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On May 31, 2019, the Company and certain of its U.S. subsidiaries entered into a Second Amended and Restated Credit Agreement (the “2019 Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent, and a group of lenders. The 2019 Credit Agreement amended and restated the Company’s existing amended and restated credit agreement dated as of December 23, 2016 to, among other modifications: (i) increase the amount of the outstanding term loan (“Term Loan”) from approximately $97 million to $100 million, (ii) extend the maturity date of the outstanding Term Loan and the revolving credit facility (“Revolver”) by approximately 29 months to May 31, 2024, and (iii) decrease the applicable interest rate margins for LIBOR and base rate loans by 25 basis points. The Term Loan is payable in 19 quarterly installments of principal and interest beginning on September 29, 2019, with escalating principal payments, at the rate of 5.0% per annum for the first eight payments, and 10.0% per annum for the remaining 11 payments, with the remaining balance of $62.5 million due upon maturity. The Revolver, in the aggregate amount of $200 million, subject to seasonal reduction to an aggregate amount of $100 million for the period from January 1 through August 1, may be used for working capital and general corporate purposes, subject to certain restrictions. For each borrowing under the 2019 Credit Agreement, the Company may elect that such borrowing bear interest at an annual rate equal to either: (1) a base rate plus an applicable margin varying based on the Company’s consolidated leverage ratio, where the base rate is the highest of (a) the prime rate, (b) the New York fed bank rate plus 0.5%, and (c) a LIBOR rate plus 1%, or (2) an adjusted LIBOR rate plus an applicable margin varying based on the Company’s consolidated leverage ratio.
The Company has established a NQDC Plan for certain members of senior management. Deferred compensation plan assets are invested in mutual funds held in a “rabbi trust,” which is restricted for payment to participants of the NQDC Plan. Trading securities held in a rabbi trust are measured using quoted market prices at the reporting date and are included in the “Other assets” line item, with the corresponding liability included in the “Other liabilities” line item in the consolidated balance sheets.
Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.
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Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File No. 0-26841
1-800-FLOWERS.COM, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 11-3117311 |
| (State of incorporation) | (I.R.S. Employer Identification No.) |
| Two Jericho Plaza, Suite 200, Jericho, NY 11753 | (516) 237-6000 |
| (Address of principal executive offices) (Zip code) | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
| Class A common stock | FLWS | The Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☐Large accelerated filer | | ☑Accelerated filer |
| ☐Non-accelerated filer | | ☐Smaller reporting company |
| | | ☐Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The number of shares outstanding of each of the Registrant’s classes of common stock as of May 5, 2023:
| Class A common stock: 37,707,872 |
| Class B common stock: 27,068,221 |
1-800-FLOWERS.COM, Inc.
FORM 10-Q
For the quarterly period ended April 2, 2023
TABLE OF CONTENTS
PART I. – FINANCIAL INFORMATION
ITEM 1. – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1-800-FLOWERS.COM, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except for share data)
| | | April 2, 2023 | | | July 3, 2022 | |
| | | (unaudited) | | | | | |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 51,598 | | | $ | 31,465 | |
| Trade receivables, net | | | 36,792 | | | | 23,812 | |
| Inventories | | | 191,894 | | | | 247,563 | |
| Prepaid and other | | | 39,183 | | | | 45,398 | |
| Total current assets | | | 319,467 | | | | 348,238 | |
| | | | | | | | | |
| Property, plant and equipment, net | | | 231,476 | | | | 236,481 | |
| Operating lease right-of-use assets | | | 128,746 | | | | 129,390 | |
| Goodwill | | | 153,376 | | | | 213,287 | |
| Other intangibles, net | | | 141,002 | | | | 145,568 | |
| Other assets | | | 24,720 | | | | 21,927 | |
| Total assets | | $ | 998,787 | | | $ | 1,094,891 | |
| | | | | | | | | |
| Liabilities and Stockholders' Equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 21,825 | | | $ | 57,386 | |
| Accrued expenses | | | 147,750 | | | | 175,392 | |
| Current maturities of long-term debt | | | 20,000 | | | | 20,000 | |
| Current portion of long-term operating lease liabilities | | | 15,517 | | | | 12,919 | |
| Total current liabilities | | | 205,092 | | | | 265,697 | |
| | | | | | | | | |
| Long-term debt, net | | | 128,112 | | | | 142,497 | |
| Long-term operating lease liabilities | | | 121,568 | | | | 123,662 | |
| Deferred tax liabilities, net | | | 31,352 | | | | 35,742 | |
| Other liabilities | | | 20,665 | | | | 17,884 | |
| Total liabilities | | | 506,789 | | | | 585,482 | |
| | | | | | | | | |
| Commitments and contingencies (See Note 13 and Note 15) | | | | | | | | |
| | | | | | | | | |
| Stockholders' equity: | | | | | | | | |
| Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued | | | - | | | | - | |
| Class A common stock, $0.01 par value, 200,000,000 shares authorized, 58,260,197 and 57,706,389 shares issued at April 2, 2023 and July 3, 2022 | | | 583 | | | | 577 | |
| Class B common stock, $0.01 par value, 200,000,000 shares authorized, 32,348,221 and 32,529,614 shares issued at April 2, 2023 and July 3, 2022 | | | 323 | | | | 325 | |
| Additional paid-in capital | | | 385,822 | | | | 379,885 | |
| Retained earnings | | | 293,630 | | | | 315,785 | |
| Accumulated other comprehensive loss | | | (211 | ) | | | (211 | ) |
| Treasury stock, at cost, 20,560,401 and 20,418,396 Class A shares at April 2, 2023 and July 3, 2022, and 5,280,000 Class B shares at April 2, 2023 and July 3, 2022 | | | (188,149 | ) | | | (186,952 | ) |
| Total stockholders’ equity | | | 491,998 | | | | 509,409 | |
| Total liabilities and stockholders’ equity | | $ | 998,787 | | | $ | 1,094,891 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except for per share data)
(unaudited)
| | | Three Months Ended | | | Nine Months Ended | |
| | | April 2, 2023 | | | March 27, 2022 | | | April 2, 2023 | | | March 27, 2022 | |
| | | | | | | | | | | | | | | | | |
| Net revenues | | $ | 417,566 | | | $ | 469,576 | | | $ | 1,619,047 | | | $ | 1,721,993 | |
| Cost of revenues | | | 277,126 | | | | 315,485 | | | | 1,009,383 | | | | 1,063,938 | |
| Gross profit | | | 140,440 | | | | 154,091 | | | | 609,664 | | | | 658,055 | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Marketing and sales | | | 106,472 | | | | 130,645 | | | | 390,077 | | | | 432,795 | |
| Technology and development | | | 14,837 | | | | 14,456 | | | | 44,529 | | | | 41,369 | |
| General and administrative | | | 25,922 | | | | 22,553 | | | | 81,075 | | | | 78,491 | |
| Depreciation and amortization | | | 13,267 | | | | 12,693 | | | | 40,276 | | | | 36,251 | |
| Goodwill and intangible impairment | | | 64,586 | | | | - | | | | 64,586 | | | | - | |
| Total operating expenses | | | 225,084 | | | | 180,347 | | | | 620,543 | | | | 588,906 | |
| Operating income (loss) | | | (84,644 | ) | | | (26,256 | ) | | | (10,879 | ) | | | 69,149 | |
| Interest expense, net | | | 1,712 | | | | 1,226 | | | | 8,676 | | | | 4,477 | |
| Other expense, net | | | 1,404 | | | | 4,007 | | | | 2,474 | | | | 954 | |
| Income (loss) before income taxes | | | (87,760 | ) | | | (31,489 | ) | | | (22,029 | ) | | | 63,718 | |
| Income tax expense (benefit) | | | (16,767 | ) | | | (8,080 | ) | | | 126 | | | | 11,858 | |
| Net income (loss) and comprehensive net income (loss) | | $ | (70,993 | ) | | $ | (23,409 | ) | | $ | (22,155 | ) | | $ | 51,860 | |
| | | | | | | | | | | | | | | | | |
| Basic net income (loss) per common share | | $ | (1.10 | ) | | $ | (0.36 | ) | | $ | (0.34 | ) | | $ | 0.80 | |
| | | | | | | | | | | | | | | | | |
| Diluted net income (loss) per common share | | $ | (1.10 | ) | | $ | (0.36 | ) | | $ | (0.34 | ) | | $ | 0.79 | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares used in the calculation of net income (loss) per common share: | | | | | | | | | | | | | | | | |
| Basic | | | 64,767 | | | | 65,028 | | | | 64,660 | | | | 65,086 | |
| Diluted | | | 64,767 | | | | 65,028 | | | | 64,660 | | | | 65,849 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share data)
(unaudited)
| | Three Months Ended April 2, 2023 and March 27, 2022 | |
| | | | | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | | | | | | | | | | Additional | | | | | | Other | | | | | | | | | Total | |
| | | Class A | | | Class B | | Paid-in | | | Retained | | | Comprehensive | | | Treasury Stock | | | Stockholders’ | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Earnings | | | Loss | | | Shares | | | Amount | | | Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at January 1, 2023 | | | 58,256,031 | | | $ | 583 | | | | 32,348,221 | | | $ | 323 | | | $ | 383,335 | | | $ | 364,623 | | | $ | (211 | ) | | | 25,838,644 | | | $ | (188,127 | ) | | $ | 560,526 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (70,993 | ) | | | - | | | | - | | | | - | | | | (70,993 | ) |
| Stock-based compensation | | | 4,166 | | | | - | | | | - | | | | - | | | | 2,487 | | | | - | | | | - | | | | - | | | | - | | | | 2,487 | |
| Conversion – Class B into Class A | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Acquisition of Class A treasury stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,757 | | | | (22 | ) | | | (22 | ) |
| Balance at April 2, 2023 | | | 58,260,197 | | | $ | 583 | | | | 32,348,221 | | | $ | 323 | | | $ | 385,822 | | | $ | 293,630 | | | $ | (211 | ) | | | 25,840,401 | | | $ | (188,149 | ) | | $ | 491,998 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 26, 2021 | | | 56,778,082 | | | $ | 568 | | | | 33,433,614 | | | $ | 334 | | | $ | 377,234 | | | $ | 361,444 | | | $ | (318 | ) | | | 24,933,148 | | | $ | (174,302 | ) | | $ | 564,960 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (23,409 | ) | | | - | | | | - | | | | - | | | | (23,409 | ) |
| Stock-based compensation | | | 19,666 | | | | - | | | | - | | | | - | | | | 1,507 | | | | - | | | | - | | | | - | | | | - | | | | 1,507 | |
| Exercise of stock options | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Conversion – Class B into Class A | | | 889,860 | | | | 9 | | | | (889,860 | ) | | | (9 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Acquisition of Class A treasury stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 502,783 | | | | (9,267 | ) | | | (9,267 | ) |
