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BED BATH & BEYOND, INC. - Quarter Report: 2024 March (Form 10-Q)

Common stock, $ par value, authorized shares -
  
Issued shares - and
  
Outstanding shares - and
  Additional paid-in capital  Accumulated deficit()()Accumulated other comprehensive loss()()
Treasury stock at cost - and
()()Total stockholders' equity  Total liabilities and stockholders' equity$ $ 

See accompanying notes to unaudited consolidated financial statements.
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Beyond, Inc.
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
 
 20242023
Net revenue$ $ 
Cost of goods sold  
Gross profit  
Operating expenses  
Sales and marketing  
Technology  
General and administrative  
Customer service and merchant fees  
Total operating expenses  
Operating loss()()
Interest income, net  
Other expense, net()()
Loss before income taxes()()
Provision (benefit) for income taxes ()
Net loss$()$()
Net loss per share of common stock:  
Basic$()$()
Diluted$()$()
Weighted average shares of common stock outstanding:
Basic  
Diluted  

See accompanying notes to unaudited consolidated financial statements.
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Beyond, Inc.
Consolidated Statements of Comprehensive Loss (Unaudited)
(in thousands)
 
 20242023
Net loss$()$()
Other comprehensive income
Unrealized gain on cash flow hedges, net of expense for taxes of $ and $
  
Other comprehensive income  
Comprehensive loss$()$()

See accompanying notes to unaudited consolidated financial statements.

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Beyond, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(in thousands)

20242023
Equity attributable to stockholders of Beyond, Inc.
Shares of common stock issued
Balance at beginning of period  
Common stock issued upon vesting of restricted stock   
Common stock issued for ESPP purchases  
Balance at end of period  
Shares of treasury stock
Balance at beginning of period  
Tax withholding upon vesting of employee stock awards  
Balance at end of period  
Total shares of common stock outstanding  
Common stock$ $ 
Preferred stock$ $ 
Additional paid-in capital
Balance at beginning of period$ $ 
Stock-based compensation to employees and directors  
Common stock issued for ESPP purchases  
Balance at end of period$ $ 
Accumulated deficit
Balance at beginning of period$()$()
Net loss()()
Balance at end of period$()$()
Accumulated other comprehensive loss
Balance at beginning of period$()$()
Net other comprehensive income  
Balance at end of period$()$()
Treasury stock
Balance at beginning of period$()$()
Tax withholding upon vesting of employee stock awards ()()
Balance at end of period$()$()
Total stockholders' equity$ $ 
()$()      ()  ))    ) )) )))()   )() )()  ))   $ 

See accompanying notes to unaudited consolidated financial statements.

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Beyond, Inc.
Notes to Unaudited Consolidated Financial Statements
 





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 $()$ Gross profit   Customer service and merchant fees   



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 $ $ $ Equity securities, at fair value    Available-for-sale debt securities (1)    Trading securities held in a "rabbi trust" (1)    Total assets$ $ $ $ Liabilities:    Deferred compensation accrual "rabbi trust" (2)$ $ $ $ Total liabilities$ $ $ $  
 
Fair Value Measurements at December 31, 2023
 TotalLevel 1Level 2Level 3
Assets:    
Cash equivalents—Money market funds$ $ $ $ 
Equity securities, at fair value    
Available-for-sale debt securities (1)    
Trading securities held in a "rabbi trust" (1)    
Total assets$ $ $ $ 
Liabilities:    
Deferred compensation accrual "rabbi trust" (2)$ $ $ $ 
Total liabilities$ $ $ $ 
___________________________________________
(1)    Included in Prepaids and other current assets and Other long-term assets, net in the consolidated balance sheets.
(2)     Included in Accrued liabilities in the consolidated balance sheets.

 Increase due to purchases of Level 3 investments Decrease in fair value of Level 3 investments()Accrued interest on Level 3 investments 
Level 3 investments at December 31, 2023
 Decrease in fair value of Level 3 investments()Accrued interest on Level 3 investments 
Level 3 investments at March 31, 2024
$ 

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 $ Furniture and equipment  Leasehold improvements    Less: accumulated depreciation()()Total property and equipment, net$ $ 

 $ Depreciation of internal-use software and website development  

 $ Technology  General and administrative  Total depreciation$ $ 

million which has been allocated to two major asset categories consisting of $ million, for trade names with an indefinite useful life and $ for customer lists with an estimated useful life of .

