WAITR HOLDINGS INC. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q (the "Form 10-Q") and with the audited consolidated financial statements included in the Company's 2021 Form 10-K filed with theSEC onMarch 11, 2022 . The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside of our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences are set forth in the sections titled "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors".
Dollar amounts in this discussion are expressed in thousands, except as otherwise noted.
Overview
Waitr operates an online ordering technology platform (the "Platform") using the "deliver anything ASAP" model, making it easy to order food, alcohol, convenience, grocery, flowers, auto parts and more. The Platform also includes proprietary in-stadium mobile ordering technology, providing an enhanced fan experience at sports and entertainment venues. The Platform provides delivery, carryout and dine-in options, connecting restaurants, merchants, drivers and diners in cities acrossthe United States . Additionally, the Company facilitates access to third parties that provide payment processing solutions for restaurants and other merchants. Our strategy is to bring in the logistics infrastructure to underserved populations of restaurants, grocery stores and other merchants and establish strong market presence or leadership positions in the markets in which we operate. Prior to the three months endedSeptember 30, 2022 , the Company concluded that we had one operating segment as the operations related to the facilitation of access to third parties that provide payment processing solutions to merchants and restaurants ("Third-Party Payment Processing Referral Services") were not material to the Company's consolidated operations. During the three months endedSeptember 30, 2022 , as Third-Party Payment Processing Referral Services became more significant to the operations of the Company, our CODM began to manage operations and assess the Company's performance based on the operations of the delivery services related to our Platform ("Delivery Services") and Third-Party Payment Processing Referral Services areas separately, and we now have two reportable operating segments. See Part I, Item 1, Note 15 - Segment Information for additional information on the Company's segments. InAugust 2022 , we initiated our rebranding initiative and introduced our new "deliver anything ASAP" business model, expanding our food-delivery services to a broader array of products. Among our new business expansions is the Company's proprietary in-stadium ordering technology, which allows fans to avoid the typical long lines at stadium concession areas. We have secured exclusive in-stadium mobile ordering agreements withMetLife Stadium , theNew York Giants , theNew York Jets , theNew Orleans Saints , theUniversity of Alabama , andLouisiana State University . Additionally, we secured a mobile ordering agreement with theFlorida Panthers , the first arena deal for the Company with aNational Hockey League team. During the third quarter of 2022, we also entered into a partnership with FoodBoss, an industry leading online food delivery search engine. We plan to continue to build on our ancillary revenue streams with the goal to diversify the Company beyond third-party food delivery, including continued emphasis on the facilitation of merchant access to third-party payment processing solution providers. AtSeptember 30, 2022 , we had over 30,000 restaurants, in approximately 1,000 cities, on the Platform. Average Daily Orders for the three months endedSeptember 30, 2022 and 2021 were approximately 14,156 and 30,563, respectively, and revenue was$25,141 and$43,448 , respectively. For the nine months endedSeptember 30, 2022 and 2021, Average Daily Orders were 18,346 and 35,565, respectively, and revenue was$91,352 and$143,545 , respectively. 29
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Going Concern
The Company has concluded that as a result of recurring losses from operations and declines in cash positions, there exists substantial doubt about the Company's ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements. The Company's results of operations and cash positions have been adversely impacted primarily by declines in order volumes. In an effort to alleviate these conditions, management is implementing certain initiatives with the goal to improve revenue and its cash position, including a comprehensive rebranding, consolidation of the Company's technology platforms into a single application and cost reductions. The Company's plans are designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the date these financial statements are issued; however, the plans are dependent on conditions and factors, many of which are outside of the Company's control. There can be no assurance that we will be successful in implementing our plans or that we will be able to generate positive cash flow from operations in any future period, nor can there be any assurance that we will be able to raise additional equity capital. The result of such inability, whether individually or in the aggregate, will adversely impact our financial condition. Accordingly, management could not conclude that it was probable that the plans will sufficiently mitigate the relevant conditions or events that raise substantial doubt about the Company's ability to continue as a going concern. See "Liquidity and Capital Resources" below for additional details.
Impact of COVID-19 on our Business
We have thus far been able to operate effectively during the COVID-19 pandemic. In response to economic hardships experienced during the COVID-19 pandemic, theU.S. federal government rolled out stimulus payments in the first quarter of 2021 which we believe had a positive impact on order volumes during such period. However, we also believe the stimulus payments resulted in increased driver labor costs as we were faced with challenges in maintaining an appropriate level of driver supply. In addition, early in the COVID-19 pandemic, we experienced an increase in revenue and orders due to increased consumer demand for delivery and more restaurants using our platform to facilitate both delivery and take-out. During the second quarter of 2021 and thereafter, we believe the impact of the stimulus payments on our order volumes began to decrease. There remains uncertainty as to whether or not the pandemic will continue to impact diner behavior, and if so, in what manner. To the extent that the COVID-19 pandemic adversely impacts the Company's business, results of operations, liquidity or financial condition, it may also have the effect of heightening many of the other risks described in the risk factors in the Company's 2021 Form 10-K and this quarterly report on Form 10-Q for the three months endedSeptember 30, 2022 . Management continues to monitor the impact of the COVID-19 outbreak and the possible effects on its financial position, liquidity, operations, industry and workforce.