| Balance at March 27, 2022 | | | 57,687,608 | | | $ | 577 | | | | 32,543,754 | | | $ | 325 | | | $ | 378,741 | | | $ | 338,035 | | | $ | (318 | ) | | | 25,435,931 | | | $ | (183,569 | ) | | $ | 533,791 | |
| | | Nine Months Ended April 2, 2023 and March 27, 2022 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | |
| | | Common Stock | | | Additional | | | | | | | Other | | | | | | | | | | | Total | |
| | | Class A | | | Class B | | | Paid-in | | | Retained | | | Comprehensive | | | Treasury Stock | | | Stockholders’ | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Earnings | | | Loss | | | Shares | | | Amount | | | Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at July 3, 2022 | | | 57,706,389 | | | $ | 577 | | | | 32,529,614 | | | $ | 325 | | | $ | 379,885 | | | $ | 315,785 | | | $ | (211 | ) | | | 25,698,396 | | | $ | (186,952 | ) | | $ | 509,409 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (22,155 | ) | | | - | | | | - | | | | - | | | | (22,155 | ) |
| Stock-based compensation | | | 372,415 | | | | 4 | | | | - | | | | - | | | | 5,937 | | | | - | | | | - | | | | - | | | | - | | | | 5,941 | |
| Conversion – Class B into Class A | | | 181,393 | | | | 2 | | | | (181,393 | ) | | | (2 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Acquisition of Class A treasury stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 142,005 | | | | (1,197 | ) | | | (1,197 | ) |
| Balance at April 2, 2023 | | | 58,260,197 | | | $ | 583 | | | | 32,348,221 | | | $ | 323 | | | $ | 385,822 | | | $ | 293,630 | | | $ | (211 | ) | | | 25,840,401 | | | $ | (188,149 | ) | | $ | 491,998 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at June 27, 2021 | | | 55,675,661 | | | $ | 557 | | | | 33,433,614 | | | $ | 334 | | | $ | 371,103 | | | $ | 286,175 | | | $ | (318 | ) | | | 24,105,841 | | | $ | (148,781 | ) | | $ | 509,070 | |
| Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 51,860 | | | | - | | | | - | | | | - | | | | 51,860 | |
| Stock-based compensation | | | 800,387 | | | | 8 | | | | - | | | | - | | | | 6,795 | | | | - | | | | - | | | | - | | | | - | | | | 6,803 | |
| Exercise of stock options | | | 321,700 | | | | 3 | | | | - | | | | - | | | | 843 | | | | - | | | | - | | | | - | | | | - | | | | 846 | |
| Conversion – Class B into Class A | | | 889,860 | | | | 9 | | | | (889,860 | ) | | | (9 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Acquisition of Class A treasury stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,330,090 | | | | (34,788 | ) | | | (34,788 | ) |
| Balance at March 27, 2022 | | | 57,687,608 | | | $ | 577 | | | | 32,543,754 | | | $ | 325 | | | $ | 378,741 | | | $ | 338,035 | | | $ | (318 | ) | | | 25,435,931 | | | $ | (183,569 | ) | | $ | 533,791 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | | Nine months ended | |
| | | April 2, 2023 | | | March 27, 2022 | |
| | | | | | | | | |
| Operating activities: | | | | | | | | |
| Net income (loss) | | $ | (22,155 | ) | | $ | 51,860 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | |
| Goodwill and intangible asset impairment | | | 64,586 | | | | - | |
| Depreciation and amortization | | | 40,276 | | | | 36,251 | |
| Amortization of deferred financing costs | | | 998 | | | | 943 | |
| Deferred income taxes | | | (4,390 | ) | | | (1,678 | ) |
| Bad debt expense | | | 2,997 | | | | (873 | ) |
| Stock-based compensation | | | 5,941 | | | | 6,803 | |
| Other non-cash items | | | (245 | ) | | | 1,352 | |
| Changes in operating items: | | | | | | | | |
| Trade receivables | | | (15,977 | ) | | | (18,570 | ) |
| Inventories | | | 57,031 | | | | (51,928 | ) |
| Prepaid and other | | | 2,706 | | | | 7,174 | |
| Accounts payable and accrued expenses | | | (59,806 | ) | | | 6,847 | |
| Other assets and liabilities | | | 1,102 | | | | 547 | |
| Net cash provided by operating activities | | | 73,064 | | | | 38,728 | |
| | | | | | | | | |
| Investing activities: | | | | | | | | |
| Acquisitions, net of cash acquired | | | (5,000 | ) | | | (22,105 | ) |
| Capital expenditures, net of non-cash expenditures | | | (31,351 | ) | | | (47,945 | ) |
| Net cash used in investing activities | | | (36,351 | ) | | | (70,050 | ) |
| | | | | | | | | |
| Financing activities: | | | | | | | | |
| Acquisition of treasury stock | | | (1,197 | ) | | | (34,788 | ) |
| Proceeds from exercise of employee stock options | | | - | | | | 846 | |
| Proceeds from bank borrowings | | | 195,900 | | | | 125,000 | |
| Repayment of notes payable and bank borrowings | | | (210,900 | ) | | | (140,000 | ) |
| Debt issuance cost | | | (383 | ) | | | (284 | ) |
| Net cash used in financing activities | | | (16,580 | ) | | | (49,226 | ) |
| | | | | | | | | |
| Net change in cash and cash equivalents | | | 20,133 | | | | (80,548 | ) |
| Cash and cash equivalents: | | | | | | | | |
| Beginning of period | | | 31,465 | | | | 173,573 | |
| End of period | | $ | 51,598 | | | $ | 93,025 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1 – Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by 1-800-FLOWERS.COM, Inc. and Subsidiaries (the “Company”) in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine-month periods ended April 2, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending July 2, 2023. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended July 3, 2022, which provides a more complete understanding of our accounting policies, financial position, operating results and other matters.