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 $ Less: accumulated amortization of intangible assets()()Intangible assets subject to amortization, net  Intangible assets not subject to amortization  Total intangible assets, net$ $ ___________________________________________
(1)    At March 31, 2024, the weighted average remaining useful life for intangible assets subject to amortization, gross was years.

 $ Equity securities accounted for under the equity method under the fair value option  Total equity securities$ $ 

Our equity securities accounted for under the equity method under ASC 323 include equity securities in which we can exercise significant influence, but not control, over these entities through holding more than a 20% voting interest in the entity.

%tZERO Group, Inc.%SpeedRoute, LLC%

The carrying amount of our equity method securities was $ million at March 31, 2024, which is included in Equity securities on our consolidated balance sheets, of which $ million was valued under the fair value option (tZERO and SpeedRoute). For our investments in Medici Ventures, L.P., tZERO, and SpeedRoute there was no difference in the carrying amount of the assets and liabilities and our maximum exposure to loss, and there was no difference between the carrying amount of our investment in Medici Ventures, L.P., and the amount of underlying equity we have in the entity's net assets.

)$()Decrease in fair value of equity method securities held under fair value option() 

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million Senior Note, carrying interest at an annual rate of %, and a $ million Mezzanine Note, carrying interest at an annual rate of %. The loans carry a blended annual interest rate of %. The Senior Note is for a -year term (stated maturity date is March 6, 2030) and requires interest only payments, with the principal amount and any then unpaid interest due and payable at the end of the -year term. The Mezzanine Note has a stated -year term, though the agreement requires principal and interest payments monthly over approximately a -month payment period. Our debt issuance costs and debt discount are amortized using the straight-line basis which approximates the effective interest method.

In January 2024, we repaid the entire outstanding balance under the Mezzanine Note. As of March 31, 2024, the total outstanding debt on the Senior Note was $ million, net of $ in capitalized debt issuance costs. Our total outstanding debt on the Senior Note is classified as held-for-sale and included in Long-term debt, net held for sale on our consolidated balance sheets. See Note 4—Assets Held for Sale for further information.

million and minimum liquid assets of $ million for the remainder of the term that the Senior Note is outstanding. We are in compliance with our debt covenants and continue to monitor our ongoing compliance with our debt covenants.

to , some of which may include options to extend the leases perpetually, and some of which may include options to terminate the leases within one year. Variable lease costs include executory costs, such as taxes, insurance, and maintenance.

 $ Variable lease cost  
    
$

years yearsWeighted-average discount rate—operating leases % %

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 2025 2026 2027 Total lease payments  Less interest Present value of lease liabilities$  

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vote. The holders of common stock are also entitled to receive dividends declared by the Board of Directors out of funds legally available, subject to prior rights of holders of all classes of stock outstanding having priority rights as to dividends.

Stock Repurchase Program

During the three months ended March 31, 2024 and 2023, we did repurchase any shares of our common stock under our stock repurchase program. As of March 31, 2024, we had $ million available for future share repurchases under our current repurchase authorization through December 31, 2025.

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 $ Sales and marketing  Technology  General and administrative  Total stock-based compensation$ $ 

Beyond restricted stock unit awards

The Beyond, Inc. Amended and Restated 2005 Equity Incentive Plan provides for the grant of restricted stock units and other types of equity awards to employees and directors of the Company. The Compensation Committee of the Board of Directors approves grants of restricted stock unit awards to our officers, board members and employees. These restricted stock unit awards generally vest over three years at % at the end of the first year, % at the end of the second year and % at the end of the third year, subject to the recipient's continuing service to us. During the first quarter of fiscal 2024, we changed our vesting schedule for newly granted restricted stock units from to . These restricted stock unit awards will vest at % each year. For the quarter ended March 31, 2024, we granted restricted stock awards with a cumulative grant date fair value of $ million under the new vesting schedule.

