Item 1. Condensed Consolidated Financial Statements
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
1. Organization
Waitr Holdings Inc., a Delaware corporation, together with its wholly owned subsidiaries (the “Company,” “Waitr,” “we,” “us” and “our”), operates an online ordering technology platform, providing delivery, carryout and dine-in options, connecting restaurants, drivers and diners in cities across the United States. The Company’s technology platform includes the Waitr and Bite Squad mobile applications, and more recently, the Delivery Dudes mobile application, collectively referred to as the “Platforms”. The Platforms allow consumers to browse local restaurants and menus, track order and delivery status, and securely store previous orders for ease of use and convenience. Restaurants benefit from the online Platforms through increased exposure to consumers for expanded business in the delivery market and carryout sales.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The unaudited interim condensed consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) as they apply to interim financial information. Accordingly, the interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete annual financial statements, although the Company believes that the disclosures made are adequate to make information not misleading. References to the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) included hereafter refer to the ASC and ASUs established by the Financial Accounting Standards Board (the “FASB”) as the source of authoritative GAAP.
The unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). The interim condensed consolidated financial statements are unaudited, but in the Company’s opinion, include all adjustments that are necessary for a fair presentation of the results for the periods presented. The interim results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.
During the third quarter of 2020, the Company identified and corrected an immaterial error related to the understatement of an accrued medical contingency that affected previously issued consolidated financial statements. In order to present the impact of the updated estimated liability for the claim, previously issued financial statements have been revised. See Note 9 – Correction of Prior Period Error for additional details, including a summary of the revisions to certain previously reported financial information presented herein for comparative purposes.
Reclassifications
Certain amounts from prior periods have been reclassified to conform to the current period presentation.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all wholly owned subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in accordance with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Significant estimates and judgments relied upon in preparing these condensed consolidated financial statements affect the following items:
|
•
|
incurred loss estimates under our insurance policies with large deductibles or retention levels;
|
|
•
|
loss exposure related to claims such as the Medical Contingency (see Note 9 – Correction of Prior Period Error);
|
|
•
|
useful lives of tangible and intangible assets;
|
5
TABLE_CONTENTS
|
•
|
goodwill and other intangible assets, including the recoverability of intangible assets with finite lives and other long-lived assets; and
|
|
•
|
fair value of assets acquired and liabilities assumed as part of a business combination.
|
The Company regularly assesses these estimates and records changes to estimates in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions believed to be reasonable under the circumstances. Changes in the economic environment, financial markets, and any other parameters used in determining these estimates could cause actual results to differ from those estimates.
Impact of COVID-19 on our Business
Waitr has thus far been able to operate during the pandemic caused by the outbreak of SARS-CoV-2 (“COVID-19”). We have taken several steps to help protect and support our restaurant partners, diners, independent contractor drivers and our employees during the COVID-19 outbreak, including offering no-contact delivery in select markets, offering no-contact grocery delivery in select markets, working with certain restaurant partners to waive diner delivery fees, deploying free marketing programs for certain restaurants and providing masks, gloves and hand sanitizer to drivers. We continue to monitor the impact of the COVID-19 outbreak, although there remains significant uncertainty related to the public health impact and the global economic situation.
Critical Accounting Policies and Estimates
See “Recent Accounting Pronouncements” below for a description of accounting principle changes adopted during the three months ended March 31, 2021 related to leases. There have been no other material changes to our critical accounting policies and estimates described in the 2020 Form 10-K. See “Revenue” below for a description of our revenue recognition policy.
Revenue
The Company generates revenue (“Transaction Fees”) primarily when diners place an order on one of the Platforms. In the case of diner subscription fees for our unlimited delivery subscription program, revenue is recognized for the receipt of the monthly fee in the applicable month for which the delivery service applies to. Revenue consists of the following for the periods indicated (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Transaction Fees
|
|
$
|
50,476
|
|
|
$
|
43,811
|
|
Setup and integration fees
|
|
|
7
|
|
|
|
378
|
|
Other
|
|
|
447
|
|
|
|
54
|
|
Total Revenue
|
|
$
|
50,930
|
|
|
$
|
44,243
|
|
Transaction Fees represent the revenue recognized from the Company’s obligation to process orders on the Platforms. The performance obligation is satisfied when the Company successfully processes an order placed on one of the Platforms and the restaurant receives the order at their location. The obligation to process orders on the Platforms represents a series of distinct performance obligations satisfied over time that the Company combines into a single performance obligation. Consistent with the recognition objective in ASC Topic 606, Revenue from Contracts with Customers, the variable consideration due to the Company for processing orders is recognized on a daily basis. As an agent of the restaurant in the transaction, the Company recognizes Transaction Fees earned from the restaurant on the Platform on a net basis. Transaction Fees also include a fee charged to the end user customer when they request the order be delivered to their location. Revenue is recognized for diner fees once the delivery service is completed. The contract period for substantially all restaurant contracts is one month as both the Company and the restaurant have the ability to unilaterally terminate the contract by providing notice of termination.
During the three months ended March 31, 2021 and 2020, the Company recognized revenue for non-refundable setup and integration fees for onboarding certain restaurants. In connection with modifications to the Company’s fee structure in July 2019, the Company discontinued offering fee arrangements with the upfront, one-time setup and integration fee.
The Company records a receivable when it has an unconditional right to the consideration. The balance of accounts receivable, net was $4,907 and $2,954 as of March 31, 2021 and December 31, 2020, respectively, comprised primarily of credit card receivables due from the credit card processor.
6
TABLE_CONTENTS
Costs to Obtain a Contract with a Customer
The Company recognizes an asset for the incremental costs of obtaining a contract with a restaurant and recognizes the expense over the course of the period when the Company expects to recover those costs. The Company has determined that certain internal sales incentives earned at the time when an initial contract is executed meet these requirements. Capitalized sales incentives are amortized to sales and marketing expense on a straight-line basis over the period of benefit, which the Company has determined to be five years. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less.
Deferred costs related to obtaining contracts with restaurants were $2,734 and $2,424 as of March 31, 2021 and December 31, 2020, respectively, out of which $659 and $567, respectively, was classified as current. Amortization of expense for the costs to obtain a contract were $149 and $53 for the three months ended March 31, 2021 and 2020, respectively.
Costs to Fulfill a Contract with a Customer
The Company also recognizes an asset for the costs to fulfill a contract with a restaurant when they are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered. The Company has determined that certain costs related to setup and integration activities meet the capitalization criteria under ASC Topic 340-40, Other Assets and Deferred Costs. Costs related to these implementation activities are deferred and then amortized to operations and support expense on a straight-line basis over the period of benefit, which the Company has determined to be five years.
