Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read together with our financial statements, related notes and other financial information appearing elsewhere in this Quarterly Report. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below, elsewhere in this Quarterly Report, particularly in Part II, Item 1A, “Risk Factors”. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Recent Developments
Voluntary Petition and Completion of Disposition of Assets
On June 30, 2022 (the “Petition Date”), the Company and certain of its wholly owned subsidiaries, Legacy EJY Subsidiary LLC (f/k/a Enjoy Technology LLC) and Legacy EJY Operating Corp. (f/k/a Enjoy Technology Operating Corp.) (together with the Company, the “Debtors”) filed voluntary petitions (the “Filings”) under Chapter 11 of title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (such court, the “Bankruptcy Court” and such cases, the “Chapter 11 Cases”).
During the Chapter 11 Cases we operate our business as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In general, as debtors-in-possession under the Bankruptcy Code, the Debtors are authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. After we filed our Chapter 11 petitions, the Bankruptcy Court granted certain relief requested by the Debtors enabling us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to pay employee wages and benefits, to pay taxes and certain governmental fees and charges, to continue to operate our cash management system in the ordinary course, and to pay the prepetition claims of certain of our vendors.
For the duration of the Chapter 11 Cases, our operations are subject to the risks and uncertainties associated with the Chapter 11 process as described in Item 1A. “Risk Factors.” As a result of these risks and uncertainties, the amount and composition of our assets and liabilities could be significantly different following the outcome of the Chapter 11 Cases, and the description of our operations, properties and liquidity and capital resources included in this Quarterly Report may not accurately reflect its operations, properties and liquidity and capital resources following the Chapter 11 Cases.
On July 25, 2022, the Debtors entered into an Asset Purchase Agreement (the “Purchase Agreement) with Asurion, LLC (the “Lender”) to sell substantially all of their assets pursuant to a sale conducted under Section 363 of the Bankruptcy Code. The Bankruptcy Court approved the 363 Sale on August 12, 2022 and the 363 Sale was completed on August 31, 2022. Pursuant to the Purchase Agreement, the Debtors completed the 363 Sale for approximately $110.0 million, subject to various deductions, including a $23.8 million holdback amount. In accordance with the requirement in the Purchase Agreement to discontinue the use of the Company’s prior name (and any other trade names) following the 363 Sale, the Company changed its name to Legacy EJY, Inc. on August 31, 2022.
Financing Arrangements
On June 29, 2022, the Debtors, as borrowers, entered into a senior secured credit, guaranty and security agreement (the “Bridge Credit Agreement”) with Asurion, pursuant to which the Debtors borrowed $2.5 million (the “Bridge Loan”) from the Lender. The Bridge Loan had a scheduled maturity date of July 8, 2022 and was due and payable in full on such date or such earlier date as provided in the Bridge Credit Agreement unless the Bridge Loan was converted to loans under the DIP Credit Agreement (as defined below) as further described below. The Bridge Loan bore interest at a rate of 12% per annum, compounded monthly, and such interest was to be added to the principal amount of the Bridge Loan and accrue additional interest thereafter and was payable in kind. On July 1, 2022, the outstanding amount of the Bridge Loan was converted to obligations under the DIP Credit Agreement (the “Roll-Up Loans”).
35
In connection with the Bridge Credit Agreement on June 29, 2022, the Company entered into an amended and restated promissory note (the “Note”) with Ron Johnson (the “Holder”), which amended and restated the secured promissory note, dated as of May 11, 2022 (the “Original Note”) for an aggregate principal amount of $10.0 million, between the Company and the Holder to, among other things, remove the collateral pledge and subordinate the note to indebtedness owing to the Lender. The Holder’s security interest in the assets of the Company granted under the Original Note was terminated thereafter. The Note was approved by the Audit Committee of the Company’s board of directors pursuant to the Company’s Related Party Transaction Policy.
On July 25, 2022, the Debtors, as borrowers, entered into a secured super-priority debtor in possession credit, guaranty and security agreement (the “DIP Credit Agreement”) with Asurion, as lender, pursuant to which the Debtors borrowed $55.0 million in multiple drawings (the “DIP Loans”) from the Lender on terms and conditions consistent with those set forth in the DIP Credit Agreement. Upon entry by the Bankruptcy Court of the interim order authorizing and approving the DIP Loans on July 1, 2022, (i) the Roll-Up Loans were converted to obligations under the DIP Credit Agreement, and (ii) the Debtors borrowed approximately $20.0 million ($22.5 million less the amount of the Roll-Up Loans) under the DIP Credit Agreement. The Debtors borrowed the remaining balance of the DIP Loans in the amount of $32.5 million on July 26, 2022, upon entry by the Bankruptcy Court of the final order authorizing and approving the DIP Credit Agreement. The proceeds of the DIP Loans were used by the Debtors (i) to fund the costs of the administration of the Chapter 11 Cases (including professional fees and expenses and the Section 363 sale processes), (ii) for working capital and other general corporate purposes, and (iii) to fund interest, fees and other payments related to the DIP Loans and DIP Credit Agreement, in each case subject to the applicable orders of the Bankruptcy Court. The DIP Loans bore interest at a rate of 12% per annum, accruing monthly, and such interest was added to the principal amount of the loan and accrued additional interest thereafter and was payable in kind. In connection with the consummation of the 363 Sale, on August 31, 2022, the obligations under the DIP Credit Agreement were repaid in full and such credit agreement was terminated.
Nasdaq Delisting
On the Petition Date, we received written notice from the staff of Nasdaq notifying us that, as a result of the Filings and in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, our common stock and warrants were no longer suitable for listing on Nasdaq. Trading of our common stock and warrants were suspended at the opening of business on July 11, 2022 and a Form 25-NSE was filed with the SEC on July 19, 2022, which removed our common stock and warrants from listing on Nasdaq. Our common stock and warrants began trading on the OTC Pink Marketplace on July 11, 2022 under the symbols “ENJYQ” and “ENJWQ”, respectively.