The cost of restricted stock units is determined using the fair value of our common stock on the date of the grant and compensation expense is either recognized on a straight-line basis over the vesting schedule or on an accelerated schedule when vesting of restricted stock awards exceeds a straight-line basis. The cumulative amount of compensation expense recognized at any point in time is at least equal to the portion of the grant date fair value of the award that is vested at that date. 

Performance Shares

During the three months ended March 31, 2024, we granted performance-based shares ("PSUs") to our executive management team. A portion of each grant of PSUs (%) is eligible to vest based on our net revenue performance and the remaining portion (%) is eligible to vest based on our stock price performance. The 2024 PSUs tied to stock price performance will be eligible to vest in three installments upon the achievement of three separate stock price hurdles during the three-year period following the grant date, with % of the PSUs earned if the average per-share closing price of our common stock over any 20 consecutive trading day period equals or exceeds $ per share (but in no event prior to the first anniversary of the grant date), % of the PSUs earned if the average per-share closing price of our common stock over any 20 consecutive trading day period equals or exceeds $ per share (but in no event prior to the second anniversary of the grant date), and % of the PSUs earned if the average per share closing price of our common stock over any 20 consecutive trading day period equals or exceeds $ per share (but in no event prior to the third anniversary of the grant date), in each case subject to the recipient’s continued service through the vesting date. If a stock price hurdle is not achieved during the three years following the grant date, the portion of the award tied to such stock price hurdle will be forfeited.

The 2024 PSUs tied to net revenue performance will vest based on our net revenue over three years, with one-third of the PSUs eligible to vest on each of the first, second, and third anniversaries of the grant date, subject to the recipient’s continued service through the vesting date. To be eligible to vest in any tranche of the PSUs tied to net revenue performance, we must meet the GAAP net revenue goal established for the applicable year.

For the portion of the 2024 PSU grant that vests based on our net revenue performance, we recognize expense as compensation cost, the fair value on the date of grant over the performance period, taking into account the probability that we will satisfy the performance goals. For the portion of the 2024 PSUs that vest based on stock price hurdles, which is a market condition, we use a Monte Carlo valuation model to estimate the fair value as of the date of grant and expense compensation cost over the vesting period regardless of whether the market condition is ultimately satisfied.

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million for the three months ended March 31, 2024.

 $ Granted at fair value  Vested() Forfeited() Outstanding—end of period $ 

Employee Stock Purchase Plan

 Purchases under the 2021 Employee Stock Purchase Plan (the "ESPP") during the three months ended March 31, 2024 and 2023 were shares and shares, respectively, at an average purchase price per share of $ and $, respectively. At March 31, 2024, approximately million shares of common stock remained available under the ESPP.

Stock-based compensation related to the ESPP is included in the stock-based compensation expense table above combined with the expense associated with our restricted stock units and PSU. Stock-based compensation related to the ESPP was $ and $ for the three months ended March 31, 2024 and 2023, respectively.

 Increase due to deferral of revenue at period end, net Decrease due to beginning contract liabilities recognized as revenue()Unearned revenue at December 31, 2023 Increase due to deferral of revenue at period end, net Decrease due to beginning contract liabilities recognized as revenue()Unearned revenue at March 31, 2024$ 

Our total unearned revenue related to outstanding loyalty program rewards was $ million and $ million at March 31, 2024 and December 31, 2023, respectively. Breakage income related to loyalty program rewards and gift cards is recognized in Net revenue in our consolidated statements of operations. Breakage included in revenue was $ million and $ for the three months ended March 31, 2024 and 2023, respectively. The timing of revenue recognition of these reward dollars is driven by actual customer activities, such as redemptions and expirations. At March 31, 2024, we had an additional $ million of unearned contract revenue classified within Other long-term liabilities on our consolidated balance sheets.