Deferred costs related to fulfilling contracts with restaurants were $893 and $742 as of March 31, 2021 and December 31, 2020, respectively, out of which $209 and $170, respectively, was classified as current. Amortization of expense for the costs to fulfill a contract were $45 and $15 for the three months ended March 31, 2021 and 2020, respectively.
Recent Accounting Pronouncements
The Company considered the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on these unaudited condensed consolidated financial statements. Throughout fiscal year 2020, the Company qualified as an “emerging growth company” pursuant to the provisions of the JOBS Act. As an emerging growth company, the Company elected to use the extended transition period for complying with certain new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Effective January 1, 2021, the Company is no longer an emerging growth company.
Recently Adopted Accounting Standards
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The principal objective of ASU 2016-02 is to increase transparency and comparability among organizations by recognizing “right-of-use” lease assets and lease liabilities on the consolidated balance sheet. ASU 2016-02 continues to retain a distinction between finance and operating leases but requires lessees to recognize a right-of-use asset representing its right to use the underlying asset for the lease term and a corresponding lease liability on the balance sheet for all leases with terms greater than twelve months. ASU 2016-02 was effective for and adopted by the Company on January 1, 2021. The Company applied the modified retrospective transition approach, with no adjustment to prior comparative periods. Accordingly, financial information is not adjusted and the disclosures required under ASU 2016-02 are not provided for periods prior to January 1, 2021.
The Company determines if an arrangement is a lease at inception of a contract. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company elected the optional practical expedient package, which includes retaining the current classification of leases, and is utilizing the practical expedient which allows the use of hindsight in determining the lease term and in assessing impairment of its operating lease right-of-use assets. Additionally, the Company has elected to treat lease and non-lease components as a single lease component for all assets. The Company has elected to apply the short-term scope exception for leases with original terms of twelve months or less, and accordingly, recognizes the lease payments for such leases in the statement of operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.
Under ASU 2016-02, the Company recorded in the unaudited condensed consolidated balance sheet as of January 1, 2021, lease liabilities for operating leases entered into prior to December 31, 2020 of $4,993, representing the present value of its future operating lease payments, and corresponding right-of-use assets of $4,681, based upon the operating lease liabilities adjusted for deferred rent. As most of the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date,
7
TABLE_CONTENTS
which is estimated to be 5.0%. The adoption of ASU 2016-02 did not result in a cumulative-effect adjustment on retained earnings. See Note 10 – Commitments and Contingencies for additional details.
Other
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes and also improves consistent application by clarifying and amending existing guidance. ASU 2019-12 was effective for and adopted by the Company on January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s disclosures or consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of ASU 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced based on the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of ASU 2017-11 addresses the difficulty of navigating ASC Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in ASC 480. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. Part II of ASU 2017-11 does not have an accounting effect. ASU 2017-11 was effective for and adopted by the Company on January 1, 2021. The adoption of ASU 2017-11 did not have a material impact on the Company’s disclosures or consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 uses a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments and expands disclosure requirements. ASU 2016-13 was effective for and adopted by the Company on January 1, 2021. The adoption of ASU 2016-13 did not have a material impact on the Company’s disclosures or consolidated financial statements.
Pending Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt, resulting in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation. ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impacts of the provisions of ASU 2020-06 on its consolidated financial statements and related disclosures.
3. Business Combinations
2021 Acquisition
On March 11, 2021, the Company completed the acquisition of certain assets and properties from Dude Holdings LLC (“Delivery Dudes”), a third-party delivery business primarily serving the South Florida market, for $11,500 in cash, subject to certain purchase price adjustments, and 3,562,577 shares of the Company’s common stock (the “Delivery Dudes Acquisition”). The share consideration was valued at $3.23 per share, representing the average volume weighted average price of the Company’s common stock for the five consecutive trading days prior to March 9, 2021. The acquisition expands the Company’s market presence in the on-demand delivery service sector. The following represents the preliminary estimated purchase consideration:
8
TABLE_CONTENTS
(in thousands, except per share amount)
|
|
|
|
|
Shares transferred at closing
|
|
|
3,562
|
|
Value per share
|
|
$
|
3.23
|
|
Total share consideration
|
|
|
11,500
|
|
Plus: cash transferred to Delivery Dudes members
|
|
|
10,927
|
|
Plus: net working capital deficit assumed
|
|
|
573
|
|
Total estimated consideration
|
|
$
|
23,000
|
|
The Delivery Dudes Acquisition was considered a business combination in accordance with ASC 805, and was accounted for using the acquisition method. Under the acquisition method of accounting, acquired assets and assumed liabilities are recorded based on their respective fair values on the acquisition date, with the excess of the consideration transferred in the acquisition over the fair value of the assets and liabilities acquired recorded as goodwill. The preliminary estimated fair value of assets acquired and liabilities assumed consists of the following (in thousands):
Cash and cash equivalents
|
|
$
|
573
|
|
Accounts receivable
|
|
|
330
|
|
Prepaid expenses and other current assets
|
|
|
130
|
|
Intangible assets
|
|
|
7,700
|
|
Other noncurrent assets
|
|
|
33
|
|
Accrued expenses and other current liabilities
|
|
|
(1,035
|
)
|
Other noncurrent liabilities
|
|
|
(29
|
)
|
Total assets acquired, net of liabilities assumed
|
|
|
7,702
|
|
Goodwill
|
|
|
15,298
|
|
Total estimated consideration
|
|
$
|
23,000
|
|
The Company engaged a third-party specialist to assist management in estimating the fair value of the assets and liabilities. Goodwill is attributable to the future anticipated economic benefits from combining operations of the Company and Delivery Dudes, including future growth into new markets, future customer relationships and the workforce in place. All of the goodwill is expected to be deductible for U.S. federal income tax purposes. While the Company has substantially completed the determination of the fair values of the assets acquired and liabilities assumed, the Company is still finalizing the calculation of the purchase price adjustments pursuant to the asset purchase agreement for the Delivery Dudes Acquisition, which could affect the final fair value analysis. The Company anticipates finalizing the determination of the fair values by the second quarter of 2021.
