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13: R1 Cover HTML 80K
14: R2 Condensed Consolidated Balance Sheets HTML 119K
15: R3 Condensed Consolidated Balance Sheets HTML 31K
(Parenthetical)
16: R4 Condensed Consolidated Statements of Operations HTML 104K
and Comprehensive Loss
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Redeemable Convertible Preferred Stock and
Stockholders? (Deficit) Equity
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19: R7 Description of Business HTML 23K
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Stockholders? Equity
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Stockholders
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Stockholders (Tables)
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Narrative (Details)
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Disaggregation of Revenue (Details)
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842 (Details)
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(Exact name of registrant as specified in its charter)
iDelaware
i80-0423634
(State
or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
i233 Spring Street, i6th
Floor East
iNew York, iNew Yorki10013
(i646)
i847-7215
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol
Name of each exchange on which registered
iClass A Common Stock, $0.0001 par value per share
iWRBY
iNew
York Stock Exchange
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. iYes ☒ No ☐
Indicate
by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). iYes ☒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
☐
iNon-accelerated
filer
☒
Smaller reporting company
i☐
Emerging growth company
i☒
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.i☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes i☐
No☒
As of August 8, 2022, there were approximately i95,776,964 shares of the registrant's Class A common stock, and i19,663,987
shares of the registrant’s Class B common stock outstanding.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risk and uncertainties. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,”“believe,”“contemplate,”“continue,”“could,”“estimate,”“expect,”“intend,”“may,”“plan,”“potential,”“predict,”“project,”“should,”“target,”“will,” or “would” or the negative of these words or other similar terms or expressions. Forward-looking statements
contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about our future results of operations and financial position, industry and business trends, general macroeconomic and market trends, business strategy, plans, market growth and our objectives for future operations.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors. These risks and uncertainties include our ability to manage our future growth effectively; our expectations regarding cost of goods sold, gross margin, channel
mix, customer mix, and selling, general, and administrative expenses; planned new retail stores in 2022 and going forward; increases in component and shipping costs and changes in supply chain; our ability to compete successfully; our ability to manage our inventory balances and shrinkage; our ability to engage our existing customers and obtain new customers; the growth of our brand awareness; the effects of the ongoing COVID-19 pandemic; the effects of seasonal trends on our results of operations; our ability to stay in compliance with extensive laws and regulations that apply to our business and operations; our ability to adequately maintain and protect our intellectual property and proprietary rights; our reliance on third parties for our products, operation and infrastructure; our duties related to being a public benefit corporation; the ability of our Co-Founders and Co-CEOs to exercise significant influence over all matters submitted to stockholders for approval;
the volatility in the trading price of our Class A common stock; the effect of our multi-class structure on the trading price of our Class A common stock; the increased expenses associated with being a public company; and the other factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission on March 18, 2022. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results,
events, or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q or to reflect new information or the occurrence
of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
1. iDescription
of Business
Warby Parker Inc., a public benefit corporation founded in 2010 (together with its wholly owned subsidiaries, the “Company”), is a founder-led, mission-driven lifestyle brand that sits at the intersection of technology, design, healthcare, and social enterprise. The Company offers holistic vision care by selling eyewear products and providing optical services directly to consumers through its retail stores and e-commerce platform. For every pair of glasses or sunglasses sold, the Company helps distribute a pair of glasses to someone in need through its Buy a Pair, Give a Pair program. The
Company is headquartered in New York, New York.
Direct Listing
On September 29, 2021, the Company completed a direct listing of its Class A common stock (the “Direct Listing”) on the New York Stock Exchange (“NYSE”). The Company incurred fees related to financial advisory services, audit, and legal expenses in connection with the Direct Listing of $i4.1 million
and $i4.4 million for the three and six months ended June 30, 2021, respectively, which are recorded in selling, general, and administrative expenses.
2. iSummary
of Significant Accounting Policies
i
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared and are presented in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules
and regulations of the Securities and Exchange Commission. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2021 and the related notes. The December 31, 2021 condensed consolidated balance sheet was derived from the Company’s audited consolidated financial statements as of that date. The unaudited interim condensed consolidated financial statements include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the condensed consolidated financial statements. There have been no significant changes
in accounting policies during the six months ended June 30, 2022 from those disclosed in the audited consolidated financial statements for the year ended December 31, 2021 and the related notes, except for the adoption of new accounting pronouncements as noted under the heading Recently Adopted Accounting Pronouncements below.
iPrinciples of Consolidation
The
condensed consolidated financial statements include the financial statements of Warby Parker Inc., and its wholly owned subsidiaries. The Company has consolidated certain entities meeting the definition of a variable interest entity as the Company concluded that it is the primary beneficiary of the entities. The inclusion of these entities does not have a material impact on its condensed consolidated financial statements. Intercompany balances and transactions have been eliminated in consolidation.
i
Use
of Estimates
The Company prepares its condensed consolidated financial statements in conformity with U.S. GAAP. These principles require management to make certain estimates and assumptions during the preparation of its condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Management’s estimates are based on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Significant estimates underlying the accompanying condensed consolidated financial statements include, but are not limited to (i) the valuation of inventory, including the determination of the net realizable value, (ii) reserves for sales returns, (iii) the useful lives and recoverability
of long-lived assets, (iv) the determination of deferred income taxes, including related valuation allowances, (v) allowances for doubtful accounts, and (vi) assumptions related to the valuation of common stock and determination of stock-based compensation.
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. As a result, the Company’s condensed consolidated financial statements may not be comparable to financial statements of issuers who are required to comply with the effective dates for new or
revised accounting standards based on public company effective dates.
i
Segment Information
Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”), who makes decisions about allocating resources and assessing performance. The Company defines its CODM as its co-Chief Executive Officers. The
Company has identified ione operating segment. When evaluating the Company’s performance and allocating resources, the CODM relies on financial information prepared on a consolidated basis.
/
iConcentration
of Credit Risk and Major Suppliers
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains its cash and cash equivalents in various accounts, which, at times, may exceed the limits insured by the Federal Deposit Insurance Corporation of $250 thousand per institution and the Canada Deposit Insurance Corporation of $100 thousand Canadian dollars. At June 30, 2022 and December 31, 2021, uninsured cash balances were approximately $i210.2 million
and $i255.0 million, respectively. The Company has not experienced any concentration losses related to its cash and cash equivalents to date. The Company seeks to minimize its credit risk by maintaining its cash and cash equivalents with high-quality financial institutions and monitoring the credit standing of such institutions.
The
Company’s top five inventory suppliers accounted for approximately i22% and i19% of cost of goods sold for the six months ended June 30, 2022 and 2021,
respectively.
iCash and Cash Equivalents
The Company considers all highly liquid short-term investments with an original maturity of three months or less to be a cash equivalent. Cash and cash equivalents include both deposits with banks and financial institutions and receivables from credit card issuers, which are typically converted into cash within two to four days of capture. As such, these receivables
are recorded as a deposit in transit as a component of cash and cash equivalents on the condensed consolidated balance sheets. At June 30, 2022 and December 31, 2021, the balance of receivables from credit card issuers included within cash and cash equivalents was $i3.4 million and $i6.3 million,
respectively.
Inventory
Inventory consists of approximately $i15.1 million and $i14.1 million of finished goods,
including ready-to-wear sun frames, contact lenses, and eyeglass cases, as of June 30, 2022 and December 31, 2021, respectively, and approximately $i55.7 million and $i43.0 million
of component parts, including optical frames and prescription optical lenses, as of June 30, 2022 and December 31, 2021, respectively. iInventory is stated at the lower of cost or net realizable value, with cost determined on a weighted average cost basis.
The Company continuously evaluates the composition of its inventory and makes adjustments when the cost of inventory
is not expected to be fully recoverable. The estimated net realizable value of inventory is determined based on an analysis of historical sales trends, the impact of market trends and economic conditions, and a forecast of future demand. Adjustments for damaged inventory are recorded primarily based on actual damaged inventory. Adjustments for inventory shrink, representing the physical loss of inventory, include estimates based on historical experience, and are adjusted based upon physical inventory counts. However, unforeseen adverse future economic and market conditions could result in actual results differing materially from estimates.