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 Additions to the allowance Deductions from the allowance()Allowance for returns at December 31, 2023 Additions to the allowance Deductions from the allowance()Allowance for returns at March 31, 2024$ 

)$()Denominator:Weighted average shares of common stock outstanding—basic  Weighted average shares of common stock outstanding—diluted  Net loss per share of common stock:Basic$()$()Diluted$()$()
 
  Employee stock purchase plan  

million in cash plus the assumption of certain liabilities. On April 18, 2024, we closed the transaction and received the $ million cash proceeds. We will recognize the entire $ million as a gain in the second quarter of 2024.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information that we believe to be relevant to an understanding of our unaudited consolidated financial condition and results of operations. The statements in this section regarding industry outlook, our expectations regarding the performance of our business and any other non-historical statements are forward-looking statements. Our actual results and outcomes may differ materially from those contained in or implied by any forward-looking statements contained herein. These forward-looking statements are subject to numerous risks, uncertainties, and other important factors, including, but not limited to, those described in "Special Cautionary Note Regarding Forward Looking Statements" and in Part II, Item 1A, "Risk Factors" included in this Quarterly Report on Form 10-Q. You should read the following discussion together with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and with the sections entitled "Special Cautionary Note Regarding Forward-Looking Statements," Part I, Item 1A, "Risk Factors," and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 23, 2024.

We are an e-commerce retailer with a singular focus: connecting consumers with products and services that unlock their homes' potential. We own Bed Bath & Beyond, Overstock, Zulily, and other related brands and associated intellectual property. Our suite of online shopping brands features millions of products for various life stages that millions of customers visit each month. As used herein, "Beyond," "the Company," "we," "our" and similar terms include Beyond, Inc. and our controlled subsidiaries, unless the context indicates otherwise.

Overview

Beyond is dedicated to providing a wide assortment of products and services focused on, but not limited to, the home category.

Through our Bed Bath & Beyond brand, we provide an extensive array of home-related products tailored especially for our target customers—consumers who seek comprehensive support throughout their shopping journey, aspiring to discover quality, stylish products at competitive prices that align with their budget requirements. We regularly refresh our product assortment to reflect the evolving preferences of our customers and aim to stay aligned with current trends. Our range of products includes furniture, bedding and bath essentials, patio and outdoor gear, area rugs, tabletop and cookware, décor, storage and organization solutions, small appliances, home improvement items, jewelry, and more. Leveraging an asset-light supply chain, we offer direct shipping to customers from both our suppliers and our leased warehouse.

Bed Bath & Beyond strategic priorities include assortment curation to elevate product quality levels and improve ease of selection, as well as the creation of specialized experiences centered around our target customers' key life events such as getting married, having a baby, sending a child to college or hosting Thanksgiving for the first time.

Through our Overstock brand, we aim to provide special economic value to our customers by providing access to discounted prices as compared to manufacturers' suggested retail price on our high-quality merchandise. We aim to provide a treasure hunting experience for our target customer who is highly engaged in finding great deals. We regularly refresh our top deals and our product range includes the home, apparel, and jewelry categories. Our growth initiatives for Overstock include adding additional categories such as beauty.

Across both brands, we leverage our Beyond+ services platform where our customers can add services such as shipping insurance or gain access to home loans.
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Executive Commentary
 
This executive commentary is intended to provide investors with a view of our business through the eyes of our management. As an executive commentary, it necessarily focuses on selected aspects of our business. This executive commentary is intended as a supplement to, but not a substitute for, the more detailed discussion of our business included elsewhere herein. Investors are cautioned to read our entire "Management's Discussion and Analysis of Financial Condition and Results of Operations," our interim and audited financial statements, and the discussion of our business and risk factors and other information included elsewhere or incorporated in this report. This executive commentary includes forward-looking statements, and investors are cautioned to read "Special Cautionary Note Regarding Forward-Looking Statements."

Revenue increased 0.3% for the three months ended March 31, 2024, compared to the same period in 2023. This increase was primarily due to a 27% increase in orders delivered. The increase was partially offset by a 21% decrease in average order value. The increase in orders delivered was driven by growth in active customers, partially offset by macroeconomic factors impacting consumer sentiment and a shift in consumer spending preferences. The decrease in average order value was largely driven by orders mixing into categories with lower average unit retail price.