The following table sets forth the components of estimated identifiable intangible assets acquired from Delivery Dudes (in thousands) and their estimated useful lives as of the acquisition date:
|
|
Amortizable
Life (in years)
|
|
|
Value
|
|
Customer relationships
|
|
|
7.5
|
|
|
$
|
4,700
|
|
Franchise relationships
|
|
|
1.0
|
|
|
|
250
|
|
Trade name
|
|
|
3.0
|
|
|
|
800
|
|
Developed technology
|
|
|
2.0
|
|
|
|
1,900
|
|
In-process research and development
|
|
|
2.0
|
|
|
|
50
|
|
Total
|
|
|
|
|
|
$
|
7,700
|
|
The acquired identifiable intangible assets are amortized on a straight-line basis to reflect the pattern in which the economic benefits of the intangible assets are consumed. The acquired customer relationships were valued using the income approach, specifically, the multi-period excess earnings method, which measures the after-tax cash flows attributable to the existing customer relationships after deducting the operating costs and contributory asset charges associated with economic rents associated with supporting the existing customer relationships. The franchise relationships were also valued using the multi-period excess earnings method. The acquired trade name was valued using the income approach, specifically, the relief from royalty rate method, which measures the cash flow streams attributable to the trade name in the form of royalty payments that would be paid to the owner of the trade name in return for the rights to use the trade name. Developed technology was valued based on the cost approach, specifically the “with & without” methodology which considers the direct replacement and opportunity costs associated with the underlying technology, and in-process research and development assets were valued using the replacement cost method. These fair value measurements were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. These inputs required significant judgments and estimates at the time of the valuation.
9
TABLE_CONTENTS
The results of operations of Delivery Dudes are included in our unaudited condensed consolidated financial statements beginning on the acquisition date, March 11, 2021. Revenue and net loss of Delivery Dudes included in the unaudited condensed consolidated statement of operations in the three months ended March 31, 2021 totaled approximately $831 and $21, respectively.
In connection with the Delivery Dudes Acquisition, the Company incurred direct and incremental costs of $606 consisting of legal and professional fees, which are included in general and administrative expenses in the unaudited condensed consolidated statement of operations in the three months ended March 31, 2021.
Pro-Forma Financial Information (Unaudited)
The supplemental condensed consolidated results of the Company on an unaudited pro forma basis as if the Delivery Dudes Acquisitions had been consummated on January 1, 2020 are as follows (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net revenue
|
|
$
|
53,406
|
|
|
$
|
46,450
|
|
Net income (loss)
|
|
$
|
652
|
|
|
$
|
(1,993
|
)
|
These pro forma results were based on estimates and assumptions, which the Company believes are reasonable. They are not the results that would have been realized had the Company been a consolidated company during the periods presented and are not indicative of consolidated results of operations in future periods. Acquisition costs and other non-recurring charges incurred are included in the period presented.
4. Accounts Receivable, Net
Accounts receivable consist of the following (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Credit card receivables
|
|
$
|
4,807
|
|
|
$
|
3,013
|
|
Receivables from restaurants and customers
|
|
|
592
|
|
|
|
334
|
|
Accounts receivable
|
|
$
|
5,399
|
|
|
$
|
3,347
|
|
Less: allowance for doubtful accounts and chargebacks
|
|
|
(492
|
)
|
|
|
(393
|
)
|
Accounts receivable, net
|
|
$
|
4,907
|
|
|
$
|
2,954
|
|
5. Intangibles Assets and Goodwill
Intangible Assets
Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives and include internally developed software, as well as software to be otherwise marketed, and trademarks/trade name/patents, customer relationships and franchise relationships. The Company has determined that the Waitr trademark intangible asset is an indefinite-lived asset and therefore is not subject to amortization but is evaluated annually for impairment. The Bite Squad and Delivery Dudes trade name intangible assets, however, are being amortized over their estimated useful lives.
10
TABLE_CONTENTS
Intangible assets are stated at cost or acquisition-date fair value less accumulated amortization and consist of the following (in thousands):
|
|
As of March 31, 2021
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Accumulated
Impairment
|
|
|
Intangible
Assets, Net
|
|
Software
|
|
$
|
28,876
|
|
|
$
|
(6,744
|
)
|
|
$
|
(11,825
|
)
|
|
$
|
10,307
|
|
Trademarks/Trade name/Patents
|
|
|
6,205
|
|
|
|
(3,998
|
)
|
|
|
—
|
|
|
|
2,207
|
|
Customer Relationships
|
|
|
87,545
|
|
|
|
(11,396
|
)
|
|
|
(57,378
|
)
|
|
|
18,771
|
|
Franchise Relationships
|
|
|
250
|
|
|
|
(21
|
)
|
|
|
—
|
|
|
|
229
|
|
Total
|
|
$
|
122,876
|
|
|
$
|
(22,159
|
)
|
|
$
|
(69,203
|
)
|
|
$
|
31,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Accumulated
Impairment
|
|
|
Intangible
Assets, Net
|
|
Software
|
|
$
|
25,204
|
|
|
$
|
(6,099
|
)
|
|
$
|
(11,825
|
)
|
|
$
|
7,280
|
|
Trademarks/Trade name/Patents
|
|
|
5,405
|
|
|
|
(3,526
|
)
|
|
|
—
|
|
|
|
1,879
|
|
Customer Relationships
|
|
|
82,845
|
|
|
|
(10,702
|
)
|
|
|
(57,378
|
)
|
|
|
14,765
|
|
Franchise Relationships
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
113,454
|
|
|
$
|
(20,327
|
)
|
|
$
|
(69,203
|
)
|
|
$
|
23,924
|
|
During the three months ended March 31, 2021, the Company acquired intangible assets in connection with the Delivery Dudes Acquisition (see Note 3 – Business Combinations). Additionally, during the three months ended March 31, 2021, the Company capitalized approximately $1,722 of software costs related to the development of the Platforms, with an estimated useful life of three years.
The Company recorded amortization expense of $1,832 and $1,540 for the three months ended March 31, 2021 and 2020, respectively. Estimated future amortization expense of intangible assets is as follows (in thousands):
|
|
Amortization
|
|
The remainder of 2021
|
|
$
|
7,582
|
|
2022
|
|
|
8,264
|
|
2023
|
|
|
5,641
|
|
2024
|
|
|
3,743
|
|
2025
|
|
|
3,332
|
|
Thereafter
|
|
|
2,947
|
|
Total future amortization
|
|
$
|
31,509
|
|
Goodwill
The change in the Company’s goodwill balance is as follows for the three months ended March 31, 2021 and the year ended December 31, 2020 (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Balance, beginning of period
|
|
$
|
106,734
|
|
|
$
|
106,734
|
|
Acquisitions during the period
|
|
|
15,298
|
|
|
|
—
|
|
Impairments during the period
|
|
|
—
|
|
|
|
—
|
|
Balance, end of period
|
|
$
|
122,032
|
|
|
$
|
106,734
|
|
The Company recorded $15,298 of goodwill during the three months ended March 31, 2021 as a result of the allocation of the purchase price over assets acquired and liabilities assumed in the Delivery Dudes Acquisition (see Note 3 – Business Combinations).