Restructuring and Reduction in Force
In June 2022, we executed a reduction in force in the U.K. and Canada of approximately 411 and 145 employees, respectively, representing approximately 25% of our global workforce as of June 30, 2022, as part of our restructuring efforts. In connection with the reduction in force, the Company incurred approximately $2.2 million in expenses in the form of cash-based expenditures, substantially all of which was related to payment in lieu of notice termination benefits. The charges were recognized in the quarter ended June 30, 2022 and we did not modify the affected employees’ stock awards to accelerate the vesting of such awards or to otherwise modify such awards in a manner that would result in such charges.
Upon filing of bankruptcy in the U.S., the Company recognized $3.4 million as of June 30, 2022 related to employee severance. The Company executed a reduction in force in the U.S. in August and September 2022. As of October 3, 2022, only 10 employees remained to execute the process of winding down the Company.
The Company also incurred legal and professional fees totaling to $7.4 million for the three and six months ended June 30, 2022, as part of its restructuring efforts.
Deconsolidation of the Subsidiaries
On June 30, 2022, Enjoy UK filed for bankruptcy in the UK, whereby our control of this subsidiary was ceded. We will not regain control of Enjoy UK and concluded that it was appropriate to deconsolidate the UK subsidiary effective as of June 30, 2022. The deconsolidation resulted in a net pretax gain of $7.9 million, which related to the
36
deconsolidation of liabilities of $12.4 million, offset by cash of $2.7 million and equity of $1.8 million. The net pretax gain on deconsolidation is recognized within discontinued operations.
On July 8, 2022, Enjoy Canada filed for bankruptcy in Canada, whereby our control of this subsidiary was ceded. We will not regain control of Enjoy Canada and concluded that it was appropriate to deconsolidate this subsidiary effective July 8, 2022. The estimated pretax gain on deconsolidation amounts to $5.7 million. As the deconsolidation event occurred subsequent to June 30, 2022, Enjoy Canada is still recognized within our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.
Prior to the deconsolidation of Enjoy UK, we managed our operations through two operating and reportable segments that were based on geographic location: North America (United States and Canada operations) and Europe (United Kingdom operations by Enjoy UK). Enjoy UK was deconsolidated on June 30, 2022 due to our ceding of our controlling interest as a result of Enjoy UK's insolvency filing. The deconsolidation event resulting from the disposition of controlling interest constitutes a disposal of a segment, accordingly the results of operations of Enjoy UK are presented as discontinued operations in our unaudited condensed statements of operations and comprehensive loss included elsewhere in this Quarterly Report. Consequently, the results of North American operations are presented as continuing operations.
Overview
As discussed under “Recent Developments” above, on June 30, 2022, the Company filed the Chapter 11 Cases and on August 31, 2022, we completed the sale of substantially all of our U.S. assets. The discussion of our business and results of operations for the three and six months ended June 30, 2022 below reflect our historical operations prior to such developments as described under “Recent Developments” above.
The Company was incorporated in the state of Delaware in May 2014, and was headquartered in Palo Alto, California as of June 30, 2022. As of June 30, 2022, the Company operated Mobile Stores providing in home delivery, set up and a full shopping experience for companies.
As of June 30, 2022, we operated in over 70 locations across the United States and Canada.
The Company started with a simple question, “What if the best of the store could come to you?” Over the last eight years we built and optimized our Mobile Store, a new channel that pairs the convenience of online shopping with the personal touch of an in-store retail experience brought together in the comfort of end customers’ (the "Consumer") homes.
Over the past twenty five years, eCommerce has disrupted the retail industry in virtually every category, shifting commerce from physical stores to the home. While eCommerce channels greatly expanded choices and increased convenience with fulfillment to customers’ doorsteps, they have not addressed the importance of an interactive shopping experience that customers desire for products, such as technology. As of June 30, 2022, the Company provided set-up and activation, and also assisted customers in purchasing hardware, accessories, and subscription services in the comfort of the home. This Mobile Store shopping experience created a unique and deep retail experience for Consumers that does not exist with traditional retail channels.
As of June 30, 2022, we maintained multi-year contractual relationships with leading telecommunications and technology companies, which are our "Business Partners" or "Customers." Our revenue stemmed from a variety of service, set-up and delivery fees that were paid to us by our Customers. During a visit from our Mobile Store, the Consumer paid for products and services directly to our Customers via secure mobile point-of-sale devices. On confirmation of the purchase, our Customers then remitted our fees directly to us.
As of June 30, 2022, the Company delivered a broad assortment of telecommunications and technology products and accessories, which are provided by our Customers. Our mobile retail sales team (“Experts”) provided set-up, activation and demonstration of the products we delivered. We assisted Consumers in evaluating and selecting a myriad of accessories, media sources, protection, broadband, and other services. We also assisted in the trade-in and upgrade of our customers’ products. We strove to deliver our customers’ products with same-day or next-day frequency, matching the speed of traditional eCommerce channels but with an experience.
37
Consumers initiated their purchase on our Customers’ eCommerce sites, service centers or retail locations. The Consumer selected at-home delivery and a delivery window. Consumer orders flowed seamlessly from our Customers’ eCommerce sites to the Company via deeply integrated technology platforms. This resulted in near-zero Consumer acquisition costs for the Company.
Our inventory was 100% consigned to us by our Customers and maintained in secure warehouses at our market locations. These warehouse locations also served as the base of operations for our Mobile Store fleets and as the operating center for the market in which they served. Our warehouses also provided meeting, training and support services for our Experts. Our warehouses and Mobile Store vehicle fleet were fully leased. As of June 30, 2022, we operated in over 70 locations which provide access to over 50% of the population in the markets that we served, representing over 200 million addressable consumers.
Our business was enabled by highly sophisticated, proprietary sets of technology applications, systems and data science tools. To deliver and optimize millions of retail experiences, we built our technology platform from the ground up to support customer integrations, smart logistics and a variety of solutions to empower our Experts in providing the best and most personalized experience for every Consumer.
Our Experts were central to the at-home retail experience we provided for Consumers. Our Experts were 100% employees of the Company and had the skills and training to be deeply knowledgeable about the products and services that we offered. We believe our Experts brought a world-class and deeply engaging shopping experience to Consumers.
