UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2022March 31, 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. 001-40115
COUPANG, INC.
(Exact name of Registrant as specified in its charter)
| | | | | | | | | | | | | | |
Delaware | | | | 27-2810505 |
(State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification Number) |
720 Olive Way, Suite 600
Seattle, Washington 98101
(206) 333-3839
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
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, par value $0.0001 per share | | CPNG | | New York Stock Exchange |
(Title of Each Class) | | (Trading Symbol) | | (Name of Each Exchange on Which Registered) |
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 (§ 232.405 of this chapter) during the preceding 12 months (or for 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 | ☒☐ | | Small 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 a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of NovemberMay 3, 2022,2023, there were 1,595,495,2381,604,064,477 shares of the registrant’s Class A common stock and 174,802,990 shares of the registrant’s Class B common stock, each with a par value of $0.0001 per share, outstanding.
COUPANG, INC.
Form 10-Q
For the Quarterly Period Ended September 30, 2022March 31, 2023
TABLE OF CONTENTS
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 1 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “toward,” “will,” or “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
•the COVID-19 pandemic and its impact on our business, operations, and the markets and communities in which we, our customers, suppliers, and merchants operate;
•our expectations regarding our future operating and financial performance;performance including our ability to achieve, maintain and increase long-term future profitability;
•our ability to successfully execute our business and growth strategy;
•the continued growth of the e-commerce segmentretail market and the increased acceptance of online transactions by potential customers;
•the size of our addressable markets, market share, and market trends;
•our ability to compete in our industry;
•our ability to maintain and improve our market position;
•our ability to manage expansion into new markets segments, and offerings;
•our ability to effectively manage the continued growth of our workforce and operations;
•our anticipated investments in new products and offerings, and the effect of these investments on our results of operations;
•the sufficiency of our cash and cash equivalents, and investments to meet our liquidity needs;
•our ability to retain existing suppliers and merchants and to add new suppliers and merchants;
•our suppliers’ and merchants’ ability to supply high-quality and compliant merchandise to our customers;
•our ability to maintain adequate cybersecurity with respect to our systems;
•our relationship with our employees and the status of our workers;
•our ability to maintain and improve our segment position;
•our ability to operate and manage the expansion of our fulfillment and deliverylogistics infrastructure;
•the effects of seasonal trends on our results of operations;
•our ability to implement, maintain, and improve our internal control over financial reporting;
•our ability to effectively manage our exposure to fluctuations in foreign currency exchange rates;
•world events and the effects of global macroeconomic conditions, including impacts relating tothe pandemic, the invasion of Ukraine by Russia and its regional and global ramifications, inflationary pressures, a general economic slowdown or recession, further increases in interest rates and changes in monetary policy;
•our ability to attract, retain, and motivate skilled personnel, including key members of our senior management;
•our ability to stay in compliance with laws and regulations, including tax laws, that currently apply or may become applicable to our business both in Korea and internationally and our expectations regarding various laws and restrictions that relate to our business; and
•the outcomes of any claims, litigation, governmental audits, inspections, and investigations;
•our intended use of the net proceeds from our initial public offering; and
•the other factors set forth in Part 1, Item 1A, under the caption “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 (the “2021“2022 Form 10-K”)
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Form 10-Q.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in Part 1, Item1A, under the caption “Risk Factors,” of our 20212022 Form 10-K and elsewhere in this Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Form 10-Q. While we believe such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 2 |
indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.
Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (ir.aboutcoupang.com), our filings with the Securities and Exchange Commission (“SEC”), webcasts, press releases, conference calls, and social media. We use these mediums to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website. Notwithstanding the foregoing, the information contained on our website as referenced in this paragraph is not incorporated by reference into this Form 10-Q or any other report or document we file with the SEC.
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 3 |
Part I. Financial Information
| | | | | | | | | | | | | | |
Item 1. Financial Statements (Unaudited) |
COUPANG, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)STATEMENTS OF OPERATIONS
(unaudited)
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 2,903,052 | | | $ | 3,487,708 | |
Restricted cash | 156,970 | | | 319,800 | |
Accounts receivable, net | 169,424 | | | 175,350 | |
Inventories | 1,406,380 | | | 1,421,501 | |
Other current assets | 292,215 | | | 232,447 | |
Total current assets | 4,928,041 | | | 5,636,806 | |
| | | |
Long-term restricted cash | 192 | | | 2,839 | |
Property and equipment, net | 1,540,088 | | | 1,347,531 | |
Operating lease right-of-use assets | 1,292,486 | | | 1,374,629 | |
Goodwill | 10,121 | | | 9,739 | |
Long-term lease deposits and other | 355,733 | | | 270,290 | |
Total assets | $ | 8,126,661 | | | $ | 8,641,834 | |
Liabilities and stockholders' equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 2,940,540 | | | $ | 3,442,720 | |
Accrued expenses | 248,794 | | | 304,293 | |
Deferred revenue | 129,235 | | | 93,972 | |
Short-term borrowings | 159,640 | | | 7,811 | |
Current portion of long-term debt | 2,719 | | | 341,717 | |
Current portion of long-term operating lease obligations | 278,030 | | | 287,066 | |
Other current liabilities | 270,295 | | | 266,709 | |
Total current liabilities | 4,029,253 | | | 4,744,288 | |
| | | |
Long-term debt | 561,069 | | | 283,190 | |
Long-term operating lease obligations | 1,142,179 | | | 1,201,277 | |
Defined severance benefits and other | 222,194 | | | 237,122 | |
Total liabilities | 5,954,695 | | | 6,465,877 | |
| | | |
Commitments and contingencies (Note 8) | | | |
Stockholders' equity | | | |
Class A common stock, $0.0001 par value, 10,000,000,000 shares authorized, 1,594,140,393 and 1,579,399,667 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively; Class B common stock, $0.0001 par value, 250,000,000 shares authorized, 174,802,990 shares issued and outstanding as of September 30, 2022 and December 31, 2021 | 177 | | | 175 | |
Additional paid-in capital | 8,080,618 | | | 7,874,038 | |
Accumulated other comprehensive loss | (64,206) | | | (47,739) | |
Accumulated deficit | (5,844,623) | | | (5,650,517) | |
Total stockholders' equity | 2,171,966 | | | 2,175,957 | |
Total liabilities and stockholders' equity | $ | 8,126,661 | | | $ | 8,641,834 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(in thousands, except per share amounts) | | | | | 2023 | | 2022 |
Net retail sales | | | | | $ | 5,204,800 | | | $ | 4,556,107 | |
Net other revenue | | | | | 595,730 | | | 560,579 | |
Total net revenues | | | | | 5,800,530 | | | 5,116,686 | |
| | | | | | | |
Cost of sales | | | | | 4,380,603 | | | 4,073,280 | |
Operating, general and administrative | | | | | 1,313,152 | | | 1,249,111 | |
Total operating cost and expenses | | | | | 5,693,755 | | | 5,322,391 | |
| | | | | | | |
Operating income (loss) | | | | | 106,775 | | | (205,705) | |
| | | | | | | |
Interest income | | | | | 31,861 | | | 3,534 | |
Interest expense | | | | | (8,278) | | | (7,368) | |
Other (expense) income, net | | | | | (6,539) | | | 490 | |
Income (loss) before income taxes | | | | | 123,819 | | | (209,049) | |
| | | | | | | |
Income tax expense | | | | | 32,964 | | | 245 | |
| | | | | | | |
Net income (loss) | | | | | $ | 90,855 | | | $ | (209,294) | |
| | | | | | | |
Net income (loss) attributable to Class A and Class B common stockholders per share: | | | | | | | |
Basic and diluted | | | | | $ | 0.05 | | | $ | (0.12) | |
Weighted-average shares used in computing net income (loss) per share attributable to Class A and Class B common stockholders: | | | | | | | |
Basic | | | | | 1,774,843 | | | 1,756,739 | |
Diluted | | | | | 1,794,453 | | | 1,756,739 | |
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 4 |
COUPANG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net retail sales | $ | 4,540,393 | | | $ | 4,137,136 | | | $ | 13,577,665 | | | $ | 11,938,685 | |
Net other revenue | 560,941 | | | 507,569 | | | 1,678,176 | | | 1,390,994 | |
Total net revenues | 5,101,334 | | | 4,644,705 | | | 15,255,841 | | | 13,329,679 | |
| | | | | | | |
Cost of sales | 3,867,446 | | | 3,890,178 | | | 11,824,754 | | | 11,184,152 | |
Operating, general and administrative | 1,156,468 | | | 1,069,639 | | | 3,626,515 | | | 3,242,891 | |
Total operating cost and expenses | 5,023,914 | | | 4,959,817 | | | 15,451,269 | | | 14,427,043 | |
| | | | | | | |
Operating income (loss) | 77,420 | | | (315,112) | | | (195,428) | | | (1,097,364) | |
| | | | | | | |
Interest income | 15,403 | | | 2,603 | | | 26,301 | | | 5,450 | |
Interest expense | (6,485) | | | (7,376) | | | (19,996) | | | (38,047) | |
Other income (expense), net | 11,224 | | | (4,026) | | | 2,485 | | | (7,479) | |
Income (loss) before income taxes | 97,562 | | | (323,911) | | | (186,638) | | | (1,137,440) | |
| | | | | | | |
Income tax expense | 6,883 | | | 66 | | | 7,468 | | | 171 | |
| | | | | | | |
Net income (loss) | 90,679 | | | (323,977) | | | (194,106) | | | (1,137,611) | |
| | | | | | | |
Other comprehensive (loss) income: | | | | | | | |
Foreign currency translation adjustments, net of tax | (52,758) | | | 24,266 | | | (54,717) | | | 38,887 | |
Actuarial gain (loss) on defined severance benefits, net of tax | 243 | | | 1,266 | | | 38,250 | | | (7,708) | |
Total other comprehensive (loss) income | (52,515) | | | 25,532 | | | (16,467) | | | 31,179 | |
Comprehensive income (loss) | $ | 38,164 | | | $ | (298,445) | | | $ | (210,573) | | | $ | (1,106,432) | |
| | | | | | | |
Net income (loss) attributable to Class A and Class B common stockholders per share: | | | | | | | |
| | | | | | | |
Basic and diluted | $ | 0.05 | | | $ | (0.19) | | | $ | (0.11) | | | $ | (0.87) | |
Weighted-average shares used in computing net income (loss) per share attributable to Class A and Class B common stockholders: | | | | | | | |
Basic | 1,767,275 | | | 1,747,255 | | | 1,762,465 | | | 1,313,234 | |
Diluted | 1,790,941 | | | 1,747,255 | | | 1,762,465 | | | 1,313,234 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(in thousands) | | | | | 2023 | | 2022 |
Net income (loss) | | | | | $ | 90,855 | | | $ | (209,294) | |
| | | | | | | |
Other comprehensive (loss) income: | | | | | | | |
Foreign currency translation adjustments, net of tax | | | | | (18,988) | | | 3,011 | |
Actuarial gain on defined severance benefits, net of tax | | | | | 856 | | | 3,811 | |
Total other comprehensive (loss) income | | | | | (18,132) | | | 6,822 | |
Comprehensive income (loss) | | | | | $ | 72,723 | | | $ | (202,472) | |
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 5 |
COUPANG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED UNITS AND STOCKHOLDERS’/MEMBERS’ EQUITY (DEFICIT)
(in thousands)BALANCE SHEETS
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Convertible Preferred Units | | | Common Units | | Class A and Class B Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Stockholders'/Members' Equity |
| Units | | Amount | | | Units | | Amount | | Shares | | Amount | | | | |
Balance as of December 31, 2021 | — | | $ | — | | | | — | | $ | — | | | 1,754,203 | | $ | 175 | | | $ | 7,874,038 | | | $ | (47,739) | | | $ | (5,650,517) | | | $ | 2,175,957 | |
Net loss | — | | — | | | | — | | — | | | — | | — | | | — | | | — | | | (209,294) | | | (209,294) | |
Foreign currency translation adjustments, net of tax | — | | — | | | | — | | — | | | — | | — | | | — | | | 3,011 | | | — | | | 3,011 | |
Actuarial gain on defined severance benefits, net of tax | — | | — | | | | — | | — | | | — | | — | | | — | | | 3,811 | | | — | | | 3,811 | |
Issuance of common stock upon exercise of stock options | — | | — | | | | — | | — | | | 4,147 | | 1 | | | 8,182 | | | — | | | — | | | 8,183 | |
Issuance of common stock upon settlement of restricted stock units | — | | — | | | | — | | — | | | 2,708 | | — | | | — | | | — | | | — | | | — | |
Equity-based compensation | — | | — | | | | — | | — | | | — | | — | | | 55,593 | | | — | | | — | | | 55,593 | |
Balance as of March 31, 2022 | — | | $ | — | | | | — | | $ | — | | | 1,761,058 | | $ | 176 | | | $ | 7,937,813 | | | $ | (40,917) | | | $ | (5,859,811) | | | $ | 2,037,261 | |
Net loss | — | | — | | | | — | | — | | | — | | — | | | — | | | — | | | (75,491) | | | (75,491) | |
Foreign currency translation adjustments, net of tax | — | | — | | | | — | | — | | | — | | — | | | — | | | (4,970) | | | — | | | (4,970) | |
Actuarial gain on defined severance benefits, net of tax | — | | — | | | | — | | — | | | — | | — | | | — | | | 34,196 | | | — | | | 34,196 | |
Issuance of common stock upon exercise of stock options | — | | — | | | | — | | — | | | 2,031 | | 1 | | | 4,183 | | | — | | | — | | | 4,184 | |
Issuance of common stock upon settlement of restricted stock units | — | | — | | | | — | | — | | | 2,028 | | — | | | — | | | — | | | — | | | — | |
Equity-based compensation | — | | — | | | | — | | — | | | — | | — | | | 72,916 | | | — | | | — | | | 72,916 | |
Balance as of June 30, 2022 | — | | $ | — | | | | — | | $ | — | | | 1,765,117 | | $ | 177 | | | $ | 8,014,912 | | | $ | (11,691) | | | $ | (5,935,302) | | | $ | 2,068,096 | |
Net income | — | | — | | | | — | | — | | | — | | — | | | — | | | — | | | 90,679 | | | 90,679 | |
Foreign currency translation adjustments, net of tax | — | | — | | | | — | | — | | | — | | — | | | — | | | (52,758) | | | — | | | (52,758) | |
Actuarial gain on defined severance benefits, net of tax | — | | — | | | | — | | — | | | — | | — | | | — | | | 243 | | | — | | | 243 | |
Issuance of common stock upon exercise of stock options | — | | — | | | | — | | — | | | 1,204 | | — | | | 2,631 | | | — | | | — | | | 2,631 | |
Issuance of common stock upon settlement of restricted stock units | — | | — | | | | — | | — | | | 2,622 | | — | | | — | | | — | | | — | | | — | |
Equity-based compensation | — | | — | | | | — | | — | | | — | | — | | | 63,075 | | | — | | | — | | | 63,075 | |
Balance as of September 30, 2022 | — | | $ | — | | | | — | | $ | — | | | 1,768,943 | | $ | 177 | | | $ | 8,080,618 | | | $ | (64,206) | | | $ | (5,844,623) | | | $ | 2,171,966 | |
| | | | | | | | | | | |
(in thousands, except par value) | March 31, 2023 | | December 31, 2022 |
Assets | | | |
Cash and cash equivalents | $ | 3,792,211 | | | $ | 3,509,334 | |
Restricted cash | 330,188 | | | 176,316 | |
Accounts receivable, net | 126,892 | | | 184,463 | |
Inventories | 1,667,156 | | | 1,656,851 | |
Prepaids and other current assets | 198,235 | | | 303,166 | |
Total current assets | 6,114,682 | | | 5,830,130 | |
| | | |
Long-term restricted cash | 1,536 | | | 1,624 | |
Property and equipment, net | 1,811,174 | | | 1,819,945 | |
Operating lease right-of-use assets | 1,341,091 | | | 1,405,248 | |
Long-term lease deposits and other | 441,822 | | | 455,956 | |
Total assets | $ | 9,710,305 | | | $ | 9,512,903 | |
| | | |
Liabilities and stockholders' equity | | | |
Accounts payable | $ | 3,684,956 | | | $ | 3,622,332 | |
Accrued expenses | 247,098 | | | 298,869 | |
Deferred revenue | 93,263 | | | 92,361 | |
Short-term borrowings | 223,446 | | | 175,403 | |
Current portion of long-term debt | 149,034 | | | 128,936 | |
Current portion of long-term operating lease obligations | 319,426 | | | 325,924 | |
Other current liabilities | 456,907 | | | 418,681 | |
Total current liabilities | 5,174,130 | | | 5,062,506 | |
| | | |
Long-term debt | 522,817 | | | 537,880 | |
Long-term operating lease obligations | 1,178,124 | | | 1,233,680 | |
Defined severance benefits and other | 275,204 | | | 264,924 | |
Total liabilities | 7,150,275 | | | 7,098,990 | |
| | | |
Contingencies (Note 11) | | | |
Stockholders' equity | | | |
Class A common stock, $0.0001 par value, 10,000,000 shares authorized, 1,602,488 and 1,597,804 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively; Class B common stock, $0.0001 par value, 250,000 shares authorized, 174,803 shares issued and outstanding as of March 31, 2023 and December 31, 2022 | 178 | | | 177 | |