COVID-19
The COVID-19 pandemic caused personal and business disruption worldwide beginning in January 2020, and continues to impact global economies and supply chains. In the second quarter of 2022, the
Company’s business continued to experience disruption caused by the pandemic, including changes to consumer shopping patterns as well as varying levels of restrictions in physical locations implemented by national, state, and local authorities. Although the Company continues to monitor the situation and may adjust its current policies as more information and public health guidance become available, precautionary measures that have been adopted have and will negatively affect the Company’s ability to sell its products and fulfill customer orders and the operations of its suppliers and fulfillment partners. More generally, the continued outbreak of COVID-19 has adversely affected economies and financial markets globally, contributing to an economic downturn, which has decreased, and could continue
to decrease consumer
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
spending, and adversely affect demand for the Company’s products and services. It is not possible at this time to estimate the impact that COVID-19 could have on the
Company’s business given the unpredictable nature of the pandemic.
i
Revenue Recognition
The Company primarily derives revenue from the sales of eyewear products, optical services, and accessories. The Company sells products and services through its stores, website,
and mobile apps. Revenue generated from eyewear products includes the sales of prescription and non-prescription optical glasses and sunglasses, contact lenses, eyewear accessories, and expedited shipping charges, which are charged to the customer, associated with these purchases. All revenue is reported net of sales taxes collected from customers on behalf of taxing authorities and variable consideration, including returns and discounts.
Revenue is recognized when performance obligations are satisfied through either the transfer of control of promised goods or the rendering of services to the Company's customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product, which is generally determined to be the point of delivery or upon rendering of the service in
the case of eye exams. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. In the normal course of business, payment may be collected from the customer prior to recognizing revenue and such cash receipts are included in deferred revenue until the order is delivered to the customer. Substantially all of the deferred revenue included on the balance sheet at December 31, 2021 was recognized as revenue in the first quarter of 2022 and the Company expects substantially all of the deferred revenue at June 30, 2022 to be recognized as revenue in the third quarter of 2022.
The Company’s sales
policy allows customers to return merchandise for any reason within 30 days of receipt, generally for an exchange or refund. An allowance is recorded within other current liabilities on the condensed consolidated balance sheets for expected future customer returns which the Company estimates using historical return patterns and its expectation of future returns. Any difference between the actual return and previous estimates is adjusted in the period in which such returns occur. Historical return estimates have not materially differed from actual returns in any of the periods presented. The allowance for returns was $i2.0 million
and $i1.8 million at June 30, 2022 and December 31, 2021, respectively.
/
The Company offers non-expiring gift cards to its customers. Proceeds from the sale of gift cards are initially deferred and recognized
within deferred revenue on the condensed consolidated balance sheets, and are recognized as revenue when the product is received by the customer after the gift card has been tendered for payment. Based on historical experience, and to the extent there is no requirement to remit unclaimed card balances to government agencies under unclaimed property laws, an estimate of the gift card balances that will never be redeemed is recognized as revenue in proportion to gift cards which have been redeemed. While the Company will continue to honor all gift cards presented for payment, management may determine the likelihood of redemption to be remote for certain card balances due to, among other things, long periods of inactivity.
The
Company records a lease liability and corresponding right-of-use (“ROU”) asset at lease commencement. The lease liability is measured at the present value of non-cancellable future lease payments over the lease term, minus expected tenant improvement allowances (“TIAs”) determined to be lease incentives. The ROU asset is measured at the lease liability amount, adjusted for prepaid lease payments, TIAs expected to be received, and any initial direct costs.
When calculating the present value of future lease payments, the Company utilizes an incremental borrowing rate, which incorporates several factors including the lease term, U.S. Treasury bond rates, financial ratios related to earnings and cash flows, and other comparisons with similarly sized companies.
Many of the
Company’s leases contain TIA provisions, which represent contractual amounts receivable from a lessor for improvements to the leased property made by the Company which are determined to represent lease incentives. The Company considers TIAs to be reasonably certain to collect, and includes them in the present value calculation when determining the lease liabilities for new leases. The benefit from a TIA is amortized through rent expense over the term of the related lease.
The recognition of rent expense for an operating lease commences on the date at which control and possession of the property is obtained. Rent expense is calculated by recognizing total fixed minimum rental payments, net of any TIAs or other rental concessions, on a straight-line basis
over the lease term. Some of the Company’s retail leases contain percent of sales rent or similar provisions, which is recognized as incurred as variable rent. Retail, optical laboratory, and distribution center rent expense is recognized as a component of cost of goods sold and all other rent expense is recognized as a component of selling, general, and administrative expenses.
i
Recently Adopted Accounting Pronouncements
In
February 2016, the Financial Standards Accounting Board (“FASB”) issued Accounting Standards Codification No. 2016-02, Leases (Topic 842) (“ASC 842”), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The Company adopted this standard as of January 1, 2022, using a modified retrospective transition approach without adjusting the comparative periods presented.
The new standard provides a number of optional practical expedients in transition. The Company elected practical expedients permitted under ASC
842, specifically to not reassess its prior conclusions about lease identification, to not reassess lease classification, and to not reassess initial direct costs. The Company did not elect the practical expedient allowing the use of hindsight which would require the Company to reassess the lease term of its leases based on all facts and circumstances through the effective date and did not elect the practical expedient pertaining to land easements as this is not applicable to the current contract portfolio.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
The most significant financial statement impact of ASC 842 related to the recognition of right-of-use assets and lease liabilities on the condensed consolidated balance sheets for the Company’s retail stores, corporate offices, optical laboratories, and distribution center operating leases based on the present value of total fixed payments. Upon adoption, the Company recorded
right-of-use assets of $i109.4 million, lease liabilities of $i146.2 million, and other liabilities of $i2.2 million,
and reclassified historical deferred rent and tenant improvement allowance balances of $i39.0 million to operating lease right-of-use assets. The adoption did not impact the condensed consolidated statements of operations or retained earnings. iThe
impact of the adoption of ASC 842 on the condensed consolidated balance sheet is as follows:
(1)
Represents the recognition of operating lease right-of-use assets, reflecting lease rights and the reclassifications of deferred rent and tenant allowances.
(2) Represents the recognition of current and non-current lease liabilities for fixed payments associated with the Company’s operating leases.
(3) Represents the reclassification of current and non-current deferred rent and tenant improvement allowances to operating lease right-of-use assets.
(4) Represents the recognition of negative operating lease right-of-use assets into other liabilities. This typically occurs when a lease contains TIAs but most or all of the cash rent is variable in nature and does
not result in a lease liability.
In January 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”), and additional changes, modifications, clarifications or interpretations related to this guidance thereafter, which require a reporting entity to estimate credit losses on certain types of financial instruments, and present assets held at amortized cost and available for-sale debt securities at the amount expected to be collected. The Company early adopted this guidance as of January 1, 2022 using the modified retrospective approach. The Company considered its accounts receivable balance, mainly
consisting of amounts due from insurance carriers, and the related reserve for uncollectible accounts which is assessed primarily based on the aging of the related receivables. The Company considered other relevant factors such as counterparty creditworthiness, historical collections, receivable terms, and the size of the individual receivables when determining the reserve. The adoption of ASU 2016-13 did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
Recently Issued Accounting Pronouncements
The Company has considered all new accounting pronouncements issued during the three and six months ended June 30, 2022 and does expect any to have a material impact on its condensed consolidated financial statements.
3. iProperty
and Equipment, Net
i
Property and equipment, net consists of the following:
The Company uses the estimated annual effective tax rate approach to determine the provision for income taxes. The estimated annual effective tax rate is based on forecasted annual results and may fluctuate due to differences between the forecasted and actual results, changes in valuation allowances,
and any other transactions that result in differing tax treatment.
The
Company’s estimated annual effective income tax rate for the three and six months ended June 30, 2022 and 2021 differed from the statutory rate primarily due to non-deductible executive compensation, stock-based compensation, differences in tax rates in state and foreign jurisdictions, the valuation allowance, and other permanent items.