Nasdaq Compliance
OnJuly 26, 2022 , the Company received approval (the "Approval") from theNasdaq Listing Qualifications Department of theNasdaq Stock Market (the "Nasdaq") of the Company's application to transfer the listing of its common stock from the Nasdaq Global Select Market to the Nasdaq Capital Market. The common stock was transferred to the Nasdaq Capital Market at the opening of trading onJuly 28, 2022 . The Nasdaq Capital Market operates in substantially the same manner as the Nasdaq Global Select Market and the common stock continues to trade under the symbol "WTRH." As previously disclosed, onJanuary 26, 2022 , the Company received a letter from the Nasdaq indicating that the Company was not in compliance with Nasdaq Listing Rule 5450(a)(1) because the closing bid price per share of the Company's common stock had closed below$1.00 for the previous 30 consecutive business days (the "Bid Price Rule"). The Company was given untilJuly 25, 2022 to regain compliance with the rule. In response, the Company filed an application to transfer the listing of its common stock from the Nasdaq Global Select Market to the Nasdaq Capital Market. As a result of the Approval, the Company has been granted an additional 180-day grace period, or untilJanuary 23, 2023 , to regain compliance with the Bid Price Rule. As a condition of the Approval imposed by Nasdaq Listing Rule 5810(c)(3)(a)(i), the Company notified the Nasdaq that it would seek to implement a reverse stock split, if necessary, to regain compliance with the Bid Price Rule. If we do not regain compliance with the Bid Price Rule in the relevant compliance period, the Staff may provide written notification to the Company that its securities will be delisted. 30
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OnOctober 20, 2022 , the Company reconvened its special meeting of stockholders, whereby the Company's stockholders approved an amendment to the Company's Certificate of Incorporation to effect a reverse stock split of Company common stock, within a set range, without reducing the authorized number of shares of Company common stock, if and when determined by the Board in its sole discretion. OnNovember 2, 2022 , the Board adopted resolutions approving the reverse stock split at a reverse stock split ratio of 1:20 (the "Reverse Stock Split") and authorized the Company to file a Certificate of Amendment (the "Certificate of Amendment") with the Secretary of State of theState of Delaware to amend the Company's Third Amended and Restated Certificate of Incorporation, as amended, to effect the Reverse Stock Split on or prior to the time of effectiveness at11:59 pm onNovember 21, 2022 , or such other date as may be determined by any authorized officer of the Company (the "Effective Time"). As a result of the Reverse Stock Split, every twenty (20) shares of the Company's common stock issued and outstanding immediately prior to the Reverse Stock Split will be reduced to a smaller number of shares, such that every 20 shares of common stock held by a stockholder immediately prior to the Reverse Stock Split will be combined and reclassified into one share of common stock. No fractional shares will be issued in connection with the reverse stock split. The Company's transfer agent,Continental Stock Transfer & Trust Company ("Continental"), will aggregate all fractional shares otherwise issuable to the holders of record of common stock and arrange for the sale of all fractional interests as soon as practicable afterNovember 21, 2022 on the basis of the prevailing market prices of the common stock at the time of the sale. After such sale, Continental will pay to such holders of record their pro rata share of the total net proceeds derived from the sale of the fractional interests. Trading of the Company's common stock on the Nasdaq Capital Market is expected to continue on a split-adjusted basis as of the opening of trading hours onNovember 22, 2022 . Additionally, in connection with the Company's previously announced rebranding, it is expected that the Company's common stock will begin trading on the Nasdaq Capital Market under the new trading symbol "ASAP."
At the end of our current fiscal year (December 31, 2022 ), we will make the determination as to whether we will become a "smaller reporting company." If the aggregate worldwide market value of our common stock held by non-affiliates was less than$60,000 , as of the last business day of our second quarter endedJune 30, 2022 , we will be eligible to use the reporting requirements for a "smaller reporting company." As a result of our aggregate worldwide market value of our common stock held by non-affiliates being less than$60,000 as of the last business day of our second quarter endedJune 30, 2022 , the Company qualified as a smaller reporting company for the filing of the Form 10-Q for the three months endedJune 30, 2022 , and could have chosen to reflect the smaller reporting company status at such time, but, regardless, must reflect the smaller reporting company status no later than the filing of the Form 10-Q for the three months endedMarch 31, 2023 . Management expects that the Company will reflect the smaller reporting company status with the filing of our Form 10-K for the fiscal year endingDecember 31, 2022 and will follow the reporting requirements with respect to smaller reporting companies commencing with our Form 10-K for the fiscal year endingDecember 31, 2022 . Additionally, the aggregate worldwide market value of our common stock held by non-affiliates as of the last business day of our second quarter endedJune 30, 2022 is used in the determination of our filer status for the filing of our Form 10-K for the year endingDecember 31, 2022 and for our quarterly reports on Form 10-Q for 2023. Based on the aggregate worldwide market value of our common stock held by non-affiliates as of the last business day of the second quarter endedJune 30, 2022 , we will be a non-accelerated filer for the year endingDecember 31, 2022 , and accordingly, the due date for our Form 10-K will be 90 days from year-end and with respect to the filing of our Forms 10-Q thereafter, 45 days from each quarter-end.
Significant Accounting Policies and Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period, along with related disclosures. We regularly assess
these estimates and record changes to estimates in the period in which they
become known. We base our 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
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these estimates could cause actual results to differ from estimates. Significant estimates and judgements 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;
•determination of agent vs. principal classification for revenue recognition purposes;
•income taxes;
•useful lives of tangible and intangible assets;
•equity compensation;
•contingencies;
•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, liabilities assumed and contingent consideration as part of a business combination.
Other than the changes disclosed in Part I, Item 1, Note 2 - Basis of Presentation and Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements in this Form 10-Q, there have been no material changes to our significant accounting policies and estimates described in the 2021 Form 10-K.
New Accounting Pronouncements and Pending Accounting Standards
See Part I, Item 1, Note 2 - Basis of Presentation and Summary of Significant Accounting Policies for a description of accounting standards adopted during the nine months endedSeptember 30, 2022 . Also described in Note 2 are pending standards and their estimated effect on our condensed consolidated financial statements.