Additional paid-in capital | 8,227,469 | | | 8,154,076 | |
Accumulated other comprehensive (loss) income | (15,913) | | | 2,219 | |
Accumulated deficit | (5,651,704) | | | (5,742,559) | |
Total stockholders' equity | 2,560,030 | | | 2,413,913 | |
Total liabilities and stockholders' equity | $ | 9,710,305 | | | $ | 9,512,903 | |
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 6 |
COUPANG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Convertible Preferred Units | | | Common Units | | Class A and Class B Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Stockholders'/Members' Equity (Deficit) |
| Units | | Amount | | | Units | | Amount | | Shares | | Amount | | | | |
Balance as of December 31, 2020 | 1,329,465 | | $ | 3,465,611 | | | | 105,822 | | $ | 45,122 | | | — | | $ | — | | | $ | 25,036 | | | $ | (31,093) | | | $ | (4,107,927) | | | $ | (4,068,862) | |
Net loss | — | | — | | | | — | | — | | | — | | — | | | — | | | — | | | (295,033) | | | (295,033) | |
Foreign currency translation adjustments, net of tax | — | | — | | | | — | | — | | | — | | — | | | — | | | 14,972 | | | — | | | 14,972 | |
Actuarial gain on defined severance benefits, net of tax | — | | — | | | | — | | — | | | — | | — | | | — | | | 918 | | | — | | | 918 | |
Issuance of common units, equity-based compensation plan | — | | — | | | | 22,901 | | 38,968 | | | — | | — | | | — | | | — | | | — | | | 38,968 | |
Equity-based compensation | — | | — | | | | — | | 2,974 | | | — | | — | | | — | | | — | | | — | | | 2,974 | |
Impact of Corporate Conversion and IPO | | | | | | | | | | | | | | | | | | | | |
Conversion of common units into Class A and Class B common stock | — | | — | | | | (128,723) | | (87,064) | | | 128,648 | | 13 | | | 87,051 | | | — | | | — | | | — | |
Conversion of redeemable convertible preferred units into Class A and Class B common stock | (1,329,465) | | (3,465,611) | | | | — | | — | | | 1,329,465 | | 133 | | | 3,465,478 | | | — | | | — | | | 3,465,611 | |
Issuance of Class A common stock, net of underwriting discounts and offering costs | — | | — | | | | — | | — | | | 100,000 | | 10 | | | 3,416,809 | | | — | | | — | | | 3,416,819 | |
Conversion of convertible notes into Class A common stock | — | | — | | | | — | | — | | | 171,750 | | 17 | | | 609,982 | | | — | | | — | | | 609,999 | |
Issuance of common stock, equity-based compensation plan subsequent to Corporate Conversion and IPO | — | | — | | | | — | | — | | | 2,680 | | — | | | 4,767 | | | — | | | — | | | 4,767 | |
Equity-based compensation subsequent to Corporate Conversion and IPO | — | | — | | | | — | | — | | | — | | — | | | 83,992 | | | — | | | — | | | 83,992 | |
Balance as of March 31, 2021 | — | | $ | — | | | | — | | $ | — | | | 1,732,543 | | $ | 173 | | | $ | 7,693,115 | | | $ | (15,203) | | | $ | (4,402,960) | | | $ | 3,275,125 | |
Net loss | — | | — | | | | — | | — | | | — | | — | | | — | | | — | | | (518,601) | | | (518,601) | |
Foreign currency translation adjustments, net of tax | — | | — | | | | — | | — | | | — | | — | | | — | | | (351) | | | — | | | (351) | |
Actuarial loss on defined severance benefits, net of tax | — | | — | | | | — | | — | | | — | | — | | | — | | | (9,892) | | | — | | | (9,892) | |
Issuance of common stock, equity-based compensation plan | — | | — | | | | — | | — | | | 3,036 | | — | | | 6,002 | | | — | | | — | | | 6,002 | |
| | | | | | | | | | | | | | | | | | | | |
Equity-based compensation | — | | — | | | | — | | — | | | — | | — | | | 50,346 | | | — | | | — | | | 50,346 | |
Balance as of June 30, 2021 | — | | $ | — | | | | — | | $ | — | | | 1,735,579 | | $ | 173 | | | $ | 7,749,463 | | | $ | (25,446) | | | $ | (4,921,561) | | | $ | 2,802,629 | |
Net loss | — | | — | | | | — | | — | | | — | | — | | | — | | | — | | | (323,977) | | | (323,977) | |
Foreign currency translation adjustments, net of tax | — | | — | | | | — | | — | | | — | | — | | | — | | | 24,266 | | | — | | | 24,266 | |
Actuarial gain on defined severance benefits, net of tax | — | | — | | | | — | | — | | | — | | — | | | — | | | 1,266 | | | — | | | 1,266 | |
Issuance of common stock, equity-based compensation plan | — | | — | | | | — | | — | | | 14,776 | | 1 | | | 7,783 | | | — | | | — | | | 7,784 | |
Equity-based compensation | — | | — | | | | — | | — | | | — | | — | | | 56,138 | | | — | | | — | | | 56,138 | |
Balance as of September 30, 2021 | — | | $ | — | | | | — | | $ | — | | | 1,750,355 | | $ | 174 | | | $ | 7,813,384 | | | $ | 86 | | | $ | (5,245,538) | | | $ | 2,568,106 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(in thousands) | | | | | 2023 | | 2022 |
Total stockholders' equity, as of beginning of period | | | | | $ | 2,413,913 | | | $ | 2,175,957 | |
| | | | | | | |
Class A and Class B common stock | | | | | | | |
Balance at beginning of period | | | | | 177 | | | 175 | |
Issuance of common stock upon exercise of stock options | | | | | — | | | 1 | |
Issuance of common stock upon settlement of restricted stock units | | | | | 1 | | | — | |
Balance at end of period | | | | | 178 | | | 176 | |
| | | | | | | |
Additional paid-in capital | | | | | | | |
Balance at beginning of period | | | | | 8,154,076 | | | 7,874,038 | |
Issuance of common stock upon exercise of stock options | | | | | 3,494 | | | 8,182 | |
Equity-based compensation | | | | | 69,899 | | | 55,593 | |
Balance at end of period | | | | | 8,227,469 | | | 7,937,813 | |
| | | | | | | |
Accumulated other comprehensive income (loss) | | | | | | | |
Balance at beginning of period | | | | | 2,219 | | | (47,739) | |
Foreign currency translation adjustments, net of tax | | | | | (18,988) | | | 3,011 | |
Actuarial gain on defined severance benefits, net of tax | | | | | 856 | | | 3,811 | |
Balance at end of period | | | | | (15,913) | | | (40,917) | |
| | | | | | | |
Accumulated deficit | | | | | | | |
Balance at beginning of period | | | | | (5,742,559) | | | (5,650,517) | |
Net income (loss) | | | | | 90,855 | | | (209,294) | |
Balance at end of period | | | | | (5,651,704) | | | (5,859,811) | |
| | | | | | | |
Total stockholders' equity, as of end of period | | | | | $ | 2,560,030 | | | $ | 2,037,261 | |
| | | | | | | |
Class A and Class B common stock | | | | | | | |
Shares at beginning of period | | | | | 1,772,607 | | | 1,754,203 | |
Issuance of common stock upon exercise of stock options | | | | | 1,588 | | | 4,147 | |
Issuance of common stock upon settlement of restricted stock units | | | | | 3,096 | | | 2,708 | |
Shares at end of period | | | | | 1,777,291 | | | 1,761,058 | |
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 7 |
COUPANG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| 2022 | | 2021 | |
Operating activities: | | | | |
Net loss | $ | (194,106) | | | $ | (1,137,611) | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | |
(in thousands) | | (in thousands) | 2023 | | 2022 |
Operating activities | | Operating activities | |
Net income (loss) | | Net income (loss) | $ | 90,855 | | | $ | (209,294) | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |
Depreciation and amortization | Depreciation and amortization | 174,063 | | | 145,866 | | Depreciation and amortization | 64,245 | | | 59,240 | |
Provision for severance benefits | Provision for severance benefits | 124,056 | | | 100,649 | | Provision for severance benefits | 38,691 | | | 44,482 | |
Equity-based compensation | Equity-based compensation | 191,584 | | | 193,450 | | Equity-based compensation | 69,899 | | | 55,593 | |
Paid-in-kind interest and accretion of discount on convertible notes | — | | | 20,148 | | |
Inventory and fixed asset losses due to fulfillment center fire | — | | | 284,825 | | |
Non-cash operating lease expense | Non-cash operating lease expense | 231,333 | | | 187,926 | | Non-cash operating lease expense | 83,514 | | | 77,223 | |
Non-cash others | 56,536 | | | 32,786 | | |
Other | | Other | 28,716 | | | 16,514 | |
Change in operating assets and liabilities: | Change in operating assets and liabilities: | | Change in operating assets and liabilities: | |
Accounts receivable, net | Accounts receivable, net | (39,325) | | | (75,958) | | Accounts receivable, net | 55,691 | | | 266 | |
Inventories | Inventories | (288,761) | | | (308,559) | | Inventories | (60,966) | | | 6,863 | |
Other assets | Other assets | (273,554) | | | (182,375) | | Other assets | 59,658 | | | (66,512) | |
Accounts payable | Accounts payable | 163,508 | | | 561,528 | | Accounts payable | 162,166 | | | 28,044 | |
Accrued expenses | Accrued expenses | (6,359) | | | 50,604 | | Accrued expenses | (46,905) | | | (49,981) | |
Deferred revenue | 57,993 | | | 13,015 | | |
Other liabilities | Other liabilities | (212,005) | | | (94,126) | | Other liabilities | (44,261) | | | (17,377) | |
Net cash used in operating activities | (15,037) | | | (207,832) | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | 501,303 | | | (54,939) | |
| Investing activities: | | |
Investing activities | | Investing activities | |
Purchases of property and equipment | Purchases of property and equipment | (703,074) | | | (505,554) | | Purchases of property and equipment | (95,221) | | | (238,906) | |
Proceeds from sale of property and equipment | Proceeds from sale of property and equipment | 10,600 | | | 960 | | Proceeds from sale of property and equipment | 664 | | | 4,245 | |
Other investing activities | Other investing activities | (25,979) | | | (2,218) | | Other investing activities | 11,825 | | | (14,367) | |
Net cash used in investing activities | Net cash used in investing activities | (718,453) | | | (506,812) | | Net cash used in investing activities | (82,732) | | | (249,028) | |
| Financing activities: | | |
Proceeds from issuance of Class A common stock upon initial public offering, net of underwriting discounts | — | | | 3,431,277 | | |
Deferred offering costs paid | — | | | (11,618) | | |
Proceeds from issuance of common stock/units, equity-based compensation plan | 14,998 | | | 57,521 | | |
Financing activities | | Financing activities | |
Proceeds from issuance of common stock, equity-based compensation plan | | Proceeds from issuance of common stock, equity-based compensation plan | 3,495 | | | 8,183 | |
Proceeds from short-term borrowings and long-term debt | Proceeds from short-term borrowings and long-term debt | 543,185 | | | 308,772 | | Proceeds from short-term borrowings and long-term debt | 31,952 | | | 343,975 | |
Repayment of short-term borrowings and long-term debt | Repayment of short-term borrowings and long-term debt | (337,071) | | | (111,472) | | Repayment of short-term borrowings and long-term debt | (842) | | | (152,029) | |
Net short-term borrowings and other financing activities | Net short-term borrowings and other financing activities | 5,377 | | | (2,289) | | Net short-term borrowings and other financing activities | 43,514 | | | (1,547) | |
Net cash provided by financing activities | Net cash provided by financing activities | 226,489 | | | 3,672,191 | | Net cash provided by financing activities | 78,119 | | | 198,582 | |
Effect of exchange rate changes on cash and cash equivalents, and restricted cash | Effect of exchange rate changes on cash and cash equivalents, and restricted cash | (243,132) | | | (88,842) | | Effect of exchange rate changes on cash and cash equivalents, and restricted cash | (60,029) | | | (27,404) | |
Net (decrease) increase in cash and cash equivalents, and restricted cash | (750,133) | | | 2,868,705 | | |
Net increase (decrease) in cash and cash equivalents, and restricted cash | | Net increase (decrease) in cash and cash equivalents, and restricted cash | 436,661 | | | (132,789) | |
Cash and cash equivalents, and restricted cash, as of beginning of period | Cash and cash equivalents, and restricted cash, as of beginning of period | 3,810,347 | | | 1,401,302 | | Cash and cash equivalents, and restricted cash, as of beginning of period | 3,687,274 | | | 3,810,347 | |
Cash and cash equivalents, and restricted cash, as of end of period | Cash and cash equivalents, and restricted cash, as of end of period | $ | 3,060,214 | | | $ | 4,270,007 | | Cash and cash equivalents, and restricted cash, as of end of period | $ | 4,123,935 | | | $ | 3,677,558 | |
Supplemental disclosure of cash-flow information: | | | | |
Cash paid for income taxes, net of refunds | $ | 2,851 | | | $ | 1,088 | | |
Cash paid for interest | $ | 17,142 | | | $ | 14,175 | | |
Non-cash investing and financing activities: | | |
Decrease in property and equipment-related accounts payable | $ | (72,052) | | | $ | (5,516) | | |
Conversion of common units into Class A and Class B common stock | $ | — | | | $ | 87,064 | | |
Conversion of redeemable convertible preferred units into Class A and Class B common stock | $ | — | | | $ | 3,465,611 | | |
Conversion of convertible notes into Class A common stock | $ | — | | | $ | 609,999 | | |
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 8 |
COUPANG, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
DescriptionThe accompanying unaudited condensed consolidated financial statements of Business
Coupang, Inc. (“Coupang”), together with its wholly-owned subsidiaries (collectively, the “Company,” “we,” “us,” or “our”), is a Delaware corporation, which owns and operates an e-commerce business that primarily serves the Korean retail market. Through the Company’s mobile applications and Internet websites, the Company offers products and services that span a wide range of categories, including home goods and décor, apparel and beauty products, fresh food and grocery, sporting goods, electronics, everyday consumables, travel, restaurant order and delivery, content streaming, and advertising, which are offered through a fully integrated technology, fulfillment and logistics infrastructure. The Company is headquartered in the United States, with operations and support services performed in markets including South Korea, Japan, Taiwan, Singapore, and China.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The accompanying unauditedpreparation of condensed consolidated financial statements includein conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the accountsreported amounts of assets and liabilities, the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
The condensed consolidated balance sheet asdisclosure of December 31, 2021 included herein was derived fromcontingent liabilities at the audited consolidated financial statements asdate of that date. The accompanying unauditedthe condensed consolidated financial statements have been preparedand the reported amounts of revenues and expenses during the reporting periods. We based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the same basis as the annual consolidatedcircumstances. Actual results could differ materially from these estimates.
The unaudited interim financial statements and,information reflects all normal recurring adjustments that are, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position, results of operations and comprehensive income (loss), redeemable convertible preferred units and stockholders’/members’ equity (deficit), and cash flows for the periods presented, but are not necessarily indicativefair presentation of the results of operations to be anticipated for any future annual orthe interim period. Certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s 2021our 2022 Form 10-K.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates, which include, but are not limited to, equity-based compensation, inventory valuation, income taxes, defined severance benefits, and revenue recognition. Actual results could differ materially from those estimates. We based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Given the global economic climate and additional or unforeseen effects from the COVID-19 pandemic, these estimates become more challenging, and actual results could differ materially from these estimates.
Segment Information
On March 2, 2022, the Company announced that it revised its reportable segments to reflect the way the Chief Operating Decision Maker (“CODM”) assesses performance and allocates resources. The change led to the following two operating and reportable segments: Product Commerce and Developing Offerings. Refer to Note 14 — "Segment Reporting" for further discussion.
Fulfillment Center Fire
In June 2021, a fire extensively damaged the Company’s Deokpyeong fulfillment center (the “FC Fire”) resulting in a loss of the inventory, building, equipment, and other assets at the site. Inventory and property and equipment losses from the FC Fire of $158 million and $127 million were recognized in “Cost of sales” and “Operating, general and administrative,” respectively, during the second quarter of 2021. The Company is insured on property losses from the FC Fire; however, whether and to what
extent the Company may recover insurance proceeds on these losses is currently unknown, and as such, no insurance recoveries have been recognized. During the second quarter of 2021, the Company also incurred or accrued for other costs directly related to the FC Fire of $11 million. The FC Fire resulted in an increase to our net loss of $296 million for the nine months ended September 30, 2021.
