Warby Parker(WRBY) - 2022 Q1 - Quarterly Report

Part I. Financial Information Condensed Consolidated Financial Statements (Unaudited) Warby Parker reported $153.2 million revenue and a $34.1 million net loss for Q1 2022, with assets at $544.7 million and cash at $230.3 million Condensed Consolidated Balance Sheets Total assets reached $544.7 million due to ASC 842 lease asset recognition, with liabilities at $263.8 million and equity at $280.9 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $230,324 | $256,416 | | Inventory | $64,253 | $57,095 | | Right-of-use lease assets | $109,737 | $— | | Total Assets | $544,666 | $440,646 | | Liabilities | | | | Total current liabilities | $128,742 | $118,104 | | Non-current lease liabilities | $132,824 | $— | | Total Liabilities | $263,783 | $154,648 | | Total Stockholders' Equity | $280,883 | $285,998 | Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income Q1 2022 net revenue grew to $153.2 million, but increased SG&A expenses led to a $33.7 million operating loss and $34.1 million net loss Q1 2022 vs Q1 2021 Statement of Operations (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net revenue | $153,218 | $138,973 | | Gross profit | $89,646 | $83,781 | | Selling, general, and administrative expenses | $123,386 | $80,760 | | (Loss) income from operations | $(33,740) | $3,021 | | Net (loss) income | $(34,133) | $3,011 | | Net loss per share, basic and diluted | $(0.30) | $(0.03) | Condensed Consolidated Statements of Cash Flows Net cash used in operations was $10.3 million and investing $16.1 million, resulting in a $26.1 million decrease in cash and equivalents Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,296) | $(3,277) | | Net cash used in investing activities | $(16,060) | $(8,686) | | Net cash provided by (used in) financing activities | $180 | $(5,907) | | Net decrease in cash and cash equivalents | $(26,092) | $(18,064) | Notes to Condensed Consolidated Financial Statements Notes detail ASC 842 adoption, revenue disaggregation, $27.1 million stock-based compensation, and an undrawn $50 million credit facility - The company adopted the new lease accounting standard ASC 842 as of January 1, 2022, resulting in the recognition of $109.4 million in right-of-use assets and $146.2 million in lease liabilities on the balance sheet[51][54] Revenue by Channel (in thousands) | Channel | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | E-commerce | $67,005 | $78,182 | | Retail | $86,213 | $60,791 | - Stock-based compensation expense increased significantly to $27.1 million in Q1 2022 from $1.3 million in Q1 2021. This includes $20.1 million related to the 2021 Founders Grant and $5.3 million for RSUs where the performance condition was met by the Direct Listing[79] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 10.3% revenue growth to $153.2 million, gross margin decline, and a 52.8% SG&A surge leading to a $34.1 million net loss Key Business Metrics and Non-GAAP Measures Key metrics show active customer growth to 2.23 million and 169 stores, but Adjusted EBITDA sharply declined to $0.8 million Key Performance Indicators | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Active Customers (in millions) | 2.23 | 1.89 | | Store Count | 169 | 134 | Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net (loss) income | $(34,133) | $3,011 | | Adjustments | $34,907 | $6,253 | | Adjusted EBITDA | $774 | $9,264 | | Adjusted EBITDA margin | 0.5% | 6.7% | Results of Operations Q1 2022 revenue grew 10.3% to $153.2 million, but gross margin declined and SG&A expenses surged 52.8%, resulting in an operating loss - Net revenue increased by $14.2 million (10.3%) in Q1 2022 compared to Q1 2021, driven by a larger Active Customer base and a higher Average Order Value (AOV) due to a greater mix of progressive lenses[141] - Gross margin decreased by 180 basis points, primarily due to sales growth of lower-margin contact lenses, increased store occupancy costs from store expansion (from 134 to 169 stores), and a prior year tariff rebate benefit[144] - Selling, general, and administrative (SG&A) expenses rose by $42.6 million (52.8%), primarily driven by a $25.9 million increase in stock-based compensation and related taxes following the company's Direct Listing[145] Liquidity and Capital Resources The company holds $230.3 million in cash and a $50 million credit facility, deemed sufficient for operations despite anticipated losses - The company has a revolving credit facility of up to $50.0 million with Comerica Bank. As of March 31, 2022, there were no borrowings outstanding other than $4.0 million in letters of credit[154][155] - Net cash used in operating activities was $10.3 million for Q1 2022, primarily consisting of a net loss of $34.1 million offset by non-cash charges like $27.1 million in stock-based compensation[157] - Net cash used in investing activities was $16.1 million, mainly for property and equipment purchases related to the build-out of new retail stores[159] Quantitative and Qualitative Disclosures About Market Risk Primary market risks include foreign exchange, interest rate, and inflation, with current impacts deemed immaterial but future cost pressures acknowledged - The company is exposed to foreign exchange risk from its Canadian operations and suppliers in Japanese yen and euros, but does not believe the effect is material[169] - Interest rate risk is considered low, as the company's $230.3 million in cash and cash equivalents are held in short-term instruments with a primary goal of liquidity and capital preservation[170] - Inflation is identified as a potential risk that could impact costs for raw materials, transportation, labor, and rent, which the company may not be able to fully offset with increased revenue[171] Controls and Procedures Disclosure controls were ineffective due to material weaknesses in IT general controls and financial reporting processes, with remediation underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2022, due to ongoing material weaknesses[174] - The material weaknesses relate to (i) IT general controls over key systems and (ii) process controls within financial reporting, including segregation of duties and timely reconciliation[176] - Remediation efforts are underway, including selecting and implementing a new ERP system, developing IT controls, implementing additional review processes, and hiring more accounting personnel[177][178] Part II. Other Information Legal Proceedings The company is not subject to any pending legal matters expected to materially impact its financial condition or operations - The company is not currently subject to any pending legal matters that would materially impact its financial condition[103][183] Risk Factors No material changes to the company's risk factors have occurred since the prior Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K[184]