6. iRedeemable
Convertible Preferred Stock and Stockholders’ Equity
Common Stock
As of June 30, 2022, the Company’s Twelfth Amended and Restated Certificate of Incorporation authorizes the issuance of up to i1,050,000,000 shares of common stock, par value of $i0.0001
per share, of which i750,000,000 shares are designated Class A common stock, i150,000,000 shares are designated Class B common stock, and i150,000,000
shares are designated Class C common stock. Class A common stock receives ione vote per share, Class B common stock receives iten
votes per share, and Class C common stock has ino voting rights except as required by Delaware law. Common stock is not redeemable at the option of the holder.
iAs of June 30,
2022, outstanding shares of common stock as well as shares of common stock attributable to stock options, restricted stock units (“RSUs”), and performance stock units (“PSUs”) were as follows:
Class A
Class B
Class C
Common stock outstanding
i95,592,528
i18,978,739
i—
Employee
stock options – outstanding
i1,188,340
i2,106,766
i—
Restricted
stock units – outstanding
i1,714,271
i2,050,286
i—
Performance
stock units – outstanding
i—
i4,397,688
i—
Employee
stock plans – available
i20,038,279
i—
i—
Shares
of Class A common stock issuable upon conversion of all outstanding Class B common stock, options, RSUs, and PSUs
i27,533,479
i—
i—
Total
common stock – outstanding or issuable on exercise of options
i146,066,897
i27,533,479
i—
Authorized
i750,000,000
i150,000,000
i150,000,000
Common
stock available for future issuance
i603,933,103
i122,466,521
i150,000,000
/
Redeemable
Convertible Preferred Stock
All classes of redeemable convertible preferred stock were convertible by the holder into shares of Series A common stock at the then applicable conversion price. In the event of liquidation of the Company (including certain events outside of the Company’s control such as a change in control), the holders of redeemable convertible preferred stock were entitled to a liquidation preference equal to the respective original issue price plus declared and unpaid dividends ahead of the classes of common stock described above. In September 2021, in connection with the Direct Listing, all outstanding shares of redeemable convertible preferred stock were converted to Class A common stock at a ione-to-one
ratio. As of June 30, 2022, i50,000,000 preferred shares were authorized and ino shares were outstanding.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
Stock Repurchases
i
During the six months ended June 30, 2022, the
Company did not repurchase stock. In February and June 2021, the Company repurchased shares of common stock and redeemable convertible preferred stock directly from investors as follows:
Number of Shares Repurchased
Amount Paid
Series A common stock
i63,821
$
i1,566
Series
AA redeemable convertible preferred stock
i160,136
i3,928
Series
D redeemable convertible preferred stock
i60,137
i1,475
Series
E redeemable convertible preferred stock
i45,507
i1,116
Total
repurchases
i329,601
$
i8,085
/
The
stock was considered constructively retired when repurchased. For the redeemable convertible preferred stock, the $i5.0 million excess of repurchase price over carrying value was recorded to accumulated deficit on the condensed consolidated balance sheet. For the common stock, the excess of repurchase price over par value of $i1.6 million
was recorded to accumulated deficit on the condensed consolidated balance sheet.
Stock Donation
In May 2022, the Company issued i178,572 shares of Class A common stock to the Warby Parker Impact Foundation, a Delaware exempt corporation. During the three and six months ended June 30,
2022, the Company recognized $ii3.3/ million
of charitable expense, which is recorded to selling, general, and administrative expenses, representing the fair value of the shares on the date they were issued.
7. iStock-Based Compensation
Plans and Awards
The
Company’s eligible employees participate in various stock-based compensation plans, which are provided by the Company directly.
In August 2021, the board of directors approved the 2021 Incentive Award Plan (the “2021 Plan”). The plan became effective on September 28, 2021, the day prior to the Direct Listing of the Company’s Class A common stock, and the Company no longer grants equity awards under any prior equity plan. Upon the 2021 Plan becoming effective, there were i11,076,515
shares of Class A common stock authorized under the 2021 Plan, and the remaining shares available for issuance under the 2010 Equity Incentive Plan, 2011 Stock Plan, 2012 Milestone Stock Plan, and 2019 Founder Stock Plan (collectively, the “Prior Plans” and, collectively with the 2021 Plan, the “Plans”) were also made available for issuance under the 2021 Plan. The shares authorized under the 2021 Plan will increase annually, beginning on January 1, 2022 and continuing through 2031, by the lesser of (i) i5%
of the outstanding common stock (on an as converted basis) as of the last day of the immediately preceding fiscal year, or (ii) a smaller amount as agreed by the board of directors. Awards granted under the 2021 Plan generally vest over ifour years. In addition, the shares authorized under the 2021 Plan will increase, among other things, to the extent that an award (including an award under the Prior Plans) terminates, expires, or lapses for any reason or an award is settled in cash without the delivery of shares.
At
December 31, 2021, there were i33,677,989 shares of Class A common stock authorized for issuance, of which i11,413,848
shares of Class A common stock remained available for future issuance pursuant to new awards.
In January 2022, the board of directors approved an annual increase of i5,735,463 shares to the shares authorized for issuance under the 2021 Plan, bringing the total to i16,794,213
shares available for future issuance pursuant to new awards as of June 30, 2022.
Employee Stock Purchase Plan
In August 2021, the board of directors adopted and the stockholders of the Company approved the 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP initially reserved and authorized the issuance of up to i2,215,303
shares of Class A common stock, and such reserve will be increased annually on the first day of each fiscal year beginning in
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
2022 and ending in 2031, by an amount equal to the lesser of (i) i1%
of the shares of the Company’s common stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (ii) such number of shares of common stock as determined by the board of directors; provided, however, no more than i16,614,772 shares of common stock may be issued under the ESPP. In January
2022, the board of directors approved an annual increase of i1,147,092 shares to the ESPP, bringing the total to i3,362,395
shares authorized as of June 30, 2022. There were i3,244,066 shares available for future issuance pursuant to ESPP purchases as of June 30, 2022.
With the exception of the first offering period, offering periods begin on May 15 and November 15 of each year and consist of four six-month purchase periods. Eligible employees may contribute up to i20%
of their base wages and the purchase price of shares of Class A common stock under an offering will be i85% of the lesser of the fair market value of Class A common stock on (i) the offering date, and (ii) the applicable purchase date. If such fair market value decreases from the offering date to the applicable purchase date, the offering period will terminate after the purchase of shares and all participants will be automatically
enrolled in the next offering period (a “rollover event”). The initial offering period began on October 30, 2021 and ended on May 14, 2022 after the first purchase was completed as a result of a rollover event.
During both the three and six months ended June 30, 2022, ii118,329/
shares were purchased under the ESPP. During the three and six months ended June 30, 2022, the Company recognized $i0.9 million and $i1.5
million of stock-based compensation expense in connection with the ESPP, respectively, and withheld $i0.7 million and $i1.6
million of contributions from employees, respectively. As of June 30, 2022, total unrecognized compensation costs associated with the ESPP was $i4.5 million and is expected to be amortized over a weighted average period of i0.9
years.
Stock-based Compensation Expense
iStock-based compensation expense consisted of the following:
Stock-based
compensation expense for the three and six months ended June 30, 2022 includes $i19.3 million and $i39.4 million
related to the 2021 Founders Grant, as described below, respectively, and $i5.4 million and $i10.7 million in connection
with RSUs, respectively, most of which include a performance-based vesting condition that was satisfied by the Company’s Direct Listing. The three and six months ended June 30, 2021 includes $ii9.2/ million
of stock compensation expense related to the 2021 tender offer.
Stock Options
The fair value for options and share awards granted under the Plans are estimated at the date of grant using the Black-Scholes option-pricing model. No options were granted during the six months ended June 30, 2022. iThe following assumptions were used for options granted
during the six months ended June 30, 2021:
The risk-free interest rates were estimated based on the yield curve in effect at the time of grant for izero-coupon
U.S. Treasury notes with terms consistent with the expected term of the option awards. The expected dividend yield was izero as the Company has never declared or paid cash dividends and has no plans to do so in the foreseeable future. The expected term was calculated using the simplified method using the vesting term and
the contractual term of the
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
options. Stock options expire iten
years from the date of the grant. The volatility rate was determined based on an analysis of comparable public company historical volatilities adjusted based on the Company’s stage of development.