Key Performance Metrics
We regularly reviewed several metrics related to our continuing operations, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. The reasons we believe these key performance metrics are useful to investors are provided below.
Daily Mobile Stores – Daily Mobile Stores represent the number of Mobile Stores we operate on a given day. This is calculated by dividing the total number of visit-serving Expert shifts in a given reporting period by the number of calendar days in that period. A visit-serving Expert shift is defined as an Expert that is scheduled to serve Consumers on a given day. We believe this is the primary measure of scale and growth of our retail footprint.
Daily Revenue Per Mobile Store – Daily Revenue Per Mobile Store is defined as the average daily revenue generated per Daily Mobile Store. This metric is calculated by dividing the revenue generated in a given reporting period by the product of Daily Mobile Stores and the number of days in that given reporting period. We believe growth in Daily Revenue Per Mobile Store is a key driver for increasing the Company’s profitability.
Mobile Store Profit (Loss) and Mobile Store Margin – Mobile Store Profit (Loss) is a measure prepared in accordance with GAAP and is defined as revenue less cost of revenue. Mobile Store Margin is Mobile Store Profit (Loss) as a percentage of revenue. We view this metric as an important measure of business performance as it captures Mobile Store profitability and provides comparability across reporting periods.
Adjusted EBITDA – Adjusted EBITDA is defined as net loss from continuing operations, adjusted for interest expense, provision for income taxes, depreciation and amortization, stock-based compensation, loss on convertible loans, one time transaction related costs, interest income and other expenses not considered a core part of our operations. Adjusted EBITDA provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance. Adjusted EBITDA is a non-GAAP measure. Refer to the “Non-GAAP Measures” section below for further discussion
The following tables present our key performance metrics for the continuing operations for the period presented (in thousands except Daily Mobile Stores amounts):
38
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
Daily Mobile Stores |
|
|
592 |
|
|
|
438 |
|
Daily Revenue Per Mobile Store |
|
$ |
352 |
|
|
$ |
431 |
|
Mobile Store Loss |
|
$ |
(7,489 |
) |
|
$ |
(2,525 |
) |
Mobile Store Margin |
|
|
(39.5 |
)% |
|
|
(14.7 |
)% |
Loss from operations |
|
$ |
(73,151 |
) |
|
$ |
(29,096 |
) |
Adjusted EBITDA |
|
$ |
(42,576 |
) |
|
$ |
(27,176 |
) |
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
Daily Mobile Stores |
|
|
621 |
|
|
|
433 |
|
Daily Revenue Per Mobile Store |
|
$ |
351 |
|
|
$ |
385 |
|
Mobile Store Loss |
|
$ |
(16,532 |
) |
|
$ |
(5,648 |
) |
Mobile Store Margin |
|
|
(41.6 |
)% |
|
|
(17.3 |
)% |
Loss from operations |
|
$ |
(123,023 |
) |
|
$ |
(58,912 |
) |
Adjusted EBITDA |
|
$ |
(87,036 |
) |
|
$ |
(55,330 |
) |
Results of Operations
Components of Results of Operations
Revenue
Revenue consists of service fees paid to us by our Customers for bringing their products and services to Consumers. These fees are comprised of fixed service fees per visit and variable fees based on the sale of accessories, solutions and subscription services. The composition of these fees and the rate of services paid vary by Customer per the terms of our contracts with them. Our fees are reduced by chargebacks and consigned inventory that is lost, damaged or stolen. Chargebacks are based upon Consumer cancellation of services and subscriptions within a pre-specified timeframe.
Cost of revenue
Cost of revenue primarily consists of salaries, benefits and other expenses related to the Company’s Experts, fleet vehicle costs, and other expenses directly related to the performance of each Expert field visit. These expenses have increased in proportion to the growth of our Mobile Stores.
Operations and technology
Operations and technology expenses primarily consist of technology, facility and overhead costs directly related to the operation of our Mobile Stores. This includes lease and operating expenses for our warehouses, inventory management and storage, facility supplies and depreciation expense. We also include costs for employees who directly or indirectly support our Experts, including supervisory and operations management, inventory management, fulfillment and research and development costs.
General and administrative
General and administrative expenses primarily consist of personnel-related expenses for our general corporate functions. This includes our leadership team, employees involved in finance, human resources, legal and workplace services, enterprise and financial information technology systems and marketing.
39
Impairment charges
Impairment charges primarily consist of expenses related to the impairment of Enjoy Canada's assets.
Related party expense
Upon the deconsolidation, transactions with the UK subsidiary are no longer eliminated in consolidation and are treated as related party transactions and recognized in the condensed consolidated financial statements.
Restructuring expenses
Restructuring expenses primarily consist of expenses related to legal fees, professional fees, and severance and termination benefits associated with reduction in workforce as part of its restructuring efforts.
Loss on convertible loans
Unrealized loss on convertible loans consists of the change in the fair value of our convertible loans. The convertible loans were converted to common stock as part of the Merger.
Interest income
Interest income consists of interest earned on our cash and cash equivalents.
Interest expense
Interest expense includes mainly the interest incurred on our outstanding indebtedness, as well as amortization of deferred financing costs, mainly debt origination and commitment fees.
Other income, net
Other income during the periods presented consisted primarily of fair value gains and losses related to the issued stock warrants as well as gains and losses from foreign currency transactions.
Income tax provision
Our provision for income taxes consists of state minimum taxes in the United States and foreign taxes. We have a full valuation allowance for our net United States federal and state deferred tax assets primarily consisting of net operating loss carryforwards, accruals, and reserves.
Discontinued operations
Our loss from discontinued operations represents the after tax loss of Enjoy UK where the workforce was reduced and operations were ceased. On June 30, 2022, Enjoy UK filed for insolvency in the UK.
