| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation The Company’s consolidated financial statements have been prepared and are presented in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Principles of Consolidation The consolidated financial statements include the financial statements of Warby Parker Inc., and its wholly owned subsidiaries. The Company has consolidated certain entities meeting the definition of a variable interest entity (“VIE”) as the Company concluded that it is the primary beneficiary of the entities. The inclusion of these entities does not have a material impact on the Company’s consolidated financial statements. Intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The Company prepares its consolidated financial statements in conformity with U.S. GAAP. These principles require management to make certain estimates and assumptions during the preparation of its consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Management’s estimates are based on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Significant estimates underlying the accompanying consolidated financial statements include, but are not limited to (i) the valuation of inventory, including the determination of the net realizable value, (ii) reserves for sales returns, (iii) the useful lives and recoverability of long-lived assets, (iv) shipment times included in the calculation of deferred revenue, (v) the determination of deferred income taxes, including related valuation allowances, (vi) allowances for doubtful accounts, and (vii) assumptions related to the valuation of common stock and determination of stock-based compensation. Emerging Growth Company Status The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. As a result, the Company’s consolidated financial statements may not be comparable to financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards based on public company effective dates. Segment Information Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”), who makes decisions about allocating resources and assessing performance. The Company defines its CODM as its co-Chief Executive Officers. The Company has identified one operating segment. When evaluating the Company’s performance and allocating resources, the CODM relies on financial information prepared on a consolidated basis. Concentration of Credit Risk and Major Suppliers Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains its cash and cash equivalents in various accounts, which, at times, may exceed the limits insured by the Federal Deposit Insurance Corporation of $250 per institution and the Canada Deposit Insurance Corporation of $100 Canadian dollars. At December 31, 2021 and 2020, uninsured cash balances were approximately $255.0 million and $312.8 million, respectively. The Company has not experienced any concentration losses related to its cash and cash equivalents to date. The Company seeks to minimize its credit risk by maintaining its cash and cash equivalents with high-quality financial institutions and monitoring the credit standing of such institutions. The Company’s top five inventory suppliers accounted for approximately 23% of cost of goods sold for each of the years ended December 31, 2021, 2020, and 2019. Interest Rate and Foreign Currency Risk The Company’s cash and cash equivalents as of December 31, 2021 consisted of cash and money-market funds. Such interest-earning instruments carry a degree of interest rate risk. The goals of the Company’s investment policy are liquidity and capital preservation. The Company does not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage its interest rate exposure. The Company is exposed to changes in foreign currency rates as a result of its foreign operations and international suppliers from whom it purchases in Japanese Yen and Euros. Revenue and income generated by the Company’s operations in Canada as well as the Company’s cost of goods sold will increase or decrease compared to prior periods as a result of changes in foreign currency exchange rates. Cash and Cash Equivalents The Company considers all highly liquid short-term investments with an original maturity of three months or less to be a cash equivalent. Cash and cash equivalents include both deposits with banks and financial institutions and receivables from credit card issuers, which are typically converted into cash within two to four days of capture. As such, these receivables are recorded as a deposit in transit as a component of cash and cash equivalents on the consolidated balance sheets. At December 31, 2021 and 2020, the balance of cash and cash equivalents for these items was $6.3 million and $7.1 million, respectively. Accounts Receivable, Net The Company primarily sells directly to U.S. and Canadian consumers where payment is processed upon order approval or product shipment. In some instances, customers can utilize vision insurance benefits to cover the cost of their purchase. For these orders, the Company submits claims directly to the vision insurance carrier and receives reimbursement directly from the carrier. Accounts receivable primarily represents amounts due from insurance carriers. Receivables from customers and insurance carriers are typically collected within 30 days of the transaction and have been reflected in the balance of accounts receivable, net on the consolidated balance sheets at December 31, 2021 and 2020. The accounts receivable are net of an allowance for doubtful accounts, which is established based on management’s best estimate of probable credit losses. The Company’s allowance for doubtful accounts was $0.5 million at both December 