The Company’s quarterly results may experience seasonal fluctuations. Due to the seasonal nature of the Company’s business, and its continued expansion into non-floral products, the Thanksgiving through Christmas holiday season, which falls within the Company’s second fiscal quarter, is expected to generate over 40% of the Company’s annual revenues, and all of its earnings. Due to the number of major floral gifting occasions, including Valentine’s Day, Easter, Administrative Professionals Week, and Mother's Day, revenues also have historically risen during the Company’s fiscal third and fourth quarters in comparison to its fiscal first quarter.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Net revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Service and outbound shipping charged to customers are recognized at the time the related merchandise revenues are recognized and are included in net revenues. Inbound and outbound shipping and delivery costs are included in cost of revenues. Net revenues exclude sales and other similar taxes collected from customers.
A description of our principal revenue generating activities is as follows:
| ● | E-commerce revenues - consumer products sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment. |
| ● | Retail revenues - consumer products sold through our retail stores. Revenue is recognized when control of the goods is transferred to the customer, at the point of sale, at which time payment is received. |
| ● | Wholesale revenues - products sold to our wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms are typically 30 days from the date control over the product is transferred to the customer. |
| ● | BloomNet Services - membership fees as well as other service offerings to florists. Membership and other subscription-based fees are recognized monthly as earned. Services revenues related to orders sent through the floral network are variable, based on either the number of orders or the value of orders, and are recognized in the period in which the orders are delivered. The contracts within BloomNet Services are typically month-to-month and as a result no consideration allocation is necessary across multiple reporting periods. Payment is typically due less than 30 days from the date the services were performed. |
Deferred Revenues
Deferred revenues are recorded when the Company has received consideration (i.e. advance payment) before satisfying its performance obligations. As such, customer orders are recorded as deferred revenue prior to shipment or rendering of product or services. Deferred revenues primarily relate to e-commerce orders placed, but not shipped, prior to the end of the fiscal period, as well as for subscription programs, including our various food, wine, and plant-of-the-month clubs and our Celebrations Passport program.
Our total deferred revenue as of July 3, 2022 was $33.7 million (included in “Accrued expenses” on our consolidated balance sheets), of which $5.7 and $32.5 million was recognized as revenue during the three and nine months ended April 2, 2023. The deferred revenue balance as of April 2, 2023 was $41.7 million.
Interim Impairment Evaluation
During the quarter ended April 2, 2023, the Company evaluated whether events or circumstances had changed such that it would indicate it was more likely than not that its goodwill, intangible and other long-lived assets of the Gourmet Foods & Gift Baskets reporting units fair values were less than their carrying amounts. After considering the continuing pressures on consumer discretionary spending, ongoing geopolitical events, the current inflationary macro-economic conditions, related cost input headwinds that have negatively impacted the Company’s gross margins, and resulting downward revisions to its forecast, the Company concluded that a triggering event had occurred for its Gourmet Foods & Gift Baskets reporting unit. As such, the Company performed an impairment test of the reporting unit’s goodwill, intangibles and long-lived assets as of April 2, 2023, and fully impaired the related goodwill, and partially impaired certain tradenames within the reporting unit. The Company concluded that the definite-lived and other long-lived assets of the reporting unit were not impaired. See Note 6 – Goodwill and Intangible Assets, Net for further information.
Recently Issued Accounting Pronouncements
The Company does not expect that any recently issued accounting pronouncements will have a material effect on its consolidated financial statements.
Note 2 – Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing the net income (loss) during the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing the net income (loss) during the period by the sum of the weighted-average number of common shares outstanding during the period and the potentially dilutive common shares (consisting of employee stock options and unvested restricted stock awards).