Factors Affecting the Comparability of Our Results of Operations
Acquisitions. The Delivery Dudes Acquisition andCape Payment Acquisition were considered business combinations in accordance with ASC 805 and have been accounted for using the acquisition method. Under the acquisition method of accounting, total purchase consideration, acquired assets, assumed liabilities and contingent consideration are recorded based on their estimated fair values on the acquisition date. For each of these acquisitions, the excess of the fair value of purchase consideration over the fair value of the assets less liabilities acquired (and contingent consideration when applicable) has been recorded as goodwill on our condensed consolidated balance sheet as ofSeptember 30, 2022 . The results of operations of Delivery Dudes andCape Payment Companies are included in our consolidated financial statements beginning on the acquisition dates,March 11, 2021 andAugust 25, 2021 , respectively. In connection with the Delivery Dudes Acquisition, the Company incurred direct and incremental costs during the three and nine months endedSeptember 30, 2021 of approximately$171 and$840 , respectively, consisting of legal and professional fees, which are included in general and administrative expenses in the consolidated statement of operations in such periods. Changes in Fee Structure. Our fee structure has changed at various times since our inception. We continue to review and update our current rate structure, as necessary, as we look to offer new and enhanced value-adding services to our restaurant partners. Any changes to our fee structure (whether externally to comply with governmental imposed caps or as a result of internal decision-making) could affect the comparability of our results of operations from period to period. Goodwill Impairment. During the three and nine months endedSeptember 30, 2022 , we recognized non-cash goodwill impairment charges totaling$53,898 and$121,088 , respectively, to write down the carrying value of goodwill to its implied fair value. Determining the fair value of a reporting unit and intangible assets requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates used could change in future periods. There can be no assurance that additional goodwill or intangible assets will not be impaired in future periods. Significant goodwill and intangible asset impairments may impact the comparability of our results from period to period. Seasonality and Holidays. Our business tends to follow restaurant closure and diner behavior patterns with respect to demand of our service offering. In many of our markets, we have historically experienced variations in order frequency as a result of weather patterns, university summer breaks and other vacation periods. In addition, a significant 32
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number of restaurants tend to close on certain major holidays, includingThanksgiving ,Christmas Eve andChristmas Day , among others. Further, diner activity may be impacted by unusually cold, rainy, or warm weather. Cold weather and rain typically drive increases in order volume, while unusually warm or sunny weather typically drives decreases in orders. Furthermore, severe weather-related events such as snowstorms, ice storms, hurricanes and tropical storms have adverse effects on order volume, particularly if they cause property damage or utility interruptions to our restaurant partners. The COVID-19 pandemic, as well as the federal government's responses thereto, have had an impact on our typical seasonality trends and could impact future periods. Acquisition Pipeline. We continue to maintain and evaluate an active pipeline of potential acquisition targets and may pursue acquisitions in the future, both in the restaurant delivery space as well as other verticals, such as payments and other complimentary businesses. These potential business acquisitions may impact the comparability of our results in future periods relative to prior periods.
Key Factors Affecting Our Performance
Efficient Market Expansion and Penetration. Our continued revenue growth and improved cash flow and profitability is dependent on successful restaurant, diner and driver penetration of our markets and achieving our targeted scale in current and future markets. Failure in achieving our targeted scale could adversely affect our working capital, which in turn, could slow our growth plans. Our financial condition, cash flows, and results of operations depend, in significant part, on our ability to achieve and sustain our target profitability thresholds in our markets. Our Restaurant, Diner and Driver Network. A significant part of our growth is our ability to successfully expand our network of restaurants, diners and independent contractor drivers using the Platform. If we fail to retain existing restaurants, diners and independent contractor drivers using the Platform, or to add new restaurants, diners and independent contractor drivers to the Platform, our revenue, financial results and business may be adversely affected.
Key Business Metrics
Defined below are the key business metrics that we use to analyze our business
performance, determine financial forecasts, and help develop long-term strategic
plans for our Delivery Services Segment. We currently do not have any defined
key business metrics related to our Third-Party Payment Processing Referral
Services Segment.
Active Diners. We count Active Diners as the number of unique diner accounts
from which an order has been completed through the Platform during the past
twelve months (as of the end of the relevant period) and consider Active Diners
an important metric because the number of diners using our Platform is a key
revenue driver and a valuable measure of the size of our engaged diner base.
Average Daily Orders. We calculate Average Daily Orders as the number of
completed orders during the period divided by the number of days in that period,
including holidays. Average Daily Orders is an important metric for us because
the number of orders processed on our Platform is a key revenue driver and, in
conjunction with the number of Active Diners, a valuable measure of diner
activity on our Platform for a given period.
Gross Food Sales. We calculate Gross Food Sales as the total food and beverage
sales, sales taxes, prepaid gratuities, and diner fees processed through the
Platform during a given period. Gross Food Sales are different than the order
value upon which we charge our fee to restaurants, which excludes gratuities and
diner fees. Prepaid gratuities, which are not included in our revenue, are
determined by diners and may vary from order to order. Gratuities other than
prepaid gratuities, such as cash tips, are not included in Gross Food Sales.
Gross Food Sales is an important metric for us because the total volume of food
sales transacted through our Platform is a key revenue driver.
Average Order Size. We calculate Average Order Size as Gross Food Sales for a
given period divided by the number of completed orders during the same period.
Average Order Size is an important metric for us because the average value of
gross food sales on our Platform is a key revenue driver.
