Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2018 |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying consolidated financial statements included herein have been prepared by us in accordance with U.S. generally accepted accounting principles (“GAAP”), for financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of YogaWorks, Inc. and our wholly-owned subsidiaries. All significant inter-company accounts, transactions and balances have been eliminated in consolidation. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates. Significant estimates include stock-based compensation, deferred revenue recognition, income taxes, purchase price allocation, valuation of long-lived assets, intangible assets and goodwill and useful lives of intangible assets and property and equipment. |
Cash and Cash Equivalents | Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and highly-liquid investments with original maturities of three months or less. We place our cash and cash equivalents with major financial institutions. Cash and cash equivalents balances at these institutions are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”). From time-to-time, deposits may exceed the FDIC coverage limits. |
Fair Value Measurements | Fair Value Measurements ASC 820, “Fair Value Measurement”, establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows: Level 1—Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2—Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Our Level 3 evaluation pertains to fair value of Goodwill for $0.7 million and $8.9 million for 2018 and 2017, respectively. The significant unobservable inputs include forecasted cashflows and an appropriate discount rate. The carrying value of our remaining financial assets and liabilities, including cash and cash equivalents, and accounts payable and accrued liabilities are stated at historical cost which approximates fair value because of the short-term nature of these instruments at prevailing market rates. |
Inventories | Inventories Inventories are stated at the lower of cost or net realizable value. Our inventory |
Property and Equipment | Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization using the straight-line method over the following estimated useful lives of the assets: Years Computer equipment and purchased software 3 Furniture and fixtures 5 Leasehold improvements Useful life or remaining lease term, whichever is shorter Other equipment 2 to 5 Repairs and maintenance are expensed as incurred, while renewals or betterments are capitalized. |
Intangible Assets | Intangible Assets Intangible assets are stated at cost, less accumulated amortization. We account for the purchase of intangible assets in accordance with ASC 350 “Intangibles - Goodwill and Other.” Acquired intangible assets are based on their acquisition cost. Applicable long-lived assets, including definite-lived intangible assets, are amortized or depreciated using the straight-line method over the shorter of their estimated useful lives, the estimated period that the assets will generate revenue or the statutory or contractual term. Estimates of useful lives and periods of expected revenue generation are reviewed periodically for appropriateness and are based upon management’s judgment. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets We review long-lived assets other than goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows directly associated with the asset are compared to the asset’s carrying amount. If the estimated future cash flows from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the asset to its estimated fair value. |
Goodwill | Goodwill Our goodwill primarily relates to the 2014 acquisition of the predecessor to YogaWorks, Inc. (the “Predecessor”) by Great Hill Partners, acquisitions of three yoga companies in San Francisco, Boston and Baltimore in 2015, five yoga companies in the Washington, D.C. area, Houston and Atlanta in 2017, and two yoga companies in Boston in 2018. Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in an acquisition accounted for as a business combination. Goodwill is not amortized but rather is tested for impairment on an annual basis and if there is a triggering event or circumstances require, on an interim basis, in accordance with ASC Topic 350 “Intangibles - Goodwill and Other”. We perform our impairment test annually in the fourth quarter of the year or more frequently if impairment indicators arise. Goodwill is considered impaired when the carrying amount of a reporting unit exceeds the fair value of the reporting unit. A reporting unit is the same as, or one level below, an operating segment. The Company’s nine regional operating segments: Los Angeles, Orange County, Northern California, Houston, Atlanta, Washington D.C., Baltimore, New York City, and Boston are considered reporting units for goodwill impairment testing purposes. The fair value of a reporting unit is determined using valuation techniques based on estimates, judgments and assumptions management believes are appropriate in the circumstances. In 2017, the Company adopted the guidance in Accounting Standards Update (“ASU”) 2017-04, which simplified the method of measuring goodwill impairment by writing-off the excess of the reporting unit’s carry amount and fair value. Due to projected cash flows and the decline in the Company’s market capitalization since the launch of the IPO, we recorded impairment to goodwill of $12.7 million and $7.5 million at year-end December |
Debt Issuance Cost | Debt Issuance Cost Debt issuance costs are being amortized using the effective interest rate method over the term of the loan and the amortization expense is recorded as part of interest expense of the consolidated statements of operations. Debt issuance cost amortization amounted to $69,164 for the year ended December 31, 2017. All our debt was repaid in full in 2017 and the related debt issuance costs of $318,016 were written-off. |
Leases | Leases Our Company leases its facilities and certain equipment, and accounts for these leases in accordance with ASC 840 Leases. Rent expense is recognized on a straight-line basis with a liability for deferred rent recognized for the difference in the expense recorded, tenant improvement allowances and the current cash payments required under the terms of the leases. |