Because the Company’s common stock was not yet publicly traded when the options were granted, the Company estimated the fair value of common stock. The board of directors considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards are approved. The factors considered included, but were not limited to:
(i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices, rights, preferences, and privileges of the Company’s redeemable convertible preferred stock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as a qualified public offering or sale of the Company, given prevailing market conditions; and (vii) contemporaneous transactions involving the
Company’s common shares. The board of directors utilized third-party valuations which were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation.
iA summary of stock option activity for the six months ended June 30, 2022 is as follows:
The
total value of unrecognized stock compensation expense related to unvested options granted under the Plans was $i8.2 million as of June 30, 2022, and is expected to be recognized over i1.1
years.
Restricted Stock Units and Performance Stock Units
iA summary of RSU activity for the six months ended June 30, 2022 is as follows:
The
total value of unrecognized stock compensation expense related to outstanding RSUs and PSUs granted under the Plans was $i67.4 million and $i72.1
million as of June 30, 2022, respectively, which is expected to be recognized over a weighted-average period of i1.5 years and i1.0
years, respectively. No PSUs were granted, forfeited, released or vested during the three and six months ended June 30, 2022.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
The majority of RSUs issued by the
Company prior to the Direct Listing vest upon the satisfaction of both a service and a performance condition. The service-based vesting condition is satisfied so long as the participant remains in service and employed by the Company as of each of the vesting dates. The performance condition was satisfied upon the Company’s Direct Listing on September 29, 2021, and i936,646
RSUs for which the service condition had previously been satisfied vested and were released to holders. RSUs granted subsequent to the Direct Listing vest upon the satisfaction of a service based vesting condition only. The Company will deliver ione share of either Class A or Class B common stock, depending on the terms of the grant, for each vested RSU.
In
June 2021, the Company granted i4,397,688 PSUs and i1,884,724
RSUs to the co-CEOs, in the aggregate, under the 2019 Founder Stock Plan (the “Founders Grant”). The PSUs vest upon itwo performance conditions, (i) a qualified public offering, which was satisfied upon the Company’s Direct Listing on September 20, 2021, and (ii) the price of the
Company’s Class A common stock reaching stock price hurdles over a period of iten years, as defined by the terms of the award. The PSUs are subject to the co-CEOs’ continued employment with the Company through the applicable vesting date. If the PSUs vest, the Company will deliver ione
share of Class B common stock on the settlement date. Unvested PSUs expire in iten years from the date of grant. The terms of the PSUs granted are described further below.
iThe
PSUs are divided into eight substantially equal tranches, each one vesting on the date the 90-day trailing volume-weighted average trading price of the Company’s Class A common stock exceeds the stock price hurdle, as set forth in the table below, provided that no PSUs may vest prior to the six month anniversary of the Direct Listing.
Tranche
Number of PSUs
Stock
Price Hurdle
1
i549,712
$
i47.75
2
i549,710
$
i55.71
3
i549,712
$
i63.67
4
i549,710
$
i71.63
5
i549,712
$
i79.59
6
i549,710
$
i87.55
7
i549,712
$
i95.50
8
i549,710
$
i103.46
/
The
Company used a Monte Carlo simulation to calculate the grant-date fair value of the PSUs of $i128.8 million. Since the PSUs contain a performance and market condition, the stock-based compensation expense will be recognized when it becomes probable that the performance condition will be met using the accelerated attribution method. Stock-based compensation will be recognized
over the period of time the market condition for each tranche is expected to be met (i.e., the derived service period). The performance condition was satisfied at September 29, 2021 by the Direct Listing, and the Company recorded $i13.6 million and $i27.0 million
of stock-based compensation expense related to the PSUs during the three and six months ended June 30, 2022.
The Founders Grant RSUs will vest in equal monthly installments over a period of ifive years, subject to the co-CEOs continued employment with the Company through the applicable vesting date and conditioned upon the completion of a qualified
public offering. The grant-date fair value of the RSUs is $i66.9 million. Since the RSUs contain a performance condition, stock-based compensation expense is recognized using the accelerated attribution method when it becomes probable that the performance condition will be met. The performance condition was satisfied on September
29, 2021 by the Direct Listing, and the Company recorded $i5.7 million and $i12.4 million
of stock-based compensation expense related to the RSUs during the three and six months ended June 30, 2022.
Shares underlying vested PSUs and RSUs will be issued to the CEOs on a specified quarterly date following the second anniversary of the vesting date, except for an amount necessary to cover any taxes due in connection with the vesting, which will be withheld or sold to cover, or issued to offset, such taxes. Any RSUs or PSUs subject to the award that have not vested by the tenth anniversary of the grant date will be forfeited.
Most RSUs outstanding as of June 30, 2022 vest upon the satisfaction of both a service and a performance condition. The Company had previously concluded that it was not
probable that the performance condition would be satisfied as the closing of a qualified public offering or change in control is not deemed probable until consummated. Accordingly, prior to September 29, 2021, the date of the Direct Listing, the Company had not recorded stock-based
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts
in thousands, except share data)
compensation expense for RSUs with the exception of (i) $i1.8 million recognized in June 2021 associated with RSUs that were repurchased in connection with the 2021 tender offer, and (ii) $i2.3 million
recognized in August 2021 associated with fully vested RSUs issued to certain directors. Upon the Direct Listing on September 29, 2021, the Company recorded stock-based compensation expense for the service condition satisfied through such date and began recording stock-based compensation expense using the accelerated attribution method as the service conditions are met. RSUs issued after the Direct Listing only contain a service condition and are recognized on a straight line basis over the vesting period.
8. iLeases
The
Company leases retail, office, optical laboratory, and distribution center space under operating leases from third parties. As of June 30, 2022, the total lease terms of the various leases range from i3 to i18 years. The leases generally
contain renewal options and rent escalation clauses, and from time to time include contingent rent provisions. Renewal options are exercisable at the Company’s sole discretion and are included in the lease term if they are reasonably certain to be exercised. In general it is not reasonably certain that lease renewals will be exercised at lease commencement and as such, lease renewals are not included in the lease term. The Company’s finance leases are immaterial.
i
The
following table presents the assets and liabilities related to the Company’s leases:
Variable
lease expense primarily consists of contingent rent, common area maintenance charges, property taxes, and other non-fixed lease related costs.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
i
The
following table presents the future maturity of lease liabilities:
Operating Leases(1)
2022
$
i7,355
2023
i34,150
2024
i34,339
2025
i26,642
2026
i24,778
Thereafter
i49,706
Total
undiscounted lease cash flows
i176,970
Impact of discounting
(i18,498)
Present
value of lease payments
$
i158,472
(1) The year 2022 includes $i8.3 million
of expected cash inflows from TIAs. Operating lease payments exclude $i7.1 million of legally binding minimum lease payments for leases signed but not yet commenced.
/
The following tables present other relevant lease information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
i13,858
9. iCommitments
and Contingencies
Credit Facility
In August 2013, the Company entered into the Loan and Security Agreement with Comerica Bank, or the Credit Facility, as amended, that consists of a revolving credit line of up to $i50.0 million. The revolving credit line has a sub-limit of up to $i15.0
million for the issuance of letters of credit. Borrowings under the revolving credit line bear interest on the principal amount outstanding at a variable interest rate based on either LIBOR or the bank’s prime rate (as defined in the credit agreement), with no additional margin. The Company is charged fees on the uncommitted portion of the credit line of approximately i0.2% as long as total borrowings remain less than $i15.0
million.
Other than letters of credit outstanding of $i4.1 million and $i4.0 million as of June 30,
2022 and December 31, 2021, respectively, used to secure certain leases in lieu of a cash security deposit, there were no other borrowings outstanding under the Credit Facility.