Concentration of Credit Risk
Cash and cash equivalents and restricted cash are potentially subject to concentration of credit risk. Cash and cash equivalents, and restricted cash are placed with several financial institutions that management believes are of high credit quality, of which 58% and 77% were held at two and four financial institutions as of September 30, 2022 and December 31, 2021, respectively. The Company’s gross accounts receivable include amounts concentrated with two and one payment processing companies representing 38% and 14% of gross accounts receivable at September 30, 2022 and December 31, 2021, respectively.
Recent Accounting Pronouncements Adopted
In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40).” The standard reduces the number of models used to account for convertible instruments, amends diluted earnings per share (“EPS”) calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity's own shares to be classified in equity. The amendments add certain disclosure requirements to increase transparency and decision-usefulness about a convertible instrument's terms and features. Under the amendment, the Company must use the if-converted method for including convertible instruments in diluted EPS as opposed to the treasury stock method. The ASU is effective for public companies for fiscal years beginning after December 15, 2021. Early adoption is allowed under the standard with either a modified retrospective or full retrospective method. We adopted this ASU effective January 1, 2022. The adoption of the ASU did not have a material impact on our condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” ASU 2021-08 requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 (Revenue from Contracts with Customers). The ASU will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The ASU is effective on a prospective basis for public companies for fiscal years beginning after December 15, 2022 . We early adopted this ASU effective January 1, 2022. The adoption of the ASU did not have a material impact on our condensed consolidated financial statements.
Recent Accounting Pronouncements Yet To Be Adopted
In September 2022, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) 2022-04, “Supplier Finance Programs (Subtopic 405-50) - Disclosure of Supplier Finance Program Obligations.” The standard will requirerequires entities that use supplier finance programs to make disclosures about the key terms of the program, the balance sheet presentation of the related amounts and disclose the amounts outstanding, including providing a rollforward of such amounts. The ASU is effective on a retrospective basis for fiscal years beginning after December 15, 2022, with the exception of the rollforward disclosure which will be effective prospectively for fiscal years beginning after December 15, 2023. EarlyThe adoption is allowed under the standard. The Company is evaluating the effect of adopting the ASU onresulted in incremental disclosures in our condensed consolidated financial statements.
2. Net Revenues
Details of total net revenues were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net retail sales | $ | 4,540,393 | | | $ | 4,137,136 | | | $ | 13,577,665 | | | $ | 11,938,685 | |
Third-party merchant services | 447,868 | | | 450,634 | | | 1,414,768 | | | 1,231,799 | |
Other revenue | 113,073 | | | 56,935 | | | 263,408 | | | 159,195 | |
Total net revenues | $ | 5,101,334 | | | $ | 4,644,705 | | | $ | 15,255,841 | | | $ | 13,329,679 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(in thousands) | | | | | 2023 | | 2022 |
Net retail sales | | | | | $ | 5,204,800 | | | $ | 4,556,107 | |
Third-party merchant services | | | | | 460,975 | | | 491,347 | |
Other revenue | | | | | 134,755 | | | 69,232 | |
Total net revenues | | | | | $ | 5,800,530 | | | $ | 5,116,686 | |
This level of revenue disaggregation takes into consideration how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Net retail sales are recognized from online product sales to consumers. Third-party
merchant services represent commissions, advertising, and delivery fees earned from merchants and restaurants that sell their products through the Company’sour online business. Other revenue includes revenue earned from our Rocket WOW membership program and various other offerings.
Contract liabilities consist of payments in advance of delivery and customer loyalty credits, which are included in deferred revenue on the condensed consolidated balance sheets. The CompanyWe recognized revenue of $82$89 million and $60$74 million for the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively, primarily related to payments in advance of delivery which were included in deferred revenue on the consolidated balance sheets as of December 31, 2021 and 2020, respectively. Revenue recognized from customer loyalty program liabilities asthe beginning of December 31, 2021 and 2020 were not material for the nine months ended September 30, 2022 and 2021, respectively.respective years.
3. Supplemental Financial InformationSegment Reporting
PropertyWe own and Equipment, netoperate an e-commerce business that primarily serves the Korean retail market. The Chief Operating Decision Maker (“CODM”) is our Chief Executive Officer. We have two operating and reportable segments: Product Commerce and Developing Offerings. These segments are based on how the CODM manages the business, allocates resources, makes operating decisions and evaluates operating performance.
The following summarizes the Company’s propertyProduct Commerce primarily includes core retail (owned inventory) and equipment, net:
| | | | | | | | | | | |
(in thousands) | September 30, 2022 | | December 31, 2021 |
Land | $ | 236,691 | | | $ | 140,786 | |
Buildings | 268,891 | | | 320,059 | |
Equipment and furniture | 537,280 | | | 551,304 | |
Leasehold improvements | 419,447 | | | 340,468 | |
Vehicles | 124,313 | | | 168,585 | |
Software | 22,154 | | | 34,582 | |
Construction in progress | 371,464 | | | 200,735 | |
Property and equipment, gross | 1,980,240 | | | 1,756,519 | |
Less: Accumulated depreciation and amortization | (440,152) | | | (408,988) | |
Property and equipment, net | $ | 1,540,088 | | | $ | 1,347,531 | |
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss includes all changes in equity during a period that have yet to be recognized in income. The major components are foreign currency translation adjustmentsmarketplace offerings (third-party merchants) and actuarial gains (losses) on the Company’s defined severance benefits. As of September 30, 2022 and December 31, 2021, the ending balance in accumulated other comprehensive loss related to foreign currency translation adjustments was $(18) million and $36 million, respectively, and the amount related to actuarial losses on defined severance benefits was $(46) million and $(84) million, respectively.
4. Leases
The Company is obligated under operating leases primarily for vehicles, equipment, warehouses, and facilities that expire over the next eleven years. These leases can contain renewal options. Because the Company is not reasonably certain to exerciseRocket Fresh, our fresh grocery offering, as well as advertising products associated with these renewal options, or the renewal options are not solely within the Company’s discretion, the options are not considered in determining the lease term, and the associated potential option payments are excludedofferings. Revenues from expected minimum lease payments. The Company’s leases generally do not include termination options for either party or restrictive financial or other covenants.
The components of operating lease cost were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Operating lease cost | $ | 100,616 | | | $ | 87,814 | | | $ | 307,160 | | | $ | 247,566 | |
Variable and short-term lease cost | 10,348 | | | 9,895 | | | 29,910 | | | 26,784 | |
Total operating lease cost | $ | 110,964 | | | $ | 97,709 | | | $ | 337,070 | | | $ | 274,350 | |
Product
11 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 9 |
Commerce are derived primarily from online product sales of owned inventory to customers in Korea and from commissions earned from merchants that sell products through our mobile application and website.
Developing Offerings primarily includes more nascent offerings and services, including Coupang Eats, our restaurant ordering and delivery service, Coupang Play, our online content streaming service, fintech, certain international initiatives, as well as advertising products associated with these offerings. Revenues from Developing Offerings are primarily generated from online restaurant ordering and delivery services provided on our mobile applications and websites.
Our segment operating performance measure is segment adjusted EBITDA. Segment adjusted EBITDA is defined as income (loss) before income taxes for a period before depreciation and amortization, equity-based compensation expense, interest expense, interest income, and other income (expense), net. Segment adjusted EBITDA also excludes impairments and other items that we do not believe are reflective of our ongoing operations.Supplemental disclosureWe generally allocate operating expenses to the respective segments based on usage. The CODM does not evaluate segments using asset information and, accordingly, we do not report asset information by segment.
Results of cash flow information relatedoperations for the reportable segments and reconciliation to leases wereincome (loss) before income taxes is as follows:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 |
Cash paid for the amount used to measure the operating lease liabilities | $ | 273,485 | | | $ | 204,791 | |
Operating lease assets obtained in exchange for lease obligations | $ | 355,149 | | | $ | 485,788 | |
Net increase to operating lease right-of-use assets resulting from remeasurements of lease obligations | $ | 4,637 | | | $ | 40,812 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(in thousands) | | | | | 2023 | | 2022 |
Net revenues | | | | | | | |
Product Commerce | | | | | $ | 5,658,349 | | | $ | 4,936,053 | |
Developing Offerings | | | | | 142,181 | | | 180,633 | |
Total net revenues | | | | | $ | 5,800,530 | | | $ | 5,116,686 | |
Segment adjusted EBITDA | | | | | | | |
Product Commerce | | | | | $ | 288,370 | | | $ | 2,877 | |
Developing Offerings | | | | | (47,451) | | | (93,749) | |
Total segment adjusted EBITDA | | | | | $ | 240,919 | | | $ | (90,872) | |
Reconciling items: | | | | | | | |
Depreciation and amortization | | | | | $ | (64,245) | | | $ | (59,240) | |
Equity-based compensation | | | | | (69,899) | | | (55,593) | |
Interest expense | | | | | (8,278) | | | (7,368) | |
Interest income | | | | | 31,861 | | | 3,534 | |
Other (expense) income, net | | | | | (6,539) | | | 490 | |
Income (loss) before income taxes | | | | | $ | 123,819 | | | $ | (209,049) | |
The assumptions used to value leases4. Equity-based Compensation Plans
Restricted Stock Units (“RSU”s)
RSU activity for the periods presented werethree months ended March 31, 2023 is as follows:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Operating leases weighted-average remaining lease term | 5.8 years | | 5.8 years |
Operating leases weighted-average discount rate | 6.67 | % | | 6.17 | % |
As of September 30, 2022, the Company had entered into operating leases that have not commenced with future minimum lease payments of $285 million, that have not been recognized on the Company's condensed consolidated balance sheets. These leases have non-cancellable lease terms of 2 to 10 years.
5. Fair Value Measurement
Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP established a hierarchy framework to classify the fair value based on the observability of significant inputs to the measurement. The levels of the fair value hierarchy are as follows:
Level 1: Observable inputs such as quoted prices in an active market for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active or inputs other than the quoted prices that are observable either directly or indirectly for the full term of the assets or liabilities.
Level 3: Unobservable inputs in which there is little or no market data and that are significant to the fair value of the assets or liabilities. | | | | | | | | | | | |
| Outstanding RSUs |
(in thousands, except unit price) | Number of RSUs | | Weighted Average Grant- Date Fair Value |
December 31, 2022 | 35,178 | | | $ | 19.29 | |
Granted | 4,205 | | | $ | 15.29 | |
Vested | (3,096) | | | $ | 22.35 | |
Forfeited / cancelled | (936) | | | $ | 21.23 | |
March 31, 2023 | 35,351 | | | $ | 18.49 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
12 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 10 |
The following table summarizes the Company's financial assets and financial liabilities that are measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
Financial assets: | | | | | | | |
Cash and cash equivalents | $ | 2,903,052 | | | $ | — | | | $ | — | | | $ | 2,903,052 | |
Restricted cash | | | | | | | |
Time deposit | 96,525 | | | — | | | — | | | 96,525 | |
Money market trust | 60,445 | | | — | | | — | | | 60,445 | |
Other current assets | | | | | | | |
Time deposit | 6,970 | | | — | | | — | | | 6,970 | |
Long-term restricted cash | | | | | | | |
Time deposit | 192 | | | — | | | — | | | 192 | |
| | | | | | | |
Total financial assets | $ | 3,067,184 | | | $ | — | | | $ | — | | | $ | 3,067,184 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
Financial assets: | | | | | | | |
Cash and cash equivalents | $ | 3,487,708 | | | $ | — | | | $ | — | | | $ | 3,487,708 | |
Restricted cash | | | | | | | |
Time deposit | 250,839 | | | — | | | — | | | 250,839 | |
Money market trust | 68,961 | | | — | | | — | | | 68,961 | |
| | | | | | | |
| | | | | | | |
Long-term restricted cash | | | | | | | |
Time deposit | 2,839 | | | — | | | — | | | 2,839 | |
Total financial assets | $ | 3,810,347 | | | $ | — | | | $ | — | | | $ | 3,810,347 | |
Cash and cash equivalents includes bank deposits, money market trusts and time deposits. The carrying amounts of our cash equivalents approximate their fair values, which are based on Level 1 assumptions.
6. Short-term Borrowings and Long-term Debt
The Company’s short-term borrowings generally include lines of credit and term loan facilities with financial institutions to be utilized for general operating purposes. There were $160 million and $8 million of borrowings outstanding under these facilities as of September 30, 2022 and December 31, 2021, respectively.
In September 2022, the Company entered into a $77 million one-year term loan agreement. The Company pledged $92 million of certain land as collateral. The loan bears interest at a fixed rate of 4.75%. Principal is to be paid at maturity and interest is paid on a monthly basis.
Details of carrying amounts of long-term debt were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | | | | | | | September 30, 2022 | | December 31, 2021 |
Maturity Date | | Interest rate (%) | | Borrowing Limit | | |
February 2024(1) | | (4) | | $ | 1,000,000 | | | $ | — | | | $ | — | |
February 2023 - April 2025(2) | | 2.65 | | – | 4.45 | | 3,617 | | | 3,617 | | | 20,952 | |
October 2023 - March 2027(3) | | 2.87 | | – | 5.95 | | 717,035 | | | 563,283 | | | 605,229 | |
Total principal long-term debt | | | | | | $ | 1,720,652 | | | $ | 566,900 | | | $ | 626,181 | |
Less: current portion of long-term debt | | | | | | | | (2,719) | | | (341,717) | |
Less: unamortized discounts | | | | | | | | (3,112) | | | (1,274) | |
Total long-term debt | | | | | | | | $ | 561,069 | | | $ | 283,190 | |
_____________
(1)Relates to the Company’s 2021 revolving credit facility.
(2)The Company entered into various loan agreements with fixed interest rates for general operating purposes.
(3)At September 30, 2022, we had pledged up to $861 million of land and buildings as collateral against long-term loan facilities.
(4)Borrowings under the 2021 revolving credit facility bear interest, at the Company’s option, at a rate per annum equal to (i) a base rate equal to the highest of (A) the prime rate, (B) the higher of the federal funds rate or a composite overnight bank borrowing rate plus 0.50%, or (C) an adjusted LIBOR for a one-month interest period plus 1.00% or (ii) an adjusted LIBOR plus a margin equal to 1.00%.
In March 2022, the Company entered into a new five-year loan agreement to borrow $279 million, which was partially used to extinguish the $149 million August 2020 term loan facility which matured in March 2022 and to finance infrastructure of a fulfillment center. The Company pledged up to $335 million of certain existing land and a building as collateral. The loan bears interest at a fixed rate of 4.26%.
In October 2022, the Company entered into a two-year revolving facility agreement with a borrowing limit of $112 million that bears interest at the average of 91-days CD interest rate plus 2.30%. The revolving facility is secured by certain of the Company’s inventories.
The Company was in compliance with the covenants for each of its borrowings and debt agreements as of September 30, 2022.
The Company’s long-term debt is recorded at amortized cost. The fair value is estimated using Level 2 inputs based on the Company’s current interest rate for similar types of borrowing arrangements. The carrying amount of the long-term debt approximates its fair value as of September 30, 2022 and December 31, 2021 due primarily to the interest rates approximating market interest rates.
7. Convertible Notes and Derivative Instrument
From February 23, 2018 to May 16, 2018, the Company issued convertible notes in an aggregate principal amount of $502 million (total proceeds of $507 million, which included a total net funding premium at issuance), the majority of which were purchased by existing unitholders of the Company’s preferred units, with a maturity equal to the earlier of (a) the fourth anniversary from the first issuance date, (b) the consummation of a liquidity event, or (c) upon an event of default, as defined in the LLC Agreement. In connection with the Company’s initial public offering (“IPO”) in March 2021, the principal balance and the accrued interest on the convertible notes were automatically converted into 171,750,446 shares of the Company’s Class A common stock.
The convertible notes had an annual effective interest rate of 16.99%. The Company recorded interest expense from its convertible notes for the nine months ended September 30, 2021 of $20 million, consisting of $15 million of contractual interest expense and $5 million of debt discount amortization.
The convertible notes contained embedded derivatives that allowed or required the holders of the convertible notes to convert them into a variable number of the Company’s equity securities for a value equal to a significant premium over the then principal and accrued interest balance. These embedded derivatives were bifurcated and accounted for separately as a single, compound derivative instrument. The convertible notes did not convert to common shares based on this embedded feature, rather they converted based on a price calculated by dividing $6.3 billion with the number of common equity securities, on an as-converted and as-exercised basis, outstanding on the closing of the IPO. Following the convertible notes conversion to shares of Class A common stock, the embedded derivatives no longer exist.