The following table sets forth the computation of basic and diluted net income (loss) per common share:
| | | Three Months Ended | | | Nine Months Ended | |
| | | April 2,
2023 | | | March 27,
2022 | | | April 2,
2023 | | | March 27,
2022 | |
| | | (in thousands, except per share data) | |
| Numerator: | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | (70,993 | ) | | $ | (23,409 | ) | | $ | (22,155 | ) | | $ | 51,860 | |
| | | | | | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding | | | 64,767 | | | | 65,028 | | | | 64,660 | | | | 65,086 | |
| Effect of dilutive securities: | | | | | | | | | | | | | | | | |
| Employee stock options | | | - | | | | - | | | | - | | | | 63 | |
| Employee restricted stock awards | | | - | | | | - | | | | - | | | | 700 | |
| | | | - | | | | - | | | | - | | | | 763 | |
| | | | | | | | | | | | | | | | | |
| Adjusted weighted-average shares and assumed conversions | | | 64,767 | | | | 65,028 | | | | 64,660 | | | | 65,849 | |
| | | | | | | | | | | | | | | | | |
| Net income (loss) per common share | | | | | | | | | | | | | | | | |
| Basic | | $ | (1.10 | ) | | $ | (0.36 | ) | | $ | (0.34 | ) | | $ | 0.80 | |
| Diluted | | $ | (1.10 | ) | | $ | (0.36 | ) | | $ | (0.34 | ) | | $ | 0.79 | |
Note 3 – Stock-Based Compensation
The Company has a Long Term Incentive and Share Award Plan, which is more fully described in Note 12 and Note 13 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 3, 2022, that provides for the grant to eligible employees, consultants and directors of stock options, restricted shares, and other stock-based awards.
The amounts of stock-based compensation expense recognized in the periods presented are as follows:
| | | Three Months Ended | | | Nine Months Ended | |
| | | April 2,
2023 | | | March 27,
2022 | | | April 2,
2023 | | | March 27,
2022 | |
| | | (in thousands) | |
| Stock options | | $ | 982 | | | $ | (57 | ) | | $ | 1,575 | | | $ | (39 | ) |
| Restricted stock | | | 1,505 | | | | 1,564 | | | | 4,366 | | | | 6,842 | |
| Total | | | 2,487 | | | | 1,507 | | | | 5,941 | | | | 6,803 | |
| Deferred income tax benefit | | | 609 | | | | 372 | | | | 1,455 | | | | 1,678 | |
| Stock-based compensation expense, net | | $ | 1,878 | | | $ | 1,135 | | | $ | 4,486 | | | $ | 5,125 | |
Stock-based compensation is recorded within the following line items of operating expenses:
| | | Three Months Ended | | | Nine Months Ended | |
| | | April 2,
2023 | | | March 27,
2022 | | | April 2,
2023 | | | March 27,
2022 | |
| | | (in thousands) | |
| Marketing and sales | | $ | 1,144 | | | $ | 600 | | | $ | 2,718 | | | $ | 2,933 | |
| Technology and development | | | 199 | | | | 63 | | | | 506 | | | | 274 | |
| General and administrative | | | 1,144 | | | | 844 | | | | 2,717 | | | | 3,596 | |
| Total | | $ | 2,487 | | | $ | 1,507 | | | $ | 5,941 | | | $ | 6,803 | |
Stock-based compensation expense has not been allocated between business segments, but is reflected as part of Corporate overhead (see Note 12 - Business Segments).
Stock Options
The following table summarizes stock option activity during the nine months ended April 2, 2023:
| | | Options | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term | | | Aggregate Intrinsic Value | |
| | | | | | | | | | | (in years) | | | (in thousands) | |
| Outstanding at July 3, 2022 | | | - | | | $ | - | | | | | | | | | |
| Granted | | | 2,346,416 | | | $ | 8.59 | | | | | | | | | |
| Exercised | | | - | | | $ | - | | | | | | | | | |
| Forfeited | | | (42,412 | ) | | | 8.59 | | | | | | | | | |
| Outstanding at April 2, 2023 | | | 2,304,004 | | | $ | 8.59 | | | | 9.6 | | | $ | 6,705 | |
| | | | | | | | | | | | | | | | | |
| Exercisable at April 2, 2023 | | | - | | | $ | - | | | | - | | | $ | - | |
As of April 2, 2023, the total future compensation cost related to non-vested options, not yet recognized in the statement of income, was $10.2 million and the weighted average period over which these awards are expected to be recognized was 2.6 years.
Restricted Stock
The Company grants shares of Common Stock to its employees that are subject to restrictions on transfer and risk of forfeiture until fulfillment of applicable service and performance conditions and, in certain cases, holding periods (Restricted Stock). The following table summarizes the activity of non-vested restricted stock awards during the nine months ended April 2, 2023:
| | | Shares | | | Weighted Average Grant Date Fair Value | |
| Non-vested at July 3, 2022 | | | 929,709 | | | $ | 21.82 | |
| Granted | | | 735,754 | | | $ | 8.44 | |
| Vested | | | (372,415 | ) | | $ | 17.66 | |
| Forfeited | | | (51,638 | ) | | $ | 19.56 | |
| Non-vested at April 2, 2023 | | | 1,241,410 | | | $ | 15.23 | |
The fair value of non-vested shares is determined based on the closing stock price on the grant date. As of April 2, 2023, there was $12.2 million of total unrecognized compensation cost related to non-vested, restricted, stock-based compensation to be recognized over the weighted-average remaining period of 2.7 years.