11
TABLE_CONTENTS
6. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Accrued insurance expenses
|
|
$
|
4,062
|
|
|
$
|
3,392
|
|
Accrued estimated workers' compensation expenses
|
|
|
1,397
|
|
|
|
1,725
|
|
Accrued medical contingency
|
|
|
456
|
|
|
|
448
|
|
Accrued sales tax payable
|
|
|
623
|
|
|
|
418
|
|
Accrued legal contingency
|
|
|
4,000
|
|
|
|
—
|
|
Other accrued expenses
|
|
|
8,883
|
|
|
|
4,061
|
|
Unclaimed property
|
|
|
1,789
|
|
|
|
1,679
|
|
Other current liabilities
|
|
|
3,764
|
|
|
|
2,058
|
|
Total other current liabilities
|
|
$
|
24,974
|
|
|
$
|
13,781
|
|
7. Debt
The Company’s outstanding debt obligations are as follows (in thousands):
|
|
Coupon Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range in 2020
|
|
Effective
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
through 1Q21
|
|
Interest Rate
|
|
|
Maturity
|
|
2021
|
|
|
2020
|
|
Term Loan
|
|
5.125% - 7.125%
|
|
10.62%
|
|
|
November 2023
|
|
$
|
35,007
|
|
|
$
|
49,479
|
|
Notes
|
|
4.0% - 6.0%
|
|
6.49%
|
|
|
November 2023
|
|
|
49,504
|
|
|
|
49,504
|
|
|
|
|
|
|
|
|
|
|
|
$
|
84,511
|
|
|
$
|
98,983
|
|
Less: unamortized debt issuance costs on Term Loan
|
|
|
|
|
|
|
|
|
|
|
(3,069
|
)
|
|
|
(3,541
|
)
|
Less: unamortized debt issuance costs on Notes
|
|
|
|
|
|
|
|
|
|
|
(934
|
)
|
|
|
(1,224
|
)
|
Long term debt - related party
|
|
|
|
|
|
|
|
|
|
$
|
80,508
|
|
|
$
|
94,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term loans for insurance financing
|
|
3.49% - 3.99%
|
|
n/a
|
|
|
August 2021
|
|
|
1,143
|
|
|
|
2,726
|
|
Total outstanding debt
|
|
|
|
|
|
|
|
|
|
$
|
81,651
|
|
|
$
|
96,944
|
|
Interest expense related to the Company’s outstanding debt totaled $1,901 and $2,914 for the three months ended March 31, 2021 and 2020, respectively. Interest expense includes interest on outstanding borrowings and amortization of debt issuance costs. See Note 15 – Related Party Transactions for additional information regarding the Company’s long-term debt.
Amendments to Loan Agreements
On March 9, 2021, the Company entered into an amendment to the Credit Agreement and an amendment to the Convertible Notes Agreement (together, the “Amended Loan Agreements”). The Amended Loan Agreements provide, among other things, for the Delivery Dudes Acquisition being included in the definition of Permitted Acquisition (as defined in the Credit Agreement and Convertible Notes Agreement). Additionally, pursuant to the amendment to the Credit Agreement, the Company made a $15,000 payment on the Term Loan on March 16, 2021. See Term Loan and Notes below for definitions of certain capitalized terms included above.
The Company evaluated the amendments in the Amended Loan Agreements under ASC 470-50, “Debt Modification and Extinguishment”, and concluded that the amendments did not meet the characteristics of debt extinguishments under ASC 470-50. Accordingly, the amendments were treated as a debt modification, and thus, no gain or loss was recorded. A new effective interest rate for the Term Loan that equates the revised cash flows to the carrying amount of the original debt is computed and applied prospectively.
Term Loan
The Company maintains an agreement with Luxor Capital Group, LP (“Luxor Capital”) (as amended or otherwise modified from time to time, the “Credit Agreement”). The Credit Agreement provides for a senior secured first priority term loan (the “Term Loan”) which is guaranteed by certain subsidiaries of the Company. In connection with the Term Loan, the Company issued to Luxor Capital warrants which are currently exercisable for 478,458 shares of the Company’s common stock (see Note 12 – Stockholders’ Equity).
12
TABLE_CONTENTS
Interest on the Term Loan is payable quarterly, in cash or, at the election of the Company, as a payment-in-kind, with interest paid in-kind being added to the aggregate principal balance. The Credit Agreement includes a number of customary covenants that, among other things, limit or restrict the ability of each of the Company and its subsidiaries to incur additional debt, incur liens on assets, engage in mergers or consolidations, dispose of assets, pay dividends or repurchase capital stock and repay certain junior indebtedness. The Credit Agreement also includes customary affirmative covenants, representations and warranties and events of default. We believe that we were in compliance with all covenants under the Credit Agreement as of March 31, 2021.
Notes
Additionally, the Company issued unsecured convertible promissory notes (the “Notes”) to Luxor Capital Partners, LP, Luxor Capital Partners Offshore Master Fund, LP, Luxor Wavefront, LP and Lugard Road Capital Master Fund, LP (the “Luxor Entities”) pursuant to an agreement, herein referred to as the “Convertible Notes Agreement”.
Interest on the Notes is payable quarterly, in cash or, at the Company’s election, up to one-half of the dollar amount of an interest payment due can be paid-in-kind. Interest paid-in-kind is added to the aggregate principal balance. The Notes include customary anti-dilution protection, including broad-based weighted average adjustments for issuances of additional shares (down-round features). Upon maturity, the outstanding Notes (and any accrued but unpaid interest) will be repaid in cash or converted into shares of common stock, at the holder’s election. The Notes are currently convertible at the holder’s election into shares of the Company’s common stock at a rate of $10.45 per share.
The Company’s payment obligations on the Notes are not guaranteed. The Convertible Notes Agreement contains negative covenants, affirmative covenants, representations and warranties and events of default that are substantially similar to those that are set forth in the Credit Agreement (except those that relate to collateral and related security interests, which are not contained in the Convertible Notes Agreement or otherwise applicable to the Notes). We believe that we were in compliance with all covenants under the Convertible Notes Agreement as of March 31, 2021.
Short-Term Loans
The Company’s short-term loans include loans to finance portions of certain annual insurance premium obligations. The loans are payable in monthly installments until maturity.
8. Income Taxes
The Company provides for income taxes using an asset and liability approach under which deferred income taxes are provided for based upon enacted tax laws and rates applicable to periods in which the taxes become payable. The Company recorded income tax expense of $24 and $17 for the three months ended March 31, 2021 and 2020, respectively, entirely related to state taxes in various jurisdictions. A partial valuation allowance has been recorded as of March 31, 2021 and December 31, 2020 as the Company has generated net operating losses prior to the second quarter of 2020, and the Company did not consider future book income as a source of taxable income when assessing if a portion of the deferred tax assets is more likely than not to be realized.