Litigation
During the normal course of business, the Company may become subject to legal proceedings, claims and litigation. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. Accruals for loss contingencies are recorded when a loss is probable, and the amount of such loss can be reasonably estimated.
As of June 30, 2022, the Company is not subject
to any pending legal matters or claims that could have a material adverse effect on its financial position, results of operations, or cash flows should such litigation be resolved unfavorably.
Less:
deemed dividend upon redemption of redeemable convertible preferred stock
i—
(i8,524)
i—
(i13,137)
Net
loss attributable to common stockholders - basic and diluted
$
(ii32,166/)
$
(i18,831)
$
(ii66,299/)
$
(ii20,432/)
Denominator
Weighted
average shares, basic and diluted
ii114,679,892/
ii54,019,802/
ii114,393,420/
ii53,986,670/
Earnings
Per Share
Net loss per share attributable to common stockholders, basic and diluted
$
(ii0.28/)
$
(ii0.35/)
$
(ii0.58/)
$
(ii0.38/)
/
iThe
following potentially dilutive shares were excluded from the computation of diluted net loss per share because including them would have been antidilutive:
Warrants
to purchase Series B redeemable convertible preferred stock
i—
i21,745
i—
i21,745
/
11. iRelated-Party
Transactions
Prior to its Direct Listing, the Company issued secured promissory notes to certain related party members of senior management, including its executive officers. The promissory notes are collateralized by the stock purchased in relation to the exercise of employee stock options, and as such have been treated as non-recourse notes in the condensed consolidated financial statements. The promissory notes are issued with a term of i8.5 years and an interest rate equal to the minimum applicable federal mid-term
rate in the month the loan was issued. The secured promissory notes are recorded as a reduction to equity offsetting the amount in additional paid-in-capital related to the exercised options funded by the notes. In August 2021, prior to the Direct Listing, the executive officers repaid their promissory notes in full, however several promissory notes remain outstanding with other members of senior management. No new promissory notes were issued during the six months ended June 30, 2022 and $i13.8 million
was issued in the six months ended June 30, 2021.
During the three and six months ended June 30, 2022, the outstanding loan balance increased by an immaterial amount due to interest. The loans had a balance of $ii3.1/ million
at both June 30, 2022 and December 31, 2021.
12. iSubsequent Events
August 2022 Restructuring
In August 2022, the Company initiated a restructuring plan to reduce the
Company’s costs and drive long-term operational efficiencies that resulted in a reduction in force of i63 positions at the Company’s corporate offices. The Company estimates that it will incur total cash charges for employee severance and related costs of approximately $i1.7 million,
which are expected to be recognized in the third quarter of 2022. The Company expects the restructuring plan to be substantially completed by the end of the third quarter of 2022.
Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited
condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 18, 2022 (the “Annual Report”). Data as of and for the three and six months ended June 30, 2022 and 2021 has been derived from our unaudited condensed consolidated financial statements. Results for any interim period should not be construed as an inference of what our results would be for any full fiscal year or future period. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements,
such as those relating to our plans, objectives, expectations, intentions, and beliefs, which involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled“Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and in Part I, Item 1A, Risk Factors, in the Annual Report.
Overview
A pioneer of the direct-to-consumer model, Warby Parker is one of the fastest-growing brands at scale in the United States. We are a mission-driven, lifestyle brand that operates at the intersection
of design, technology, healthcare, and social enterprise.
Since day one, our focus on delighting customers and doing good has created a foundation for continuous innovation:
•We aim to provide customers with the highest-quality product possible by designing glasses at our headquarters in New York City, using custom materials, and selling direct to the customer. By cutting out the middleman, we are able to sell our products at a lower price than many of our competitors and pass the savings on to our customers. In addition to lower prices, we introduced simple, unified pricing (glasses starting at $95, including prescription lenses) to the eyewear market.
•We’ve built a seamless shopping experience that meets customers where and how they want to shop, whether that’s on our website,
on our mobile app, or in our more than 170 retail stores.
•We’ve crafted a holistic vision care offering that extends beyond glasses to include contacts, vision tests and eye exams, vision insurance, and beyond. We leverage leading (and in many cases proprietary) technology to enhance our customers’ experiences, whether it’s to help them find a better-fitting frame using our Virtual Try-On tool, or to update their prescription from home using Virtual Vision Test, our telehealth app.
•We recruit and retain highly engaged, motivated team members who are driven by our commitment to scaling a large, growing business while making an impact and are excited to connect their daily work back to our mission.
•We are a public benefit corporation focused on positively impacting
all stakeholders, and hope to inspire other entrepreneurs and businesses to think along the same lines. Working closely with our nonprofit partners, we distribute glasses to people in need in more than 50 countries globally and many parts of the United States. Over 10 million more people now have the glasses they need to learn, work, and achieve better economic outcomes through our Buy a Pair, Give a Pair program.
We generate revenue through selling our wide array of prescription and non-prescription eyewear, including glasses, sunglasses, and contact lenses. We also generate revenue from providing eye exams and vision tests, and selling eyewear accessories. We maintain data across the entire customer journey that allows us to develop deep insights, informing our innovation priorities and enabling us to create a highly personalized, brand-enhancing experience for our customers. We have built an integrated, multichannel presence
that we believe deepens our relationship with existing customers while broadening reach and accessibility. And while we have the ability to track where our customers transact, we’re channel agnostic to where the transaction takes place and find that many of our customers engage with us across both digital and physical channels; for example, many customers who check out online also visit a store throughout their customer journey, while others choose to browse online before visiting one of our stores.
•we
generated net revenue of $302.8 million and $270.5 million, respectively;
•we generated gross profit of $176.0 million and $161.8 million, respectively, representing a gross profit margin of 58.1% and 59.8%, respectively;
•we generated net loss of $66.3 million and $7.3 million, respectively; and
•we generated adjusted EBITDA of $6.7 million and $20.1 million, respectively.
For a definition of adjusted EBITDA, a non-GAAP measure, and a reconciliation to the most directly comparable GAAP measure, see the section titled “Key Business Metrics and Certain Non-GAAP Financial Measures.”
Direct Listing
On September
29, 2021, we completed a direct listing of our Class A common stock (the “Direct Listing”) on the New York Stock Exchange (“NYSE”). We incurred fees related to financial advisory services, audit, and legal expenses in connection with the Direct Listing of $4.1 million and $4.4 million for the three and six months ended June 30, 2021, respectively, which are recorded in selling, general, and administrative expenses.
Impact of COVID-19
The health and safety of our customers and employees remains our top priority, and to that end we will continue to monitor developments related to the COVID-19 pandemic and adjust policies and operations as needed. We have developed procedures to enable us to responsibly and efficiently open or close locations and adjust operations as needed. We have onboarded and continue to onboard
new suppliers, as well as enhance inventory planning and monitoring capabilities. We have experienced minimal supply chain disruptions through the first half of 2022 and we expect the actions we have taken will help to mitigate supply chain disruptions in future quarters, although the future trajectory of the COVID-19 pandemic is still unknown. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, operations, and financial condition will depend on future developments that are highly uncertain. Given the uncertainty, we cannot estimate the financial impact of the pandemic on our future results of operations, cash flows, or financial condition. For additional details, refer to the risks described in our Annual Report, including those described in Part I, Item 1A. “Risk Factors.”
Key
Business Metrics and Certain Non-GAAP Financial Measures
In addition to the measures presented in our condensed consolidated financial statements, we use the following key business metrics and certain non-GAAP financial measures to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions. The following table summarizes our key performance indicators and non-GAAP financial measures for each period presented below, which are unaudited.
(1)Store Count number at the end of the period indicated.
(2)Adjusted EBITDA and adjusted EBITDA margin are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. Adjusted
EBITDA and adjusted EBITDA margin are not measurements of our financial performance under GAAP and should not be considered as an alternative to net loss or any other performance measure derived in accordance with GAAP.
The number of Active Customers is a key performance measure that we use to assess the reach of our physical retail stores and digital platform as well as our brand awareness. We define an Active Customer as a unique customer that has made at least one purchase in the preceding 12-month period. We determine our number of Active Customers by counting the total number
of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period. Given our definition of a customer is a unique customer that has made at least one purchase, it can include either an individual person or a household of more than one person utilizing a single account.