Note 4 – Acquisitions
Acquisition of Things Remembered
On January 10, 2023, the Company completed its acquisition of certain assets of the Things Remembered brand, a provider of personalized gifts, whose operations will be integrated within the PersonalizationMall.com brand, in the Consumer Floral & Gifts segment. The Company used cash on hand to fund the $5.0 million purchase, which included the intellectual property, customer list, certain inventory, and equipment. The acquisition did not include Things Remembered retail stores. Things Remembered’s annual revenues from its ecommerce operations, based on its most recently available unaudited financial information was $30.4 million for the twelve months ended November 30, 2022.
The total consideration of $5.0 million was preliminarily allocated to the identifiable assets acquired and liabilities assumed based on our preliminary estimates of their fair values on the acquisition date, including: goodwill of $1.7 million (deductible for income tax purposes), trademarks of $0.8 million (indefinite life), customer lists of $0.8 million (3-year life), inventory of $1.3 million, and equipment of $0.4 million. The Company is in the process of finalizing its allocation and this may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, establishment of certain additional intangible assets, revisions of useful lives of intangible assets, and the determination of any residual amount that will be allocated to goodwill.
Acquisition of Vital Choice
On October 27, 2021, the Company completed its acquisition of all of the membership interests in Vital Choice Seafood LLC (“Vital Choice”), a provider of wild-caught seafood and sustainably farmed shellfish, pastured proteins, organic foods, and marine-sourced nutritional supplements. The Company utilized its existing credit facility to fund the $20.0 million purchase (subject to certain working capital and other adjustments), which included tradenames, customer lists, websites and operations. Vital Choice revenues were approximately $27.8 million during its most recent year ended December 31, 2020.
After working capital and related adjustments, total consideration was approximately $20.0 million, and was preliminarily allocated to the identifiable assets acquired and liabilities assumed based on our preliminary estimates of their fair values, as a result of information that was available as of the date of the acquisition. During the quarter ended January 1, 2023, the Company finalized its purchase price allocation, resulting in immaterial adjustments to the preliminary carrying value of the respective recorded assets and the residual amount that was allocated to goodwill.
The following table summarizes the allocation of the purchase price to the fair values of assets acquired and liabilities assumed:
| | | Vital Choice
Preliminary
Purchase Price
Allocation | | | Measurement
Period Interim
Adjustments | | | Vital Choice
Purchase Price
Allocation | |
| | | October 27, | | | | | | | January 1, | |
| | | 2021 | | | | | | | 2023 | |
| | | (in thousands) | |
| | | | | | | | | | | | | |
| Inventory | | $ | 8,653 | | | $ | - | | | $ | 8,653 | |
| Other current assets | | | 929 | | | | (474 | ) | | | 455 | |
| Property, plant and equipment | | | 205 | | | | (205 | ) | | | - | |
| Intangible assets | | | 9,800 | | | | (600 | ) | | | 9,200 | |
| Goodwill | | | 4,383 | | | | 634 | | | | 5,017 | |
| Total assets acquired | | | 23,970 | | | | (645 | ) | | | 23,325 | |
| | | | | | | | | | | | | |
| Current liabilities | | | 3,621 | | | | (256 | ) | | | 3,365 | |
| Net assets acquired | | $ | 20,349 | | | $ | (389 | ) | | $ | 19,960 | |
The estimated fair value of the acquired work in process and finished goods inventory was determined utilizing the income approach. The income approach estimates the fair value of the inventory based on the net retail value of the inventory, less operating expenses and a reasonable profit allowance. Raw materials inventory was valued at book value, as there have not been any significant price fluctuations or other events that would materially change the cost to replace the raw materials.
Of the acquired intangible assets, $4.3 million was assigned to customer lists, which is being amortized over the estimated remaining life of 5 years, $4.9 million was assigned to tradenames (indefinite life), and $5.0 million was assigned to goodwill (indefinite life), which is expected to be deductible for tax purposes. The goodwill recognized is primarily related to synergistic value created in terms of both operating costs and revenue growth opportunities, enhanced financial and operational scale, and other strategic benefits.
The estimated fair value of the acquired tradenames was determined using the relief from royalty method, which is a risk-adjusted discounted cash flow approach. The relief from royalty method values an intangible asset by estimating the royalties saved through ownership of the asset. The relief from royalty method requires identifying the future revenue that would be generated by the trademark, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in the valuation was based on a consideration of market rates for similar categories of assets. The discount rate used in the valuation was based on the Company’s weighted average cost of capital, the riskiness of the earnings stream associated with the trademarks and the overall composition of the acquired assets.
The estimated fair value of the acquired customer lists was determined using the excess earnings method under the income approach. This method requires identifying the future revenue that would be generated by existing customers at the time of the acquisition, considering an appropriate attrition rate based on the historical experience of the Company. Appropriate expenses are then deducted from the revenues and economic rents are charged for the return on contributory assets. The after-tax cash flows attributable to the asset are discounted back to their net present value at an appropriate intangible asset rate of return and summed to calculate the value of the customer lists.