As of March 31, 2021, the Company recognized $1,334 in employer payroll tax deferrals under the Coronavirus Aid, Relief and Economic Security (CARES) Act, of which 50% will be paid in 2021 and 50% will be paid in 2022. These amounts are reflected in other current and non-current liabilities in the accompanying unaudited condensed consolidated balance sheet.
9. Correction of Prior Period Error
During the third quarter of 2020, the Company identified and corrected an immaterial error related to the understatement of an accrued medical contingency (the “Medical Contingency”) that affected previously issued consolidated financial statements. The Company became liable for a claim due to the insolvency of a previous workers compensation insurer. The Company assessed the materiality of the error, both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin No. 99, and concluded that the error was not material to any of its previously reported financial statements based upon qualitative aspects of the error. However, as the error was large quantitatively, previously issued financial statements have been revised and are presented for comparative purposes. The Company engaged a third-party actuary to assist in the calculation of the estimated loss exposure and determined that the accrued liability recorded at December 31, 2018 for the claim was understated by approximately $17,505, which resulted in additional expense for the year ended December 31, 2018 of $17,505.
The cumulative impact of the error correction on the Company’s retained earnings and stockholders’ equity as of January 1, 2020 was $17,505. As shown in the table below, there was no impact to net cash provided by operating activities for the three months ended March 31, 2020. Net income (loss) for the three months ended March 31, 2020 was not impacted by the revision. Line items affected by the revision are included in the tables below.
13
TABLE_CONTENTS
Revised Consolidated Cash Flow Statement (unaudited) (in thousands)
|
|
Three Months Ended March 31, 2020
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued medical contingency
|
|
$
|
—
|
|
|
$
|
(69
|
)
|
|
$
|
(69
|
)
|
Accrued workers' compensation liability
|
|
|
(69
|
)
|
|
|
71
|
|
|
|
2
|
|
Other current liabilities
|
|
|
(155
|
)
|
|
|
(2
|
)
|
|
|
(157
|
)
|
Net cash provided by operating activities
|
|
|
7,027
|
|
|
|
—
|
|
|
|
7,027
|
|
Revised Consolidated Balance Sheet (unaudited) (in thousands)
|
|
March 31, 2020
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
Other current liabilities
|
|
$
|
12,125
|
|
|
$
|
661
|
|
|
$
|
12,786
|
|
Total current liabilities
|
|
|
31,368
|
|
|
|
661
|
|
|
|
32,029
|
|
Accrued medical contingency - long term
|
|
|
—
|
|
|
|
17,134
|
|
|
|
17,134
|
|
Accrued workers' compensation liability - long term
|
|
|
394
|
|
|
|
(290
|
)
|
|
|
104
|
|
Total liabilities
|
|
|
157,795
|
|
|
|
17,505
|
|
|
|
175,300
|
|
Accumulated deficit
|
|
|
(364,339
|
)
|
|
|
(17,505
|
)
|
|
|
(381,844
|
)
|
Total stockholders' equity
|
|
|
27,673
|
|
|
|
(17,505
|
)
|
|
|
10,168
|
|
10. Commitments and Contingencies
Leases
As of March 31, 2021, the Company had operating lease agreements for office facilities in various locations in the United States, which expire on various dates through August 2026. The terms of the lease agreements provide for rental payments that generally increase on an annual basis. The Company does not have any material finance leases. The Company recognizes expense for leases on a straight-line basis over the lease term, which the Company generally expects to be the non-cancellable period of the lease. As of March 31, 2021, the Company recognized on its unaudited condensed consolidated balance sheet operating right-of-use assets of $5,064 and current and noncurrent operating lease liabilities of $1,518 and $3,885, respectively. Operating lease costs recognized in the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021 totaled $401.
The following table presents supplemental cash flow information and the weighted-average lease term and discount rate for the Company’s operating leases for the three months ended March 31, 2021:
|
|
Three Months Ended March 31, 2021
|
|
Cash paid for operating lease liabilities (in thousands)
|
|
$
|
389
|
|
Weighted-average remaining lease term (years)
|
|
|
3.8
|
|
Weighted-average discount rate
|
|
|
5.0
|
%
|
As of March 31, 2021, the future minimum lease payments required under non-cancelable operating leases were as follows (in thousands):
|
|
Amount
|
|
The remainder of 2021
|
|
$
|
1,323
|
|
2022
|
|
|
1,567
|
|
2023
|
|
|
993
|
|
2024
|
|
|
816
|
|
2025
|
|
|
803
|
|
Thereafter
|
|
|
535
|
|
Total future lease payments
|
|
$
|
6,037
|
|
Less: imputed interest
|
|
|
(634
|
)
|
Present value of operating lease liabilities
|
|
$
|
5,403
|
|
14
TABLE_CONTENTS
Medical Contingency Claim
As of March 31, 2021 and December 31, 2020, the long-term portion of the estimated Medical Contingency claim totaled $16,844 and $16,987, respectively, and is included in the unaudited condensed consolidated balance sheet as accrued medical contingency. The current portion of the Medical Contingency totaled $456 and $448 as of March 31, 2021 and December 31, 2020, respectively, and is included in other current liabilities. See Note 9 – Correction of Prior Period Error for additional information.
Workers Compensation and Auto Policy Claims
We establish a liability under our workers’ compensation and auto insurance policies for claims incurred and an estimate for claims incurred but not yet reported. As of March 31, 2021 and December 31, 2020, $4,569 and $4,697, respectively, in outstanding workers’ compensation and auto policy claims are included in the unaudited condensed consolidated balance sheet. The short-term portions of the liability for our workers’ compensation and auto insurance claims are included in other current liabilities.
Legal Matters
In July 2016, Waiter.com, Inc. filed a lawsuit against Waitr Inc. in the United States District Court for the Western District of Louisiana, alleging trademark infringement based on Waitr’s use of the “Waitr” trademark and logo, Civil Action No.: 2:16-CV-01041. Plaintiff seeks injunctive relief and damages relating to Waitr’s use of the “Waitr” name and logo. During the third quarter of 2020, the trial date was rescheduled to June 2021, and in September 2020, the court ruled on various motions, certain of which ruled against defenses the Company had advanced. Waitr believes that the damages case lacks merit and that it has a defense to the infringement claims alleged. Waitr continues to vigorously defend the suit. The Company accrued a $4,000 reserve in connection with this lawsuit during the first quarter of 2021. The accrued legal contingency is included in other current liabilities in the unaudited condensed consolidated balance sheet at March 31, 2021 and in other expenses in the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021.