Revenue Recognition | Revenue Recognition Our Company generates revenues primarily from the sale of yoga classes, workshops, teacher training programs and yoga-related retail merchandise, net of discounts, refunds and returns at the time they are granted. Yoga classes are principally sold in two formats—class packages and memberships. Class packages are based on a fixed number of classes, while memberships provide unlimited classes over a certain time period. Membership, Revenue for retail merchandise is recognized at the time of sale when the customer receives and pays for the merchandise at the stores. Taxes collected from the customer are recorded on a net basis. Sales returns by customers for yoga-related retail merchandise sales have historically not been material. Our Company sells gift cards to our customers. The gift cards sold to customers have no stated expiration dates and are subject to actual and/or potential escheatment rights in several of the jurisdictions in which we operate. We recognize income from gift cards when redeemed by the customer or upon breakage. Gift cards that do not have activity for 2 years have a remote probability of being redeemed and are considered breakage. The gift card liability net of breakage balance was $567,908 and $690,170 as of December 31, 2018 and December 31, 2017, respectively, and is included in deferred revenue in the consolidated balance sheets. |
Cost of Revenues | Cost of Revenues Cost of revenues consists of direct costs associated with delivering the services, which mainly include teacher payroll and related expenses, and cost of physical goods sold (such as yoga clothing and accessories). |
Center Operations | Center Operations Center operations consist of costs for studio rent, utilities, compensation and benefits for studio staff, sales support staff and management and sales and marketing expenses, as well as certain studio level general and administrative expenses. Our Company recognizes these costs as an expense when incurred. |
General and Administrative Expenses | General and Administrative Expenses General and administrative expenses include corporate rent, marketing, office expenses and compensation and benefits costs for regional management, and other regional support staff, executive, finance and accounting, human resources, information technology, administration, business development, legal and other support-function personnel. General and administrative expenses also include fees for professional services, insurance and licenses, as well as acquisition-related costs. |
Depreciation and Amortization | Depreciation and Amortization Depreciation and amortization includes the depreciation and amortization expense of property and equipment, and the amortization expense of leasehold improvements and intangible assets. |
Stock-Based Compensation | Stock-Based Compensation We record stock-based compensation expense accordance with provisions of Compensation - Stock Compensation equity awards made employees based the estimated value such awards grant date. expense recognized over employee’s requisite service period (the vesting period is generally four years). Fair value shares Common Stock estimated using generally accepted valuation methodology (see Note fair value options is calculated using Black-Scholes option-pricing model. Using this option-pricing model, fair value each employee award estimated grant date. fair value expensed straight-line basis over vesting period. expected volatility assumption based volatility share price of comparable public companies. expected life determined using “simplified method” permitted Staff Accounting Bulletin Numbers (the midpoint between agreement the weighted average vesting term). risk-free interest based implied yield U.S. Treasury security constant maturity with remaining term equal expected option granted. dividend yield zero never declared dividend. |
Income Taxes | Income Taxes Income taxes are accounted for under the asset and liability method prescribed by ASC 740 “Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. We measure tax assets and liabilities using the enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences. We recognize the effect of a change in tax rates on deferred tax assets and liabilities in income in the period that includes the enactment date. We provide a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. Our Company follows guidance in ASC 740, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. Therefore, there will only be recognition where a tax position is more likely than not to be sustained upon examination by taxing authorities. We recognize interest and penalties on taxes, if any, related to unrecognized tax benefits as income tax expense. On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Act”) which, among a broad range of tax reform measures, reduced the U.S. corporate tax rate from 35% to a flat 21% effective January 1, 2018. The reduction in the U.S. corporate tax rate required the Company to remeasure the federal portion of deferred tax assets and liabilities at December 31, 2017 to the enacted tax rate expected to apply when the temporary differences are to be realized. The Company provisionally recorded $4.7 million of expense related to the remeasurement of its deferred tax assets and liabilities, which was offset by a full valuation allowance. As of December 2018, the Company completed its accounting for the tax effects of the enactment of the Act which resulted in immaterial adjustments to provisional estimates, offset by a full valuation allowance. See Note 15 to our consolidated financial statements contained herein for more details. |
