Warby Parker Inc

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on February 29, 2024 (the “Annual Report”). Data as of and for the three months ended March 31, 2024 and 2023 has been derived from our unaudited condensed consolidated financial statements. Results for any interim period should not be construed as an inference of what our results would be for any full fiscal year or future period. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, such as those relating to our plans, objectives, expectations, intentions, and beliefs, which involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and in Part I, Item 1A, Risk Factors, in the Annual Report.

Current wording

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on February 29, 2024 (the “Annual Report”). Data as of and for the three and six months ended June 30, 2024 and 2023 has been derived from our unaudited condensed consolidated financial statements. Results for any interim period should not be construed as an inference of what our results would be for any full fiscal year or future period. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, such as those relating to our plans, objectives, expectations, intentions, and beliefs, which involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and in Part I, Item 1A, Risk Factors, in the Annual Report.

Previous wording

•We’ve built a seamless shopping experience that meets customers where and how they want to shop, whether that’s on our website, on our mobile app, or in our 245 retail stores as of March 31, 2024.

Current wording

•We’ve built a seamless shopping experience that meets customers where and how they want to shop, whether that’s on our website, on our mobile app, or in our 256 retail stores as of June 30, 2024.

Previous wording

•we generated net revenue of $200.0 million and $172.0 million, respectively;

Current wording

•we generated net revenue of $188.2 million and $166.1 million, respectively;

Previous wording

•we generated gross profit of $113.5 million and $94.8 million, respectively, representing a gross profit margin of 56.7% and 55.1%, respectively;

Current wording

•we generated gross profit of $105.4 million and $90.6 million, respectively, representing a gross profit margin of 56.0% and 54.6%, respectively;

Previous wording

•we generated net loss of $2.7 million and $10.8 million, respectively; and

Current wording

•we generated net loss of $6.8 million and $15.9 million, respectively; and

Previous wording

•we generated adjusted EBITDA of $22.4 million and $17.7 million, respectively.

Current wording

•we generated Adjusted EBITDA of $19.6 million and $14.2 million, respectively.

Previous wording

The number of Active Customers is a key performance measure that we use to assess the reach of our physical retail stores and digital platform as well as our brand awareness. We define an Active Customer as a unique customer that has made at least one purchase in the preceding 12-month period. We determine our number of Active Customers by counting the total number of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period. Given our definition of a customer is a unique customer that has made at least one purchase, it can include either an individual person or a household of more than one person utilizing a single account.

Current wording

The number of Active Customers is a key performance measure that we use to assess the reach of our physical retail stores and digital platform as well as our brand awareness. We define an Active Customer as a unique customer that has made at least one purchase in the preceding 12-month period. We determine our number of Active Customers by counting the total number of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period. Given our definition of a customer is a unique customer that has made at least one purchase, it can include either an individual person or a household of more than one person utilizing a single account. We define Average Revenue per Customer as the sum of the total net revenues in the preceding 12-month period divided by the current period Active Customers.

Previous wording

As of March 31, 2024, 204 out of our 245 retail stores offered in-person eye exams.

Current wording

As of June 30, 2024, 215 out of our 256 retail stores offered in-person eye exams.

Previous wording

(1) Represents expenses related to the Company’s equity-based compensation programs and related employer payroll taxes, which may vary significantly from period to period depending upon various factors including the timing, number, and the valuation of awards granted, and vesting of awards including the satisfaction of performance conditions. For the three months ended March 31, 2024 and 2023, the amount includes $0.3 million and $0.1 million, respectively, of employer payroll taxes associated with releases of RSUs and option exercises.

Current wording

(1) Represents expenses related to the Company’s equity-based compensation programs and related employer payroll taxes, which may vary significantly from period to period depending upon various factors including the timing, number, and the valuation of awards granted, and vesting of awards including the satisfaction of performance conditions, as well as the issuance of 48,486 Class A common stock to charitable donor advised funds in February 2024. For the three months ended June 30, 2024 and 2023, the amount includes $0.3 million and $0.2 million, respectively, of employer payroll taxes associated with releases of RSUs and option exercises. For the six months ended June 30, 2024 and 2023, the amount includes $0.5 million and $0.2 million, respectively, of employer payroll taxes associated with releases of RSUs and option exercises.