In April 2019, the Company was named as a defendant in a class action complaint filed by certain current and former restaurant partners, captioned Bobby’s Country Cookin’, et al v. Waitr, which is currently pending in the United States District Court for the Western District of Louisiana. Plaintiffs allege, among other things, claims for breach of contract, violation of the duty of good faith and fair dealing, and unjust enrichment, and seek recovery on behalf of themselves and two separate classes. Based on the current class definitions, as many as 10,000 restaurant partners could be members of the two separate classes that the representative plaintiffs are attempting to certify. Plaintiff’s deadline to file a motion for class certification is October 2021. Waitr maintains that the underlying allegations and claims lack merit, and that the classes, as pled, are incapable of certification. Waitr continues to vigorously defend the suit.
In September 2019, Christopher Meaux, David Pringle, Jeff Yurecko, Tilman J. Fertitta, Richard Handler, Waitr Holdings Inc. f/k/a Landcadia Holdings Inc., Jefferies Financial Group, Inc. and Jefferies, LLC were named as defendants in a putative class action lawsuit entitled Walter Welch, Individually and on Behalf of all Others Similarly Situated vs. Christopher Meaux, David Pringle, Jeff Yurecko, Tilman J. Fertitta, Richard Handler, Waitr Holdings Inc. f/k/a Landcadia Holdings Inc., Jefferies Financial Group, Inc. and Jefferies, LLC. The case was filed in the Western District of Louisiana, Lake Charles Division. In the lawsuit, the plaintiff asserts putative class action claims alleging, inter alia, that various defendants made false and misleading statements in securities filings, engaged in fraud, and violated accounting and securities rules. A similar putative class action lawsuit, entitled Kelly Bates, Individually and on Behalf of all Others Similarly Situated vs. Christopher Meaux, David Pringle, Jeff Yurecko, Tilman J. Fertitta, Richard Handler, Waitr Holdings Inc. f/k/a Landcadia Holdings Inc., Jefferies Financial Group, Inc. and Jefferies, LLC, was filed in that same court in November 2019. These two cases were recently consolidated, and an amended complaint was filed in October 2020. The Company filed a motion to dismiss in February 2021. Waitr believes that this lawsuit lacks merit and that it has strong defenses to all of the claims alleged. Waitr continues to vigorously defend the suit.
In addition to the lawsuits described above, Waitr is involved in other litigation arising from the normal course of business activities, including, without limitation, labor and employment claims, allegations of infringement, misappropriation and other violations of intellectual property or other rights, lawsuits and claims involving personal injuries, physical damage and workers’ compensation benefits suffered as a result of alleged conduct involving its employees, independent contractor drivers, and third-party negligence. Although Waitr believes that it maintains insurance with standard deductibles that generally covers liability for potential damages in many of these matters where coverage is available on acceptable terms (it is not maintained for claims involving intellectual property), insurance coverage is not guaranteed, often these claims are met with denial of coverage positions by the carriers, and there are limits to insurance coverage; accordingly, we could suffer material losses as a result of these claims or the denial of coverage for such claims.
15
TABLE_CONTENTS
11. Stock-Based Awards and Cash-Based Awards
In June 2020, the Company’s stockholders approved the Waitr Holdings Inc. Amended and Restated 2018 Omnibus Incentive Plan (the “2018 Incentive Plan”), which permits the granting of awards in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based awards, and other stock-based or cash-based awards. As of March 31, 2021, there were 11,642,846 shares of common stock available for future grants pursuant to the 2018 Incentive Plan. The Company also has outstanding equity awards under the 2014 Stock Plan (as amended in 2017, the “Amended 2014 Plan”). Total compensation expense related to awards under the Company’s incentive plans was $2,078 and $848 for the three months ended March 31, 2021 and 2020, respectively.
Stock-Based Awards
Stock Options
During the three months ended March 31, 2021, 500,000 stock options were granted under the 2018 Incentive Plan, with an aggregate grant date fair value of $1,095. The weighted average exercise price of the options is $2.78, and the options will vest in twelve quarterly installments during the period from October 1, 2021 through July 1, 2024. The options have an approximate 5 year exercise term. On January 3, 2020, 9,572,397 stock options were granted under the 2018 Incentive Plan to the Company’s chief executive officer (the “Grimstad Option”), with an aggregate grant date fair value of $2,297. The exercise price of the options is $0.37, and the options vest 50% on each of the first two anniversaries of the grant date. The options have a five-year exercise term.
The fair value of each stock option grant during the three months ended March 31, 2021 and 2020 was estimated as of the grant date using an option-pricing model with the assumptions included in the table below. Expected volatility for stock options is estimated based on a combination of the historical volatility of the Company’s stock price and the historical and implied volatility of comparable publicly traded companies.
|
|
2021
|
|
|
2020
|
|
Weighted-average fair value at grant
|
|
$
|
2.19
|
|
|
$
|
0.24
|
|
Risk free interest rate
|
|
0.46%
|
|
|
1.54%
|
|
Expected volatility
|
|
131.4%
|
|
|
100.6%
|
|
Expected option life (years)
|
|
|
3.59
|
|
|
|
3.25
|
|
The Company recognized compensation expense for stock options of $334 and $373 for the three months ended March 31, 2021 and 2020, respectively. Unrecognized compensation cost related to unvested stock options as of March 31, 2021 totaled $2,086, with a weighted average remaining vesting period of approximately 1.1 years.