8. Commitments and Contingencies
Commitments
The following summarizes the Company’s minimum contractual commitments as of September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Unconditional purchase obligations (unrecognized) | | Long-term debt (including interest) | | Operating leases | | Total |
Remainder of 2022 | $ | 73,355 | | | $ | 3,276 | | | $ | 87,757 | | | $ | 164,388 | |
2023 | 279,732 | | | 110,228 | | | 354,732 | | | 744,692 | |
2024 | 263,352 | | | 178,923 | | | 324,544 | | | 766,819 | |
2025 | 200,348 | | | 13,529 | | | 270,896 | | | 484,773 | |
2026 | 177,769 | | | 52,483 | | | 205,547 | | | 435,799 | |
Thereafter | 358,378 | | | 281,715 | | | 507,182 | | | 1,147,275 | |
Total undiscounted payments | $ | 1,352,934 | | | $ | 640,154 | | | $ | 1,750,658 | | | $ | 3,743,746 | |
Less: lease imputed interest | | | | | (330,449) | | | |
Total lease commitments | | | | | $ | 1,420,209 | | | |
Unconditional purchase obligations include legally binding contracts with terms in excess of one year that are not reflected on the consolidated balance sheets. These contractual commitments primarily relate to technology related service contracts, fulfillment center construction contracts and software licenses. For contracts with variable terms, we do not estimate the total obligation beyond any minimum pricing as of the reporting date.
Legal Matters
From time to time, the Company may become party to litigation incidents and other legal proceedings, including regulatory proceedings, in the ordinary course of business. The Company assesses the likelihood of any adverse judgments or outcomes with respect to these matters and determines loss contingency assessments on a gross basis after assessing the probability of incurrence of a loss and whether a loss is reasonably estimable. In addition, the Company considers other relevant factors that could impact its ability to reasonably estimate a loss. A determination of the amount of reserves required, if any, for these contingencies is made after analyzing each matter. The Company's reserves may change in the future due to new developments or changes in strategy in handling these matters. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of currently pending legal matters will not have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.
9. Redeemable Convertible Preferred Units and Stockholders'/Members' Equity (Deficit)
Immediately prior to effectiveness of the Company’s IPO registration statement on Form S-1, Coupang, LLC, a Delaware limited liability company, converted into a Delaware corporation pursuant to a statutory conversion, which changed the Company’s name to Coupang, Inc. (“Corporate Conversion”).
Prior to the Corporate Conversion, the Company’s Limited Liability Company Agreement (“LLC Agreement”), as amended and restated on April 11, 2019, authorized the issuance of 1,448,632,049 preferred units, which were convertible into the same number of common voting units issued upon conversion of the preferred units, as well as the issuance of 264,166,544 common units.
Pursuant to the Corporate Conversion and IPO:
•1,196,605,432 preferred units and 85,579,584 common units (which include 22,443,220 PIUs), in each case, automatically converted into an equal number of shares of Class A common stock, except with respect to a conversion adjustment which reduced the outstanding common units designated as PIUs by 75,862 common units, and excluding any such preferred units and common units (including any PIUs) held by Mr. Bom Kim; and
•132,859,550 preferred units held by Mr. Kim and 43,143,440 common units (all of which were designated as PIUs) held by Mr. Kim, in each case, converted into an equal number of shares of Class B common stock.
On March 15, 2021, the Company completed its IPO, in which it issued and sold 100,000,000 shares of its Class A common stock at a price of $35.00 per share. The Company received net proceeds of approximately $3.4 billion from its IPO after deducting underwriting discounts of $69 million and other offering costs. Also, the owner of our Class B common stock converted 1,200,000 shares of Class B common stock into Class A common stock, which were sold in the IPO.
Holders of vested PIUs had similar rights to those of common unit holders. The PIUs (with the exception of those granted to the Company’s Chief Executive Officer, which convert into an equal number of shares of Class B common stock) convert to shares of Class A common stock at a ratio based on the excess of the per common unit value of the Company at the time of a Corporate Conversion over the per common unit value designated at the grant date of the PIUs (the participation threshold), as specified in the underlying award agreements. All outstanding PIUs automatically converted into 22,367,358 shares of Class A common stock and 43,143,440 shares of Class B common stock at the time of the Corporate Conversion.
10. Equity-based Compensation Plans
The 2021 Equity Compensation Plan (the “2021 Plan”) provides for the granting of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards, and other equity-based awards (or the cash equivalent thereof). The number of shares of the Company’s Class A common stock reserved for issuance under the 2021 Plan will be increased on January 1 of each calendar year, starting on January 1, 2022 through January 1, 2031, in an amount equal to 5% of the total number of shares of the Company’s capital stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Company’s board of directors. Pursuant to the 2021 Plan, effective January 1, 2022, the maximum number of shares of the Company’s Class A common stock that may be issued under the 2021 plan increased by 87,710,132 shares, or 5% of the total number of shares of the Company’s capital stock outstanding as of December 31, 2021. Following the increase, the maximum number of shares of the Company’s Class A common stock that may be issued under the 2021 Plan is 302,813,864 shares
RSUs
The Company had previously granted restricted equity units under the 2011 Plan, which vest upon the satisfaction of both a service-based condition and a performance-based condition. In connection with the Company’s Corporate Conversion and IPO, the outstanding awards were converted into RSUs.
For the RSUs with the performance condition satisfied upon the completion of the Company’s IPO, the Company recorded $41 million in equity-based compensation expense for the nine months ended September 30, 2021, consisting primarily of a cumulative catch-up adjustment related to such awards based on the full or partial fulfillment of requisite service periods. Unrecognized equity-based compensation expense related to these awards are recorded over the remaining requisite service period. RSUs generally vest over 2 to 4 years from the vesting start date, subject to the recipient remaining an employee of the Company at each vesting date.
As of September 30, 2022, the Company had $569 million of unamortized compensation costs related to all unvested RSU awards. The unamortized compensation costs are expected to be recognized over a weighted-average period of approximately 2.6 years, net of estimated forfeitures.
The table below summarizes RSU activity for the nine months ended September 30, 2022 is as follows:
| | | | | | | | | | | |
| Outstanding RSUs |
(in thousands, except unit price) | Number of RSUs | | Weighted Average Grant- Date Fair Value |
December 31, 2021 | 23,511 | | | $ | 23.80 | |
Granted | 3,816 | | | $ | 23.35 | |
Vested | (2,708) | | | $ | 24.21 | |
Forfeited / cancelled | (1,149) | | | $ | 27.78 | |
March 31, 2022 | 23,470 | | | $ | 23.48 | |
Granted | 18,761 | | | $ | 15.88 | |
Vested | (2,028) | | | $ | 24.07 | |
Forfeited / cancelled | (1,766) | | | $ | 24.89 | |
June 30, 2022 | 38,437 | | | $ | 19.68 | |
Granted | 2,890 | | | $ | 16.49 | |
Vested | (2,622) | | | $ | 20.18 | |
Forfeited / cancelled | (3,834) | | | $ | 15.13 | |
September 30, 2022 | 34,871 | | | $ | 19.87 | |
Equity-based Compensation Expense
The following table presents the effects of equity-based compensation in the condensed consolidated statements of operations and comprehensive income (loss):operations:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | | 2023 | | 2022 |
Cost of sales | Cost of sales | $ | 3,996 | | | $ | 2,928 | | | $ | 11,868 | | | $ | 7,281 | | Cost of sales | | $ | 3,558 | | | $ | 3,985 | |
Operating, general and administrative | Operating, general and administrative | 59,079 | | | 53,210 | | | 179,716 | | | 186,169 | | Operating, general and administrative | | 66,341 | | | 51,608 | |
Total equity-based compensation expense | $ | 63,075 | | | $ | 56,138 | | | $ | 191,584 | | | $ | 193,450 | | |
Total | | Total | | $ | 69,899 | | | $ | 55,593 | |
11.5. Defined Severance Benefits
The following table provides the components of net periodic benefit costs and the portion of these costs charged to expense:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(in thousands) | | | | | 2023 | | 2022 |
Current service costs | | | | | $ | 34,448 | | | $ | 38,967 | |
Interest cost | | | | | 3,387 | | | 1,704 | |
Amortization of: | | | | | | | |
Prior service credit | | | | | 840 | | | 906 | |
Net actuarial loss | | | | | 16 | | | 2,905 | |
Net periodic benefit cost | | | | | $ | 38,691 | | | $ | 44,482 | |
6. Income Taxes
The Company’sOur tax provision, or benefit, from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. No income tax benefit was accrued for jurisdictions where the Company anticipateswe anticipate incurring a loss during the full fiscal year as the related deferred tax assets were fully offset by a valuation allowance. The Company’sOur resulting effective tax rate differs from the applicable statutory rate, primarily due to the valuation allowance against its deferred tax assets.assets, tax credits, the inclusion of the global intangible low-taxed income (GILTI) provisions and other permanent differences.
Given our current income and anticipated future income, we believe that there is a reasonable possibility that sufficient positive evidence may become available in future periods to allow us to reach a conclusion that the valuation allowances will no longer be needed, which would result in the recognition of material deferred tax assets and a corresponding decrease to income tax expense. The Company isexact timing and amount of any valuation allowances being released are subject to change on the basis of the level of sustained income taxation through certain of its subsidiaries, predominantly in the United States, China, South Korea,that we are able to achieve, foreign currency fluctuations, and throughoutmacroeconomic conditions, among various other Asian countries.
Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. The impacts of uncertain tax positions are recognized only after determining a more-likely-than-not probability that the uncertain tax positions will not withstand challenge, if any, from the relevant taxing authorities. The Company did not have any material uncertain tax positions as of September 30, 2022 and 2021.factors.
12. Defined Severance Benefits
Defined severance benefits are for employees of the Company’s Korean subsidiaries. Pursuant to the Employee Retirement Benefit Security Act of Korea, eligible employees of the Korean subsidiaries receive defined benefits as severance payments upon leaving the Company based on employment length and pay rate.
The following table provides the components of net periodic benefit costs and the portion of these costs charged to expense:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Current service costs | $ | 33,066 | | | $ | 32,502 | | | $ | 109,722 | | | $ | 95,281 | |
Interest expense | 2,446 | | | 854 | | | 5,777 | | | 2,039 | |
Amortization of: | | | | | | | |
Prior service credit | 810 | | | 23 | | | 2,582 | | | 69 | |
Net actuarial loss | 298 | | | 1,242 | | | 5,975 | | | 3,260 | |
Net periodic benefit costs charged to expense | $ | 36,620 | | | $ | 34,621 | | | $ | 124,056 | | | $ | 100,649 | |
s
13.7. Net Income (Loss) per Share
The Company computesWe compute net income (loss) per share using the two-class method required for multiple classes of common stock and participating securities. As the liquidation and dividend rights are identical, the undistributed earnings or loss are allocated on a proportionate basis to each class of common stock, and the resulting basic and diluted net income (loss) per share attributable to common stockholders are therefore the same for Class A and Class B common stock on both an individual and a combined basis. Basic net income (loss) per share is computed using the weighted-average number of shares of Class A and Class B common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of shares of Class A and Class B common stock and potentially dilutive Class A and Class B potential common shares outstanding during the period.
Immediately prior to the IPO, the Company completed the Corporate Conversion. The Corporate Conversion resulted in a change of equity interests from common units to shares of common stock, but no change in relative shareholder rights, rank, or value before and after this reorganization transaction. As such, the Corporate Conversion of common units was considered equivalent to a stock split and requires retrospective treatment for net income (loss) per share purposes. All share and per share information has been retroactively adjusted to reflect the Corporate Conversion for all periods presented. PIUs outstanding prior to the Corporate Conversion were considered compensatory arrangements that were settled with shares of Class A or Class B common stock at the time of the Corporate Conversion and have been included as outstanding shares subsequent to that date. Similarly, any preferred units that were converted in accordance with their terms into shares of Class A or Class B common stock at the time of the Corporate Conversion have also been included as outstanding shares subsequent to that date.
The following table presents the calculation of basic and diluted net income (loss) per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except per share amounts) | 2022 | | 2021 | | 2022 | | 2021 |
Numerator: | | | | | | | |
Net income (loss) | $ | 90,679 | | | $ | (323,977) | | | $ | (194,106) | | | $ | (1,137,611) | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted-average shares used in computing net income (loss) per share attributable to Class A and Class B common stockholders: | | | | | | | |
Basic | 1,767,275 | | | 1,747,255 | | | 1,762,465 | | | 1,313,234 | |
Dilutive effect of equity compensation awards | 23,666 | | | — | | | — | | | — | |
Diluted | 1,790,941 | | | 1,747,255 | | | 1,762,465 | | | 1,313,234 | |
| | | | | | | |
Net income (loss) attributable to Class A and Class B common stockholders per share: | | | | | | | |
Basic and diluted | $ | 0.05 | | | $ | (0.19) | | | $ | (0.11) | | | $ | (0.87) | |
| | | | | | | |
Anti-dilutive shares (rounded) | 6,000 | | | 42,000 | | | 25,000 | | | 50,000 | |
| | | | | | | |
18 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 11 |
The following table presents the calculation of basic and diluted net income (loss) per share:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(in thousands, except per share amounts) | | | | | 2023 | | 2022 |
Numerator: | | | | | | | |
Net income (loss) | | | | | $ | 90,855 | | | $ | (209,294) | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted-average shares used in computing net income (loss) per share attributable to Class A and Class B common stockholders: | | | | | | | |
Basic | | | | | 1,774,843 | | | 1,756,739 | |
Dilutive effect of equity compensation awards | | | | | 19,610 | | | — | |
Diluted | | | | | 1,794,453 | | | 1,756,739 | |
| | | | | | | |
Net income (loss) attributable to Class A and Class B common stockholders per share: | | | | | | | |
Basic | | | | | $ | 0.05 | | | $ | (0.12) | |
Diluted | | | | | $ | 0.05 | | | $ | (0.12) | |
| | | | | | | |
Anti-dilutive shares (rounded) | | | | | 6,000 | | | 29,000 | |
| | | | | | | |
14. Segment Reporting8. Fair Value Measurement
Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP established a hierarchy framework to classify the fair value measurement into one of the three levels based on the observability of significant inputs to the measurement.
The Company’s CODM is its Chief Executive Officer. On March 2, 2022, the Company announcedfollowing table summarizes our financial assets and financial liabilities that it revised its reportable segments to reflect the way the Company manages its businessare measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Classification | | Measurement Level | | March 31, 2023 | | December 31, 2022 |
Financial assets | | | | | | | |
Cash deposit(1) | Cash and cash equivalents | | Level 1 | | $ | 3,792,211 | | | $ | 3,509,334 | |
Time deposit | Restricted cash | | Level 1 | | $ | 254,945 | | | $ | 99,730 | |
Money market trust | Restricted cash | | Level 1 | | $ | 75,243 | | | $ | 76,586 | |
Time deposit | Other current assets | | Level 1 | | $ | 17,257 | | | $ | 17,754 | |
Time deposit | Long-term restricted cash | | Level 1 | | $ | 1,536 | | | $ | 1,624 | |
| | | | | | | |
(1)Cash deposits includes bank deposits, money market trusts and to promote improved visibility to its business performance.time deposits. The change led to the following two operating and reportable segments: Product Commerce and Developing Offerings. These segmentscarrying value approximates fair value because maturities are based on how the CODM manages the business, allocates resources, makes operating decisions and evaluates operating performance. Prior to this change, we operated in one operating and one reportable segment.
Product Commerce - primarily includes core retail (owned inventory) and marketplace offerings (third-party merchants) and Rocket Fresh, our fresh grocery offering, as well as advertising products associated with these offerings. Revenues from Product Commerce are derived primarily from online product sales of owned inventory to customers in Korea and from commissions earned from merchants that sell products through the Company’s mobile application and website.less than three months.
Developing Offerings - primarily includes more nascent offerings and services, including Coupang Eats, our restaurant ordering and delivery service, Coupang Play, our online content streaming service, fintech, certain international initiatives, as well as advertising products associated with these offerings. Revenues from Developing Offerings are primarily generated from online restaurant ordering and delivery services provided on the Company’s mobile applications and websites.
Our segment operating performance measure is segment adjusted EBITDA. Segment adjusted EBITDA is defined as income (loss) before income taxes for a period before depreciation and amortization, equity-based compensation expense, interest expense, interest income, and other income (expense), net. Segment adjusted EBITDA also excludes impairments and other items that we do not believe are reflective9. Supplemental Financial Information
Supplemental Disclosure of our ongoing operations.Cash-flow Information
We generally allocate operating expenses to the respective segments based on usage. The CODM does not evaluate segments using asset information and, accordingly, the Company does not report asset information by segment.