Net Loss Per Share Attributable to Common Stockholders ("EPS") | Net Loss Per Share Attributable to Common Stockholders (“EPS”) Our Company calculates earnings per share attributable to common stockholders in accordance with ASC Topic 260, “Earning Per Share.” Basic net loss per share attributable to common stockholders is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is calculated by dividing net loss attributable to common stockholders by weighted-average common shares outstanding during the period plus potentially dilutive common shares, such as stock options. Potentially dilutive common shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options are used to repurchase common stock at market value. The number of shares remaining after the proceeds are exhausted represents the potentially dilutive effect of the securities. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have availed ourselves of this exemption from new or revised accounting standards. The effective dates of the recent accounting pronouncements noted below reflect the private company transition date. In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15 Intangibles – Goodwill and Other – Internal – Use Software (Subtopic 350-40). The amendments in this ASU provide guidance on the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This ASU is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. We are evaluating the impact of implementing this update on our consolidated financial statements. In July 2018, the FASB issued ASU 2018-10, Leases (Topic 842), Codification Improvements and ASU 2018-11 Leases (Topic 842), Targeted Improvements, to provide additional guidance for the adoption of Topic 842. ASU 2018-10 clarifies certain provisions and correct unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders' equity. ASU 2018-11 provides an alternative transition method and practical expedient for separating contract components for the adoption of Topic 842. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2018-11, ASU 2018-10, and ASU 2016-02 (collectively, “the new lease standards”) is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Although early adoption is permitted, we anticipate adopting these provisions in the first quarter of 2020. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We had $54.3 million of operating lease obligations as of December 31, 2018, and upon adoption of this standard we will record a ROU asset and lease liability equal to the present value of these leases, which will have a material impact on the consolidated balance sheet. However, the recognition of lease expense in the consolidated statement of operations is not expected to change from the current methodology. In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this ASU provide guidance on accounting for share-based payment transactions for acquiring goods and services from nonemployees. This ASU is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. We are evaluating the impact of implementing this update on our consolidated financial statements. In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SEC Update), which included amendments to SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 118 (“SAB 118”). The pronouncement addresses certain circumstances that may arise for registrants in accounting for the income tax effects of the Act, including when certain income tax effects of the Act are incomplete by the time financial statements are issued. The Company has complied with the amendments related to SAB 118, as discussed further in Note 15, Income Taxes. In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This ASU was effective for fiscal years beginning after December 15, 2017. We adopted this ASU as of January 1, 2018 noting no material impact to the consolidated financial statements. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this ASU provide a robust framework to use in determining when a set of assets and activities is a business. This ASU is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted and the standard should be applied prospectively. We early adopted this ASU as of January 1, 2018 and this standard was applied on all acquisitions during 2018 (See Note 4). In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update provides guidance on classification for cash receipts and payments related to eight specific issues. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are evaluating the impact of implementing this update on our consolidated financial statements. In March 2016, the FASB issued ASU 2016-04, Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products. This update addresses the current and potential future diversity in practice related to the derecognition of a prepaid stored-value product liability. This ASU was effective for fiscal years beginning after December 15, 2017. We adopted this ASU as of January 1, 2018 noting no material impact to the consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU supersedes the revenue recognition requirements in ASU Topic 605, Revenue Recognition, and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Subsequently, the FASB issued several standards related to ASU 2014-09 (collectively, the “New Revenue Standard”), including the most recent ASU, ASU 2017-14, Income Statement - Reporting Comprehensive Income (Topic 220), and Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), which was issued in November 2017. The New Revenue Standard is effective for our Company in fiscal years beginning after December 15, 2018, with early adoption permitted. The standard permits the use of either the retrospective or modified retrospective (cumulative effect) transition method. Our Company primarily generates revenues by selling yoga classes in the form of memberships or class packages. We will use the modified retrospective transition approach and will apply the new revenue standard only to contracts that are not completed at the adoption date and will not adjust prior reporting periods. We will recognize the cumulative effect of initial application of the new revenue standard as an adjustment to the opening balance of Retained Earnings as of January 1, 2019. We do not anticipate a material impact on the Company’s financial statements but we are still evaluating the accounting, transition and disclosure requirements of the new revenue standard. We anticipate that the most significant impact will result from how we recognize revenue on the Company’s loyalty program. The new revenue standard requires us to change our policy to the deferred revenue method and apply a relative selling price approach whereby a portion of revenue attributable to loyalty points earned is deferred and recognized in revenue upon future redemption. The value of the loyalty points earned is materially greater under the deferred revenue method than the value attributed to these points under the incremental cost method. |