31, 2021 and 2020, respectively. Inventory Inventory consists of approximately $14.1 million and $8.9 million of finished goods, including ready-to-wear sun frames, contact lenses, and eyeglass cases, as of December 31, 2021 and 2020, respectively, and approximately $43.0 million and $29.6 million of component parts, including optical frames and prescription optical lenses, as of December 31, 2021 and 2020, respectively. Inventory is stated at the lower of cost or net realizable value, with cost determined on a weighted average cost basis. The Company continuously evaluates the composition of its inventory and makes adjustments when the cost of inventory is not expected to be fully recoverable. The estimated net realizable value of inventory is determined based on an analysis of historical sales trends, the impact of market trends and economic conditions, and a forecast of future demand. Adjustments for damaged inventory are recorded primarily based on actual damaged inventory. Adjustments for inventory shrink, representing the physical loss of inventory, includes estimates based on historical experience, and are adjusted based upon physical inventory counts. However, unforeseen adverse future economic and market conditions, such as those resulting from disease pandemics and other catastrophic events, could result in actual results differing materially from estimates. Property and Equipment, Net Property and equipment, net is stated at cost less accumulated depreciation. Repairs and maintenance and any gains or losses on dispositions are recognized as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and a gain or loss on disposition is reflected in current operations. Depreciation is recorded on a straight-line basis over the following estimated useful lives: Asset Category Depreciation Period Computer equipment and capitalized software 3 years Leasehold improvements 2 - 10 years (lesser of lease term and useful life of the asset) Furniture and fixtures 7 years Internal-use software 1 - 3 years Equipment 5 - 7 years Internal-Use Software The Company capitalizes as property and equipment certain qualified costs incurred in connection with the development of internal-use software. Capitalization of internal-use software begins when the preliminary project stage is completed, management with relevant authority authorizes and commits to funding the software project, and it is probable that the project will be completed and software will be used to perform the function intended. Capitalized internal-use software is amortized on a straight-line basis over the estimated useful life of the software, not to exceed three years. Capitalized software costs, net of accumulated amortization, totaled $8.6 million and $3.6 million as of December 31, 2021 and 2020, respectively. Impairment of Long-Lived Assets Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets or asset groups to be held and used is evaluated by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. Leases and Deferred Rent The Company categorizes leases at their inception as either operating or capital leases. At December 31, 2021 and 2020, the Company had only entered into operating leases. The Company leases retail, office, and laboratory space under operating leases from third parties. The leases generally contain renewal options and escalation clauses, and from time to time include contingent rent provisions and tenant improvement allowances. Tenant improvement allowances are capitalized within deferred rent and amortized as a reduction of rent expense over the term of the lease. The Company records retail and laboratory rent expense as a component of cost of goods sold and all other rent expense as a component of selling, general, and administrative expenses. The recognition of rent expense for an operating lease commences on the date at which control and possession of the property is obtained. Rent expense is calculated by recognizing total minimum rental payments, net of any rental abatement, tenant improvement allowances, and other rental concessions, on a straight-line basis over the lease term. The difference between straight-line rent expense and rent paid is recorded as deferred rent, which is classified within short-term and long-term liabilities on the consolidated balance sheets. The short-term portion of deferred rent of $2.5 million and $1.9 million as of December 31, 2021 and 2020, respectively, is included in other current liabilities on the consolidated balance sheets. Contingent rent based on sales volume is recorded as incurred or when the specific target has been achieved. Income Taxes The Company utilizes the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss, capital loss, and tax credit carryforwards. Valuation allowances are established against deferred tax assets if it is more likely than not that they will not be realized. The Company assess its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. The Company’s policy is to recognize interest and penalties expense, if any, related to unrecognized tax benefits as a component of income tax expense. The Company has elected to treat taxes due on future U.S. inclusions in taxable income related to Global Intangible Low Taxed Income (“GILTI”) as a current period expense when incurred using the period cost method. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants at the measurement date. Inputs used to measure fair value are classified in the following hierarchy: • Level 1: Quoted prices in active markets for identical instruments. • Level 2: Quoted prices in active markets for similar instruments or quoted prices for identical or similar instruments in markets that are not active or inputs other than quoted prices that are observable for the instrument. • Level 3: Unobservable inputs for the instrument. The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s material financial instruments consists primarily of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, which are measured at fair value using Level 1 inputs. The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are approximately equal to their carrying values based on the short-term nature of these items. Commitments and Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. Foreign Currency The Company’s foreign operations in Canada have a functional currency of Canadian dollars. Assets and liabilities are translated into U.S. dollars using the current exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the average exchange rates during the period. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income on the consolidated balance sheets. Foreign currency impact on the consolidated statements of cash flows is translated to U.S. dollars using average exchange rates for the period, which approximates the timing of cash flows. Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured at period end using the period-end exchange rate. Gains and losses resulting from remeasurement are recorded in interest and other income (loss), net on the consolidated statements of operations and comprehensive income (loss). COVID-19 The COVID-19 pandemic caused personal and business disruption worldwide beginning in January 2020, and continues to impact global economies and supply chains. Early on in the pandemic, we temporarily closed our retail stores, transitioned our Corporate and Customer Experience teams to remote work, and implemented robust safety and sanitization protocols. In 2021, our business continued to experience disruption caused by the pandemic, including changes to consumer shopping patterns as well as varying levels of restrictions in our physical locations implemented by national, state, and local authorities. Although the Company continues to monitor the situation and may adjust its current policies as more information and public health guidance become available, precautionary measures that have been adopted have and will negatively affect the Company’s ability to sell its products and fulfill customer orders and the operations of its suppliers and fulfillment partners. More generally, the outbreak of COVID-19 could adversely affect economies and financial markets globally, potentially leading to an economic downturn, which could decrease consumer spending and adversely affect demand for the Company’s products and services. It is not possible at this time to estimate the impact that COVID-19 could have on the Company’s business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. Revenue Recognition The Company primarily derives revenue from the sales of eyewear products, optical services and accessories. The Company sells products and services through its stores, website, and mobile apps. Revenue generated from eyewear products includes the sales of prescription and non-prescription optical glasses and sunglasses, contact lenses, eyewear accessories, and expedited shipping charges, which are charged to the customer, associated with these purchases. All revenue is reported net of sales taxes collected from customers on behalf of taxing authorities and variable consideration, including returns and discounts. Revenue is recognized when performance obligations are satisfied through either the transfer of control of promised goods or the rendering of services to the Company's customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product, generally determined to be the point of delivery or upon rendering of the service in the case of eye exams. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. In the normal course of business, payment may be collected from the customer prior to recognizing revenue and such cash receipts are included in deferred revenue until the order is delivered to the customer. The Company’s sales policy allows customers to return merchandise for any reason within 30 days of receipt, generally for an exchange or refund. An allowance is recorded within other current liabilities on the consolidated balance sheets for expected future customer returns which the Company estimates using historical return patterns and its expectation of future returns. Any difference between the actual return costs and previous estimates is adjusted in the period in which such returns occur. Historical return estimates have not materially differed from actual returns in any of the periods presented. The allowance for returns was $1.8 million and $1.9 million at December 31, 2021 and 2020, respectively, and is included in other current liabilities on the consolidated balance sheets. The Company offers non-expiring gift cards to its customers. Proceeds from the sale of gift cards are initially deferred and recognized within deferred revenue on the consolidated balance sheets, and are recognized as revenue when the product is received by the customer after the gift card has been tendered for payment. Based on historical experience, and to the extent there is no requirement to remit unclaimed card balances to government agencies under unclaimed property laws, an estimate of the gift card balances that will never be redeemed is recognized as revenue in proportion to gift cards which have historically been redeemed. While the Company will continue to honor all gift cards presented for payment, management may determine the likelihood of