Previous wording

We primarily derive revenue from the sales of eyewear products, optical services, and accessories. We sell products and services through our retail stores, website, and mobile apps. Revenue generated from eyewear products includes the sales of prescription and non-prescription optical glasses and sunglasses and contact lenses. Revenue is recognized when the customer takes possession of the product, either at the point of delivery or in-store pickup, and is recorded net of returns and discounts. Revenue generated from services and other consists of in-person eye exams and prescriptions issued through the Virtual Vision Test app, eyewear accessories, and customer charges for optional expedited shipping. Revenue is recognized when the service is rendered and is recorded net of discounts.

Current wording

We primarily derive revenue from the sales of eyewear products, optical services, and accessories. We sell products and services through our retail stores, website, and mobile apps. Revenue generated from eyewear products includes the sales of prescription and non-prescription optical glasses and sunglasses and contact lenses. Revenue is recognized when the customer takes possession of the product, either at the point of delivery or in-store pickup, and is recorded net of returns and discounts. Revenue generated from services and other consists of in-person eye exams and prescriptions issued through the Virtual Vision Test app, eyewear accessories, lens replacements, and customer charges for optional expedited shipping. Revenue is recognized when the service is rendered and is recorded net of discounts.

Previous wording

Net revenue increased $28.0 million, or 16.3%, for the three months ended March 31, 2024 compared to the same period in 2023, primarily due an increase in average revenue per customer, to $296 from $270 in the prior year period, as well as a 3.2% increase in active customers. Average revenue per customer growth was primarily driven by strong adoption of precision progressives, our highest priced lens option which launched in April 2023, and an increase in units per order as customers took advantage of our bundling promotions and also purchased contacts or eye exams along with glasses in the same transaction.

Current wording

Net revenue increased $22.1 million, or 13.3%, for the three months ended June 30, 2024 compared to the same period in 2023, primarily due an increase in Average Revenue per Customer, to $302 from $277 in the prior year period, as well as a 4.5% increase in Active Customers. Average Revenue per Customer growth was primarily driven by strong adoption of precision progressives, our highest priced lens option which launched in April 2023, and an increase in units per order as customers took advantage of our bundling promotions and also purchased contacts or eye exams along with glasses in the same transaction.

Previous wording

Cost of goods sold increased by $9.4 million, or 12.1%, for the three months ended March 31, 2024 compared to the same period in 2023, and decreased as a percentage of revenue over the same period by 160 basis points, from 44.9% of revenue to 43.3% of revenue. The increase in cost of goods sold was primarily driven by increased product and fulfillment costs associated with our sales growth, particularly related to the growth in our contact lens offering, as well as increases in prescription services, store occupancy, and store depreciation due to new retail stores opened in 2023 and the first quarter of 2024.

Current wording

Cost of goods sold increased by $7.4 million, or 9.8%, for the three months ended June 30, 2024 compared to the same period in 2023, and decreased as a percentage of revenue over the same period by 140 basis points, from 45.4% of revenue to 44.0% of revenue. The increase in cost of goods sold was primarily driven by increased product and fulfillment costs associated with our sales growth, particularly related to the growth in our contact lens offering, as well as increases in store occupancy, store depreciation, and prescription services due to new retail stores opened in 2023 and the first half of 2024.

Previous wording

Gross profit, calculated as net revenue less cost of goods sold, increased by $18.7 million, or 19.7%, for the three months ended March 31, 2024 compared to the same period in 2023, primarily due to the increase in net revenue over the same period.

Current wording

Gross profit, calculated as net revenue less cost of goods sold, increased by $14.7 million, or 16.3%, for the three months ended June 30, 2024 compared to the same period in 2023, primarily due to the increase in net revenue over the same period.

Previous wording

Selling, general, and administrative expenses increased $11.4 million, or 10.6%, for the three months ended March 31, 2024 compared to the same period in 2023. This increase was primarily driven by higher payroll-related costs, primarily from growth in our retail workforce, increased marketing expenses and increased technology costs, partially offset by a $5.8 million decrease in stock-based compensation, mostly related to the Founders Grant (which is described in Note 7 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q).

Current wording

Selling, general, and administrative expenses increased $5.5 million, or 5.0%, for the three months ended June 30, 2024 compared to the same period in 2023. This increase was primarily driven by higher marketing expenses, payroll-related costs, primarily from growth in our retail workforce, and charitable donations, partially offset by a $4.2 million decrease in stock-based compensation, mostly related to the Founders Grant (which is described in Note 7 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q), and lower technology costs. As a percentage of revenue, SG&A decreased by 470 basis points, primarily driven by lower stock-based compensation.