Gross profit decreased 26.9% for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to a decrease in gross margin. Gross margin decreased to 19.5% for the three months ended March 31, 2024, compared to 26.7% for the same period in 2023, primarily due to increased promotional discounting and carrier costs.

Sales and marketing expenses as a percentage of revenue increased from 12.3% for the three months ended March 31, 2023 to 17.8% for the three months ended March 31, 2024, primarily due to increased performance marketing expense and increased brand advertising.

Technology expenses totaled $29.6 million for the three months ended March 31, 2024, a $1.0 million decrease compared to the three months ended March 31, 2023, primarily due to a reduction in staff-related expenses.

General and administrative expenses decreased $29,000 for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Customer service and merchant fees increased $2.0 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to an increase in outsourced labor due to increased order volume and increased credit card costs driven by a shift in payment mix.

Our consolidated cash and cash equivalents balance decreased from $302.6 million as of December 31, 2023, to $256.3 million as of March 31, 2024.

Additional commentary related to macroeconomic trends

We continue to monitor recent macroeconomic trends, including, but not limited to, geopolitical events, fluctuating interest rates, and inflation. These events have and may continue to negatively impact consumer confidence and consumer spending which have and may continue to adversely affect our business and our results of operations. Due to the uncertain and constantly evolving nature and volatility created by these disruptions to global economic activities, we cannot currently predict the long-term impact of these events on our operations and financial results. As of March 31, 2024, the challenges arising from these events have not adversely affected our liquidity or capacity to service our debt, nor have these conditions required us to reduce our capital expenditures.

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Results of Operations
 
Comparisons of Three Months Ended March 31, 2024 to Three Months Ended March 31, 2023

Net revenue, cost of goods sold, gross profit and gross margin

The following table summarizes our net revenue, cost of goods sold, and gross profit (in thousands):
20242023
Net revenue$382,281 $381,140 
Cost of goods sold (1)
Product costs and other cost of goods sold307,922 279,456 
Gross profit (1)
$74,359 $101,684 
Year-over-year percentage change
Net revenue0.3 %
Gross profit (1)
(26.9)%
Percent of net revenue
Cost of goods sold (1)
Product costs and other cost of goods sold80.5 %73.3 %
Gross margin19.5 %26.7 %
___________________________________________
(1)    In the first quarter of fiscal 2024, we changed our presentation for merchant fees associated with customer payments made by credit cards and other payment methods and customer service costs. Under the new presentation, we include such expenses in a separate line in operating expenses labeled, "Customer service and merchant fees," whereas previously, these expenses were included in "Merchant fees, customer service, and other" as a component of Cost of goods sold. See Note 2—Summary of Significant Accounting Policies, in the Notes to Unaudited Consolidated Financial Statements included in Item 1, Part I, Financial Statements (Unaudited) of this Quarterly Report on Form 10-Q.

The 0.3% increase in net revenue for the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to a 27% increase in orders delivered. The increase was partially offset by a 21% decrease in average order value. The increase in orders delivered was driven by growth in active customers, partially offset by macroeconomic factors impacting consumer sentiment and a shift in consumer spending preferences. The decrease in average order value was largely driven by orders mixing into categories with lower average unit retail price.

International net revenues were less than 7% of total net revenues for each of the three months ended March 31, 2024 and 2023.

Change in estimate of average transit times (days)
 
Our revenue related to merchandise sales is recognized upon delivery to our customers. As we ship high volumes of packages through multiple carriers, it is not practical for us to track the actual delivery date of each shipment. Therefore, we use estimates to determine which shipments are delivered and, therefore, recognized as revenue at the end of the period. Our delivery date estimates are based on average shipping transit times. We review and update our estimates on a quarterly basis based on our actual transit time experience. However, actual shipping times may differ from our estimates, which can be further impacted by uncertainty, volatility, and any disruption to our carriers caused by certain macroeconomic conditions, such as supply chain challenges, inflation, rising interest rates, climate and weather events, or geopolitical events.
 