The stock option activity under the Company’s incentive plans during the three months ended March 31, 2021 and 2020 is as follows:
|
|
Three Months Ended March 31, 2021
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Balance, beginning of period
|
|
|
9,753,257
|
|
|
$
|
0.43
|
|
|
$
|
0.33
|
|
|
|
445,721
|
|
|
$
|
3.66
|
|
|
$
|
5.04
|
|
Granted
|
|
|
500,000
|
|
|
|
2.78
|
|
|
|
2.19
|
|
|
|
9,572,397
|
|
|
|
0.37
|
|
|
|
0.24
|
|
Exercised
|
|
|
(6,779
|
)
|
|
|
0.88
|
|
|
|
4.73
|
|
|
|
(24,309
|
)
|
|
|
0.34
|
|
|
|
1.91
|
|
Forfeited
|
|
|
(13,995
|
)
|
|
|
4.58
|
|
|
|
4.38
|
|
|
|
(62,608
|
)
|
|
|
3.38
|
|
|
|
5.68
|
|
Expired
|
|
|
(6,536
|
)
|
|
|
4.83
|
|
|
|
3.26
|
|
|
|
(37,409
|
)
|
|
|
1.12
|
|
|
|
5.09
|
|
Balance, end of period
|
|
|
10,225,947
|
|
|
$
|
0.54
|
|
|
$
|
0.41
|
|
|
|
9,893,792
|
|
|
$
|
0.50
|
|
|
$
|
0.40
|
|
Outstanding stock options, which were fully vested and expected to vest and exercisable are as follows as of March 31, 2021 and December 31, 2020:
16
TABLE_CONTENTS
|
|
As of March 31, 2021
|
|
|
As of December 31, 2020
|
|
|
|
Options Fully
Vested and
Expected to Vest
|
|
|
Options
Exercisable
|
|
|
Options Fully
Vested and
Expected to Vest
|
|
|
Options
Exercisable
|
|
Number of Options
|
|
|
10,225,947
|
|
|
|
4,914,911
|
|
|
|
9,753,257
|
|
|
|
132,846
|
|
Weighted-average remaining contractual term (years)
|
|
|
3.88
|
|
|
|
3.84
|
|
|
|
4.07
|
|
|
|
6.82
|
|
Weighted-average exercise price
|
|
$
|
0.54
|
|
|
$
|
0.45
|
|
|
$
|
0.43
|
|
|
$
|
3.20
|
|
Aggregate Intrinsic Value (in thousands)
|
|
$
|
24,788
|
|
|
$
|
12,440
|
|
|
$
|
23,285
|
|
|
$
|
178
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the fair value of the common stock and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options on each date. This amount will change in future periods based on the fair value of the Company’s stock and the number of options outstanding. The aggregate intrinsic value of awards exercised during the three months ended March 31, 2021 and 2020 was $15 and $12, respectively. Upon exercise, the Company issued new common stock.
Restricted Stock
The Company’s restricted stock grants include performance-based and time-based vesting awards. The fair value of restricted shares is typically determined based on the closing price of the Company’s common stock on the date of grant.
Performance-Based Awards
As of March 31, 2021, there were 3,159,325 performance-based RSUs outstanding under the Company’s 2018 Incentive Plan, including 3,134,325 RSUs granted to the Company’s chief executive officer in April 2020 (the “Grimstad RSU Grant”). The Grimstad RSU Grant has an aggregate grant date fair value of $3,542 and vests in full in the event of a change of control, as defined in Mr. Grimstad’s employment agreement with the Company (the “Employment Agreement”), subject to his continuous employment with the Company through the date of a change of control; provided, however, that the Grimstad RSU Grant shall fully vest in the event that Mr. Grimstad terminates his employment for good reason or he is terminated by the Company for reason other than misconduct. No stock-based compensation expense will be recognized for the Grimstad RSU Grant until such time that is probable that the performance goal will be achieved, or at the time that Mr. Grimstad terminates his employment for good reason or he is terminated by the Company for reason other than misconduct, should either occur.
Awards with Time-Based Vesting
During the three months ended March 31, 2021, 195,000 RSUs with time-based vesting were granted pursuant to the Company’s 2018 Incentive Plan (with an aggregate grant fair value of value of $714). The RSUs generally vest in three years, and accelerate and fully vest upon a change of control.
The Company recognized compensation expense for restricted stock of $1,744 and $475 during the three months ended March 31, 2021 and 2020, respectively. Unrecognized compensation cost related to unvested time-based RSUs as of March 31, 2021 totaled $5,705, with a weighted average remaining vesting period of approximately 1.77 years. During the three months ended March 31, 2021 and 2020, the total fair value of restricted shares that vested during such periods was $2,493 and $6, respectively.
The activity for restricted stock with time-based vesting under the Company’s incentive plans is as follows for the three months ended March 31, 2021 and 2020:
|
|
Three Months Ended March 31, 2021
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Weighted
Average Remaining
Contractual
Term (years)
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Weighted
Average Remaining
Contractual
Term (years)
|
|
Nonvested, beginning of period
|
|
|
4,558,603
|
|
|
$
|
2.23
|
|
|
|
1.71
|
|
|
|
3,182,639
|
|
|
$
|
1.42
|
|
|
|
2.16
|
|
Granted
|
|
|
195,000
|
|
|
|
3.66
|
|
|
|
|
|
|
|
562,207
|
|
|
|
0.39
|
|
|
|
|
|
Shares vested
|
|
|
(749,870
|
)
|
|
|
0.97
|
|
|
|
|
|
|
|
(17,344
|
)
|
|
|
11.53
|
|
|
|
|
|
Forfeitures
|
|
|
(126,084
|
)
|
|
|
1.05
|
|
|
|
|
|
|
|
(679,287
|
)
|
|
|
0.52
|
|
|
|
|
|
Nonvested, end of period
|
|
|
3,877,649
|
|
|
$
|
2.58
|
|
|
|
1.77
|
|
|
|
3,048,215
|
|
|
$
|
1.38
|
|
|
|
2.06
|
|
Cash-Based Awards
17
TABLE_CONTENTS
Performance Bonus Agreement
On April 23, 2020, the Company entered into a performance bonus agreement with Mr. Grimstad. Pursuant to the bonus agreement, upon the occurrence of a change of control in which the holders of the Company’s common stock receive per share consideration that is equal to or greater than $2.00, subject to adjustment in accordance with the 2018 Incentive Plan, the Company shall pay Mr. Grimstad an amount equal to $5,000 (the “Bonus”). In order to receive the Bonus, Mr. Grimstad must remain continuously employed with the Company through the date of the change of control; provided, however, that in the event Mr. Grimstad terminates his employment for good reason or the Company terminates his employment other than for misconduct, Mr. Grimstad will be entitled to receive the Bonus provided the change of control occurs during his employment term. Compensation expense related to the bonus agreement will not be recognized until such time that is probable that the performance goal will be achieved.
12. Stockholders’ Equity
Common Stock
At March 31, 2021 and December 31, 2020, there were 249,000,000 shares of common stock authorized and 115,387,140 and 111,259,037 shares of common stock issued and outstanding, respectively, with a par value of $0.0001. The Company did not hold any shares as treasury shares as of March 31, 2021 or December 31, 2020. The Company’s common stockholders are entitled to one vote per share.
Preferred Stock
At March 31, 2021 and December 31, 2020, the Company was authorized to issue 1,000,000 shares of preferred stock ($0.0001 par value per share). There were no issued or outstanding preferred shares as of March 31, 2021 or December 31, 2020.