Operating results of the Vital Choice business are reflected in the Company’s consolidated financial statements from the date of acquisition within the Gourmet Foods & Gift Baskets segment. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results was not material.
Acquisition of Alice’s Table
On December 31, 2021, the Company completed its acquisition of Alice’s Table, Inc. (“Alice’s Table”), a lifestyle business offering fully digital livestreaming and on demand floral, culinary and other experiences to guests across the country. The Company utilized existing cash of $0.8 million, contributed accounts receivable due from Alice’s Table of $0.3 million, and converted its cost method investment in Alice’s Table of $0.3 million, in order to acquire 100% ownership in Alice’s Table, which included tradenames, customer lists, websites and operations. Immediately prior to completing the acquisition, the Company wrote down its previous cost method investment in Alice’s Table to its $0.3 million fair value, on the date of the acquisition, resulting in an impairment of $0.7 million, which is recorded in the “Other (income) expense, net” line item on the Statement of Operations for the fiscal year ended July 3, 2022. Alice’s Table revenues were approximately $3.8 million during its most recent fiscal year ended September 30, 2021.
The resulting total consideration of $1.3 million was preliminarily allocated to the identifiable assets acquired and liabilities assumed based on our preliminary estimates of their fair values, as a result of information that was available as of the date of the acquisition. During the quarter ended January 1, 2023, the Company finalized its purchase price allocation, resulting in immaterial adjustments to the preliminary carrying value of the respective recorded assets and the residual amount that was allocated to goodwill. The consideration transferred was allocated to: goodwill of $0.8 million, trademarks of $0.5 million (indefinite life), customer lists of $0.2 million (4-year life), and liabilities of $0.2 million.
Note 5 – Inventory, Net
The Company’s inventory, valued at the lower of cost or net realizable value, includes purchased and manufactured finished goods for sale, packaging supplies, crops, raw material ingredients for manufactured products and associated manufacturing labor, and is classified as follows:
| | | April 2, 2023 | | | July 3, 2022 | |
| | | (in thousands) | |
| Finished goods | | $ | 95,067 | | | $ | 128,760 | |
| Work-in-process | | | 29,208 | | | | 29,270 | |
| Raw materials | | | 67,619 | | | | 89,533 | |
| Total inventory | | $ | 191,894 | | | $ | 247,563 | |
Note 6 – Goodwill and Intangible Assets, Net
The following table presents goodwill by segment and the related change in the net carrying amount:
| | | Consumer Floral & Gifts | | | BloomNet | | | Gourmet Foods & Gift
Baskets | | | Total | |
| | | (in thousands) | |
| Balance at July 3, 2022 | | $ | 151,600 | | | $ | - | | | $ | 61,687 | | | $ | 213,287 | |
| Measurement period adjustment for Vital Choice Acquisition | | | - | | | | - | | | | 600 | | | | 600 | |
| Measurement period adjustment for Alice's Table Acquisition | | | 112 | | | | - | | | | - | | | | 112 | |
| Acquisition of Things Remembered | | | 1,664 | | | | - | | | | - | | | | 1,664 | |
| Goodwill impairment | | | - | | | | - | | | | (62,287 | ) | | | (62,287 | ) |
| Balance at April 2, 2023 | | $ | 153,376 | | | $ | - | | | $ | - | | | $ | 153,376 | |
The Company’s other intangible assets consist of the following:
| | | | | | | | April 2, 2023 | | | July 3, 2022 | |
| | | Amortization Period | | | Gross Carrying Amount | | | Accumulated
Amortization | | | Net | | | Gross Carrying Amount | | | Accumulated
Amortization | | | Net | |
| | | (in years) | | | (in thousands) | |
| Intangible assets with determinable lives | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment in licenses | | 14 | - | 16 | | | $ | 7,420 | | | $ | 6,543 | | | $ | 877 | | | $ | 7,420 | | | $ | 6,464 | | | $ | 956 | |
| Customer lists | | 3 | - | 6 | | | | 29,071 | | | | 20,538 | | | | 8,533 | | | | 28,509 | | | | 17,473 | | | | 11,036 | |
| Other | | 5 | - | 14 | | | | 2,946 | | | | 2,589 | | | | 357 | | | | 2,946 | | | | 2,543 | | | | 403 | |
| Total intangible assets with determinable lives | | | | | | | | 39,437 | | | | 29,670 | | | | 9,767 | | | | 38,875 | | | | 26,480 | | | | 12,395 | |
| Trademarks with indefinite lives | | | | | | | | 131,235 | | | | - | | | | 131,235 | | | | 133,173 | | | | - | | | | 133,173 | |
| Total identifiable intangible assets | | | | | | | $ | 170,672 | | | $ | 29,670 | | | $ | 141,002 | | | $ | 172,048 | | | $ | 26,480 | | | $ | 145,568 | |
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Future estimated amortization expense is as follows: remainder of fiscal 2023 - $1.1 million, fiscal 2024 - $4.5 million, fiscal 2025 - $1.9 million, fiscal 2026 - $1.3 million, fiscal 2027 - $0.5 million and thereafter - $0.5 million.