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The following table shows the effect that hypothetical changes in the estimate of average shipping transit times would have had on the reported amount of revenue and income before income taxes (in thousands):
 Three months ended
March 31, 2024
Change in the Estimate of Average Transit Times (Days)Increase (Decrease)
Revenue		Increase (Decrease)
 Income Before Income Taxes
2$(13,958)$(1,566)
1$(5,525)$(612)
As reported As reportedAs reported
-1$4,566 $490 
-2$9,382 $875 

Gross profit and gross margin

Our overall gross margins fluctuate based on factors such as competitive pricing; product costs; discounting; product mix of sales; advertising revenue and our marketing allowance program; and operational and fulfillment costs which include costs incurred to operate and staff our warehouses, including rent and depreciation expense associated with these facilities, costs to receive, inspect, pick, and prepare customer order for delivery, and direct and indirect labor costs including payroll, payroll-related benefits, and stock-based compensation, all of which we include as costs in calculating gross margin.
    
Gross margins for the past five quarterly periods and fiscal year ending 2023 were:
 Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024
Gross margin26.7 %25.5 %22.2 %19.2 %23.4 %19.5 %

Gross profit for the three months ended March 31, 2024 decreased 26.9% compared to the same period in 2023, primarily due to a decrease in gross margin. Gross margin decreased to 19.5% for the three months ended March 31, 2024, compared to 26.7% for the same period in 2023, primarily due to increased promotional discounting and carrier costs.

Operating expenses

Sales and marketing expenses

We use a variety of online advertising channels to attract new and repeat customers, including search engine marketing, personalized emails, mobile app, loyalty program, affiliate marketing, display banners, and social media. We also build our brand awareness through linear and streaming TV advertising.

Costs associated with our discounted shipping and other promotions, such as coupons, are not included in sales and marketing expenses. Rather, they are accounted for as a reduction in revenue as they reduce the amount of consideration we expect to receive in exchange for goods or services and therefore affect net revenues and gross margin. We consider these promotions to be an effective marketing tool.

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The following table summarizes our sales and marketing expenses (in thousands):
 20242023
Sales and marketing expenses$67,906 $47,048 
Advertising expense included in sales and marketing expenses64,960 44,806 
Year-over-year percentage change
Sales and marketing expenses44.3 %
Advertising expense included in sales and marketing expenses45.0 %
Percent of net revenue
Sales and marketing expenses17.8 %12.3 %
Advertising expense included in sales and marketing expenses17.0 %11.8 %
 
The 550 basis point increase in sales and marketing expenses as a percent of net revenue for the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to increased performance marketing expense and increased brand advertising.

Technology expenses
 
We seek to deploy our capital resources efficiently in technology to support operations, including private and public cloud, web services, customer support solutions, and product search. We aim to enhance the customer experience by investing in technology, including investing in machine learning algorithms and generative AI, improving our process automation and efficiency, modernizing and expanding our systems, and supporting and expanding our logistics infrastructure. We expect to continue to incur technology expenses to support these efforts and these expenditures may continue to be material.

The frequency and variety of cyberattacks on our websites, enterprise systems, services, and on third parties we use to support our technology continues to increase. The impact of such attacks, their costs, and the costs we incur to protect ourselves against future attacks, have not been material to date. However, we consider the risk introduced by cyberattacks to be serious and will continue to incur costs related to efforts to protect ourselves against them.

The following table summarizes our technology expenses (in thousands):
 Three months ended
March 31,
 20242023
Technology expenses$29,581 $30,546 
Year-over-year percentage change
Technology expenses(3.2)%
Technology expenses as a percent of net revenue7.7 %8.0 %

The $1.0 million decrease in technology expenses for the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to a reduction in staff-related expenses.

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General and administrative expenses
 
The following table summarizes our general and administrative expenses (in thousands):
 20242023
General and administrative expenses$20,454 $20,483 
Year-over-year percentage change
General and administrative expenses(0.1)%
General and administrative expenses as a percent of net revenue5.4 %5.4 %

General and administrative expenses totaled $20.5 million for the three months ended March 31, 2024, a $29,000 decrease compared to the same period in 2023.