40
Comparison of Results of Operations
Comparison of the Three and Six Months Ended June 30, 2022 and 2021
The following table is a reference for the discussion that follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, |
|
|
Change |
|
|
Six Months Ended
June 30, |
|
|
Change |
|
(dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
Revenue |
|
$ |
18,960 |
|
|
$ |
17,161 |
|
|
$ |
1,799 |
|
|
|
10.5 |
% |
|
$ |
39,723 |
|
|
$ |
32,677 |
|
|
$ |
7,046 |
|
|
|
21.6 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue* |
|
|
26,449 |
|
|
|
19,687 |
|
|
|
6,762 |
|
|
|
34.3 |
% |
|
|
56,255 |
|
|
|
38,325 |
|
|
|
17,930 |
|
|
|
46.8 |
% |
Operations and technology* |
|
|
22,555 |
|
|
|
17,499 |
|
|
|
5,056 |
|
|
|
28.9 |
% |
|
|
45,359 |
|
|
|
33,071 |
|
|
|
12,288 |
|
|
|
37.2 |
% |
General and administrative* |
|
|
18,497 |
|
|
|
9,071 |
|
|
|
9,425 |
|
|
|
103.9 |
% |
|
|
36,522 |
|
|
|
20,193 |
|
|
|
16,329 |
|
|
|
80.9 |
% |
Impairment charges |
|
|
7,827 |
|
|
|
— |
|
|
|
7,827 |
|
|
|
100.0 |
% |
|
|
7,827 |
|
|
|
— |
|
|
|
7,827 |
|
|
|
100.0 |
% |
Related party expense |
|
|
5,941 |
|
|
|
— |
|
|
|
5,941 |
|
|
|
100.0 |
% |
|
|
5,941 |
|
|
|
— |
|
|
|
5,941 |
|
|
|
100.0 |
% |
Restructuring expenses |
|
|
10,842 |
|
|
|
— |
|
|
|
10,842 |
|
|
|
100.0 |
% |
|
|
10,842 |
|
|
|
— |
|
|
|
10,842 |
|
|
|
100.0 |
% |
Total operating expenses |
|
|
92,111 |
|
|
|
46,257 |
|
|
|
45,854 |
|
|
|
99.1 |
% |
|
|
162,746 |
|
|
|
91,589 |
|
|
|
71,157 |
|
|
|
77.7 |
% |
Loss from operations |
|
|
(73,151 |
) |
|
|
(29,096 |
) |
|
|
(44,055 |
) |
|
|
151.4 |
% |
|
|
(123,023 |
) |
|
|
(58,912 |
) |
|
|
(64,111 |
) |
|
|
108.8 |
% |
Loss on convertible loans |
|
|
— |
|
|
|
(17,361 |
) |
|
|
17,361 |
|
|
|
(100.0 |
)% |
|
|
— |
|
|
|
(19,226 |
) |
|
|
19,226 |
|
|
|
(100.0 |
)% |
Interest expense |
|
|
(193 |
) |
|
|
(1,398 |
) |
|
|
1,205 |
|
|
|
(86.2 |
)% |
|
|
(217 |
) |
|
|
(2,792 |
) |
|
|
2,575 |
|
|
|
(92.2 |
)% |
Interest income |
|
|
25 |
|
|
|
2 |
|
|
|
23 |
|
|
|
1150.0 |
% |
|
|
27 |
|
|
|
4 |
|
|
|
23 |
|
|
|
575.0 |
% |
Other income, net |
|
|
4,173 |
|
|
|
175 |
|
|
|
3,998 |
|
|
|
2284.6 |
% |
|
|
6,796 |
|
|
|
97 |
|
|
|
6,699 |
|
|
|
6906.2 |
% |
Loss before provision for income taxes |
|
|
(69,146 |
) |
|
|
(47,678 |
) |
|
|
(21,468 |
) |
|
|
45.0 |
% |
|
|
(116,417 |
) |
|
|
(80,829 |
) |
|
|
(35,588 |
) |
|
|
44.0 |
% |
Provision for income taxes |
|
|
(1 |
) |
|
|
39 |
|
|
|
(40 |
) |
|
|
(102.6 |
)% |
|
|
16 |
|
|
|
157 |
|
|
|
(141 |
) |
|
|
(89.8 |
)% |
Net loss from continuing operations |
|
|
(69,145 |
) |
|
|
(47,717 |
) |
|
|
(21,428 |
) |
|
|
44.9 |
% |
|
|
(116,433 |
) |
|
|
(80,986 |
) |
|
|
(35,447 |
) |
|
|
43.8 |
% |
Net loss from discontinued operations |
|
|
(14,108 |
) |
|
|
(8,242 |
) |
|
|
(5,866 |
) |
|
|
71.2 |
% |
|
|
(22,065 |
) |
|
|
(14,439 |
) |
|
|
(7,626 |
) |
|
|
52.8 |
% |
Net loss |
|
$ |
(83,253 |
) |
|
$ |
(55,959 |
) |
|
$ |
(27,294 |
) |
|
|
48.8 |
% |
|
$ |
(138,498 |
) |
|
$ |
(95,425 |
) |
|
|
(43,073 |
) |
|
|
45.1 |
% |
* In addition to the reclassifications related to discontinued operations, to conform to current presentation, the Company reclassified certain costs within each of its operating expense line items in the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2021. These changes have no impact on the Company’s previously reported consolidated net loss and comprehensive loss, cash flows, or basic and diluted net loss per share amounts for the periods presented.
Revenue
Revenue for the three months ended June 30, 2022 compared to the respective prior period increased by $1.8 million, or 10.5%, primarily due to an increase in our Daily Mobile Store count of 154 stores to 592 from 438 in 2021, partially offset by a decrease in our Daily Revenue Per Mobile Store of $79 to $352 for the three months ended June 30, 2022, down from $431 for the same period in 2021. The decrease in Daily Revenue Per Mobile Store was due to fewer deliveries than anticipated following the launch of the Smart Last Mile platform.
Revenue for the six months ended June 30, 2022 compared to the respective prior period increased by $7.0 million, or 21.6%, primarily due to an increase in our Daily Mobile Store count of 188 stores to 621 from 433 in 2021, partially offset by a decrease in our Daily Revenue Per Mobile Store of $34 to $351 for the six months ended June 30, 2022, down from $385 for the same period in 2021. The decrease in Daily Revenue Per Mobile Store was due to fewer deliveries than anticipated following the launch of the Smart Last Mile platform.