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Three Months Ended September 30, Nine Months Ended September 30,
Key Business Metrics(1) 2022 2021 2022 2021
Active Diners (as of period end) 1,170,993 1,769,999 1,170,993 1,769,999
Average Daily Orders 14,156 30,563 18,346 35,565
Gross Food Sales (dollars in
thousands) $ 70,754 $
128,534
_____________________
(1)The key business metrics include the operations of Delivery Dudes beginning
on the acquisition date,
Basis of Presentation
Revenue
We generate revenue primarily when diners place an order on the Platform. We recognize revenue from diner orders when orders are delivered. Our revenue consists primarily of net Delivery Transaction Fees. Additionally, effectiveAugust 25, 2021 , we generate revenue by facilitating merchant access to third-party payment processing solution providers.
Cost and Expenses:
Operations and Support. Operations and support expense consists primarily of salaries, benefits, stock-based compensation and bonuses for employees engaged in operations and customer service, as well as territory managers, market success associates, restaurant onboarding, and driver logistics personnel, and payments to independent contractor drivers for delivery services. Operations and support expense also includes payment processing costs incurred on customer orders and the cost of software and related services providing support for diners, restaurants and drivers. Sales and Marketing. Sales and marketing expense consists primarily of salaries, commissions, benefits, stock-based compensation and bonuses for personnel supporting sales and marketing efforts, including restaurant business development managers, marketing employees and contractors, and third-party marketing expenses such as social media and search engine marketing, online display advertisements, sponsorships and print marketing. Sales and marketing expense also includes referral agent commissions related to the facilitation of merchant access to third-party payment processing solution providers. Research and Development. Research and development expense consists primarily of salaries, benefits, stock-based compensation and bonuses for employees and contractors engaged in the design, development, maintenance and testing of the Platform, net of costs capitalized for the development of the Platform. This expense also includes such items as software subscriptions that are necessary for the upkeep and maintenance of the Platform.
General and Administrative. General and administrative expense consists primarily of salaries, benefits, stock-based compensation and bonuses for executive, finance and accounting, human resources and other administrative employees as well as third-party legal, accounting, and other professional services, insurance (including workers' compensation, auto liability and general liability), travel, facilities rent, and other corporate overhead costs.
Depreciation and Amortization. Depreciation and amortization expense consists
primarily of amortization of capitalized costs for software development,
trademarks and customer relationships and depreciation of leasehold improvements
and equipment, primarily consisting of tablets deployed in restaurants. We do
not allocate depreciation and amortization expense to other line items.
Other (Income) Expenses and (Gains) Losses, Net. Other (income) expenses and
(gains) losses, net, includes interest expense on outstanding debt, as well as
any other items not considered to be incurred in the normal operations of the
business, including accrued legal settlements and contingencies, expense related
to the induced conversion of the Notes and income related to the change in
estimate of the Medical Contingency.
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Results of Operations
The following table sets forth our results of operations for the periods
indicated, with line items presented in thousands of dollars and as a percentage
of our revenue:
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except
percentages(1)) 2022 % of Revenue 2021 % of Revenue 2022 % of Revenue 2021 % of Revenue
Revenue $ 25,141 100 % $ 43,448 100 % $ 91,352 100 % $ 143,545 100 %
Costs and expenses:
Operations and support 13,457 54 % 25,043 58 % 49,719 54 % 86,654 60 %
Sales and marketing 8,263 33 % 4,965 11 % 21,489 24 % 13,481 9 %
Research and development 935 4 % 1,310 3 % 3,488 4 % 3,163 2 %
General and administrative 7,762 31 % 10,843 25 % 31,520 35 % 33,534 23 %
Depreciation and
amortization 3,599 14 % 3,070 7 % 9,664 11 % 8,952 6 %
Goodwill impairment 53,898 214 % - - % 121,088 133 % - - %
Intangible and other asset
impairments - - % 186 - % - - % 186 - %
(Gain) loss on disposal of
assets 55 - % 11 - % (33) - % 170 - %
Total costs and expenses 87,969 350 % 45,428 105 % 236,935 259 % 146,140 102 %
Loss from operations (62,828) (250) % (1,980) (5) % (145,583) (159) % (2,595) (2) %
Other (income) expenses and
(gains) losses, net:
Interest expense 1,198 5 % 1,751 4 % 4,363 5 % 5,333 4 %
Other (income) expense 9,422 37 % (16,006) (37) % 12,356 14 % (10,907) (8) %
Net income (loss) before
income taxes (73,448) (292) % 12,275 28 % (162,302) (178) % 2,979 2 %
Income tax expense 14 - % 25 - % 47 - % 82 - %
Net income (loss) $ (73,462) (292) % $ 12,250 28 % $ (162,349) (178) % $ 2,897 2 %
________________(1)Percentages may not foot due to rounding.
The following section includes a discussion of our results of operations for the three and nine months endedSeptember 30, 2022 and 2021. The results of operations of Delivery Dudes and theCape Payment Companies are included in our unaudited condensed consolidated financial statements beginning on the acquisition dates ofMarch 11, 2021 andAugust 25, 2021 , respectively (see Part I, Item 1, Note 5 - Business Combinations).
Revenue
Three Months Ended September
30, Nine Months Ended September 30,
2022 2021 Percentage Change 2022 2021 Percentage Change
(dollars in thousands) (dollars in thousands)
Revenue $ 25,141 $ 43,448 (42 %) $ 91,352 $ 143,545 (36 %)
See Part I, Item 1, Note 4 - Revenue for details of revenue by operating
segment. Revenue decreased for the three and nine months ended September 30,
2022 compared to the three and nine months ended September 30, 2021 , primarily
as a result of decreased order volumes in our Delivery Services Segment.