Previous wording

Interest and other income, net increased $0.7 million, or 36.0%, for the three months ended March 31, 2024 compared to the same period in 2023 primarily due to higher interest rates on our increased cash and cash equivalents balance.

Current wording

Interest and other income, net increased $0.3 million, or 12.5%, for the three months ended June 30, 2024 compared to the same period in 2023 primarily due to higher interest rates on our increased cash and cash equivalents balance.

Previous wording

Provision for income taxes decreased $0.2 million, or 58.6%, for the three months ended March 31, 2024 compared to the same period in 2023 primarily due to the change in foreign pre-tax income in addition to the tax effects of stock-based compensation expense and depreciation expense.

Current wording

Provision for income taxes increased $0.4 million, or 1,654.2%, for the three months ended June 30, 2024 compared to the same period in 2023 primarily due to the change in pre-tax loss in addition to the tax effects of stock-based compensation expense, depreciation expense, and differences in tax rates in state jurisdictions.

Previous wording

Gross margin, expressed as a percentage and calculated as gross profit divided by net revenue, increased by 160 basis points for the three months ended March 31, 2024 compared to the same period in 2023. The increase in gross margin was primarily driven by faster growth in our glasses business which is our highest margin product category, increased efficiencies in our owned optical laboratories and lower outbound customer shipping costs as a percent of revenue. These impacts were partially offset by increased doctor salaries, as the number of stores offering eye exams grew from 155 at March 31, 2023 to 204 at March 31, 2024, and sales growth of contact lenses which are sold at a lower margin than our other eyewear.

Current wording

Gross margin, expressed as a percentage and calculated as gross profit divided by net revenue, increased by 160 basis points for the six months ended June 30, 2024 compared to the same period in 2023. The increase in gross margin was primarily driven by faster growth in our glasses business which is our highest margin product category, lower outbound customer shipping costs as a percent of revenue, and increased efficiencies in our owned optical laboratories. These impacts were partially offset by sales growth of contact lenses, which are sold at a lower margin than our other eyewear, and increased doctor salaries, as the number of stores offering eye exams grew from 169 at June 30, 2023 to 215 at June 30, 2024.

Previous wording

Since inception, we have financed our operations primarily from net proceeds from the sale of redeemable convertible preferred stock and cash flows from operating activities. As of March 31, 2024, we had cash and cash equivalents of $220.4 million, which was primarily held for working capital purposes, and an accumulated deficit of $669.5 million. As of December 31, 2023, we had cash and cash equivalents of $216.9 million, which was primarily held for working capital purposes, and an accumulated deficit of $666.8 million.

Current wording

Since inception, we have financed our operations primarily from net proceeds from the sale of redeemable convertible preferred stock and cash flows from operating activities. As of June 30, 2024, we had cash and cash equivalents of $238.0 million, which was primarily held for working capital purposes, and an accumulated deficit of $676.3 million. As of December 31, 2023, we had cash and cash equivalents of $216.9 million, which was primarily held for working capital purposes, and an accumulated deficit of $666.8 million.

Previous wording

The 2024 Credit Facility contains a financial maintenance covenant which only applies while total borrowings exceed $30.0 million, which requires the Company to maintain a maximum consolidated senior net leverage ratio of 3:1. The 2024 Credit Facility contains customary affirmative and negative covenants, including limits on indebtedness, liens, capital expenditures, asset sales, investments and restricted payments, in each case subject to negotiated exceptions and baskets, as well as customary representations, warranties and event of default provisions. The obligations of the

Current wording

The 2024 Credit Facility contains a financial maintenance covenant which only applies while total borrowings exceed $30.0 million, which requires the Company to maintain a maximum consolidated senior net leverage ratio of 3:1. The

Previous wording

Borrowers under the 2024 Credit Agreement are secured by first-lien security interests in substantially all of the assets of the Borrowers. In addition, the obligations are required to be guaranteed in the future by certain additional domestic subsidiaries of the Company.

Current wording

2024 Credit Facility contains customary affirmative and negative covenants, including limits on indebtedness, liens, capital expenditures, asset sales, investments and restricted payments, in each case subject to negotiated exceptions and baskets, as well as customary representations, warranties and event of default provisions. The obligations of the Borrowers under the 2024 Credit Agreement are secured by first-lien security interests in substantially all of the assets of the Borrowers. In addition, the obligations are required to be guaranteed in the future by certain additional domestic subsidiaries of the Company.