Store Count
Store Count is a key performance measure that we use to reach consumers and generate incremental demand for our products. We define Store Count as the total number of retail stores open at the end of a given period. We believe our retail stores embody our brand, drive brand awareness, and serve as efficient customer acquisition vehicles. Our results of operations have been and will continue to be affected by the timing and number of retail stores that we operate.
As of June 30,
2022, 127 out of our 178 retail stores offered in-person eye exams.
Adjusted EBITDA and Adjusted EBITDA Margin
We define adjusted EBITDA as net income (loss) before interest and other income, taxes, and depreciation and amortization as further adjusted for stock-based compensation expense and related employer payroll taxes, non-cash charitable donations, and non-recurring costs such as direct listing or other transaction costs. We define adjusted EBITDA margin as adjusted EBITDA divided by net revenue. We caution investors that amounts presented in accordance with our definitions of adjusted EBITDA and adjusted EBITDA margin may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate adjusted EBITDA and adjusted EBITDA margin in the same manner. We present adjusted EBITDA and adjusted EBITDA margin because we consider
these metrics to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.
Management uses adjusted EBITDA and adjusted EBITDA margin:
•as a measurement of operating performance because they assist us in evaluating the operating performance of our business on a consistent basis, as they remove the impact of items not directly resulting from our core operations;
•for planning purposes, including the preparation of our internal annual operating budget and
financial projections;
•to evaluate the performance and effectiveness of our operational strategies; and
•to evaluate our capacity to expand our business.
By providing these non-GAAP financial measures, together with a reconciliation to the most directly comparable GAAP measure, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Adjusted EBITDA and adjusted EBITDA margin have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net loss or other financial statement data presented in our condensed consolidated financial statements as indicators of financial performance. Some of the
limitations are:
•such measures do not reflect our cash expenditures, or future requirements for capital expenditures, or contractual commitments;
•such measures do not reflect changes in, or cash requirements for, our working capital needs;
•such measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
•such measures do not reflect our tax expense or the cash requirements to pay our taxes;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures
do not reflect any cash requirements for such replacements; and
•other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.
Due to these limitations, adjusted EBITDA and adjusted EBITDA margin should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally. Each of the adjustments and other adjustments described in this paragraph
and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.
The following table reconciles adjusted EBITDA and adjusted EBITDA margin to the most directly comparable GAAP measure, which is net loss:
(1) Represents
expenses related to the Company’s equity-based compensation programs and related employer payroll taxes, which may vary significantly from period to period depending upon various factors including the timing, number, and the valuation of awards granted, vesting of awards including the satisfaction of performance conditions, and the impact of repurchases of awards from employees. For the three and six months ended June 30, 2022, the amount includes $0.1 million and $0.3 million, respectively, of employer payroll costs associated with releases of RSUs and option exercises.
(2) Represents charitable expense recorded in connection with the donation of 178,572 shares of Class A common stock to the Warby Parker Impact Foundation in May 2022.
(3) Represents
(i) costs directly attributable to the preparation for our Direct Listing and (ii) expenses incurred in connection with the cash tender offer completed in June 2021.
Factors Affecting Our Financial Condition and Results of Operations
We believe that our performance and future success depend on a variety of factors that present significant opportunities for our business but also present risks and challenges that could adversely impact our growth and profitability. There have been no material changes to such factors from those described in the Annual Report under the heading “Factors Affecting Our Financial Condition and Results of Operations.” Those factors also pose risks and challenges, including those discussed in Part I, Item
1A. “Risk Factors” of the Annual Report.
The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q. The following tables set forth our results of operations for the periods presented in dollars and as a percentage of net revenue:
Condensed
Consolidated Statements of Operations Data:
Net revenue
100.0
%
100.0
%
100.0
%
100.0
%
Cost
of goods sold
42.3
%
40.7
%
41.9
%
40.2
%
Gross profit
57.7
%
59.3
%
58.1
%
59.8
%
Selling,
general, and administrative expenses
79.2
%
66.0
%
79.8
%
62.0
%
Loss from operations
(21.5)
%
(6.7)
%
(21.7)
%
(2.2)
%
Interest
and other income, net
—
%
(0.3)
%
—
%
(0.1)
%
Loss before income taxes
(21.5)
%
(7.0)
%
(21.7)
%
(2.3)
%
Provision
for income taxes
—
%
0.8
%
0.2
%
0.4
%
Net loss
(21.5)
%
(7.8)
%
(21.9)
%
(2.7)
%
Components
of Results of Operations
Net Revenue
We primarily derive revenue from the sales of eyewear products, optical services, and accessories. We sell products and services through our retail stores, website, and mobile apps. Revenue generated from eyewear products includes the sales of prescription and non-prescription optical glasses and sunglasses, contact lenses, eyewear accessories, and expedited shipping charges, which are charged to the customer, associated with these purchases. Revenue is recognized when the customer takes possession of the product, either at the point of delivery or in-store pickup, and is recorded net of returns and discounts. Revenue generated from services consists of both in-person eye exams in cases where we directly employ the optometrist,
and prescriptions issued through the Virtual Vision Test app. Revenue is recognized when the service is rendered and is recorded net of discounts.
Cost of goods sold includes the costs incurred to acquire materials, assemble, and sell our finished products. Such costs include (i) product costs held at the lesser of cost and net realizable value, (ii) freight and import costs, (iii) optical laboratory costs, (iv) customer shipping, (v) occupancy and depreciation costs of retail stores, and (vi) employee-related costs associated with our prescription services and optical laboratories,
which includes salaries, benefits, bonuses, and stock-based compensation. We expect our cost of goods sold to fluctuate as a percentage of net revenue primarily due to product mix, customer preferences and resulting demand, customer shipping costs, and management of our inventory and merchandise mix. Cost of goods sold also may change as we open or close retail stores because of the resulting change in related occupancy and depreciation costs. Over time we expect our cost of goods sold to increase with revenue due to an increased number of orders and with the opening of new retail stores driven by the resulting occupancy and depreciation costs and employee-related costs associated with prescription services offerings at our retail stores.
Gross Profit and Gross Margin
We define gross profit as net revenues less cost of goods sold. Gross margin is gross profit expressed as a percentage
of net revenues. Our gross margin has remained steady historically, but may fluctuate in the future based on a number of factors, including the cost at which we can obtain, transport, and assemble our inventory, the rate at which we open new retail stores, and how effective we can be at controlling costs, in any given period.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses, or SG&A, primarily consist of employee-related costs including salaries, benefits, bonuses, and stock-based compensation for our corporate and retail employees, marketing, information technology, credit card processing fees, donations in connection with our Buy a Pair, Give a Pair program, facilities, legal, and other administrative costs associated with operating the business. Marketing costs, which consist of both online and offline advertising, include sponsored
search, online advertising, marketing and retail events, and other initiatives. SG&A also includes administrative costs associated with our Home Try-On program, which provides customers the opportunity to sample eyewear at home prior to purchase. SG&A is expensed in the period in which it is incurred. During the second half of 2022 we implemented a headcount reduction in our corporate offices and anticipate executing on certain other cost control actions, including reducing marketing spend and other variable costs. We expect these actions to reduce costs included in SG&A, however, the changing prices of goods and services caused by inflation and other macroeconomic factors may cause unforeseen fluctuations in SG&A expenses.
Interest and Other Income, Net
Interest and other income, net, consists primarily of interest generated from our cash and cash equivalents balances
net of interest incurred on borrowings and fees on our undrawn line of credit, and are recognized as incurred. We expect our interest and other income costs to fluctuate based on our future bank balances, credit line utilization, and the interest rate environment.
Provision for Income Taxes
Provision for income taxes consists of income taxes related to foreign and domestic federal and state jurisdictions in which we conduct business, adjusted for allowable credits, deductions, and valuation allowance against deferred tax assets.