Partially offsetting the impact of decreased order volumes was an increase in
the Average Order Size in the 2022 periods compared to the 2021 periods. The
Average Order Size was $54.33 for the three months ended September 30, 2022 ,
compared to $45.71 for the three months ended September 30, 2021 , an improvement
of 19%. The Average Order Size was $51.54 for the nine months ended
September 30, 2022 , compared to $44.65 for the nine months ended September 30,
2021 , an improvement of 15%.
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Revenue for our Third-Party Payment Processing Referral Services Segment includes revenue from theCape Payment Companies beginning on the acquisition date ofAugust 25, 2021 . Operations and Support Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 Percentage Change 2022 2021 Percentage Change (dollars in thousands) (dollars in thousands) Operations and support$ 13,457 $ 25,043 (46 %)$ 49,719 $ 86,654 (43 %) As a percentage of revenue 54 % 58 % 54 % 60 % Operations and support expenses decreased in dollar terms and as a percentage of revenue in the three and nine months endedSeptember 30, 2022 compared to the three and nine months endedSeptember 30, 2021 , primarily due to lower driver operations costs in our Delivery Services Segment as a result of decreased order volumes. Sales and Marketing Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 Percentage Change 2022 2021 Percentage Change (dollars in thousands) (dollars in thousands) Sales and marketing$ 8,263 $ 4,965 66 %$ 21,489 $ 13,481 59 % As a percentage of revenue 33 % 11 % 24 % 9 % Sales and marketing expense increased in dollar terms and as a percentage of revenue in the three and nine months endedSeptember 30, 2022 compared to the three and nine months endedSeptember 30, 2021 , primarily attributable to our Delivery Services Segment due to increased marketing spend, increased marketing support fees and the payment of stadium sponsorship agreement fees. There was also an increase in referral agent commission expense related to our Third-Party Payment Processing Referral Services Segment. Referral agent commission expense for the 2021 periods represents results during the partial periods beginning on the acquisition date ofAugust 25, 2021 . Research and Development Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 Percentage Change 2022 2021 Percentage Change (dollars in thousands) (dollars in thousands) Research and development $ 935$ 1,310 (29 %)$ 3,488 $ 3,163 10 % As a percentage of revenue 4 % 3 % 4 % 2 % Research and development expense is primarily related to costs associated with our Delivery Services Segment. The expense decreased in dollar terms in the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily due to a decrease in product and engineering personnel during the third quarter of 2022. As a percentage of revenue, research and development expense increased slightly for the three months endedSeptember 30, 2022 , compared to the three months endedSeptember 30, 2021 , as a result of decreased order volumes.
Research and development expense increased in dollar terms and as a percentage
of revenue in the nine months ended
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General and Administrative
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 Percentage Change 2022 2021 Percentage Change
(dollars in thousands) (dollars in thousands)
General and administrative $ 7,762 $ 10,843 (28 %) $ 31,520 $ 33,534 (6 %)
As a percentage of revenue 31 % 25 % 35 % 23 %
General and administrative expense decreased in dollar terms in the three and
nine months ended September 30, 2022 , compared to the three and nine months
ended September 30, 2021 , primarily due to decreased stock based compensation
expense and decreased recruiting costs. For the nine months ended September 30,
2022 , the decrease was partially offset by an increase in insurance expense.
Decreased order volumes in the 2022 periods resulted in an increase in general
and administrative expense as a percentage of revenue for the three and nine
months ended September 30, 2022 compared to the three and nine months ended
September 30, 2021 .
Depreciation and Amortization
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 Percentage Change 2022 2021 Percentage Change
(dollars in thousands) (dollars in thousands)
Depreciation and
amortization $ 3,599 $ 3,070 17 % $ 9,664 $ 8,952 8 %
As a percentage of revenue 14 % 7 % 11 % 6 %
Depreciation and amortization expense increased in dollar terms and as a
percentage of revenue in the three and nine months ended September 30, 2022 ,
compared to the three and nine months ended September 30, 2021 , driven by an
increase in amortization expense on intangible assets acquired in the Delivery
Dudes Acquisition and Cape Payment Companies Acquisition .
Goodwill Impairment
During the three and nine months endedSeptember 30, 2022 , we recognized non-cash goodwill impairment charges of$53,898 and$121,088 , respectively, to write down the carrying value of goodwill to its implied fair value. The primary factor contributing to a reduction in the fair value was the significant decline in the Company's stock price inmid-March 2022 , continuing through the third quarter of 2022, resulting in a market capitalization that was lower than the carrying value of the Company's consolidated stockholders' equity. See Part I, Item 1, Note 7 - Intangible Assets andGoodwill for additional details.
Other (Income) Expenses and (Gains) Losses, Net
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 Percentage Change 2022 2021 Percentage Change
(dollars in thousands) (dollars in thousands)Other (income) expenses and (gains) losses, net$ 10,620 $ (14,255) (175 %)$ 16,719 $ (5,574) (400 %) As a percentage of revenue 42 % (33) % 18 % (4) % Other (income) expenses and (gains) losses, net for the three months endedSeptember 30, 2022 primarily consisted of$8,569 of expense associated with the induced conversion of the Notes (see Part I, Item 1, Note 9 - Debt) and$1,174 of interest expense associated with the Term Loan and Notes. For the three months endedSeptember 30, 2021 , other (income) expenses and (gains) losses, net primarily consisted of$16,715 of income related to a change in estimate of the Medical Contingency (see Part I, Item 1, Note 14 - Fair Value Measurements) and$1,694 of interest expense associated with the Term Loan and Notes. 37
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For the nine months endedSeptember 30, 2022 , other (income) expenses and (gains) losses, net primarily consisted of$9,499 of induced conversion expense for the Notes and$4,283 of interest expense associated with the Term Loan and Notes. For the nine months endedSeptember 30, 2021 , other (income) expenses and (gains) losses, net primarily consisted of$16,715 of income from the change in estimate of the Medical Contingency,$4,700 of expense for a legal settlement and$5,214 of interest expense associated with the Term Loan and Notes.