Cost of revenue
Cost of revenue for the three months ended June 30, 2022 compared to the respective prior period increased $6.8 million or 34.3%, primarily due to an increase in our Daily Mobile Store count by 154 stores to 592 from 438 in
41
2021. During 2021 we expanded our geographic market coverage within the United States and Canada and initiated services for a new Customer in the United States. Increased Mobile Stores were supported by a higher number of Experts, resulting in higher total salary and benefit costs. A greater number of Daily Mobile Stores also increased expenses associated with vehicle leases, fuel, vehicle insurance and other direct expenses. Cost of revenue, as a percentage of revenue, for the three months ended June 30, 2022 increased to 139.5%, compared to 114.7% for the three months ended June 30, 2021.
Cost of revenue for the six months ended June 30, 2022 compared to the respective prior period increased $17.9 million or 46.8%, primarily due to an increase in our Daily Mobile Store count by 188 stores to 621 from 433 in 2021. During 2021 we expanded our geographic market coverage within the United States and Canada and initiated services for a new Customer in the United States. Increased Mobile Stores were supported by a higher number of Experts, resulting in higher total salary and benefit costs. A greater number of Daily Mobile Stores also increased expenses associated with vehicle leases, fuel, vehicle insurance and other direct expenses. Cost of revenue, as a percentage of revenue, for the six months ended June 30, 2022 increased to 141.6%, compared to 117.3% for the six months ended June 30, 2021.
Operations and technology
Operations and technology expenses for the three months ended June 30, 2022 compared to the respective prior period increased $5.1 million, or 28.9%, primarily due to investments in our warehouse network to support our market expansions and our increased Mobile Store count. The total number of our warehouses increased by 10, to 71 during the three months ended June 30, 2022, from 61 for the three months ended June 30, 2021. The increase in the number of and relocation of certain warehouses we operated during 2022 versus 2021 increased our warehouse lease expenses, salaries and benefits associated with market-level Expert supervisory, training and development activities and facility investments. Expenses associated with developing the technologies that support our Mobile Store operations also increased as we expanded functions and features that support our global operations. Operations and technology expense as a percentage of revenue for the three months ended June 30, 2022 increased to 119.0%, from 102.0% for the three months ended June 30, 2021.
Operations and technology expenses for the six months ended June 30, 2022 compared to the respective prior period increased $12.3 million, or 37.2%, primarily due to investments in our warehouse network to support our market expansions and our increased Mobile Store count. The total number of our warehouses increased by 10, to 71 during the six months ended June 30, 2022, from 61 for the six months ended June 30, 2021. The increase in the number of warehouses we operated during 2022 versus 2021 increased our warehouse lease expenses, salaries and benefits associated with market-level Expert supervisory, training and development activities and facility investments. Expenses associated with developing the technologies that support our Mobile Store operations also increased as we expanded functions and features that support our global operations. Operations and technology expense as a percentage of revenue for the six months ended June 30, 2022 increased to 114.2%, from 101.2% for the six months ended June 30, 2021.
General and administrative
General and administrative expense for the three months ended June 30, 2022 compared to the respective prior period increased $9.4 million, or 103.9%, primarily due to increases of $3.0 million in stock-based compensation expense due to increased headcount, $0.8 million of payroll and other related costs, $0.6 million in computer software related costs, $1.8 million in dues and insurance, $3.2 million for professional and legal services, each due to scaling the business and market expansion. General and administrative expense as a percentage of revenue for the three months ended June 30, 2022 compared to the respective prior period increased to 97.6% from 52.9%.
General and administrative expense for the six months ended June 30, 2022 compared to the respective prior period increased $16.3 million, or 80.9%, primarily due to increases of $5.5 million in stock-based compensation expense due to increased headcount, $1.9 million of payroll and other related costs, $1.1 million in computer software related costs, $3.0 million in dues and insurance, $4.8 million for professional and legal services, each due to scaling the business and market expansion. General and administrative expense as a percentage of revenue for the six months ended June 30, 2022 compared to the respective prior period increased to 91.9% from 61.8%.
42
Impairment charges
Impairment charges for the three months ended June 30, 2022 compared to the respective prior period increased to $7.8 million in 2022 from $0 primarily due to the impairment of the Enjoy Canada's assets.
Related party expense
Upon the deconsolidation, transactions with the UK subsidiary are no longer eliminated in consolidation and are treated as related party transactions. The related party payable to Enjoy UK amounting to $5.9 million is recognized under liabilities subject to compromise in the condensed consolidated balance sheet as of June 30, 2022 with a corresponding related party expense in the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2022.
Restructuring expenses
Restructuring expenses consisting of legal fees, professional fees, and severance for the three months ended June 30, 2022 compared to the respective prior period increased to $10.8 million in 2022 from $0 primarily due to the filing of the Chapter 11 Cases.
Loss on convertible loans
Loss on convertible loans for the three months ended June 30, 2022 compared to the respective prior period decreased to $0 in 2022 from $17.4 million as the convertible loans we had with certain investors converted to common stock as part of the Merger.
Loss on convertible loans for the six months ended June 30, 2022 compared to the respective prior period decreased to $0 in 2022 from $19.2 million as the convertible loans we had with certain investors converted to common stock as part of the Merger.
Interest income
Interest income for the three months ended June 30, 2022 compared to the respective prior period increased $23 thousand, or 1,150.0%, primarily due to the decrease in the amount of cash held in interest bearing accounts.
Interest income for the six months ended June 30, 2022 compared to the respective prior period increased $23 thousand, or 575.0%, primarily due to the decrease in the amount of cash held in interest bearing accounts.
Interest expense
Interest expense for the three months ended June 30, 2022 compared to the respective prior period was lower by $1.2 million in 2021 due to interest related to our loan with Blue Torch Finance, LLC, which was repaid in the fourth quarter of 2021.