Warrants
In November 2018, the Company issued to Luxor Capital warrants which are currently exercisable for 478,458 shares of the Company’s common stock with a current exercise price of $10.45 per share (the “Debt Warrants”). The Debt Warrants expire on November 15, 2022 and include customary anti-dilution protection, including broad-based weighted average adjustments for issuances of additional shares (down-round features). Additionally, holders of the Debt Warrants have customary registration rights with respect to the shares underlying the Debt Warrants.
13. Fair Value Measurements
At March 31, 2021 and December 31, 2020, the Company had an outstanding medical contingency claim which is measured at fair value on a recurring basis (see Note 10 – Commitments and Contingencies). The long-term portion of the liability for such claim is included in the unaudited condensed consolidated balance sheets under accrued medical contingency, with the short-term portion included within other current liabilities. The medical contingency claim is measured at fair value using a method that incorporates life-expectancy assumptions, along with projected annual medical costs for each future year, adjusted for inflation. An average annual inflation rate of 3.5% was used in the development of the actuarial estimate for medical costs, based on historical medical cost inflation trends as published by the U.S. Bureau of Labor Statistics. Additionally, the measurement includes factors to derive a probability-weighted average of future payments in order to reflect variations from the life-expectancy assumptions, using CDC National Vital Statistics Reports as a tool in the analysis. Projected cash flows are discounted using an interest rate consistent with the U.S. 30-year treasury yield curve rates.
The medical contingency claim analysis represents a Level 3 measurement as it was based on unobservable inputs reflecting the Company’s assumptions used in developing the fair value estimate. The inputs used in the measurement, particularly life expectancy and projected medical costs, are sensitive inputs to the measurement and changes to either could result in significantly higher or lower fair value measurements. The Company utilized historical transactional data regarding the claim, along with projections for future comprehensive medical care costs. These inputs required significant judgments and estimates at the time of the valuation.
The following table presents the Company’s liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 (in thousands):
18
TABLE_CONTENTS
|
|
As of March 31, 2021
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued medical contingency
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,300
|
|
|
$
|
17,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued medical contingency
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,435
|
|
|
$
|
17,435
|
|
The Company had no assets required to be measured at fair value on a recurring basis at March 31, 2021 or December 31, 2020. Adjustments to the accrued medical contingency are recognized in other expense on the condensed consolidated statement of operations. There have been no transfers between levels during the periods presented in the accompanying condensed consolidated financial statements. The following table presents a reconciliation of liabilities classified as Level 3 financial instruments for the periods indicated (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Balance, beginning of the period
|
|
$
|
17,435
|
|
|
$
|
17,883
|
|
Increases/additions
|
|
|
43
|
|
|
|
—
|
|
Reductions/settlements
|
|
|
(178
|
)
|
|
|
(71
|
)
|
Balance, end of the period
|
|
$
|
17,300
|
|
|
$
|
17,812
|
|
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record certain assets and liabilities at fair value on a non-recurring basis. The Company generally applies fair value concepts in recording assets and liabilities acquired in business combinations and asset acquisitions (see Note 3 – Business Combinations).
14. Loss Per Share Attributable to Common Stockholders
The calculation of basic and diluted loss per share attributable to common stockholders for the three months ended March 31, 2021 and 2020 is as follows (in thousands, except share and per share data):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders - basic and diluted
|
|
$
|
(3,712
|
)
|
|
$
|
(2,102
|
)
|
Weighted average number of shares outstanding
|
|
|
112,334,094
|
|
|
|
76,884,717
|
|
Basic and diluted loss per common share
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
The Company has outstanding Notes which are convertible into shares of the Company’s common stock. See Note 7 – Debt for additional details on the Notes. Based on the conversion price in effect at the end of the respective periods, the Notes were convertible into 4,737,237 and 4,923,661 shares, respectively, of the Company’s common stock at March 31, 2021 and 2020. Such shares were excluded from the fully diluted calculation because the effect on net loss per common share would have been anti-dilutive.
Additionally, the following table includes securities outstanding at the end of the respective periods, which have been excluded from the fully diluted calculations because the effect on net loss per common share would have been antidilutive:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Antidilutive shares underlying stock-based awards:
|
|
|
|
|
|
|
|
Stock options
|
|
|
10,225,947
|
|
|
|
9,893,792
|
|
Restricted stock units
|
|
|
7,036,974
|
|
|
|
3,048,215
|
|
Warrants (1)
|
|
|
478,458
|
|
|
|
399,726
|
|
|
(1)
|
Includes the Debt Warrants as of March 31, 2021 and 2020. See Note 12 – Stockholders’ Equity for additional details.
|
15. Related-Party Transactions
19
TABLE_CONTENTS
In November 2018, the Company entered into the Credit Agreement, and in January 2019, the Company entered into an amendment to the Credit Agreement, with Luxor Capital and an amendment to the Convertible Notes Agreement with the Luxor Entities. In addition, Luxor Capital has warrants which are convertible into shares of the Company’s common stock (see Note 12 – Stockholders’ Equity). On each of May 21, 2019, July 15, 2020 and March 9, 2021, the Company entered into amendments to the Credit Agreement with Luxor Capital and amendments to the Convertible Notes Agreement with the Luxor Entities. Additionally, on May 1, 2020, the Company entered into a Limited Waiver and Conversion Agreement with respect to the Credit Agreement and Convertible Notes Agreement. Jonathan Green, a board member of the Company, is a partner at Luxor Capital.
16. Subsequent Events
On April 23, 2021, 3,500,000 RSUs were granted (the “Grimstad 2021 RSU Grant”) under the 2018 Incentive Plan to Mr. Grimstad, with an aggregate grant date fair value of $8,960, in connection with his employment agreement extension through January 2025. The Grimstad 2021 RSU Grant will vest in three equal installments on the first, second and third anniversaries of January 3, 2022, subject to Mr. Grimstad’s continued employment through the applicable vesting date, and shall fully vest upon the consummation of a change of control, subject to Mr.Grimstad’s continued employment through the closing of such change of control or in the event that Mr. Grimstad terminates his employment for good reason or he is terminated by the Company for reason other than misconduct. Additionally, on April 23, 2021, the Board authorized the payment of a $1,000 discretionary cash bonus to Mr. Grimstad.
On April 23, 2021, 85,000 RSUs were granted (the “Bogdanov 2021 Award”) under the 2018 Incentive Plan to Leo Bogdanov, the Company’s Chief Financial Officer, with an aggregate grant date fair value of $218. The Bogdanov 2021 Award will vest in three equal installments on the first, second and third anniversaries of the grant date, subject to Mr. Bogdanov’s continued employment through the applicable vesting date, and will vest in full upon a change of control, subject to Mr. Bogdanov’s continued employment through the closing of such change of control.
20
TABLE_CONTENTS