Income Tax Expense
Income tax expense for the three months endedSeptember 30, 2022 and 2021 was$14 and$25 , respectively, and$47 and$82 for the nine months endedSeptember 30, 2022 and 2021, respectively. The Company's income tax expense is entirely related to state taxes in various jurisdictions. We have historically generated net operating losses; therefore, a valuation allowance has been recorded on our net deferred tax assets.
Segments Adjusted EBITDA
The CODM evaluates segment performance primarily based on segment adjusted
EBITDA. Segment adjusted EBITDA is defined as revenue less the following
expenses: operations and support, sales and marketing, research and development,
general and administrative and certain non-operating expenses associated with
our segments. Excluded from segment adjusted EBITDA are non-cash items and other
items that do not reflect our core operations. The following table presents
information about our segments, with a reconciliation of total segments adjusted
EBITDA to income (loss) from operations of the consolidated Company (in
thousands):
Three Months Ended September 30 ,
Nine Months Ended
2022 2021 2022 2021
Segments adjusted EBITDA:
Delivery Services Segment $ (4,737) $ 2,758 $ (10,366) $ 13,554
Third-Party Payment Processing Referral
Services Segment 67 310 294 310
Total segments adjusted EBITDA (4,670) 3,068 (10,072) 13,864
Reconciling items:
Interest expense (1,198) (1,751) (4,363) (5,333)
Income taxes (14) (25) (47) (82)
Depreciation and amortization expense (3,599) (3,070) (9,664) (8,952)
Goodwill impairment (53,898) - (121,088) -
Stock-based compensation expense (1,338) (1,635) (4,588) (6,100)
(Gain) loss on disposal of assets (55) (11) 33 (170)
Intangible and other asset impairments - (186) - (186)
Induced conversion expense related to
Notes (8,569) - (9,499) -
Change in fair value of contingent
consideration liability 655 - 551 -
Medical contingency change in estimate - 16,715 - 16,715
Transaction related expenditures and other
non-recurring adjustments (776) (855) (2,812) (2,159)
Accrued legal contingency and reserve - - (800) (4,700)
Net income (loss) from continuing
operations $ (73,462) $ 12,250 A discussion of operational results by segment is included in Results of Operations above.
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Liquidity and Capital Resources
Overview
Pursuant to the requirements of ASC 205-40, Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management's plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company's ability to continue as a going concern. The mitigating effect of management's plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will sufficiently mitigate the relevant conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. The Company has concluded that as a result of recurring losses from operations and declines in cash positions, there exists substantial doubt about the Company's ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements. The Company's results of operations and cash positions have been adversely impacted primarily by declines in order volumes. Our primary source of liquidity during the nine months endedSeptember 30, 2022 has been proceeds from the issuance of our common stock. The Company has had a trend of negative cash flow from operations during 2022. Cash flow used in operations totaled$21,701 for the nine months endedSeptember 30, 2022 and$7,870 for the three months endedSeptember 30, 2022 . During the nine months endedSeptember 30, 2022 , pursuant to our ATM Program, we sold 27,041,659 shares of the Company's common stock for net proceeds of$10,266 . The Company's cash position has declined from$60,111 atDecember 31, 2021 to$20,118 as ofSeptember 30, 2022 and approximately$14,700 as ofNovember 3, 2022 . During the second quarter of 2022, the Company's cash position was impacted by the utilization of$20,000 in cash to pay down debt in consideration for an extension of the debt maturity for each credit facility by six months toMay 15, 2024 . For each of the first three quarters of 2022, the Company had net losses. As reflected in the accompanying unaudited condensed consolidated financial statements, the Company has an accumulated deficit of$531,484 as ofSeptember 30, 2022 . In an effort to alleviate these conditions, management is implementing certain initiatives with the goal to improve revenue and its cash position, including a comprehensive rebranding, consolidation of the Company's technology platforms into a single application and cost reductions. The initiatives include (i) collaborations with convenience stores, (ii) delivery from retailers in a variety of industries, (iii) the entry into new markets, (iv) the development of a proprietary stadium ordering application and (v) the entry into sponsorship agreements to serve as the exclusive mobile ordering platform at certain stadiums and arenas. Additionally, management evaluated its existing cost structure and implemented cost saving initiatives to reduce operating costs and plans to continue to implement further cost saving initiatives where appropriate. Management also expects that the Company will seek to additionally fund its operations through proceeds from equity raises, including any raises under the ATM Program. The Company's plans are designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the date these financial statements are issued; however, the plans are dependent on conditions and factors, many of which are outside of the Company's control. There can be no assurance that we will be able to generate positive cash flow from operations in any future period, nor can there be any assurance that we will be able to raise additional equity capital; the result of such inability, whether individually or in the aggregate, will adversely impact our financial condition. Accordingly, management could not conclude that it was probable that the plans will sufficiently mitigate the relevant conditions or events that raise substantial doubt about the Company's ability to continue as a going concern. As such, the Company has concluded that substantial doubt exists about the Company's ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements. We are continuously reviewing our liquidity and anticipated working capital needs based on overall market and economic factors. Market conditions, future financial performance or other factors may make it difficult or impractical for us to access sources of capital on favorable terms, if at all. The failure to successfully implement our strategy to improve revenue and order volume, achieve cost savings and/or raise additional capital will adversely impact our financial condition, which impact could be material, could reduce the period of time for which our anticipated working capital needs will be sufficient, and could result in the Company terminating or curtailing operations and/or strategic initiatives. 39
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The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business for the twelve-month period following the date the financial statements are issued. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result should the Company be unable to continue as a going concern.