Interest expense for the six months ended June 30, 2022 compared to the respective prior period was lower by $2.6 million in 2021 due to interest related to our loan with Blue Torch Finance, LLC, which was repaid in the fourth quarter of 2021.
Other income, net
Other income, net for the three months ended June 30, 2022 compared to the respective prior period increased $4.0 million primarily due to the change in fair value of the stock warrants.
Other income, net for the six months ended June 30, 2022 compared to the respective prior period increased $6.7 million primarily due to the change in fair value of the stock warrants.
Provision for income taxes
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The provision for income taxes for the three months ended June 30, 2022 compared to the respective prior period decreased $40 thousand. Provision for income taxes as a percentage of revenue was 0.0% for the three months ended June 30, 2022 and 0.2% for the three months ended June 30, 2021.
The provision for income taxes for the six months ended June 30, 2022 compared to the respective prior period decreased $141 thousand. Provision for income taxes as a percentage of revenue was 0% for the six months ended June 30, 2022 and 0.5% for the six months ended June 30, 2021.
Discontinued Operations
Net loss from discontinued operations was $14.1 million and $22.1 million for the three and six months ended June 30, 2022, respectively, which include impairment charges of $12.8 million and restructuring expenses of $2.2 million, net of net pretax gain on deconsolidation of $7.9 million recognized during the second quarter of 2022.
Net loss from discontinued operations was $8.2 million and $14.4 million for the three and six months ended June 30, 2021, respectively.
For more information about Enjoy UK's bankruptcy, see Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Non-GAAP Measures
In addition to net loss from continuing operations, which is a measure presented in accordance with GAAP, management believes that Adjusted EBITDA provides relevant and useful information to management and investors to assess our performance. Adjusted EBITDA is a supplemental measure of the Company’s performance that is neither required by nor presented in accordance with GAAP. This measure is limited in its usefulness and should not be considered a substitute for GAAP metrics such as loss from operations, net loss, or any other performance measures derived in accordance with GAAP and may not be comparable to similar measures used by other companies.
Adjusted EBITDA represents net loss from continuing operations adjusted for interest, taxes, depreciation and amortization, stock-based compensation expense, impairment charges, related party expense, restructuring expenses and certain expenses and income not considered a core part of our operations.
We believe that Adjusted EBITDA provides a meaningful understanding of certain aspects of earnings (loss) before the impact of investing and financing charges and income taxes. Adjusted EBITDA is useful to an investor in evaluating our performance because this measure:
•Is widely used by analysts, investors and competitors to measure a company’s operating performance;
•Is a financial measurement that is used by rating agencies, lenders, and other parties to evaluate our credit worthiness; and
•Is used by our management for various purposes, including as a measure of performance and as a basis for strategic planning and forecasting.
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The reconciliations of net loss from continuing operations to Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net loss from continuing operations |
|
$ |
(69,145 |
) |
|
$ |
(47,717 |
) |
|
$ |
(116,433 |
) |
|
$ |
(80,986 |
) |
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
193 |
|
|
|
1,398 |
|
|
|
217 |
|
|
|
2,792 |
|
Provision for income taxes |
|
|
(1 |
) |
|
|
39 |
|
|
|
16 |
|
|
|
157 |
|
Depreciation and amortization |
|
|
936 |
|
|
|
605 |
|
|
|
1,742 |
|
|
|
1,161 |
|
Stock-based compensation |
|
|
5,029 |
|
|
|
1,032 |
|
|
|
9,635 |
|
|
|
1,910 |
|
Loss on convertible loans |
|
|
— |
|
|
|
17,361 |
|
|
|
— |
|
|
|
19,226 |
|
Impairment charges |
|
|
7,827 |
|
|
|
— |
|
|
|
7,827 |
|
|
|
— |
|
Related party expense |
|
|
5,941 |
|
|
|
— |
|
|
|
5,941 |
|
|
|
— |
|
Restructuring expenses |
|
|
10,842 |
|
|
|
— |
|
|
|
10,842 |
|
|
|
— |
|
Transaction-related costs (1) |
|
|
— |
|
|
|
283 |
|
|
|
— |
|
|
|
511 |
|
Deduct: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(25 |
) |
|
|
(2 |
) |
|
|
(27 |
) |
|
|
(4 |
) |
Other income, net |
|
|
(4,173 |
) |
|
|
(175 |
) |
|
|
(6,796 |
) |
|
|
(97 |
) |
Adjusted EBITDA |
|
$ |
(42,576 |
) |
|
$ |
(27,176 |
) |
|
$ |
(87,036 |
) |
|
$ |
(55,330 |
) |
(1)Includes costs associated with the Merger.
Liquidity and Capital Resources
Since inception, we have incurred net losses and cash outflows from operations. The Company had cash and cash equivalents of $1.0 million and an accumulated deficit of $781.0 million as of June 30, 2022 and a net loss of $138.5 million for the six months ended June 30, 2022.
On the Petition Date, we voluntarily initiated the Chapter 11 Cases in Bankruptcy Court. During the Chapter 11 Cases we operate our business as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. After we filed our Chapter 11 petitions, the Bankruptcy Court granted certain relief enabling us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to pay employee wages and benefits, to pay taxes and certain governmental fees and charges, to continue to operate our cash management system in the ordinary course, and to pay the prepetition claims of certain of our vendors.
On June 29, 2022, the Debtors, as borrowers, entered into the Bridge Credit Agreement with Asurion, as the Lender, pursuant to which the Debtors borrowed $2.5 million from the Lender. On July 1, 2022, the outstanding amount of the Bridge Loan was converted to obligations under the DIP Credit Agreement.