Net
revenue increased $18.1 million, or 13.7%, for the three months ended June 30, 2022 compared to the same period in 2021. The growth in net revenue was driven by an increase in orders from our larger Active Customer base, as well as an increase in Average Order Value (“AOV”), which is defined as net revenue for a given period divided by the number of orders during the same period. The increase in AOV was driven primarily by a higher mix of purchases of
Cost
of goods sold increased by $9.8 million, or 18.3%, for the three months ended June 30, 2022 compared to the same period in 2021, and increased as a percentage of revenue over the same period by 160 basis points, from 40.7% of revenue to 42.3% of revenue. The increase in cost of goods sold was primarily driven by increased product and fulfillment costs associated with the growth in our contact lens offering, as well as an increase in store occupancy, store depreciation, and prescription services expenses due to new retail stores opened in 2022 and a full period of expense from new retail stores opened throughout 2021.
Gross profit, calculated as net revenue less cost of goods sold, increased by $8.3 million, or 10.6%, for the three months ended June 30, 2022 compared to the same period in 2021, primarily due to the increase in
net revenue over the same period.
Gross margin, expressed as a percentage and calculated as gross profit divided by net revenue, decreased by 160 basis points for the three months ended June 30, 2022 compared to the same period in 2021. The decrease in gross margin was primarily a result of the sales growth of contact lenses which are sold at a lower margin than our other eyewear, increases in store occupancy costs as a percent of revenue primarily due to increased depreciation and rent charges as we grew our store base from 145 stores as of June 30, 2021 to 178 stores as of June 30, 2022, and increased prescription services costs as the number of stores with optical examination rooms grew. These impacts were partially offset by the growth in sales of higher margin progressive
lenses and leverage from the scaling of our in-house optical laboratory network, including our Las Vegas laboratory which opened in the fourth quarter of 2021.
Selling, general, and administrative expenses increased $31.6 million, or 36.3%, for the three months ended June 30, 2022 compared to the same period in 2021. This increase was primarily driven by a $16.2 million increase in stock-based compensation and related payroll taxes, an increase in charitable expenses for the donation of stock to the Warby Parker Impact Foundation, higher compensation costs, mainly
from growth in our retail workforce, increased costs related to operating as a public company, and increased technology costs to support business growth. These increases were partially offset by a reduction in professional services costs related to our Direct Listing in 2021 that were not recurring in 2022 and reduced costs for our Home Try-On program from decreased utilization as the COVID-19 pandemic has progressed and customers have returned to stores in larger numbers. The stock-based compensation charges incurred in the three months ended June 30, 2022 primarily related to RSU and PSU awards for which the performance based vesting condition was satisfied by our Direct Listing.
Interest and other income, net increased $0.4 million, or 91.4%, for the three months ended June 30, 2022 compared to the same period in 2021 primarily due to the impact of fair value adjustments to outstanding warrants that were exercised in 2021 that was not repeated in 2022.
Provision for income taxes decreased $1.0 million, or 95.6%, for the three months ended June 30, 2022 compared to the same period in 2021 primarily due to the change in pre-tax loss in addition to the tax effects of stock-based compensation expense.
Net
revenue increased $32.3 million, or 11.9%, for the six months ended June 30, 2022 compared to the same period in 2021. The growth in net revenue was driven by an increase in orders from our larger Active Customer base, as well as an increase in AOV. The increase in AOV was driven primarily by a higher mix of purchases of glasses with progressive lenses which increased our average price per unit sold, while our average units per order remained stable year-over-year.
Cost of Goods Sold, Gross Profit, and Gross Margin
Cost
of goods sold increased by $18.2 million, or 16.7%, for the six months ended June 30, 2022 compared to the same period in 2021, and increased as a percentage of revenue over the same period by 170 basis points, from 40.2% of revenue to 41.9% of revenue. The increase in cost of goods sold was primarily driven by increased product and fulfillment costs associated with the growth in our contact lens offering, as well as an increase in store occupancy, store depreciation, and prescription services expenses due to new retail stores opened in 2022 and a full period of expense from new retail stores opened throughout 2021.
Gross
profit, calculated as net revenue less cost of goods sold, increased by $14.2 million, or 8.7%, for the six months ended June 30, 2022 compared to the same period in 2021, primarily due to the increase in net revenue over the same period.
Gross margin, expressed as a percentage and calculated as gross profit divided by net revenue, decreased by 170 basis points for the six months ended June 30, 2022 compared to the same period in 2021. The decrease in gross margin was primarily a result of the sales growth of contact lenses which are sold at a lower margin than our other eyewear, increases in store occupancy costs as a percent of revenue primarily due to increased depreciation and rent charges as we grew our store base from 145 stores as of June 30, 2021 to 178 stores as of June 30,
2022, and increased prescription services costs as the number of stores with optical examination rooms grew. These impacts were partially offset by the growth in sales of higher margin progressive lenses and leverage from the scaling of our in-house optical laboratory network, including our Las Vegas laboratory which opened in the fourth quarter of 2021.
Selling, general, and administrative expenses increased $74.2 million, or 44.3%, for the six months ended June 30, 2022 compared to the same period in 2021. This increase was primarily driven by a $42.1 million increase in stock-based compensation and related payroll taxes, higher compensation costs, mainly from growth in our retail workforce, an increase in charitable expenses for the donation of stock to
the Warby Parker Impact Foundation, increased insurance costs related to operating as a public company, increased technology costs to support business growth, and increased marketing costs in the first quarter of 2022. These increases were partially offset by reduced costs for our Home Try-On program from decreased utilization as the COVID-19 pandemic has progressed and customers have returned to stores in larger numbers. The stock-based compensation charges incurred in the six months ended June 30, 2022 primarily related to RSU and PSU awards for which the performance based vesting condition was satisfied by our Direct Listing.
Interest and other income, net increased $0.4 million, or 135.3%, for the six months ended June 30, 2022 compared to the same period in 2021 primarily due to the impact of fair value adjustments to outstanding warrants that were exercised in 2021 that was not repeated in 2022, partially offset by lower interest income due to lower cash balances.
Provision for income taxes decreased $0.6 million, or 51.2%, for the six months ended June 30, 2022 compared to the same period in 2021 primarily due to the change in pre-tax loss in addition to the tax effects of stock-based compensation expense.
Historically, our business has not experienced material seasonal fluctuations in net revenue. We do observe moderately higher seasonal demand during the month of December due in part to customer usage of health and flexible spending benefits in the final week of the year. Consistent with our policy to recognize revenue upon order delivery, any orders placed at the end of December are recognized as revenue upon delivery, which may occur in the following year, and as such we typically see revenue decrease sequentially from the first quarter to the second quarter.
Our business has historically experienced a higher proportion of costs in each subsequent quarter as a year progresses due to the overall growth of the business and operating costs to support that growth, including costs related to the opening of new retail stores
and employee-related compensation to support growth. The fourth quarter, in particular, has historically experienced the highest amount of costs in a year to support the business demand in the quarter, even though a portion of the net revenue from that demand is not recognized until January of the following year (see above for more details). In the future, seasonal trends may cause fluctuations in our quarterly results, which may impact the predictability of our business and operating results.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily from net proceeds from the sale of redeemable convertible preferred stock and cash flows from operating activities. As of June 30, 2022, we had cash
and cash equivalents of $211.6 million, which was primarily held for working capital purposes, and an accumulated deficit of $559.5 million. As of December 31, 2021, we had cash and cash equivalents of $256.4 million, which was primarily held for working capital purposes, and an accumulated deficit of $493.2 million.
We expect that operating losses could continue in the foreseeable future as we continue to invest in the expansion of our business. We believe our existing cash and cash equivalents, funds available under our existing credit facility, and cash flows from operating activities will be sufficient to fund our operations for at least the next 12 months.
However, our future capital requirements will depend on many factors, including, but not limited to, growth in the number of retail stores, the needs of our optical laboratories
and distribution network, expansion of our product offerings or service capabilities, and the timing of investments in technology and personnel to support the overall growth in our business. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. In the event that additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all. In particular, the recent COVID-19 pandemic, rising interest and inflation rates,
and other macroeconomic factors have caused disruption in the global financial markets, which could reduce our ability to access capital and negatively affect our liquidity in the future. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, financial condition, and cash flows would be adversely affected.