Sponsorship Agreement
InJuly 2022 , the Company entered into a multi-year sponsorship agreement pursuant to which the Company will be the exclusive mobile ordering platform used atMetLife Stadium . The term of the MetLife Sponsorship Agreement is five Contract Years and will expire onMarch 31, 2027 . In connection with the MetLife Sponsorship Agreement, the Company has committed to pay an aggregate of$9,128 in sponsorship fees which will be amortized over the performance period on a straight-line basis. The sponsorship fees are generally payable in quarterly installments and include the following amounts by Contract Year:$1,650 in year one,$1,732 in year two,$1,820 in year three,$1,920 in year four and$2,006 in year five. Debt During the second and third quarters of 2022,Luxor Capital converted$750 and$6,750 , respectively, of the outstanding principal amount of the Notes into 4,411,500 shares and 27,000,000 shares, respectively, of Company common stock. Additionally, the Company used$20,000 in cash to pay down a portion of the Term Loan in consideration for an extension of the debt maturity of the Term Loan and Notes by six months toMay 15, 2024 . The aggregate principal amount of outstanding long-term debt totaled$57,619 as ofSeptember 30, 2022 , consisting of$15,280 for the Term Loan and$42,339 of Notes. As ofSeptember 30, 2022 , the Company had$1,224 of outstanding short-term loans for insurance premium financing. Pursuant to a provision in theMay 2022 amended loan agreement, the Company made a$1,676 prepayment on the Term Loan onOctober 5, 2022 , representing 50% of the net proceeds received by the Company for sales under theAugust 2022 ATM. As ofNovember 9, 2022 , the outstanding principal amount of long-term debt totaled$55,943 . OnNovember 8, 2022 , the Company entered into theNovember 2022 Amended Credit Agreement and theNovember 2022 Amended Convertible Notes Agreement. Pursuant to theNovember 2022 Amended Credit Agreement, commencing with the fiscal quarter endingDecember 31, 2022 , the portion of the proceeds of any ATM public common stock issuances to be applied to the prepayment of the Term Loan under the Credit Agreement increases from 50% to 60%. TheNovember 2022 Amended Convertible Notes Agreement includes (i) a reduction of the interest rate under the Convertible Notes Agreement from 6% to 4.5% per annum and (ii) an adjustment of the portion of an interest payment that can be paid in-kind, if elected by the Company, from 50% to approximately 33%. Additionally, pursuant to theNovember 2022 Amended Convertible Notes Agreement, subsequent to the payment in full of the Term Loan outstanding under the Credit Agreement, the portion of the proceeds of any future ATM public common stock issuances to be applied to the prepayment of the Notes under the Convertible Notes Agreement increases from 50% to 60%. Capital Expenditures Our main capital expenditures relate to investments in the development of the Platform, which are expected to increase as we continue to grow our business. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under "Risk Factors" in our 2021 Form 10-K and subsequent filings with theSEC , including this quarterly report on Form 10-Q for the three months endedSeptember 30, 2022 .
Cash Flow
The following table sets forth our summary cash flow information for the periods indicated:
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Nine Months Ended September 30,
(in thousands) 2022 2021
Net cash used in operating activities $ (21,701) $ (575)
Net cash used in investing activities (6,530) (32,563)
Net cash used in financing activities (11,762) (8,066)
Cash Flows Used in Operating Activities
For the nine months endedSeptember 30, 2022 , net cash used in operating activities was$21,701 , compared to net cash used in operating activities of$575 for the nine months endedSeptember 30, 2021 . The decrease in cash flows from operating activities in the nine months endedSeptember 30, 2022 from the comparable 2021 period was primarily driven by a decrease in revenue and an increase in sales and marketing expenses, partially offset by a decrease in operations and support expenses. During the nine months endedSeptember 30, 2022 , the net change in operating assets and liabilities decreased net cash provided by operating activities by$5,874 , primarily consisting of a decrease in other current liabilities of$3,054 and a decrease in accounts payable of$2,473 , partially offset by a decrease in prepaid expenses and other current assets of$3,526 . During the nine months endedSeptember 30, 2021 , the net change in operating assets and liabilities decreased net cash provided by operating activities by$4,706 , primarily consisting of a decrease in accrued payroll of$3,389 .
Cash Flows Used in Investing Activities
For the nine months endedSeptember 30, 2022 , net cash used in investing activities consisted primarily of$6,335 for internally developed software. For the nine months endedSeptember 30, 2021 , net cash used in investing activities consisted primarily of$25,435 for the acquisitions of Delivery Dudes andCape Payment Companies and related intangible assets, and$6,432 of costs for internally developed software.
Cash Flows Used in Financing Activities
For the nine months endedSeptember 30, 2022 , net cash used in financing activities consisted primarily of a$20,000 payment on the Term Loan, partially offset by$10,266 of net proceeds from the sales of common stock under the Company's ATM Program. Additionally, during the nine months endedSeptember 30, 2022 , net cash from financing activities included$2,811 of proceeds from short-term loans for insurance premium financings and$4,729 of payments on such loans. For the nine months endedSeptember 30, 2021 , net cash used in financing activities primarily consisted of a$14,472 principal payment on the Term Loan and$5,605 of payments on short-term loans for insurance premium financing. Net cash from financing activities during the nine months endedSeptember 30, 2021 , included$7,900 of proceeds from the sales of common stock under the Company's ATM Program and$5,209 of proceeds from short-term loans for insurance financing.