Customer service and merchant fees

In the first quarter of fiscal 2024, we changed our presentation for merchant fees associated with customer payments made by credit cards and other payment methods and customer service costs. Under the new presentation, we include such expenses in a separate line in operating expenses labeled, "Customer service and merchant fees," whereas previously, these expenses were included in Cost of goods sold. See Note 2—Summary of Significant Accounting Policies, in the Notes to Unaudited Consolidated Financial Statements included in Item 1, Part I, Financial Statements (Unaudited) of this Quarterly Report on Form 10-Q.

Customer service and merchant fees include customer service costs and merchant processing fees associated with customer payments made by credit cards and other payment methods and other variable fees. Customer service and merchant fees as a percent of net revenue may vary due to several factors, such as our ability to effectively manage customer service costs and merchant fees.

The following table summarizes our customer service and merchant fees (in thousands):
 Three months ended
March 31,
 20242023
Customer service and merchant fees$13,943 $11,971 
Year-over-year percentage change
Customer service and merchant fees16.5 %
Customer service and merchant fees as a percent of net revenue3.6 %3.1 %

The $2.0 million increase in customer service and merchant fees for the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to an increase in outsourced labor due to increased order volume and increased credit card costs driven by a shift in payment mix.

Other expense, net

Other expense, net for the three months ended March 31, 2024 was $18.8 million as compared to $7.4 million for the three months ended March 31, 2023. The increase was primarily due to a $11.3 million increase in loss recognized from our equity method securities.

Income taxes

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, for relevant interim periods. We update our estimate of the annual effective tax rate each quarter and make cumulative adjustments if our estimated annual effective tax rate changes.

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Our quarterly tax provision and our quarterly estimate of our annual effective tax rate are subject to significant variations due to several factors including: variability in predicting our pre-tax and taxable income, the mix of jurisdictions to which those items relate, relative changes in expenses or losses for which tax benefits are limited or not recognized, how we do business, fluctuations in our stock price, economic outlook, political climate, and other conditions such as supply chain challenges, inflation, rising interest rates, and geopolitical events. In addition, changes in laws, regulations, and administrative practices will impact our rate. Our effective tax rate can be volatile based on the amount of pre-tax income. For example, the impact of discrete items on our effective tax rate is greater when pre-tax income is lower.

Our provision (benefit) for income tax for the three months ended March 31, 2024 and 2023 was $329,000 and $(2.9) million, respectively. The effective tax rate for the three months ended March 31, 2024 and 2023 was (0.4)% and 21.9%, respectively. Our tax provision and rate changed during the three months ended March 31, 2024 as compared to the same period in 2023, and differs from the statutory federal income tax rate of 21% primarily due to year-to-date losses on our retail operations for which tax benefits are limited.

Each quarter we assess on a jurisdictional basis whether it is more likely than not that our deferred tax assets will be realized under ASC Topic 740. We have no carryback ability, and therefore we must rely on future taxable income, including tax planning strategies and future reversals of taxable temporary differences, to recover our deferred tax assets. We assess available positive and negative evidence to estimate whether we will generate sufficient future taxable income to use our existing deferred tax assets. A significant piece of objective negative evidence evaluated as of March 31, 2024, is the cumulative loss position over a three-year period generated by our U.S. retail operations. On the basis of this evaluation, we maintain a valuation allowance against our deferred tax assets for the U.S. jurisdiction, not supported by reversals of taxable temporary differences. We intend to continue maintaining a valuation allowance on our net U.S. deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. The amount of the deferred tax asset considered realizable could be adjusted if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth. We will continue to monitor the need for a valuation allowance against our deferred tax assets on a quarterly basis.

The OECD has issued Pillar Two model rules introducing a new global minimum tax of 15% intended to be effective on January 1, 2024. While the U.S. has not yet adopted the Pillar Two rules, various other governments around the world have enacted such legislation. As currently designed, we expect Pillar Two will ultimately apply to us. Considering we do not currently have material operations in jurisdictions with tax rates lower than the Pillar Two minimum, we do not expect these to materially increase our global tax costs based on how we currently do business. There remains uncertainty as to the final Pillar Two model rules and their application. We will continue to monitor U.S. and global legislative action related to Pillar Two for potential impacts.