redemption to be remote for certain card balances due to, among other things, long periods of inactivity. Gift card breakage revenue was $0.2 million, $0.4 million, and $0.3 million for the years ended December 31, 2021, 2020, and 2019, respectively. The following table disaggregates the Company’s revenue by product for the periods presented: Year Ended December 31, 2021 2020 2019 Eyewear Products $ 522,959 $ 381,855 $ 358,919 Services and Other 17,839 11,864 11,544 Total Revenue $ 540,798 $ 393,719 $ 370,463 The following table disaggregates the Company’s revenue by channel for the periods presented: Year Ended December 31, 2021 2020 2019 E-commerce $ 249,345 $ 237,377 $ 129,812 Retail 291,453 156,342 240,651 Total Revenue $ 540,798 $ 393,719 $ 370,463 Shipping and Handling Fees and Costs The Company pays for shipping and handling costs which are generally not charged to the customer. These costs associated with shipping goods to customers are recorded as cost of goods sold. Only expedited shipments, upon customers’ requests, are charged to customers. Shipping and handling fees billed to customers related to expedited shipments are recorded as revenue. Shipping and handling fees included in revenue were $2.8 million, $2.1 million, and $2.0 million in the years ended December 31, 2021, 2020, and 2019, respectively, while shipping and handling costs included in cost of goods sold were $21.2 million, $14.7 million, and $14.7 million in the years ended December 31, 2021, 2020, and 2019, respectively. Cost of Goods Sold Cost of goods sold includes the costs incurred to acquire materials, assemble, and sell finished products. Such costs include (i) product costs held at the lesser of cost and net realizable value, (ii) freight and import costs, (iii) optical laboratory costs, (iv) customer shipping, (v) occupancy and depreciation costs of retail stores, and (vi) employee-related costs associated with prescription services, which includes salaries, benefits, bonuses and stock-based compensation. Selling, General, and Administrative Expenses Selling, general, and administrative expenses primarily consists of employee-related costs including salaries, benefits, bonuses and stock-based compensation for corporate and retail employees, marketing, information technology, credit card processing fees, charitable donations in connection with the Company’s Buy A Pair, Give A Pair program, facilities, legal, and other administrative costs associated with operating the business. Marketing costs, which consist of both online and offline advertising, include sponsored search, online advertising, marketing and retail events, and other initiatives. Selling, general, and administrative expenses also include costs associated with the Company’s Home Try-On program that provides customers the opportunity to sample eyewear at home prior to purchase. Advertising costs are expensed as incurred, and were approximately $87.0 million, $58.5 million, and $43.3 million in the years ended December 31, 2021, 2020, and 2019 respectively. Stock-Based Compensation Stock-based compensation is included in both cost of goods sold and selling, general, and administrative expenses and follows the classification of the related employee. The Company recognizes compensation expense for stock-based awards based on the grant date fair value, on either (i) a straight-line basis for awards with only a service condition, or (ii) an accelerated attribution basis for awards with a performance condition, over the requisite service period of the awards, which is generally the vesting term of the outstanding stock awards. Compensation expense for awards with a performance condition is recognized when it is determined that it is probable that the vesting conditions will be satisfied. The Company estimates the fair value of options on the date of grant using the Black-Scholes option-pricing model, which utilizes assumptions subject to management estimate. These assumptions include estimating the expected term, or the length of time employees will retain their vested stock options before exercising them, the estimated volatility of the Company’s common stock price over the expected term, the fair value of the Company’s stock, the risk-free interest rate, and the expected dividend yield. Changes in these assumptions can materially affect the estimate of fair value of stock-based awards. The Company accounts for forfeitures as they occur. Prior to the Direct Listing, the fair value of restricted stock units (“RSUs”) was determined by the board of directors with input from management and independent third-party valuation specialists, as there was no public market for the Company’s common stock. Subsequent to the Direct Listing, the grant date fair value is determined by the closing price of the Company’s Class A common stock as reported on the date of grant. Stock-based compensation expense related to stock awards with market-based or performance-based vesting conditions are measured based on the fair value of the awards granted. The Company determines the grant date fair value using equity valuation models, such as the Monte Carlo simulation, using assumptions and judgements made by management and third-party valuation specialists. The Company recognizes stock-based compensation expense for performance-based awards using the accelerated attribution method over the derived service period. Stock Repurchase The Company may repurchase common stock which may be held as treasury stock or retired at the time of repurchase. The terms and conditions of these repurchase agreements are subject to approval by the Company’s board of directors. See Note 