On July 25, 2022, subsequent to the fiscal quarter end, the Debtors, as borrowers, entered into the DIP Credit Agreement with Asurion, as the lender, pursuant to which the Debtors borrowed an additional $52.5 million from the Lender. The proceeds of the DIP Loans were used by us (i) to fund the costs of the administration of the Chapter 11 Cases (including professional fees and expenses and the Section 363 sale processes), (ii) for working capital and other general corporate purposes, and (iii) to fund interest, fees and other payments related to the DIP Loans and DIP Credit Agreement, in each case subject to the applicable orders of the Bankruptcy Court. Pursuant to the Purchase Agreement, the Debtors completed the 363 Sale for approximately $110.0 million, subject to various deduction including a $23.8 million holdback amount. In connection with the consummation of the 363 Sale, on August 31, 2022, the obligations under the DIP Credit Agreement of $55 million outstanding were repaid in full with the proceeds of the 363 Sale and such credit agreement was terminated.
During the Chapter 11 process, we expect that proceeds from the 363 Sale, together with cash on hand, if any, will be our primary source of capital to fund our wind-down and any other capital needs. We are unable to determine at
45
this time whether this will be adequate for us to meet our obligations as they become due. Our liquidity is dependent upon, among other things: (i) our ability to develop, confirm and consummate a Plan or other alternative liquidating transaction, and (ii) the cost, duration and outcome of the Chapter 11 Cases.
The following table presents the Company’s cash and cash equivalents, restricted cash, and accounts receivable, net, for the periods presented:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
June 30,
2022 |
|
|
December 31,
2021 |
|
Cash and cash equivalents |
|
$ |
956 |
|
|
$ |
84,845 |
|
Restricted cash |
|
|
2,530 |
|
|
|
1,710 |
|
Accounts receivable, net |
|
|
1,153 |
|
|
|
7,476 |
|
Cash Flows
The following table presents cash provided by (used in) operating, investing, and financing activities during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
Net cash used in operating activities |
|
$ |
(91,688 |
) |
|
$ |
(71,844 |
) |
Net cash used in investing activities |
|
|
(4,377 |
) |
|
|
(1,389 |
) |
Net cash provided by financing activities |
|
|
12,196 |
|
|
|
73,758 |
|
Effect of exchange rate on cash, cash equivalents and restricted cash |
|
|
(191 |
) |
|
|
(320 |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
$ |
(84,060 |
) |
|
$ |
205 |
|
Operating Activities
During the six months ended June 30, 2022, operating activities from continuing operations used $79.5 million of cash, resulting from our net loss of $116.4 million, offset by net cash provided by changes in our operating assets and liabilities of $11.8 million and net non-cash charges of $25.1 million. Net cash provided by changes in our operating assets and liabilities for the six months ended June 30, 2022, consisted primarily of a $5.4 million decrease in accounts receivable, a $4.6 million increase in prepaid expenses and other current assets, a decrease in operating lease liabilities of $6.7 million, and an increase in chargeback liability of $13.4 million, .
During the six months ended June 30, 2022 operating activities from discontinued operations used $12.2 million of cash.
During the six months ended June 30, 2021, operating activities from continuing operations used $57.8 million of cash, resulting from our net loss of $81.0 million, along with net cash provided by changes in our operating assets and liabilities of $0.2 million, and net non-cash charges of $23.0 million. Net cash provided by changes in our operating assets and liabilities were insignificant individually and in the aggregate. Non-cash charges consisted primarily of $1.2 million in depreciation and amortization, $1.9 million in stock-based compensation, and $19.2 million in fair market revaluation of our convertible debt.
During the six months ended June 30, 2021 operating activities from discontinued operations used $14.1 million of cash.
Investing Activities
During the six months ended June 30, 2022, investing activities from continuing operations used $1.7 million of cash, resulting from the purchases of property and equipment. During the six months ended June 30, 2022, the deconsolidation of Enjoy UK cash and cash equivalents amounting to $2.7 million resulted to cash outflow from investing activity related to discontinued operations.
46
During the six months ended June 30, 2021, investing activities used $1.4 million of cash, resulting from the purchases of property and equipment which are all related to continuing operations.
Financing Activities
During the six months ended June 30, 2022, financing activities from continuing operations provided $12.2 million of cash, primarily due to tax related withholding of common stock and borrowings under the Bridge Credit Agreement and related party promissory note. There were no financing activities related to discontinued operations.
During the six months ended June 30, 2021, financing activities from continuing operations provided $73.8 million of cash, resulting primarily from proceeds from the issuance of redeemable convertible preferred stock of $15.0 million and the issuance of convertible loan of $60.2 million offset by insignificant other financing activities. There were no financing activities related to discontinued operations.
Financing Arrangements
On May 11, 2022, we issued a promissory note in an aggregate principal amount of $10.0 million (the “Original Note”) to Ron Johnson, chair of the Company’s board of directors, former Chief Executive Officer, and a beneficial owner of greater than 5% of the Company’s common stock (the “Holder”). The Original Note was approved by the Audit Committee of the Company’s board of directors pursuant to the Company’s Related Party Transaction Policy. The Original Note has a scheduled maturity date of November 11, 2022 and is be repayable upon written demand of the Holder at any time on or after such date. The Original Note bears interest at a rate of 10% per annum, compounding quarterly and payable at maturity. We may prepay the Original Note at any time without premium or penalty. The Original Note contains customary representations and warranties and events of default, including certain “change of control” events involving us. The Original Note does not restrict the incurrence of future indebtedness by us, and shall become subordinated in right of payment and lien priority upon the request of any future senior lender.
On June 29, 2022, we entered into the Bridge Credit Agreement with Asurion, pursuant to which we borrowed $2.5 million under the Bridge Loan from the Lender. The Bridge Loan had a scheduled maturity date of July 8, 2022 and was due and payable in full on such date or such earlier date as provided in the Bridge Credit Agreement unless the Bridge Loan is converted to loans under the DIP Credit Agreement. The Bridge Loan bore interest at a rate of 12% per annum, compounded monthly, and such interest was to be added to the principal amount of the Bridge Loan and accrue additional interest thereafter and was payable in kind. On July 1, 2022, the outstanding amount of the Bridge Loan was converted to obligations under the DIP Credit Agreement.