Results of operations for the reportable segments and reconciliation to income (loss) before income taxes is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net revenues | | | | | | | |
Product Commerce | $ | 4,947,174 | | | $ | 4,481,525 | | | $ | 14,760,758 | | | $ | 12,911,901 | |
Developing Offerings | 154,160 | | | 163,180 | | | 495,083 | | | 417,778 | |
Total net revenues | $ | 5,101,334 | | | $ | 4,644,705 | | | $ | 15,255,841 | | | $ | 13,329,679 | |
Segment adjusted EBITDA | | | | | | | |
Product Commerce | $ | 239,222 | | | $ | (118,235) | | | $ | 339,939 | | | $ | (235,397) | |
Developing Offerings | (44,303) | | | (89,199) | | | (169,720) | | | (227,150) | |
Total segment adjusted EBITDA | $ | 194,919 | | | $ | (207,434) | | | $ | 170,219 | | | $ | (462,547) | |
Reconciling items: | | | | | | | |
Depreciation and amortization | $ | (54,424) | | | $ | (51,540) | | | $ | (174,063) | | | $ | (145,866) | |
Equity-based compensation | (63,075) | | | (56,138) | | | (191,584) | | | (193,450) | |
Interest expense | (6,485) | | | (7,376) | | | (19,996) | | | (38,047) | |
Interest income | 15,403 | | | 2,603 | | | 26,301 | | | 5,450 | |
Other income (expense), net | 11,224 | | | (4,026) | | | 2,485 | | | (7,479) | |
Fulfillment center fire losses | — | | | — | | | — | | | (295,501) | |
Income (loss) before income taxes | $ | 97,562 | | | $ | (323,911) | | | $ | (186,638) | | | $ | (1,137,440) | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
(in thousands) | 2023 | | 2022 |
Supplemental disclosure of cash-flow information | | | |
Cash paid for income taxes, net of refunds | $ | 5,224 | | | $ | 2,232 | |
Cash paid for interest | $ | 4,969 | | | $ | 6,249 | |
Cash paid for the amount used to measure the operating lease liabilities | $ | 105,059 | | | $ | 83,063 | |
Operating lease assets obtained in exchange for lease obligations | $ | 27,924 | | | $ | 174,824 | |
Net increase to operating lease right-of-use assets resulting from remeasurements of lease obligations | $ | 26,803 | | | $ | 21,761 | |
Non-cash investing and financing activities | | | |
Increase (decrease) in property and equipment-related accounts payable | $ | 11,111 | | | $ | (74,563) | |
19 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 12 |
Supplier Financing Arrangements
We have agreements with third-party financial institutions to facilitate participating vendors’ and suppliers’ ability to settle payment obligations from us to designated third-party financial institutions. Participating vendors and suppliers may, at their sole discretion, settle obligations prior to their scheduled due dates at a discounted price to the participating financial institutions. The invoices that have been confirmed as valid under the program require payment, in full, based on the original standard invoice terms. Confirmed invoices owed to financial institutions under these programs are included within accounts payable and were $334 million and $337 million as of March 31, 2023 and December 31, 2022, respectively. Coupang or the financial institutions may terminate the agreement upon given notice.
Accumulated Other Comprehensive (Loss) Income
Accumulated other comprehensive (loss) income includes all changes in equity during a period that have yet to be recognized in income. The major components are foreign currency translation adjustments and actuarial gains (losses) on our defined severance benefits. As of March 31, 2023 and December 31, 2022, the ending balance in accumulated other comprehensive (loss) income related to foreign currency translation adjustments was $26 million and $45 million, respectively, and the amount related to actuarial losses on defined severance benefits was $(42) million and $(43) million, respectively.
10. Short-term Borrowings and Long-term Debt
Our short-term borrowings generally include lines of credit and term loan facilities with financial institutions to be utilized for general operating purposes.
In April 2023, we entered into a new one-year credit loan facility to borrow $61 million for general operating purposes. The loan bears interest at the average of 91-day CD interest rate plus 4.40%.
Our long-term debt generally includes revolving credit facilities and various loan agreements for general operating purposes, and term loan facilities. As of March 31, 2023 and December 31, 2022, there were $672 million and $667 million, respectively, of loans outstanding under these agreements, net of unamortized discounts.
Our debt is recorded at amortized cost. The fair value is estimated using Level 2 inputs based on our current interest rate for similar types of borrowing arrangements. The carrying amount of debt approximates its fair value as of March 31, 2023 and December 31, 2022 due primarily to the interest rates approximating market interest rates.
We were in compliance with the covenants for each of our borrowings and debt agreements as of March 31, 2023.
In April 2023, we entered into a new three-year term loan facility agreement to borrow $176 million to finance the purchase of a fulfillment center and land. We pledged up to $212 million of certain land and buildings as collateral. The loan bears interest at a fixed rate of 6.76%.
11. Contingencies
Legal Matters
From time to time, we may become party to claims, investigations, proceedings, and other litigation, in the ordinary course of business. We assess the likelihood of any adverse judgments or outcomes with respect to these matters and determines loss contingency assessments on a gross basis after assessing the probability of incurrence of a loss and whether a loss is reasonably estimable. In addition, we consider other relevant factors that could impact our ability to reasonably estimate a loss. A determination of the amount of reserves required, if any, for these contingencies is made after analyzing each matter. Our reserves may change in the future due to new developments or changes in strategy in handling these matters. Although the results of these matters cannot be predicted with certainty, we currently believe that the final outcome of currently pending legal matters will not have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 13 |
Choi v. Coupang, Inc. et al
On August 26, 2022, a putative class action was filed on behalf of all purchasers of Coupang Class A common stock pursuant and/or traceable to Coupang’s registration statement issued in connection with our initial public offering. The action was brought against Coupang, Inc., and certain of its former and current directors, current officers, and certain underwriters of the offering. The action was filed in the United States District Court for the Southern District of New York alleging inaccurate and misleading or omitted statements of material fact in Coupang's Registration Statement in violation of Sections 11 and 15 of the Securities Act of 1933. To date, the Court has not named a lead plaintiff and the specific claims may be amended. The action seeks unspecified compensatory damages, attorneys’ fees, and reasonable costs and expenses. We believe that the action is without merit and intend to vigorously defend against it. A reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time. Accordingly, we can provide no assurance as to the scope and outcome of this matter and no assurance as to whether our business, financial position, results of operations or cash flows will not be materially adversely affected.
Korean Fair Trade Commission Investigations
On June 28, 2021, the Korean Fair Trade Commission (“KFTC”) initiated an investigation into a potential violation of the Monopoly Regulation and Fair Trade Act (the “Fair Trade Act”), including alleged preferential treatments of private labelled products provided by our subsidiary, Coupang Private Label Business (“CPLB”). The KFTC is also investigating us on other matters related to the alleged violations of the KFTC regulations. We are diligently cooperating with these investigations, and actively defending our practices as appropriate.
Under Korean law, the issues addressed in the investigations can be resolved through civil, administrative, or criminal proceedings. The ultimate case resolution could include fines, orders to alter our processes or procedures, and criminal investigations or charges against individuals or us. We cannot reasonably estimate any penalties, loss or range of loss that may arise from the various KFTC Investigations. Accordingly, we can provide no assurance as to the scope and outcome of these matters and no assurance as to whether our business, financial position, results of operations or cash flows will not be materially adversely affected.
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 14 |
| | | | | | | | | | | | | | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Form 10-Q, as well as our audited consolidated financial statements included in our 20212022 Form 10-K. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Form 10-Q. As a result of many factors, including, without limitation, those factors set forth in the “Risk Factors” section of our 20212022 Form 10-K and the “Risk Factors” section of subsequent Quarterly Reports on Form 10-Q, our actual results or timing of certain events could differ materially from the results or timing described in, or implied by, these forward-looking statements.
Overview
We are a leading e-commerce playerretailer in Korea.Korea with operations in the United States, Taiwan, Singapore and China. We believe that we are the preeminent online destination for e-commerce in the market because of our broad selection, low prices, and exceptional conveniencedelivery and customer experience across our owned inventory selection as well as products offered by third-party merchants. Our unique end-to-end integrated fulfillment, logistics, and technology network enables Rocket Delivery, which provides free, next-day delivery for orders placed any timeanytime of the day, even seconds before midnight—across millions of products. Our structural advantages from complete end-to-end integration, investments in technology, and scale economies generate higher efficiencies that allow us to pass savings to customers in the form of lower prices. The capabilities we have built provide us with opportunities to expand into other offerings and geographies.
Beginning in the first quarter of 2022, we organized our operations into two segments: Product Commerce and Developing Offerings. TheseOur segments reflect the way management evaluates itswe evaluate our business performance and manages itsmanage operations. See Note 143 — "Segment Reporting" to the condensed consolidated financial statements included elsewhere in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Product Commerce primarily includes core retail (owned inventory) and marketplace offerings (third-party merchants) and Rocket Fresh, our fresh grocery offering, as well as advertising products associated with these offerings. Revenues from Product Commerce are derived primarily from online product sales of owned inventory to customers in Korea and from commissions earned from merchants that sell products through the Company’sour mobile application and website.
Developing Offerings primarily includes more nascent offerings and services, including Coupang Eats, our restaurant ordering and delivery service, Coupang Play, our online content streaming service, fintech, certain international initiatives, as well as advertising products associated with these offerings. Revenues from Developing Offerings are primarily generated from online restaurant ordering and delivery services provided on the Company’sour mobile applications and websites.
20 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 15 |
Key Financial and Operating Highlights:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
2022 | | 2021 | | | 2022 | | 2021 | |
Total net revenues | $ | 5,101,334 | | | $ | 4,644,705 | | | 10 | % | | $ | 15,255,841 | | | $ | 13,329,679 | | | 14 | % |
Total net revenues, constant currency(1) | $ | 5,914,613 | | | $ | 4,513,626 | | | 27 | % | | $ | 17,115,796 | | | $ | 12,555,591 | | | 28 | % |
Gross profit(2) | $ | 1,233,888 | | | $ | 754,527 | | | 64 | % | | $ | 3,431,087 | | | $ | 2,145,527 | | | 60 | % |
Net income (loss)(4) | $ | 90,679 | | | $ | (323,977) | | | NM(3) | | $ | (194,106) | | | $ | (1,137,611) | | | (83) | % |
Net income (loss) margin | 1.8 | % | | (7.0) | % | | | | (1.3) | % | | (8.5) | % | | |
Adjusted EBITDA(1) | $ | 194,919 | | | $ | (207,434) | | | NM(3) | | $ | 170,219 | | | $ | (462,547) | | | NM(3) |
Adjusted EBITDA margin(1) | 3.8 | % | | (4.5) | % | | | | 1.1 | % | | (3.5) | % | | |
Net cash provided by (used in) operating activities | $ | 58,164 | | | $ | (55,366) | | | NM(3) | | $ | (15,037) | | | $ | (207,832) | | | (93) | % |
Free cash flow(1) | $ | (222,446) | | | $ | (244,589) | | | (9) | % | | $ | (707,511) | | | $ | (712,426) | | | (1) | % |
Segment adjusted EBITDA: | | | | | | | | | | | |
Product Commerce | $ | 239,222 | | | $ | (118,235) | | | NM(3) | | $ | 339,939 | | | $ | (235,397) | | | NM(3) |
Developing Offerings | $ | (44,303) | | | $ | (89,199) | | | (50) | % | | $ | (169,720) | | | $ | (227,150) | | | (25) | % |
| | | | | | | | | | | |
| | | | | | | Trailing Twelve Months Ended September 30, | | % Change |
(in thousands) | | | | | | | 2022 | | 2021 | |
Net cash used in operating activities | | | | | | | $ | (217,783) | | | $ | (191,366) | | | 14 | % |
Free cash flow(1) | | | | | | | $ | (1,077,462) | | | $ | (865,364) | | | 25 | % |
_____________ | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | | | | Three Months Ended March 31, | | % Change |
| | | | | 2023 | | 2022 | |
Total net revenues | | | | | | | $ | 5,800,530 | | | $ | 5,116,686 | | | 13 | % |
Total net revenues, constant currency(1) | | | | | | | $ | 6,140,537 | | | $ | 5,534,178 | | | 20 | % |
Gross profit(2) | | | | | | | $ | 1,419,927 | | | $ | 1,043,406 | | | 36 | % |
Net income (loss) | | | | | | | $ | 90,855 | | | $ | (209,294) | | | NM(3) |
Net income (loss) margin | | | | | | | 1.6 | % | | (4.1) | % | | |
Adjusted EBITDA(1) | | | | | | | $ | 240,919 | | | $ | (90,872) | | | NM(3) |
Adjusted EBITDA margin(1) | | | | | | | 4.2 | % | | (1.8) | % | | |
Net cash provided by (used in) operating activities | | | | | | | $ | 501,303 | | | $ | (54,939) | | | NM(3) |
Free cash flow(1) | | | | | | | $ | 406,746 | | | $ | (289,600) | | | NM(3) |
Segment adjusted EBITDA: | | | | | | | | | | | |
Product Commerce | | | | | | | $ | 288,370 | | | $ | 2,877 | | | NM(3) |
Developing Offerings | | | | | | | $ | (47,451) | | | $ | (93,749) | | | (49) | % |
| | | | | | | | | | | |
| | | | | | | Trailing Twelve Months Ended March 31, | | % Change |
(in thousands) | | | | | | | 2023 | | 2022 | |
Net cash provided by (used in) operating activities | | | | | | | $ | 1,121,681 | | | $ | (282,168) | | | NM(3) |
Free cash flow(1) | | | | | | | $ | 450,705 | | | $ | (1,041,827) | | | NM(3) |
(1)Total net revenues, constant currency; total net revenues growth, constant currency; adjusted EBITDA; adjusted EBITDA margin; and free cash flow are non-GAAP measures. See “Non-GAAP Financial Measures and Reconciliations” below for the reconciliation of the Non-GAAP measures with their comparable amounts prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
(2)Gross profit is calculated as total net revenues minus cost of sales, and includes $158 million related to inventory losses from the fulfillment center fire for the nine months ended September 30, 2021.sales.
(3)Non-meaningful
(4)Net income (loss) includes $296 million related to fulfillment center fire losses for the nine months ended September 30, 2021.
We have experienced and may continue to experience uncertainty in our business and the global economy due to macroeconomic factors, including the prolonged COVID-19 pandemic, higher inflation and interest rates, changes in foreign currency exchange rates, supply chain disruptions including those of our vendors and suppliers, constraints in logistics and fulfillment related labor costs including costs to attract and retain employees, and consumer confidence which may impact our results. These drivers make it challenging to reasonably quantify the direct impact the pandemic has had, or may have in the future, on our business versus those impacts that may have been, or may be, indirectly related to the pandemic. For additional details, refer to Part I—Item 1A. “Risk Factors” contained in our 2021 Form 10-K.
Key Business Metrics and Non-GAAP Financial Measures
We review the key business and financial metrics discussed below. We use these measures to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
Key Business Metrics
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
(in thousands, except net revenues per Active Customer) | September 30, 2021 | | December 31, 2021 | | March 31, 2022 | | June 30, 2022 | | September 30, 2022 |
Active Customers | 16,823 | | | 17,936 | | | 18,112 | | | 17,885 | | | 17,992 | |
Total net revenues per Active Customer | $ | 276 | | | $ | 283 | | | $ | 283 | | | $ | 282 | | | $ | 284 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
(in thousands, except net revenues per Active Customer) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 |
Active Customers | 19,010 | | 18,115 | | 17,992 | | 17,885 | | 18,112 | |
Total net revenues per Active Customer | $ | 305 | | $ | 294 | | $ | 284 | | $ | 282 | | $ | 283 | |
Active Customers
As of the last date of each reported period, we determine our number of Active Customers by counting the total number of individual customers who have ordered at least once directly from our apps or websites during the relevant period. A customer is anyone who has created an account on our apps or websites, identified by a unique email address. The change in Active Customers in a reported period captures both the inflow of new customers as well as the outflow of existing customers who have not made a purchase in the period. We view the number of Active Customers as a key indicator of our potential for growth in total net revenues, the reach of our network, the awareness of our brand, and the engagement of our customers.
Net Revenues per Active Customer
Net revenues per Active Customer is the total net revenues generated in a period divided by the total number of Active Customers in that period. A key driver of growth is increasing the frequency and the level of spend of Active Customers who are shopping on our apps or websites. We therefore view net revenues per Active Customer as a key indicator of engagement and retention of our customers and our success in increasing the share of wallet.
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 16 |
Non-GAAP Financial Measures and Reconciliations
We report our financial results in accordance with U.S. GAAP. However, management believes that certain non-GAAP financial measures provide investors with additional useful information in evaluating our performance. These non-GAAP financial measures may be different than similarly titled measures used by other companies.
Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with U.S. GAAP. Non-GAAP measures have limitations in that they do not reflect all the amounts associated with our results of operations as determined in accordance with U.S. GAAP. These measures should only be used to evaluate our results of operations in conjunction with the corresponding U.S. GAAP measures.
| | | | | | | | |
Non-GAAP Measure | Definition | How We Use The Measure |
Free Cash Flow | • Cash Flow Free cash flow is defined as cash flow from operations less purchases of property and equipment, plus proceeds from sale of property and equipment. We believe that free cash flow is an additional and useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after purchases and sales of property and equipment, can be used for strategic initiatives, including investing in our business and strengthening our balance sheet. Free cash flow has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of other U.S. GAAP financial measures, such as net cash provided by operating activities. A limitation of free cash flow is that it may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure. We expect our free cash flow to fluctuate in future periods as we invest in our business to support our plans for growth.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is defined as net income/(loss) for a period before depreciation and amortization, interest expense, interest income, income tax expense (benefit), other income (expense), net, equity-based compensation, impairments, and other items that we do not believe are reflective of our ongoing operations. Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of total net revenues. We use adjusted EBITDA and adjusted EBITDA margin as key measures to evaluate and assess our performance and allocate internal resources. We believe adjusted EBITDA and adjusted EBITDA margin are frequently used by investors and other interested parties in evaluating companies in the e-commerce industry for period-to-period comparisons as they remove the impact of certain items that are not representative of our core business, such as material non-cash items and certain variable charges. However, other companies may calculate adjusted EBITDA and adjusted EBITDA margin in a manner different from ours and therefore they may not be directly comparable to similar terms used by other companies. Adjusted EBITDA and adjusted EBITDA margin are not measures of financial performance under U.S. GAAP and should not be considered as alternatives to cash flow from operating activities or as measures of liquidity or alternatives to net income/(loss) as indicators of operating performance or any other measures of performance derived in accordance with U.S. GAAP. Adjusted EBITDA and adjusted EBITDA margin have limitations as analytical tools, and you should consider them in addition to, and not in isolation or as substitutes, for analysis of our results as reported under U.S. GAAP.
Constant Currency Revenue and Constant Currency Revenue Growth
Less: purchases of property and equipment, Plus: proceeds from sale of property and equipment. | • Provides information to management and investors about the amount of cash generated from our ongoing operations that, after purchases and sales of property and equipment, can be used for strategic initiatives, including investing in our business and strengthening our balance sheet, including paying down debt, and paying dividends to stockholders. |
Adjusted EBITDA | • Net income (loss), excluding the effects of: - depreciation and amortization, - interest expense, - interest income, - other income (expense), net, - income tax expense (benefit), - equity-based compensation, - impairments, and - other items not reflective of our ongoing operations.
| • Provides information to management evaluate and assess our performance and allocate internal resources. • We believe Adjusted EBITDA and Adjusted EBITDA Margin are frequently used by investors and other interested parties in evaluating companies in the e-commerce industry for period-to-period comparisons as they remove the impact of certain items that are not representative of our ongoing business, such as material non-cash items and certain variable charges. |
Adjusted EBITDA Margin | • Adjusted EBITDA as a percentage of total net revenues. | |
Constant Currency Revenue | • Constant currency information compares results between periods as if exchange rates had remained constant. • We define constant currency revenue as total revenue excluding the effect of foreign exchange rate movements, and use it to determine the constant currency revenue growth on a comparative basis. • Constant currency revenue is calculated by translating current period revenues using the prior period exchange rate. | • The effect of currency exchange rates on our business is an important factor in understanding period-to-period comparisons. Our financial reporting currency is the U.S. dollar (“USD”) and changes in foreign exchange rates can significantly affect our reported results and consolidated trends. For example, our business generates sales predominantly in Korean Won (“KRW”), which are favorably affected as the USD weakens relative to the KRW, and unfavorably affected as the USD strengthens relative to the KRW. • We use constant currency revenue and constant currency revenue growth for financial and operational decision-making and as a means to evaluate comparisons between periods. We believe the presentation of our results on a constant currency basis in addition to U.S. GAAP results helps improve the ability to understand our performance because they exclude the effects of foreign currency volatility that are not indicative of our actual results of operations. |
Constant Currency Revenue Growth | • Constant currency revenue growth (as a percentage) is calculated by determining the increase in current period revenue over prior period revenue, where current period foreign currency revenue is translated using prior period exchange rates. |
22 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 17 |
which are favorably affected as the USD weakens relative to the KRW, and unfavorably affected as the USD strengthens relative to the KRW. We use constant currency revenue and constant currency revenue growth for financial and operational decision-making and as a means to evaluate comparisons between periods. We believe the presentation of our results on a constant currency or FX-neutral basis in addition to U.S. GAAP results helps improve the ability to understand our performance because they exclude the effects of foreign currency volatility that are not indicative of our actual results of operations.
Constant currency information compares results between periods as if exchange rates had remained constant, or FX-neutral. We define constant currency revenue as total revenue excluding the effect of foreign exchange rate movements, and use it to determine the constant currency revenue growth on a comparative basis. Constant currency revenue is calculated by translating current period revenues using the prior period exchange rate. Constant currency revenue growth (as a percentage) is calculated by determining the increase in current period revenue over prior period revenue, where current period foreign currency revenue is translated using prior period exchange rates.
These results should be considered in addition to, not as a substitute for, results reported in accordance with U.S. GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with U.S. GAAP.
The following tables present the reconciliations from each U.S. GAAP measure to its corresponding non-GAAP measure for the periods noted:
Free Cash Flow
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Trailing Twelve Months Ended September 30, | | | Three Months Ended March 31, | | Trailing Twelve Months Ended March 31, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | $ | 58,164 | | | $ | (55,366) | | | $ | (15,037) | | | $ | (207,832) | | | $ | (217,783) | | | $ | (191,366) | | Net cash provided by (used in) operating activities | | $ | 501,303 | | | $ | (54,939) | | | $ | 1,121,681 | | | $ | (282,168) | |
Adjustments: | Adjustments: | | Adjustments: | | |
Purchases of land and buildings | Purchases of land and buildings | (156,782) | | | (47,564) | | | (205,274) | | | (176,727) | | | (243,609) | | | (242,731) | | Purchases of land and buildings | | (27,325) | | | (22,929) | | | (230,983) | | | (180,313) | |
Purchases of equipment | Purchases of equipment | (126,618) | | | (142,494) | | | (497,800) | | | (328,827) | | | (627,574) | | | (432,512) | | Purchases of equipment | | (67,896) | | | (215,977) | | | (449,594) | | | (585,425) | |
Total purchases of property and equipment | Total purchases of property and equipment | (283,400) | | | (190,058) | | | (703,074) | | | (505,554) | | | (871,183) | | | (675,243) | | Total purchases of property and equipment | | (95,221) | | | (238,906) | | | (680,577) | | | (765,738) | |
Proceeds from sale of property and equipment | Proceeds from sale of property and equipment | 2,790 | | | 835 | | | 10,600 | | | 960 | | | 11,504 | | | 1,245 | | Proceeds from sale of property and equipment | | 664 | | | 4,245 | | | 9,601 | | | 6,079 | |
Total adjustments | Total adjustments | $ | (280,610) | | | $ | (189,223) | | | $ | (692,474) | | | $ | (504,594) | | | $ | (859,679) | | | $ | (673,998) | | Total adjustments | | $ | (94,557) | | | $ | (234,661) | | | $ | (670,976) | | | $ | (759,659) | |
Free cash flow | Free cash flow | $ | (222,446) | | | $ | (244,589) | | | $ | (707,511) | | | $ | (712,426) | | | $ | (1,077,462) | | | $ | (865,364) | | Free cash flow | | $ | 406,746 | | | $ | (289,600) | | | $ | 450,705 | | | $ | (1,041,827) | |
Net cash used in investing activities | Net cash used in investing activities | $ | (288,755) | | | $ | (201,231) | | | $ | (718,453) | | | $ | (506,812) | | | $ | (887,166) | | | $ | (677,118) | | Net cash used in investing activities | | $ | (82,732) | | | $ | (249,028) | | | $ | (681,958) | | | $ | (774,071) | |
Net cash provided by financing activities | Net cash provided by financing activities | $ | 145,821 | | | $ | 115,833 | | | $ | 226,489 | | | $ | 3,672,191 | | | $ | 131,148 | | | $ | 3,742,156 | | Net cash provided by financing activities | | $ | 78,119 | | | $ | 198,582 | | | $ | 126,889 | | | $ | 269,748 | |
Adjusted EBITDA and Adjusted EBITDA Margin
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(in thousands) | | | | | 2023 | | 2022 |
Total net revenues | | | | | $ | 5,800,530 | | | $ | 5,116,686 | |
| | | | | | | |
Net income (loss) | | | | | 90,855 | | | (209,294) | |
Net income (loss) margin | | | | | 1.6 | % | | (4.1) | % |
Adjustments: | | | | | | | |
Depreciation and amortization | | | | | 64,245 | | | 59,240 | |
Interest expense | | | | | 8,278 | | | 7,368 | |
Interest income | | | | | (31,861) | | | (3,534) | |
Income tax expense | | | | | 32,964 | | | 245 | |
Other expense (income), net | | | | | 6,539 | | | (490) | |
Equity-based compensation | | | | | 69,899 | | | 55,593 | |
Adjusted EBITDA | | | | | $ | 240,919 | | | $ | (90,872) | |
Adjusted EBITDA margin | | | | | 4.2 | % | | (1.8) | % |
Constant Currency Revenue and Constant Currency Revenue Growth
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | Year over Year Growth |
| 2023 | 2022 |
(in thousands) | As Reported | Exchange Rate Effect | Constant Currency Basis | As Reported | Exchange Rate Effect | Constant Currency Basis | As Reported | Constant Currency Basis |
Consolidated | | | | | | | |
Net retail sales | $ | 5,204,800 | | $ | 305,087 | | $ | 5,509,887 | | $ | 4,556,107 | | $ | 371,752 | | $ | 4,927,859 | | 14 | % | 21 | % |
Net other revenue | 595,730 | | 34,920 | | 630,650 | | 560,579 | | 45,740 | | 606,319 | | 6 | % | 12 | % |
Total net revenues | $ | 5,800,530 | | $ | 340,007 | | $ | 6,140,537 | | $ | 5,116,686 | | $ | 417,492 | | $ | 5,534,178 | | 13 | % | 20 | % |
| | | | | | | | |
Net Revenues by Segment | | | | | | | |
Product Commerce | $ | 5,658,349 | | $ | 331,673 | | $ | 5,990,022 | | $ | 4,936,053 | | $ | 402,753 | | $ | 5,338,806 | | 15 | % | 21 | % |
Developing Offerings | 142,181 | | 8,334 | | 150,515 | | 180,633 | | 14,739 | | 195,372 | | (21) | % | (17) | % |
Total net revenues | $ | 5,800,530 | | $ | 340,007 | | $ | 6,140,537 | | $ | 5,116,686 | | $ | 417,492 | | $ | 5,534,178 | | 13 | % | 20 | % |
23 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 18 |
Adjusted EBITDA and Adjusted EBITDA Margin
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Total net revenues | $ | 5,101,334 | | | $ | 4,644,705 | | | $ | 15,255,841 | | | $ | 13,329,679 | |
| | | | | | | |
Net income (loss) | 90,679 | | | (323,977) | | | (194,106) | | | (1,137,611) | |
Net income (loss) margin | 1.8 | % | | (7.0) | % | | (1.3) | % | | (8.5) | % |
Adjustments: | | | | | | | |
Depreciation and amortization | 54,424 | | | 51,540 | | | 174,063 | | | 145,866 | |
Interest expense | 6,485 | | | 7,376 | | | 19,996 | | | 38,047 | |
Interest income | (15,403) | | | (2,603) | | | (26,301) | | | (5,450) | |
Income tax expense | 6,883 | | | 66 | | | 7,468 | | | 171 | |
Other (income) expense, net | (11,224) | | | 4,026 | | | (2,485) | | | 7,479 | |
Equity-based compensation | 63,075 | | | 56,138 | | | 191,584 | | | 193,450 | |
Fulfillment center fire losses | — | | | — | | | — | | | 295,501 | |
Adjusted EBITDA | $ | 194,919 | | | $ | (207,434) | | | $ | 170,219 | | | $ | (462,547) | |
Adjusted EBITDA margin | 3.8 | % | | (4.5) | % | | 1.1 | % | | (3.5) | % |
Constant Currency Revenue and Constant Currency Revenue Growth
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Consolidated | | | | | | | |
Total net revenues | $ | 5,101,334 | | | $ | 4,644,705 | | | $ | 15,255,841 | | | $ | 13,329,679 | |
Total net revenues growth | 10 | % | | 48 | % | | 14 | % | | 63 | % |
Adjustment: | | | | | | | |
Exchange rate effect | 813,279 | | | (131,079) | | | 1,859,955 | | | (774,088) | |
Total net revenues, constant currency | $ | 5,914,613 | | | $ | 4,513,626 | | | $ | 17,115,796 | | | $ | 12,555,591 | |
Total net revenues growth, constant currency | 27 | % | | 44 | % | | 28 | % | | 54 | % |
| | | | | | | |
Net retail sales | $ | 4,540,393 | | $ | 4,137,136 | | $ | 13,577,665 | | $ | 11,938,685 |
Net retail sales growth | 10 | % | | 43 | % | | 14 | % | | 58 | % |
Adjustment: | | | | | | | |
Exchange rate effect | 723,839 | | (115,707) | | 1,655,356 | | (693,310) |
Net retail sales, constant currency | $ | 5,264,232 | | $ | 4,021,429 | | $ | 15,233,021 | | $ | 11,245,375 |
Net retail sales growth, constant currency | 27 | % | | 39 | % | | 28 | % | | 49 | % |
| | | | | | | |
Net other revenue | $ | 560,941 | | $ | 507,569 | | $ | 1,678,176 | | $ | 1,390,994 |
Net other revenue growth | 11 | % | | 113 | % | | 21 | % | | 129 | % |
Adjustment: | | | | | | | |
Exchange rate effect | 89,440 | | (15,372) | | 204,599 | | (80,778) |
Net other revenue, constant currency | $ | 650,381 | | $ | 492,197 | | $ | 1,882,775 | | $ | 1,310,216 |
Net other revenue growth, constant currency | 28 | % | | 106 | % | | 35 | % | | 115 | % |
| | | | | | | |
Product Commerce | | | | | | | |
Net revenues | $ | 4,947,174 | | | $ | 4,481,525 | | | $ | 14,760,758 | | | $ | 12,911,901 | |
Net revenues growth | 10 | % | | 44 | % | | 14 | % | | 59 | % |
Adjustment: | | | | | | | |
Exchange rate effect | 788,061 | | | (125,667) | | | 1,799,596 | | | (749,827) | |
Net revenues, constant currency | $ | 5,735,235 | | | $ | 4,355,858 | | | $ | 16,560,354 | | | $ | 12,162,074 | |
Net revenues growth, constant currency | 28 | % | | 40 | % | | 28 | % | | 50 | % |
| | | | | | | |
Developing Offerings | | | | | | | |
Net revenues | $ | 154,160 | | | $ | 163,180 | | | $ | 495,083 | | | $ | 417,778 | |
Net revenues growth | (6) | % | | 547 | % | | 19 | % | | 979 | % |
Adjustment: | | | | | | | |
Exchange rate effect | 25,218 | | | (5,412) | | | 60,359 | | | (24,261) | |
Net revenues, constant currency | $ | 179,378 | | | $ | 157,768 | | | $ | 555,442 | | | $ | 393,517 | |
Net revenues growth, constant currency | 10 | % | | 526 | % | | 33 | % | | 916 | % |
Components of Results of Operations
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | |
(in thousands) | | | | | 2023 | | 2022 | % Change |
Net retail sales | | | | | $ | 5,204,800 | | | $ | 4,556,107 | | 14 | % |
Net other revenue | | | | | 595,730 | | | 560,579 | | 6 | % |
Total net revenues | | | | | 5,800,530 | | | 5,116,686 | | 13 | % |
| | | | | | | | |
Cost of sales | | | | | 4,380,603 | | | 4,073,280 | | 8 | % |
Operating, general and administrative | | | | | 1,313,152 | | | 1,249,111 | | 5 | % |
Total operating cost and expenses | | | | | 5,693,755 | | | 5,322,391 | | 7 | % |
| | | | | | | | |
Operating income (loss) | | | | | 106,775 | | | (205,705) | | NM(1) |
Interest income | | | | | 31,861 | | | 3,534 | | NM(1) |
Interest expense | | | | | (8,278) | | | (7,368) | | 12 | % |
Other (expense) income, net | | | | | (6,539) | | | 490 | | NM(1) |
Income (loss) before income taxes | | | | | 123,819 | | | (209,049) | | NM(1) |
Income tax expense | | | | | 32,964 | | | 245 | | NM(1) |
Net income (loss) | | | | | $ | 90,855 | | | $ | (209,294) | | NM(1) |
(1)Non-meaningful
Total Net Revenues
We categorize our total net revenues as (1) net retail sales and (2) net other revenue. Total net revenues incorporate reductions for estimated returns, promotional discounts, and earned loyalty rewards and exclude amounts collected on behalf of third parties, such as value added taxes. We periodically provide customers with promotional discounts to retail prices, such as percentage discounts and other similar offers, to incentivize increased customer spending and loyalty. These promotional discounts are discretionary and are reflected as reductions to the selling price and revenue recognized on each corresponding transaction. Loyalty rewards are offered as part of revenue transactions to all retail customers, whereby rewards are earned as a percentage of each purchase, for the customer to apply towards the purchase price of a future transaction. We defer a portion of revenue from each originating transaction, based on the estimated standalone selling price of the loyalty reward earned, and then recognize the revenue as the loyalty reward is redeemed in a future transaction, or when they expire. The amount of the deferred revenue related to these loyalty rewards is not material.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | % Change |
(in thousands) | 2023 | | 2022 | | As Reported | | Constant Currency |
Net retail sales | $ | 5,204,800 | | | $ | 4,556,107 | | | 14 | % | | 21 | % |
Net other revenue | 595,730 | | | 560,579 | | | 6 | % | | 12 | % |
Total net revenues | $ | 5,800,530 | | | $ | 5,116,686 | | | 13 | % | | 20 | % |
Net retail sales represent the majority of our total net revenues which we earn from online product sales of our owned inventory to customers. Net other revenue includes revenue from commissions earned from merchants that sell their products through our apps or websites. We are not the merchant of record in these transactions, nor do we take possession of the related inventory.