The Company performs its annual assessment of goodwill and indefinite-lived intangible impairment during its fiscal fourth quarter, or more frequently if events occur or circumstances change such that it is more likely than not that an impairment may exist. During the year ended July 3, 2022, the Company experienced a sustained decline in its share price and a resulting decrease in its market capitalization, primarily due to the overall macroeconomic environment. Inflationary cost increases, which began during the first half of our fiscal year, were exacerbated by geopolitical events, further pressuring the Company’s gross margin and operating expenses. Due to this overall market decline and the Company’s operating performance, the Company completed impairment assessments of the goodwill and intangible assets of its three reporting units. The quantitative impairment tests as of July 3, 2022 did not indicate an impairment.
Although originally projected to be transitory, through the three months and nine months ended April 2, 2023, the trend of adverse macroeconomic conditions and geopolitical pressures continued, and there was a sustained decline in the Company’s market capitalization. As the expected duration of these factors changed during the three months ended April 2, 2023, the Company made downward projections to its business forecasts, and therefore determined a triggering event had occurred that required an interim impairment assessment of the goodwill, intangibles and other long-lived assets of the Gourmet Foods & Gift Baskets reporting unit as of April 2, 2023.
The Company performed its goodwill impairment test by comparing the fair value of its Gourmet Foods & Gift Baskets reporting unit to its respective carrying value. The Company estimated the fair value of the Gourmet Foods & Gift Baskets reporting unit using an equal weighting of the income and market approaches, and a discount rate of 13%. The Company used industry accepted valuation models and set criteria that were reviewed and approved by various levels of management. Under the income approach, the Company used a discounted cash flow methodology which required management to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, among others. For the market approach, the Company used the guideline public company method. Under this method, the Company utilized information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, to create valuation multiples that were applied to the operating performance of the reporting unit being tested, in order to obtain their respective fair values. The Company also reconciled the aggregate fair values of its reporting units to its current market capitalization.
The Company’s impairment test for indefinite-lived intangible assets encompassed calculating a fair value of the indefinite-lived intangible asset and comparing that result to its carrying value. To determine fair value of indefinite-lived intangible assets, the Company used an income approach, the relief-from-royalty method. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. Indefinite-lived intangible assets’ fair values require significant judgments in determining both the assets’ estimated cash flows as well as the appropriate discount and royalty rates applied to those cash flows to determine fair value.
The Company’s impairment test for definite-lived intangibles was performed through a recoverability test, comparing projected undiscounted cash flows from the use and eventual disposition of the asset or asset group to its carrying value.
Based on the impairment assessment performed for the period ending April 2, 2023, the Company recorded a goodwill and intangible impairment charge against its Gourmet Foods & Gift Baskets reporting unit of $64.6 million, comprised of $62.3 million which was attributable to goodwill and $2.3 million which was attributable to certain tradenames within the same reporting unit. The Company concluded that the definite-lived and other long-lived assets of the reporting unit were not impaired.
Note 7 – Investments
Equity investments without a readily determinable fair value
Investments in non-marketable equity instruments of private companies, where the Company does not possess the ability to exercise significant influence, are accounted for at cost, less impairment (assessed qualitatively at each reporting period), adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer. These investments are included within “Other assets” in the Company’s consolidated balance sheets. The aggregate carrying amount of the Company’s cost method investments was $3.5 million as of April 2, 2023 and July 3, 2022, respectively.
Equity investments with a readily determinable fair value
The Company also holds certain trading securities associated with its Non-Qualified Deferred Compensation Plan (“NQDC Plan”). These investments are measured using quoted market prices at the reporting date and are included within the “Other assets” line item in the consolidated balance sheets (see Note 10 - Fair Value Measurements).
Note 8 –Debt, Net
The Company’s current and long-term debt consists of the following:
| | | April 2, 2023 | | | July 3, 2022 | |
| | | (in thousands) | |
| Revolver | | $ | - | | | $ | - | |
| Term Loans | | | 150,000 | | | | 165,000 | |
| Deferred financing costs | | | (1,888 | ) | | | (2,503 | ) |
| Total debt | | | 148,112 | | | | 162,497 | |
| Less: current debt | | | 20,000 | | | | 20,000 | |
| Long-term debt | | $ | 128,112 | | | $ | 142,497 | |
On May 31, 2019, the Company and certain of its U.S. subsidiaries entered into a Second Amended and Restated Credit Agreement (the “2019 Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent, and a group of lenders. The 2019 Credit Agreement amended and restated the Company’s existing amended and restated credit agreement dated as of December 23, 2016 to, among other modifications: (i) increase the amount of the outstanding term loan (“Term Loan”) from approximately $97 million to $100 million, (ii) extend the maturity date of the outstanding Term Loan and the revolving credit facility (“Revolver”) by approximately 29 months to May 31, 2024, and (iii) decrease the applicable interest rate margins for LIBOR and base rate loans by 25 basis points. The Term Loan is payable in 19 quarterly installments of principal and interest beginning on September 29, 2019, with escalating principal payments, at the rate of 5.0% per annum for the first eight payments, and 10.0% per annum for the remaining 11 payments, with the remaining balance of $62.5 million due upon maturity. The Revolver, in the aggregate amount of $200 million, subject to seasonal reduction to an aggregate amount of $