Cautionary Statement Regarding Forward-Looking Statements
This 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 Exchange Act. All statements, other than statements of historical or current fact, that reflect future plans, estimates, beliefs or expected performance are forward-looking statements. In some cases, you can identify forward-looking statements because they are preceded by, followed by or include words such as "may," "can," "should," "will," "goal," "strategy," "estimate," "plan," "project," "forecast," "intend," "expect," "anticipate," "believe," "seek," "target" or similar expressions. These forward-looking statements are based on information available as of the date of this Form 10-Q and our management's current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties, including the following factors, in addition to the factors discussed elsewhere in this Form 10-Q, and the factors discussed in our 2021 Form 10-K and subsequent filings with theSEC (Part I, Item 1A, Risk Factors):
Risks Related to Our Operations
•failure to retain existing diners or add new diners or continuing to experience a decrease in number of diners and number of orders or decrease in order sizes on the Platform;
•declines in our delivery service levels or lack of increases in business for restaurants;
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•loss of restaurants on the Platform, including due to changes in our fee structure;
•inability to successfully expand our operations of facilitating the entry into merchant agreements by and between merchants and third-party payment processing solution providers;
•inability to achieve profitability in the future;
•risks related to our relationships with the independent contractor drivers, including shortages of available drivers, loss of independent contractor drivers, adverse conditions impacting independent contractor drivers, and possible increases in driver compensation;
•recent inflationary pressures, increased gasoline prices and other macroeconomic factors that are largely beyond our control;
•inability to maintain and enhance our brands, including possible degradation thereto resulting from our comprehensive rebranding initiative to change our corporate name and visual identity, or occurrence of events that damage our reputation and brands, including unfavorable media coverage; •seasonality and the impact of inclement weather, including major hurricanes, tropical cyclones, major snow and/or ice storms in areas not accustomed to them and other instances of severe weather and other natural phenomena;
•inability to manage growth and meet demand;
•inability to successfully improve the experience of restaurants and diners in a cost-effective manner;
•changes in our products or to operating systems, hardware, networks or standards that our operations depend on;
•dependence of our business on our ability to maintain and scale our technical infrastructure;
•personal data, internet security breaches or loss of data provided by diners or restaurants on our Platform;
•inability of third-party payment processing services, of which we may facilitate the entry into merchant agreements, to comply with applicable state or federal regulations;
•inability to comply with applicable law or standards if we were to become a payment processor at some point in the future;
•risks related to the credit card and debit card payments we accept;
•reliance on third-party vendors to provide products and services;
•substantial competition in technology innovation and distribution and inability to continue to innovate and provide technology desirable to diners and restaurants;
•failure to pursue and successfully make additional acquisitions;
•failure to comply with covenants in the agreements governing our debt;
•additional impairments of the carrying amounts of goodwill or other indefinite-lived assets;
•dependence on search engines, display advertising, social media, email, content-based online advertising and other online sources to attract diners to the Platform;
•loss of senior management or key operating personnel and dependence on skilled personnel to grow and operate our business;
•inability to successfully integrate and maintain acquired businesses;
•failure to protect our intellectual property;
•patent lawsuits and other intellectual property rights claims;
•potential liability and expenses for existing and future legal claims, including claims that may exceed insurance coverage or are not insured against;
•our use of open source software;
•insufficient capital to pursue business objectives and respond to business opportunities, challenges or unforeseen circumstances;
•unionization of our employees, the magnitude of which increases if our independent contractor drivers were ever reclassified as employees; and
•failure to maintain an effective system of disclosure controls and internal control over financial reporting.
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Risks Related to Our Industry
•the intensely competitive and fragmented nature of our industry;
•dependence on discretionary spending patterns in the areas in which the restaurants on our Platform operate and in the economy at large;
•general economic and business risks affecting our industry that are largely beyond our control;
•the COVID-19 pandemic, or a similar public health threat that could significantly affect our business, financial condition and results of operations;
•implementation of fee caps by jurisdictions in areas where we operate;
•failure of restaurants in our networks to maintain their service levels;
•slower than anticipated growth in the use of the Internet via websites, mobile devices and other platforms;
•federal and state laws and regulations regarding privacy, data protection, and other matters affecting our business;
•the potential for increased misclassification claims following the change to
the
•risks relating to our relationships with the independent contractor drivers, including shortages of available drivers and possible increases in driver compensation; and
•risks related to the cannabis industry with respect to the business operations of referring merchants to third-party payment processing solution providers.
Risks Related to Ownership of Our Securities
•risks related to future sales of a substantial number of shares by existing stockholders which could in turn cause our share price to decline;
•the risk that management's use of the net proceeds from, or the continuation of, our ATM Program does not increase the value of a stockholder's investment;
•the risk that future offerings of debt or equity securities that rank senior to our common stock may adversely affect the market price of our common stock;
•the risk that the Debt Warrants and Notes as well as other derivative securities, if exercised or converted into shares of our common stock, would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders; and •the risk that we fail to continue to meet all applicable Nasdaq listing requirements in future periods and risks relating to the consequent delisting of our common stock from Nasdaq if we fail to meet Nasdaq listing requirements, which could adversely affect the market liquidity of our common stock, the ability for us to raise capital, and could decrease the market price of our common stock significantly. These risks and uncertainties may be outside of our control. Forward-looking statements should not be relied upon as representing our views as of any subsequent date. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Our actual results could differ materially from those discussed in these forward-looking statements.
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