Previous wording

Other than letters of credit outstanding of $4.3 million as of both March 31, 2024 and December 31, 2023, used to secure certain leases in lieu of a cash security deposit, there were no other borrowings outstanding.

Current wording

Other than letters of credit outstanding of $4.7 million and $4.3 million as of June 30, 2024 and December 31, 2023, respectively, used to secure certain leases in lieu of a cash security deposit, there were no other borrowings outstanding.

Previous wording

Net cash provided by operating activities was $19.9 million for the three months ended March 31, 2024, consisting of a net loss of $2.7 million adjusted for $26.1 million of non-cash expenses and $3.5 million of net cash used as a result of changes in operating assets and liabilities. The non-cash charges included $14.0 million of stock-based compensation, $10.6 million of depreciation and amortization, $1.1 million of amortization of cloud-based software implementation costs, and $0.4 million of asset impairment charges. The changes in operating assets and liabilities were primarily driven by a decrease in deferred revenue and increased prepaid expenses and other assets, partially offset by a decrease in inventory and increase in accounts payable.

Current wording

Net cash provided by operating activities was $51.6 million for the six months ended June 30, 2024, consisting of a net loss of $9.4 million adjusted for $54.2 million of non-cash expenses and $6.8 million of net cash provided as a result of changes in operating assets and liabilities. The non-cash charges included $27.9 million of stock-based compensation, $21.7 million of depreciation and amortization, $2.2 million of non-cash charitable contributions, $2.0 million of amortization of cloud-based software implementation costs, and $0.4 million of asset impairment charges. The changes in operating assets and liabilities were primarily driven by a decrease in inventory and increased accrued expenses, partially offset by increased deferred revenue.

Previous wording

Net cash provided in operating activities was $8.6 million for the three months ended March 31, 2023, consisting of a net loss of $10.8 million, adjusted for $29.7 million of non-cash expenses and $10.3 million of net cash used as a result of changes in operating assets and liabilities. The non-cash charges included $19.8 million of stock-based compensation, $9.1 million of depreciation and amortization, $0.4 million of asset impairment charges, and $0.4 million of amortization of cloud-based software implementation costs. The changes in operating assets and liabilities were primarily driven by a decrease in accrued expenses and deferred revenue, partially offset by decreases in inventory and prepaid expenses and other current assets.

Current wording

Net cash provided in operating activities was $27.4 million for the six months ended June 30, 2023, consisting of a net loss of $26.7 million, adjusted for $58.3 million of non-cash expenses and $4.2 million of net cash used as a result of changes in operating assets and liabilities. The non-cash charges included $37.8 million of stock-based compensation, $18.4 million of depreciation and amortization, $0.8 million of amortization of cloud-based software implementation costs, $0.7 million of asset impairment charges, and $0.6 million of non-cash charitable contributions. The changes in operating assets and liabilities were primarily driven by a decrease in accrued expenses and deferred revenue, partially offset by decreases in inventory and accounts payable.

Previous wording

For the three months ended March 31, 2024, net cash used in investing activities was $16.4 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores and investments in capitalized software development costs, and an investment in a private optical equipment company.

Current wording

For the six months ended June 30, 2024, net cash used in investing activities was $34.1 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, investments in capitalized software development costs, and an investment in a private optical equipment company.

Previous wording

For the three months ended March 31, 2023, net cash used in investing activities was $12.4 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in capitalized software development costs.

Current wording

For the six months ended June 30, 2023, net cash used in investing activities was $24.6 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in capitalized software development costs.

Previous wording

For the three months ended March 31, 2024, net cash provided by financing activities was $0.1 million, which was primarily related to proceeds from stock option exercises.

Current wording

For the six months ended June 30, 2024, net cash provided by financing activities was $3.7 million, which was primarily related to proceeds from stock option exercises and shares issued in connection with our ESPP.

Previous wording

For the three months ended March 31, 2023, net cash provided by financing activities was $0.1 million, which was primarily related to proceeds from stock option exercises.

Current wording

For the six months ended June 30, 2023, net cash provided by financing activities was $2.0 million, which was primarily related to proceeds from shares issued in connection with our ESPP and stock option exercises.