Net other revenue also includes consideration from online restaurant ordering and delivery services performed by us, as well as advertising services provided on our apps or websites. We also earn subscription revenue from memberships to our Rocket WOW membership program, which provides customers with access to benefits such as access to Rocket Fresh, no minimum spend for Rocket Delivery, free shipping on returns, and access to Coupang Play content streaming, which is also included in net other revenue.
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 19 |
The following table presents our total net revenues by segment.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | % Change |
(in thousands) | | | | | 2023 | | 2022 | As Reported | | Constant Currency |
Product Commerce | | | | | $ | 5,658,349 | | | $ | 4,936,053 | | 15 | % | | 21 | % |
Developing Offerings | | | | | 142,181 | | | 180,633 | | (21) | % | | (17) | % |
Total net revenues | | | | | $ | 5,800,530 | | | $ | 5,116,686 | | 13 | % | | 20 | % |
The increases in Product Commerce net revenues are primarily due to continued growth in our Active Customers and total net revenues per Active Customer, driven by increased product selection of our owned inventory, increased customer engagement across more product categories, and increased merchants available on our marketplace.
The decrease in Developing Offerings for the three months is the result of a decrease in Active Customers using our Eats offering, partially offset by an increase in the average spend from those customers.
Cost of Sales
Cost of sales primarily consists of the purchase price of products sold directly to customers where we record revenue gross, and includes logistics costs. Inbound shipping and handling costs to receive products from suppliers are included in inventory and recognized in cost of sales as products are sold. Additionally, cost of sales includes outbound shipping and logistics related expenses, delivery service costs from our restaurant delivery business, and depreciation and amortization expense.
The increases primarily reflect higher volume from increased sales and customer demand. Cost of sales as a percentage of revenue decreased from 79.6% for the three months ended March 31, 2022 to 75.5% for the three months ended March 31, 2023, primarily due to further operational efficiencies, continued supply chain optimization, and an increased percentage of revenues earned from higher margin revenue categories and offerings.
Operating, General and Administrative Expenses
Operating, general and administrative expenses include all our operating costs excluding cost of sales, as described above. More specifically, these expenses include costs incurred in operating and staffing our fulfillment centers (including costs attributed to receiving, inspecting, picking, packaging, and preparing customer orders), customer service relatedservice-related costs, payment processing fees, costs related to the design, execution, and maintenance of our technology infrastructure and online offerings, advertising costs, general corporate function costs, and depreciation and amortization expense.
Interest ExpenseThese increases primarily reflect slightly higher advertisement expenses which is the result of lower advertising expenses we incurred in the prior year due to COVID-related impacts, partially offset by decreases in fulfillment costs. These expenses as a percentage of revenue decreased from 24.4% to 22.6% for the three months ended March 31, 2023 related primarily to improved operating leverage, partially offset by a marginal increase in advertising expenses.
Interest expenseIncome
Interest income primarily consists of interest earned on our short-term borrowingsdeposits held with financial institutions.
Interest income for the three months ended March 31, 2023 increased $28 million compared to the prior year period. The increase in interest income was primarily related to an increase in interest rates on our deposits with various financial institutions.
Income Tax Expense
We are subject to income taxes predominantly in Korea, as well as in the United States and long-term debt,other foreign jurisdictions in which we do business. Foreign jurisdictions have different statutory tax rates than those in the United States. Additionally, certain of our convertible notes issuedforeign earnings may also be taxable in the United States. Accordingly, our 2018 convertible note financing,effective tax rate is subject to significant variation and finance lease liabilities.can vary based on the amount of pre-tax income or loss. Beginning in 2022, the Tax Cuts and Jobs Act, as currently enacted, requires taxpayers to capitalize research and development expenses with amortization periods over five and fifteen years, which is expected to increase the amount of our global intangible low-taxed income (GILTI) inclusion.
Our effective income tax rate for the three months ended March 31, 2023 was 26.6% compared with (0.1%) in the prior year period. The increase reflects the strong operating results and taxable income for the current and projected period in 2023, compared to the prior periods that generated minimal taxable income. Additionally, because certain of our foreign income is also taxable in the United States this led to an effective tax rate greater than the statutory rate.
26 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 20 |
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net retail sales | $ | 4,540,393 | | | $ | 4,137,136 | | | $ | 13,577,665 | | | $ | 11,938,685 | |
Net other revenue | 560,941 | | | 507,569 | | | 1,678,176 | | | 1,390,994 | |
Total net revenues | 5,101,334 | | | 4,644,705 | | | 15,255,841 | | | 13,329,679 | |
Cost of sales | 3,867,446 | | | 3,890,178 | | | 11,824,754 | | | 11,184,152 | |
Operating, general and administrative | 1,156,468 | | | 1,069,639 | | | 3,626,515 | | | 3,242,891 | |
Total operating cost and expenses | 5,023,914 | | | 4,959,817 | | | 15,451,269 | | | 14,427,043 | |
Operating income (loss) | 77,420 | | | (315,112) | | | (195,428) | | | (1,097,364) | |
Interest income | 15,403 | | | 2,603 | | | 26,301 | | | 5,450 | |
Interest expense | (6,485) | | | (7,376) | | | (19,996) | | | (38,047) | |
Other income (expense), net | 11,224 | | | (4,026) | | | 2,485 | | | (7,479) | |
Income (loss) before income taxes | 97,562 | | | (323,911) | | | (186,638) | | | (1,137,440) | |
Income tax expense | 6,883 | | | 66 | | | 7,468 | | | 171 | |
Net income (loss) | $ | 90,679 | | | $ | (323,977) | | | $ | (194,106) | | | $ | (1,137,611) | |
Total Net Revenues
Total net revenues include net retail sales and net other revenues as discussed above. The following table presents our total net revenues by segment.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Product Commerce | $ | 4,947,174 | | | $ | 4,481,525 | | | $ | 14,760,758 | | | $ | 12,911,901 | |
Developing Offerings | 154,160 | | | 163,180 | | | 495,083 | | | 417,778 | |
Total net revenues | $ | 5,101,334 | | | $ | 4,644,705 | | | $ | 15,255,841 | | | $ | 13,329,679 | |
Total net revenues increased $0.5 billion or 10% (27% on a constant currency basis), and $1.9 billion or 14% (28% on a constant currency basis), respectively, for the three and nine months ended September 30, 2022, when compared to the prior year periods.
Product Commerce net revenues increased $0.5 billion or 10% (28% on a constant currency basis), and $1.8 billion or 14% (28% on a constant currency basis), respectively, for the three and nine months ended September 30, 2022, when compared to the prior periods. These increases are primarily due to continued growth in our Active Customers and total net revenues per Active Customer, driven by increased product selection of our owned inventory, increased customer engagement across more product categories, and increased merchants available on our marketplace.
Developing Offerings net revenues decreased $9 million or (6)% (10% increase on a constant currency basis), and increased $77 million or 19% (33% on a constant currency basis), respectively, for the three and nine months ended September 30, 2022, when compared to the prior year periods. The decrease for the three months is the result of unfavorable foreign currency translation effects. The three and nine months benefited from an increase in the average spend from Active Customers, partially offset by a decrease in those customers using our Eats offering.
Cost of Sales
Cost of sales for the three and nine months ended September 30, 2022 decreased $23 million or (1)%, and increased $641 million or 6%, respectively, compared to the prior year periods. The decrease for the three months is primarily attributable to foreign currency translation effects offset by increases in volume from increased sales and customer demand. The increase for the nine months is primarily attributable to increased volume resulting from increased sales and customer demand. Cost of sales as a percentage of revenue decreased from 83.8% and 83.9% for the three and nine months ended September 30, 2021, respectively, to 75.8% and 77.5% for the three and nine months ended September 30, 2022, respectively, primarily due to supply chain optimization and an increased percentage of revenues earned from higher margin revenue categories and offerings. The nine
months ended September 30, 2021 was also negatively impacted from the $158 million fulfillment center fire, which did not recur.
Operating, General and Administrative Expenses
Operating, general and administrative expenses for the three and nine months ended September 30, 2022 increased $87 million or 8%, and $384 million, or 12%, respectively, compared to the prior year periods. These increases primarily reflect higher advertisement expenses to support growth and expansion of newer offerings and initiatives. These expenses as a percentage of revenue decreased from 23.0% to 22.7% for the three months ended September 30, 2022 related primarily to improved operating leverage, partially offset by increases in advertising expenses, and decreased from 24.3% to 23.8% for the nine months ended September 30, 2022 primarily related to costs of $138 million in the prior year period related to the fulfillment center fire, partially offset by increases in advertising expenses.
Interest Expense
Interest expense for the three and nine months ended September 30, 2022 decreased $0.9 million or (12)%, and $18.1 million or (47)%, respectively, compared to the prior year periods. The decrease for the nine months was primarily attributable to the conversion of our convertible notes into shares of our Class A common stock as a result of the Corporate Conversion and our initial public offering (“IPO”) during the first quarter of 2021.
Segment adjusted EBITDA
The operating performance measure of each segment is segment adjusted EBITDA. Segment adjusted EBITDA is defined as lossincome (loss) before income taxes for a period before depreciation and amortization, interest expense, interest income, income tax expense (benefit), other income (expense), net, equity-based compensation, impairments, and other items that we do not believe are reflective of our ongoing operations associated with our segments.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | | 2023 | | 2022 | % Change |
Product Commerce | Product Commerce | $ | 239,222 | | | $ | (118,235) | | | $ | 339,939 | | | $ | (235,397) | | Product Commerce | | $ | 288,370 | | | $ | 2,877 | | NM(1) |
Developing Offerings | Developing Offerings | (44,303) | | | (89,199) | | | (169,720) | | | (227,150) | | Developing Offerings | | (47,451) | | | (93,749) | | (49) | % |
Consolidated adjusted EBITDA | Consolidated adjusted EBITDA | $ | 194,919 | | | $ | (207,434) | | | $ | 170,219 | | | $ | (462,547) | | Consolidated adjusted EBITDA | | $ | 240,919 | | | $ | (90,872) | | NM(1) |
(1)Non-meaningful
The improvement in Product Commerce segment adjusted EBITDA was $239 million and $340 million, respectively, for the three and nine months ended September 30, 2022, an increase of $357 million and $575 million compared to the prior year periods. The improvement was primarily due to an increase in net revenues, further operational efficiencies, improved margins from supply chain optimization, an increased percentage of revenues earned from higher margin revenue categories, and improved operating leverage.
The improvement in Developing Offerings segment adjusted EBITDA improved $45 million or 50%, and $57 million or 25% for the three and nine months ended September 30, 2022, when compared to the prior year periods. The improved adjusted EBITDA was the result of lower advertising and promotional costs as well as lower delivery costs per order associated with Coupang Eats, offset by increasedcontinued investments made in our licensedinternational expansion as well as our content for Coupang Play.
Fulfillment and Logistics by Coupang (FLC)
FLC is a Product Commerce offering that enables participating merchants to leverage our end-to-end integrated logistics and fulfillment network. The pre-existing contract terms with FLC merchants result in the transfer of control of the merchants’ products to us and Coupang is the seller of record in these transactions, whereby revenue is recorded on a gross basis (principal). In April 2023, we announced changes to the FLC program and related contracts with merchants, streamlining the overall process for merchants and us. As a result of these changes, control of these products will no longer be transferred to the Company prior to sales. Beginning in the second quarter, this change will impact how we recognize a portion of our revenue, from a gross basis (principal) to a net basis (agent). This will result in a prospective reduction in total net revenues associated with FLC, with no significant corresponding impact on gross profit expected.
Liquidity and Capital Resources
Liquidity
Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations. Our primary sources of liquidity are cash on hand, supplemented through various debt financing arrangements and sales of our equity securities. We had total cash and cash equivalents and restricted cash of $4.1 billion as of March 31, 2023, of which $2.4 billion was held by our foreign subsidiaries and may not be freely transferable to the U.S due to local laws or other restrictions. Additionally, we have over $1.0 billion available under our 2022 and 2021 revolving credit facilities as described below.
The ability of certain subsidiaries to transfer funds or pay dividends to Coupang, Inc. is also restricted due to terms which require the subsidiaries to meet certain financial covenants, including requirements to maintain a positive net equity balance or having current period income.
As of September 30, 2022March 31, 2023 and December 31, 2021,2022, we had stockholders’ equity of $2.2 billion.$2.6 billion and $2.4 billion, respectively. We may incur losses in the future. We expect that our investment into our growth strategy will continue to be significant, includingparticularly with respect to our Developing Offerings segment, which will continue to focus on our newer offerings and entrance into new geographies, as well as overall expansion of our fulfillment, logistics, and technology capabilities. As part of this expansion to fulfill anticipated future customer demand and continuation to expand services, we are currently building and have additional plansplan to build or purchase new fulfillment centers. We have entered into various new construction contracts for capital projects which are generally expected to be completed over the next three years. These contracts have remaining capital expenditureexpenditures commitments of $438$429 million as of September 30, 2022.March 31, 2023. We expect that our future expenditures for both infrastructure and workforce-related costs will exceed several billion dollars over the next several years.
28 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 21 |
Our primary source of funds have been cash generated from our net revenues, supplemented through debt financing and sales of our equity securities. Our on-going primary source of funds are expected to beChanges in our cash and cash equivalents, and cash generated from our net revenues, supplemented through debt financings. We had total cash and cash equivalents and restricted cash of $3.1 billionflows were as of September 30, 2022, compared to $3.8 billion as of December 31, 2021. Additionally, the Company has $1.0 billion available under its 2021 revolving credit facility.follows:
During the first quarter of 2021, we completed our IPO, in which we issued and sold 100,000,000 shares of our Class A common stock at a price of $35.00 per share. We received net proceeds of approximately $3.4 billion from the IPO after deducting underwriting discounts of $69 million and other offering costs.
| | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
(in thousands) | | | | | 2022 | | 2021 |
Net cash used in operating activities | | | | | $ | (15,037) | | | $ | (207,832) | |
Net cash used in investing activities | | | | | (718,453) | | | (506,812) | |
Net cash provided by financing activities | | | | | 226,489 | | | 3,672,191 | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | | | | | (243,132) | | | (88,842) | |
Net (decrease) increase in cash and cash equivalents, and restricted cash | | | | | $ | (750,133) | | | $ | 2,868,705 | |
Cash and cash equivalents, and restricted cash, as of beginning of period | | | | | $ | 3,810,347 | | | $ | 1,401,302 | |
Cash and cash equivalents, and restricted cash, as of end of period | | | | | $ | 3,060,214 | | | $ | 4,270,007 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | | |
(in thousands) | | | | | 2023 | | 2022 | | Change |
Net cash provided by (used in) operating activities | | | | | $ | 501,303 | | | $ | (54,939) | | | $ | 556,242 | |
Net cash used in investing activities | | | | | (82,732) | | | (249,028) | | | 166,296 | |
Net cash provided by financing activities | | | | | 78,119 | | | 198,582 | | | (120,463) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Operating Activities
Our net cash used in operating activities was $(15) million for the nine months ended September 30, 2022, representing a change of $193 million, compared to $(208) million of net cash used for operations for the nine months ended September 30, 2021. | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | | |
(in thousands) | | | | | 2023 | | 2022 | | Change |
Net income (loss) | | | | | $ | 90,855 | | | $ | (209,294) | | | $ | 300,149 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating | | | | | 285,065 | | | 253,052 | | | 32,013 | |
Change in operating assets and liabilities | | | | | 125,383 | | | (98,697) | | | 224,080 | |
Net cash provided by (used in) operating activities | | | | | $ | 501,303 | | | $ | (54,939) | | | $ | 556,242 | |
The year-over-year change in operating cash flow was primarily driven by a $944$300 million decrease in net loss, partially offset by a $(188) million decreasewhich resulted in our non-cash expenses contributing to the net lossincome for the nine months ended September 30, 2022. Offsettingcurrent period. Additionally, benefiting the improvement in cash used in operating activities waswere the increase in cash outflows of $(563) million from changes in operating assets and liabilities, consisting primarily of: an increase in cash outflow inof other assets of $(91)$126 million as a result of additionala reduction in advances made to vendorscertain large, multi-national suppliers, and suppliers; a decreasean increase in cash inflow in accounts payable of $(398)$134 million due to slower growth than in 2021 and the timingas a result of inventory purchases in 2022; a decrease in cash inflow in accrued expenses of $(57) million impacted by lower employee accruals compared to the prior year due to slower headcount growth; and a an increase in cash outflow in other liabilities of $(118) million from operating lease liabilities, withholdings and our defined severance benefit plan.improved payment terms with certain large, multi-national suppliers.