6, Redeemable Convertible Preferred Stock and Stockholders’ Deficit , for a discussion of stock repurchase activity. Net Loss Per Share Attributable to Common Stockholders Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Under the two-class method, net income (loss) is attributed to common stockholders and participating securities based on their participation rights. The holders of the redeemable convertible preferred stock do not have a contractual obligation to share in the losses of the Company. As such, the Company’s net losses attributable to common stockholders for the years ended December 31, 2021, 2020, and 2019 were not allocated to these participating securities. Payment in excess of the carrying value upon the redemption of redeemable convertible preferred stock is accounted for as a deemed dividend to the redeemable convertible preferred stockholder whereby the difference between the amount paid upon redemption and the carrying value of the redeemable convertible preferred stock is deducted from net income (loss) to arrive at net loss available to common stockholders. Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of the Company’s common stock outstanding during a given period. The diluted net loss attributable to common stockholders is computed by giving effect to all dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the resulting net loss attributable to common stockholders by the weighted-average number of fully diluted common shares outstanding. The Company uses the if-converted method for its redeemable convertible preferred stock which requires assuming that the conversion occurred as of the later of the beginning of the period or the original date of issuance. During periods when there is a net loss attributable to common stockholders, potentially dilutive common stock equivalents are excluded as their effect is anti-dilutive. The Company uses the treasury stock method for its employee equity awards to determine if any incremental shares should be included in diluted net (loss) income attributable to common stockholders. If the effect of a conversion of an instrument is neutral to earnings per share, the Company considers the security to be dilutive. The Company excludes contingently exercisable instruments and unvested employee awards when the vesting is contingent on a performance or market condition that is not met as of the evaluation date. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASC No. 2016-02, Leases (Topic 842) (“ASC 842”). ASC 842 was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use (“ROU”) asset on the balance sheet. The Company elected the extended transition period available to emerging growth companies and as such, the guidance is effective for fiscal periods beginning after December 15, 2021. The Company will adopt the new standard using a modified retrospective transition approach in the first quarter of 2022 and will apply the provisions at the effective date without adjusting the comparative periods presented. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2022. The new standard provides a number of optional practical expedients in transition. The Company expects to elect the practical expedients to not reassess its prior conclusions about lease identification under the new standard, to not reassess lease classification, and to not reassess initial direct costs. The Company does not expect to elect the practical expedient allowing the use-of-hindsight which would require the Company to reassess the lease term of its leases based on all facts and circumstances through the effective date and will not elect the practical expedient pertaining to land easements as this is not applicable to the current contract portfolio. The new guidance also provides practical expedients for ongoing lease accounting. The Company expects to elect the recognition exemption for short-term lease for all leases that qualify. Under this exemption, the Company would not recognize ROU assets or lease liabilities for those leases that qualify as a short-term lease, which includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company expects to elect the practical expedient to not separate lease and non-lease components for all equipment and real-estate leases. The adoption of ASC 842 will have a material effect on the consolidated financial statements of the Company. The most significant impact will relate to the recognition of right-of-use assets and lease liabilities on the consolidated balance sheets for our retail stores, corporate offices, optical laboratories, and distribution center operating leases based on the present value of total fixed payments of approximately $140 million to $155 million. The Company does not believe the standard will materially affect the consolidated statements of operations or cash flows. In January 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses , and additional changes, modifications, clarifications or interpretations related to this guidance thereafter, which require a reporting entity to estimate credit losses on certain types of financial instruments, and present assets held at amortized cost and available for-sale debt securities at the amount expected to be collected. The guidance is effective for non-public companies for fiscal years beginning after December 15, 2022. The Company elected the extended transition period available to emerging growth companies and does not expect the adoption of the standard to have a material impact on the Company’s consolidated financial statements and related disclosures. Recently Adopted Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, Simplif |