Credit Facility
In August 2013, we entered into the Loan and Security Agreement with Comerica Bank, or the Credit Facility, as amended, that consists of a revolving credit line of up to $50.0 million. The revolving credit line has a sub-limit of up to $15.0 million for the issuance of letters of credit. Borrowings under the revolving credit line bear interest on the principal amount outstanding at a variable interest
rate based on either LIBOR or the bank’s prime rate (as defined in the credit agreement), with no additional margin. We are charged fees on the uncommitted portion of the credit line of approximately 0.2% as long as total borrowings remain less than $15.0 million.
Other than letters of credit outstanding of $4.1 million and $4.0 million as of June 30, 2022 and December 31, 2021, respectively, used to secure certain leases in lieu of a cash security deposit, there were no other borrowings outstanding under the Credit Facility.
Net
cash provided by (used in) financing activities
1,982
(27,235)
Effect of exchange rates on cash
(302)
132
Net decrease in cash and cash equivalents
$
(44,813)
$
(53,413)
Cash
Flows from Operating Activities
Net cash used in operating activities was $14.6 million for the six months ended June 30, 2022, consisting of a net loss of $66.3 million adjusted for $72.2 million of non-cash expenses and $20.5 million of net cash used as a result of changes in operating assets and liabilities. The non-cash charges included $53.9 million of stock-based compensation, $15.0 million of depreciation and amortization, and $3.3 million of non-cash charitable contributions. The changes in operating assets and liabilities were primarily driven by an increase in net inventory to support the growth of our business and an increase in other non-current assets related to investments in the implementation of our new enterprise resource planning system and other technology infrastructure, and decreases in accrued expenses and deferred revenue, partially offset by an increase
in net lease liabilities in connection with new retail location leases entered into in 2022.
Net cash used in operating activities was $5.1 million for the six months ended June 30, 2021, consisting of a net loss of $7.3 million, adjusted for $21.5 million of non-cash expenses and $19.3 million of net cash used as a result of changes in operating assets and liabilities. The non-cash charges included $11.7 million of stock-based compensation and $9.8 million of depreciation and amortization. The changes in operating assets and liabilities were primarily driven by decreases in deferred revenue, accounts payable and accrued expenses, and an increase in net inventory to support the growth of our business, partially offset by an increase in deferred rent.
Cash Flows from Investing Activities
For the six months
ended June 30, 2022, net cash used in investing activities was $31.9 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in capitalized software development costs.
For the six months ended June 30, 2021, net cash used in investing activities was $21.2 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in our supply chain infrastructure and capitalized software development costs.
Cash Flows from Financing Activities
For the six months ended June 30, 2022, net cash provided by financing activities
was $2.0 million, which was primarily related to proceeds from shares issued in connection with our ESPP and stock option exercises.
For the six months ended June 30, 2021, net cash used in financing activities was $27.2 million, which was primarily related to repurchases of stock during the period, including shares repurchased in connection with the cash tender offer completed in 2021.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations from those described in the Annual Report.
Critical
Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from
our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Annual Report and the notes to the audited consolidated financial statements appearing elsewhere in the Annual Report, and in Note 2 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q. Except for the adoption of new accounting pronouncements as described in Note 2 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q, there were no significant changes to our critical accounting policies
as reported in the Annual Report.
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for more information regarding recent accounting pronouncements.
JOBS Act
We currently qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Accordingly, we are provided the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii)
within the same time periods as private companies. We have elected to adopt new or revised accounting guidance within the same time period as private companies, unless management determines it is preferable to take advantage of early adoption provisions offered within the applicable guidance. Our utilization of these transition periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act.
Based on our public float as of June 30, 2022, we will qualify as a “large accelerated filer” as of December 31, 2022, at which point we will no longer qualify as an emerging growth company. As a result, commencing January 1, 2023,
we will be subject to certain requirements that apply to other public companies but did not previously apply to us due to our status as an emerging growth company, such as the auditor attestation requirements under Section 404 of the Sarbanes Oxley Act of 2002, as amended. Compliance with these enhanced disclosure requirements will increase our costs and could negatively affect our results of operations and financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market
risk represents the risk of loss that may impact our financial position because of adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure resulting from potential changes in currency rates, interest rates, or inflation.
Foreign Exchange Risk
We are exposed to changes in foreign currency rates as a result of our foreign operations and international suppliers from whom we purchase in Japanese yen and euros. Revenue and income generated by our operations in Canada and our cost of goods sold will increase or decrease compared to prior periods as a result of changes in foreign currency exchange rates. We do not believe that foreign exchange rates have a material effect on our business, financial condition or results of operations.
Interest Rate Risk
Our
cash and cash equivalents as of June 30, 2022 consisted of $211.6 million in cash and money-market funds. Such interest-earning instruments carry a degree of interest rate risk. The goals of our investment policy are liquidity and capital preservation. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate exposure. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash and cash equivalents.
Inflation Risk
We believe that inflation, including from conditions stemming from the war in Ukraine, the impact of COVID-19, and other macroeconomic factors, has had a limited impact on our business, financial condition, and
results of operations. Inflation may, however, have an impact on raw materials, transportation, labor, construction, rent, and other costs which materially impact operations. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs with increased revenue. Our inability or failure to do so could harm our business, financial condition, and results of operations.
Limitations on Effectiveness
of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our co-principal executive officers and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, and as a result of the material weaknesses described below, our co-principal executive officers and principal financial officer concluded that, as of June 30, 2022, our disclosure controls and procedures were not effective at the reasonable assurance level.
Material Weaknesses
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely basis.
In connection with the preparation of our consolidated financial statements for 2020, we identified certain control deficiencies in the design
and operation of our internal control over financial reporting that constituted material weaknesses. The material weaknesses identified relate to (i) information technology general controls, in the areas of user access and program change management, over our key accounting, reporting, and proprietary systems and (ii) certain process and application controls within our financial reporting processes to enforce segregation of duties, prevent and detect errors, support timely reconciliation and analysis of certain key accounts, and enable the review of manual journal entries. We have concluded that these material weaknesses arose because, as a private company, we did not have the necessary business processes, systems, personnel, and related internal controls necessary to satisfy the accounting and financial reporting requirements of a public company.
Remediation Measures
In order to remediate
these material weaknesses, we have made progress in the following actions, among others:
•development of IT general controls to manage access and program changes across our key systems and the execution of improvements to application controls within our proprietary system;
•selected an enterprise resource planning system, hired an implementation partner, and are in the process of implementation which will provide improvements to our IT-dependent and application controls to help prevent and detect errors and enforce segregation of duties;
•implementation of additional review controls and processes and requiring timely account reconciliations and analyses;
•implementation of processes and controls to
better identify and manage segregation of duties; and
•continued hiring of additional qualified accounting and financial reporting personnel to support division of responsibilities.
We will not be able to fully remediate these material weaknesses until these steps have been completed and have been operating effectively for a sufficient period of time. At this time, we cannot provide an estimate of costs expected to be incurred in connection with implementing these remediation efforts; however, these remediation efforts will be time consuming, will result in us incurring significant costs, and will place significant demands on our financial and operational resources.
Furthermore, we cannot assure you that the measures we have taken to date, and actions we may take in the future,
will be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any
failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to
meet our reporting obligations and may result in a restatement of our financial statements for prior periods.
Changes in Internal Control Over Financial Reporting
Other than the remediation measures described in “Remediation Measures” above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The information contained under the heading “Litigation” in Note 9 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q is incorporated by reference into this Item.
Item 1A. Risk Factors
There have been no material changes to the risk factors affecting our business, financial condition, or future results from those set forth in Part I, Item 1A, Risk
Factors, in the Annual Report. However, you should carefully consider the factors discussed in the Annual Report and in this Quarterly Report on Form 10-Q, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
In May 2022, the Company issued 178,572 shares of Class A common stock to the Warby
Parker Impact Foundation, a Delaware exempt corporation. The shares donated were issued in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.
Inline
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