Investing Activities
Our net cash used in investing activities was $(718) million for the nine months ended September 30, 2022, representing an increase of $212 million, or 42%, as compared to $(507) million used in investing activities for the nine months ended September 30, 2021. This increaseThe decrease was mainly driven by a $198$144 million increasedecrease in purchases of property and equipment, primarily related to significant investments made in the prior year in our fulfillment and logistics infrastructure, including purchases of buildings, land and equipment.
Financing Activities
Our net cash provided by financing activities for the nine months ended September 30, 2022 decreased $3.4 billion, compared to the nine months ended September 30, 2021. ThisThe decrease was primarily driven by $3.4 billion ofa $312 million decrease in proceeds net of underwriting discounts of $69 million and other offering costs, from the issuance of 100,000,000 shares of our Class A common stock upon the completion of our IPO in 2021, a $226 million increase in repayment of debt and short-term borrowings, all partially offset by a $234$151 million increasedecrease in proceeds fromrepayments of debt and short-term borrowings.
We believe that our sources of liquidity will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, we may need additional cash resources in the future if we find and pursue opportunities for investment, acquisition, strategic cooperation, or other similar actions, which may include investing in technology, our logistics and fulfillment infrastructure, or related talent. If we determine that our cash requirements exceed our amounts of cash on hand or if we decide to further optimize our capital structure, we may seek to issue additional debt or equity securities or obtain credit facilities or other sources of financing. This financing may not be available on favorable terms, or at all.
Capital Resources
We have entered into material unconditional purchase obligations. These contractual commitments primarily relate to technology related service contracts, fulfillment center construction contracts and software licenses. Refer to Note 8 — "Commitments and Contingencies" in Part I, Item 1 - “Financial Statements (Unaudited)” for disclosure of our future commitments. We generally enter into term loan facility agreements to finance the acquisition of property or construction of our fulfillment centers. These agreements may require that we provide for collateral equal to or greater than the amount borrowed under the arrangement. As we continue to build additional fulfillment centers, we expect our borrowings under debt financing arrangements to continue to increase. The Company also has material operating leases which expire over the next eleven years. Total
Refer to Note 13 — "Commitments and Contingencies" of our consolidated financial statements in Part II, Item 8 of our 2022 Form 10-K for disclosure of our minimum contractual commitments due within the next 3 months were $164 million as of September 30, 2022. Additionally, we have open purchase orders for inventories that are primarily due in the next twelve months, and they are generally cancellable, in full or in part, through the contractual provisions.commitments.
Our short-term and long-term borrowings generally include lines of credit with financial institutions available to be drawn upon for general operating purposes.
In March 2022, the Company entered into a new five-year loan agreement to borrow $279 million, which was partially used to extinguish the $149 million August 2020 term loan facility which matured in March 2022 and to finance infrastructure of a fulfillment center. The Company pledged up to $335 million of certain existing land and a building as collateral. The loan bears interest at a fixed rate of 4.26%.
In September 2022, the Company entered into a $77 million one year term loan agreement. The Company pledged $92 million of certain land as collateral. The loan bears interest at a fixed rate of 4.75%. Principal is to be paid at maturity and interest is paid on a monthly basis.
In October 2022, the Company entered intoWe have a two-year revolving facility agreement (the “2022 revolving credit facility”) with a borrowing limit of $112$123 million that bears interest at the average of 91-days CD interest rate plus 2.30%. The revolving facility is secured by certain of our inventories. As of March 31, 2023, there was no balance outstanding on the Company’s inventories.2022 revolving credit facility.
The Company hasWe have a three-year $1.0 billion unsecured credit facility (the “2021 revolving credit facility”). As of September 30, 2022,March 31, 2023, there was no balance outstanding on the 2021 revolving credit facility.
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 22 |
In April 2023, we entered into a new one-year credit loan facility to borrow $61 million for general operating purposes. The loan bears interest at the average of 91-day CD interest rate plus 4.40%.
In April 2023, we entered into a new three-year term loan facility agreement to borrow $176 million to finance the purchase of a fulfillment center and land. We pledged up to $212 million of certain land and buildings as collateral. The loan bears interest at a fixed rate of 6.76%.
Refer to Note 612 — "Short-Term Borrowings and Long-Term Debt" inof our condensed consolidated financial statements included elsewhere in this Quarterly Report onPart II, Item 8 of our 2022 Form 10-Q10-K for disclosure of our debt obligations and collateral.
Critical Accounting Policies and Estimates
We prepare our financial statements in accordance with U.S. GAAP. Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. For a discussion of our critical accounting policies and estimates, refer to the section entitled “Critical Accounting Policies and Estimates” in our 20212022 Form 10-K.
Other significant accounting policies are also discussed in Note 1 — “Description of Business and Summary of Significant Accounting Policies” to the consolidated financial statements in Part II, Item 8 of our 20212022 Form 10-K. There have been no significant changes to these policies and estimates for the nine months ended September 30, 2022, except as described in Note 1 — "Basis of Presentation and Summary of Significant Accounting Policies" to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Recently Adopted Accounting Pronouncements
See Note 1 — "Basis of Presentation and Summary of Significant Accounting Policies" to the condensed consolidated financial statements included elsewhere in Part I, Item 1 of this Quarterly Report on Form 10-Q.
30 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 23 |
| | | | | | | | | | | | | | |
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
In addition to the risks inherent in our operations, we are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates, foreign currency, and credit.
Interest Rate Risk
As of September 30, 2022,March 31, 2023, we had cash, cash equivalents, and restricted cash of $3.1$4.1 billion. Interest-earning instruments carry a degree of interest rate risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Our interest rate risk arises primarily from our short-term borrowings.undrawn revolving credit facilities. Borrowings issued at variable rates expose us to variability in cash flows. Our policy, in the management of interest rate risk, is to strikestructure a reasonable balance between fixed and floating rate financial instruments as well as our cash and cash equivalents and any short-term investments we may hold. The balance struck by our management is dependent on prevailing interest rate markets at any point in time.
Our borrowings generally include lines of credit with financial institutions, some of which carry variable interest rates. As of September 30, 2022,March 31, 2023, there was no balances outstanding on our revolving credit facilities. Any future borrowings incurred under the 2021 and 2022 revolving credit facilityfacilities would accrue interest at a floating rate based on a formula tiedrates subject to certaincurrent market rates at the time of incurrence.
Our term loan facilities have fixed interest rates. While fluctuations in interest rates do not impact our results of operations, the fair value of our debt is impacted by market interest rates, decreasing in periods of rising rates and increasing in periods of declining rates.conditions.
Foreign Currency Risk
We have accounts on our foreign subsidiaries’ ledgers, which are maintained in the respective subsidiary’s local currency and translated into USD for reporting of our consolidated financial statements. As a result, we are exposed to fluctuations in the exchange rates of various currencies against the USD and other currencies, including the KRW.
Transactional
We generate the majority of our revenue from customers within Korea. Typically, we aim to align costs with revenue denominated in the same currency, but we are not always able to do so. As a result of the geographic spread of our operations and due to our reliance on certain products and services priced in currencies other than KRW, our business, results of operations, and financial condition have been and will continue to be impacted by the volatility of the KRW against foreign currencies.
Translational
Coupang, Inc.’s functional currency and reporting currency is the USD. The local and functional currency for our Korean subsidiary, Coupang Corp., which is our primary operating subsidiary, is the KRW. The other subsidiaries predominantly utilize their local currencies as their functional currencies. Assets and liabilities of each subsidiary are translated into USD at the exchange rate in effect at the end of each period. Revenue and expenses for these subsidiaries are translated into USD using average rates that approximate those in effect during the period. Consequently, increases or decreases in the value of the USD affect the value of these items with respect to the non-USD-denominated businesses in the consolidated financial statements, even if their value has not changed in their original currency. For example, a stronger USD will reduce the reported results of operations of non-USD-denominated businesses and conversely a weaker USD will increase the reported results of operations of non-USD-denominated businesses. An assumed hypothetical 10% adverse change in average exchange rates used to translate foreign currencies to USD would have resulted in a decline in total net revenues of approximately $457$514 million and $1.4 billion and an immaterial impact in net income (loss) for the three and nine months ended September 30, 2022,March 31, 2023, respectively.
At this time, we do not, but we may in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency risk. It is difficult to predict the impact hedging activities would have on our results of operations.
Credit Risk
Our cash and cash equivalents, deposits, and loans with banks and financial institutions are potentially subject to concentration of credit risk. We place cash and cash equivalents with financial institutions that management believes are of high credit quality. The degree of credit risk will vary based on many factors, including the duration of the transaction and the
contractual terms of the agreement. As appropriate, management evaluates and approves credit standards and oversees the credit risk management function related to investments.
| | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 24 |
| | | | | | | | | | | | | | |
Item 4. Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
As of September 30, 2022,March 31, 2023, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were evaluated, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to assess whether they are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Based on this evaluation, our CEO and CFO have concluded that, as of March 31, 2023, our disclosure controls and procedures were not effective as of September 30, 2022, due to the material weaknesses in our internal control over financial reporting, as further described below. As a result, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, our condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Previously Reported Material Weakness
As disclosed in our 2021 Form 10-K, we previously identified material weaknesses in our internal control over financial reporting related to (i) the design and effectiveness of information technology general controls, (ii) inadequate segregation of duties, and (iii) inadequate internal control over the timely preparation and review of account reconciliations. We have concluded that these material weaknesses arose because we did not have sufficient qualified accounting resources, formalized processes, and policies necessary to satisfy the accounting and financial reporting requirements of a public company. We have determined that these control deficiencies constituted material weaknesses in our internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in our internal control over financial reporting such that there isat a reasonable possibility that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis. These deficiencies could result in additional misstatements to our consolidated financial statements that would be material and would not be prevented or detected on a timely basis.
Remediation Plan
Management has developed and is executing a remediation plan to address the previously disclosed material weaknesses. We are actively engaged in the remediation of each of the outstanding material weaknesses, including utilizing the assistance of outside advisors where appropriate.
To remediate the existing material weaknesses, additional time is required to demonstrate the effectiveness of the remediation efforts. The material weaknesses cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.assurance level.
Changes in Internal Control over Financial Reporting
We are taking actions to remediate the material weaknesses relating to our internal control over financial reporting. There waswere no changechanges in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2022March 31, 2023, that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our management, including our CEO and CFO, dodoes not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
33 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 25 |
Part II. Other Information
Item 1. Legal Proceedings
From time to time, we are subject to legal proceedings, claims, litigation, governmental audits, inspections, investigations, and other various proceedings in the ordinary course of business. We have received, and may in the future continue to receive, claims, litigation, governmental audits, inspections, and investigations relating to issues such as employment and labor, worker classification and assignment, worker pay, hours and benefits, labor relations including union and collective bargaining issues, employment authorization and immigration, worker safety, intellectual property (including patent, trademark, and copyright), product safety, personal injury, privacy, information security, tax compliance, import/export regulations, foreign exchange regulations, licenses and permits, food safety, medical products, drugs and devices, financial services, antitrust and fair trade matters, consumer protection, and environmental issues. | | | | | | | | | | | | | | |
Item 1. Legal Proceedings |
The results of any current or future claims, litigation, governmental audits, inspections, or investigations cannot be predicted with certainty. Regardless of the outcome, these claims and proceedings could have an adverse impact on us because of defense and settlement costs, diversion of management resources, harm toinformation set forth under Note 11 — "Contingencies" in our brand and reputation, and other factors.
There have been no material developments with respectaccompanying notes to the legal proceedings previously disclosed in Part I, Item 3condensed consolidated financial statements under the caption “Legal Proceedings” of our 2021 Form 10-K.Matters” is incorporated herein by reference.
Investing in our securities involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties disclosed in Part 1, Item 1A, under the caption “Risk Factors,” of our 20212022 Form 10-K which risks could materially and adversely affect our business, results of operations, financial condition, and liquidity. No material change in the risk factors discussed in such Form 10-K has occurred. Such risk factors may not be the only ones that we face because our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. Our business operations could also be affected by additional factors that apply to all companies operating globally.
| | | | | | | | | | | | | | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
Use of Proceeds
The Registration Statement on Form S-1 (File No. 333-253030) for our IPO of our Class A common stock was declared effective by the SEC on March 10, 2021. There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC pursuant to Rule 424(b) of the Securities Act and other periodic reports previously filed with the SEC.None.
| | | | | | | | | | | | | | |
Item 3. Defaults Upon Senior Securities |
None.
| | | | | | | | | | | | | | |
Item 4. Mine Safety Disclosures |
Not applicable.
| | | | | | | | | | | | | | |
Item 5. Other Information |
Not applicable.
34 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 26 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Description of Exhibit | | Provided Herewith | | Incorporated by Reference | | | | | | | | |
| | | Form | | File No. | | Exhibit | | Filing Date | | |
3.1 | | | | | | 10-Q | | 001-40155 | | 3.1 | | November 12, 2021 | | | | | | | | |
3.2 | | | | | | 10-Q | | 001-40155 | | 3.2 | | November 12, 2021 | | | | | | | | |
10.1+ | | | | X | | | | | | | | | | | | | | | | |
31.1 | | | | X | | | | | | | | | | | | | | | | |
31.2 | | | | X | | | | | | | | | | | | | | | | |
32.1* | | | | X | | | | | | | | | | | | | | | | |
32.2* | | | | X | | | | | | | | | | | | | | | | |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | | | | | | | | | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document. | | | | | | | | | | | | | | | | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | | | | | | | | | | | | | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. | | | | | | | | | | | | | | | | | | |
101.LAB | | XBRL Taxonomy Extension Labels Linkbase Document. | | | | | | | | | | | | | | | | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | | | | | | | | | | | | | | |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Description of Exhibit | | Provided Herewith | | Incorporated by Reference | | | | | | | | |
| | | Form | | File No. | | Exhibit | | Filing Date | | |
3.1 | | | | | | 10-Q | | 001-40115 | | 3.1 | | November 12, 2021 | | | | | | | | |
3.2 | | | | | | 10-Q | | 001-40115 | | 3.2 | | November 12, 2021 | | | | | | | | |
10.1+ | | | | X | | | | | | | | | | | | | | | | |
31.1 | | | | X | | | | | | | | | | | | | | | | |
31.2 | | | | X | | | | | | | | | | | | | | | | |
32.1* | | | | X | | | | | | | | | | | | | | | | |
32.2* | | | | X | | | | | | | | | | | | | | | | |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | | | | | | | | | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document. | | | | | | | | | | | | | | | | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | | | | | | | | | | | | | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. | | | | | | | | | | | | | | | | | | |
101.LAB | | XBRL Taxonomy Extension Labels Linkbase Document. | | | | | | | | | | | | | | | | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | | | | | | | | | | | | | | |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | | | | | | | | | | | | | | | | | | |
_____________
| | | | | |
+ | Indicates management contract or compensatory plan |
* | Indicates furnished exhibit |
35 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 27 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
COUPANG, INC. (REGISTRANT) |
| |
By: | /s/ Jonathan Lee |
| Jonathan Lee |
| Chief Accounting Officer (Principal Accounting Officer) |
Dated: NovemberMay 10, 20222023
36 | | | | | | | | | | | | | | |
| Coupang, Inc. | | Q1 2023 Form 10-Q | 28 |