The Original Note was originally secured by substantially all of the assets of the Company. In connection with the Bridge Credit Agreement on June 29, 2022, we entered into the Note with the Holder, which amended and restated the Original Note, between us and the Holder to, among other things, remove the collateral pledge and subordinate the note to indebtedness owing to the Lender. The Holder’s security interest in our assets granted under the Original Note was terminated thereafter. The Note was approved by the Audit Committee of the Company’s board of directors pursuant to the Company’s Related Party Transaction Policy. (See Note 10, “Short-term Debt”, to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details regarding the terms of the financing.)
On July 25, 2022, we entered into the DIP Credit Agreement with Asurion, as lender, pursuant to which we borrowed $55.0 million in DIP Loans from the Lender on terms and conditions consistent with those set forth in the DIP Credit Agreement. Upon entry by the Bankruptcy Court of the interim order authorizing and approving the DIP Loans on July 1, 2022, (i) the Roll-Up Loans were converted to obligations under the DIP Credit Agreement, and (ii) we borrowed approximately $20.0 million ($22.5 million less the amount of the Roll-Up Loans) under the DIP Credit Agreement. We borrowed the remaining balance of the DIP Loans in the amount of $32.5 million on July 26, 2022, upon entry by the Bankruptcy Court of the final order authorizing and approving the DIP Credit Agreement. The proceeds of the DIP Loans were used by us (i) to fund the costs of the administration of the Chapter 11 Cases (including professional fees and expenses and the Section 363 sale processes), (ii) for working capital and other
47
general corporate purposes, and (iii) to fund interest, fees and other payments related to the DIP Loans and DIP Credit Agreement, in each case subject to the applicable orders of the Bankruptcy Court. The DIP Loans bore interest at a rate of 12% per annum, accruing monthly, and such interest was added to the principal amount of the loan and accrue additional interest thereafter and was payable in kind. In connection with the consummation of the 363 Sale, on August 31, 2022, the obligations under the DIP Credit Agreement were repaid in full and such credit agreement was terminated.
Material Cash Requirements
Our material cash requirements, include amounts due under our contractual and other obligations, including under operating leases for monthly base rent under our lease agreement for office space for our headquarters in Palo Alto, California which began in September 2019 for a term of 90 months. We had previously required cash for office space throughout the United States and Canada and we also entered into vehicle lease agreements under Fleet Lease Agreements in the United States and Canada, with each vehicle lease having a typical term of 36 months. As part of the Chapter 11 Cases and 363 Sale, many of the Debtors’ leases have been assumed and assigned to Asurion or otherwise rejected pursuant to Section 365 of the Bankruptcy Code, which was approved by the Bankruptcy Court. Please refer to Note 8, “Leases”, to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information on these operating leases and the amounts due thereunder.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. These estimates, assumptions, and judgments are necessary because future events and their effects on our consolidated financial statements cannot be determined with certainty and are made based on our historical experience and on other assumptions that we believe to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time. Because the use of estimates is inherent in the financial reporting process, actual results could materially differ from those estimates. We believe that the accounting estimates discussed below relate to the more significant areas involving management’s judgments and estimates:
•Revenue Recognition; and
•Stock-based Compensation.
Revenue Recognition - The Company generates revenue through visit fees whereby its Experts provide delivery, set-up, and technological expertise services at the request of its Customers. Its Customers are primarily large telecommunication and technology companies that sell technology products and services and require a Mobile Store experience for their customers, who are referred to herein as “Consumers.” Revenue is recognized upon transfer of control of promised services to Customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those promised services.
Each Customer contract contains only one performance obligation, which is a stand-ready obligation for the Company’s Experts to provide visits to Consumers throughout the Company’s contractual term. The stand-ready obligation consists of a series of distinct services that are substantially the same and have the same pattern of transfer, represented as visits provided to Consumers satisfied over time.
The transaction prices of the Company’s contracts are entirely variable, as the number of visits and the specific services provided at each visit are unknown at contract inception. Each contract includes pricing whereby the
Company and the Customer agree to payments for various elements of a visit, which generally include the base fee for conducting the visit and delivering product, as well as incremental amounts for add-ons provided to Consumers. Due to the nature of the obligation, the variability of payment based on the number of visits performed, and the
48
specific services and products provided at each visit which are resolved as each visit is completed, the Company recognizes visit fees in revenue as such visits are provided. In addition, the Company is required to issue a credit to its Customer for the stipulated value of any consigned inventory that is under the Company’s control that is lost, damaged, or stolen. The Company recognizes the credit as a reduction in revenue when it identifies that the items were lost, damaged, or stolen.
From time to time, the Company’s Experts sell a Consumer incremental services on behalf of the Customer during a visit. Certain of the Company’s contracts contain provisions that allow for a chargeback by the Customer of the Company’s fee for selling the incremental service, if the Consumer cancels such services within a specified period from the visit. Chargebacks are recognized as a reduction of revenue, in the period such visit occurs, using an estimate derived from historical information regarding Consumer cancelations of specific services as well as real-time information provided by the Customer. The estimation of chargebacks for each performance obligation requires us to make subjective judgments and is subject to uncertainty. As of June 30, 2022 and December 31, 2021, the Company recorded $11.8 million and $8.1 million, respectively, in chargebacks.
Stock-Based Compensation
We account for stock-based compensation expense related to our stock option awards based on the estimated grant date fair value, which is calculated using the Black-Scholes option pricing model. Our use of the Black-Scholes option-pricing model requires the input of subjective assumptions which are subject to uncertainty. If factors change and different assumptions are used, our stock-based compensation expense could be materially different for the current period and in the future. These assumptions and estimates used in the Black-Scholes option-pricing model are as follows:
•Risk-Free Interest Rate. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.
•Expected Term. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options.
•Expected Volatility. Expected volatility was determined based on similar companies’ stock volatility.
•Expected Dividend Yield. Expected dividend yield is based on the fact that the Company has never paid cash dividends on common shares and does not expect to pay any cash dividends in the foreseeable future.
Recently Issued and Adopted Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our consolidated financial statements.
Emerging Growth Company
We are an emerging growth company, as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies, allowing them to delay the adoption of those standards until those standards would otherwise apply to private companies. The Company has elected to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as it qualifies as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
49