,557)

 

$

 —

 

$

(8)

 

$

(31,608)

 

$

(12)

Undistributed earnings reallocated to convertible preferred stock

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net income (loss) attributable to common stockholders

 

$

(10,279)

 

$

(22,557)

 

$

 —

 

$

(8)

 

$

(31,608)

 

$

(12)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders—basic

 

 

60,113,553

 

 

131,925,747

 

 

 —

 

 

17,825

 

 

67,344,947

 

 

24,862

Effect of dilutive securities

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders—diluted

 

 

60,113,553

 

 

131,925,747

 

 

 —

 

 

17,825

 

 

67,344,947

 

 

24,862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders—basic (1)

 

$

(0.17)

 

$

(0.17)

 

$

 —

 

$

(0.47)

 

$

(0.47)

 

$

(0.47)

Net income (loss) per share attributable to common stockholders—diluted (1)

 

$

(0.17)

 

$

(0.17)

 

$

 —

 

$

(0.47)

 

$

(0.47)

 

$

(0.47)

15


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

2018

 

2017

 

 

Class A

  

Class B

  

Class C

 

Class A

 

Class B

 

Class C

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

 

 

 

 

 

Numerator:

 

 

  

 

 

  

 

 

  

 

 

 

 

 

 

 

 

  

Net income (loss)

 

$

(18,032)

 

$

(46,469)

 

$

 —

 

$

(11)

 

$

(83,786)

 

$

(25)

Undistributed earnings reallocated to convertible preferred stock

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net income (loss) attributable to common stockholders

 

$

(18,032)

 

$

(46,469)

 

$

 —

 

$

(11)

 

$

(83,786)

 

$

(25)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders—basic

 

 

53,610,437

 

 

138,157,737

 

 

 —

 

 

8,962

 

 

67,210,632

 

 

20,046

Effect of dilutive securities

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders—diluted

 

 

53,610,437

 

 

138,157,737

 

 

 —

 

 

8,962

 

 

67,210,632

 

 

20,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders—basic (1)

 

$

(0.34)

 

$

(0.34)

 

$

 —

 

$

(1.25)

 

$

(1.25)

 

$

(1.25)

Net income (loss) per share attributable to common stockholders—diluted (1)

 

$

(0.34)

 

$

(0.34)

 

$

 —

 

$

(1.25)

 

$

(1.25)

 

$

(1.25)


(1)

Net income (loss) per share attributable to common stockholders — basic and net income (loss) per share attributable to common stockholders — diluted may not recalculate due to rounding.

 

 

The following have been excluded from the computation of diluted net income (loss) per share attributable to common stockholders as their effect would have been antidilutive:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

 

2018

 

2017

 

  

Class A

  

Class B

  

Class C

  

Class A

  

Class B

  

Class C

 

 

 

 

 

Stock options

 

 —

 

9,100,755

 

 —

 

 —

 

11,257,162

 

 —

Restricted shares

 

 —

 

23,709

 

 —

 

 —

 

38,709

 

 —

Restricted stock units

 

12,725,525

 

 —