As we repatriate foreign earnings for use in the United States, the distributions are generally exempt from federal and foreign income taxes but may be subject to certain state taxes. As of March 31, 2024, the cumulative amount of foreign earnings considered permanently reinvested upon which taxes have not been provided, and the corresponding unrecognized deferred tax liability, was not material.

We are subject to taxation in the United States and multiple state and foreign jurisdictions. Tax years beginning in 2019 are subject to examination by taxing authorities, although net operating loss and credit carryforwards from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used.
 
Liquidity and Capital Resources

Overview

We believe that our cash and cash equivalents currently on hand and expected cash flows from future operations will be sufficient to continue operations for at least the next twelve months. We continue to monitor, evaluate, and manage our operating plans, forecasts, and liquidity considering the most recent developments driven by macroeconomic conditions, such as supply chain challenges, inflation, rising interest rates, and geopolitical events. We proactively seek opportunities to improve the efficiency of our operations and have in the past and may in the future take steps to realize internal cost savings, including aligning our staffing needs, creating a more variable cost structure to better support our current and expected future levels of operations and process streamlining.

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We periodically evaluate opportunities to repurchase our equity securities, obtain credit facilities, or issue additional debt or equity securities, which may impact our future operations and liquidity. In addition, we may, from time to time, consider the investment in, or acquisition of, complementary businesses, products, services, or technologies to expand our business, any of which might affect our liquidity requirements or cause us to issue additional debt or equity securities that would be dilutive to shareholders.

Current sources of liquidity
 
Our principal sources of liquidity are existing cash and cash equivalents and accounts receivable, net. At March 31, 2024, we had $256.3 million of cash and cash equivalents and $23.1 million of accounts receivable, net.

Cash flow information is as follows (in thousands):
 Three months ended
March 31,
 20242023
Cash (used in) provided by:  
Operating activities$(34,610)$20,007 
Investing activities(9,126)(14,831)
Financing activities(2,519)(1,705)

Operating activities
 
Cash received from customers generally corresponds to our net revenues as our customers primarily use credit cards to buy from us, causing our receivables from these sales transactions to settle quickly. We have payment terms with our partners that generally extend beyond the amount of time necessary to collect proceeds from our customers.

The $34.6 million of net cash used in operating activities during the three months ended March 31, 2024 was primarily due to loss from operating activities adjusted for non-cash items of $46.0 million offset by cash provided by changes in operating assets and liabilities of $11.4 million.

The $20.0 million of net cash provided by operating activities during the three months ended March 31, 2023 was primarily due to income from operating activities adjusted for non-cash items of $6.4 million and cash provided by changes in operating assets and liabilities of $13.6 million.

Investing activities
 
For the three months ended March 31, 2024, investing activities resulted in a net cash outflow of $9.1 million, primarily due to $5.7 million for purchases of intangible assets and $3.4 million of expenditures for property and equipment.

For the three months ended March 31, 2023, investing activities resulted in a net cash outflow of $14.8 million, primarily due to $10.0 million for disbursement of notes receivable and $5.3 million of expenditures for property and equipment.

Financing activities

For the three months ended March 31, 2024, financing activities resulted in a net cash outflow of $2.5 million, primarily due to $3.2 million for payment of taxes withheld upon vesting of employee stock awards.
    
For the three months ended March 31, 2023, financing activities resulted in a net cash outflow of $1.7 million, primarily due to $1.9 million for payment of taxes withheld upon vesting of employee stock awards.    

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Contractual Obligations and Commitments
 
The following table summarizes our contractual obligations as of March 31, 2024 and the effect such obligations and commitments are expected to have on our liquidity and cash flow in future periods (in thousands):
Contractual ObligationsTotalLess than
1 year		1-3
years		3-5
years		More than 5 years
Operating leases (1)$3,197 $2,538 $638 $21 $— 
Loan agreements (2)43,407 1,483 2,968 2,972 35,984 
Total contractual cash obligations$46,604 $4,021 $3,606 $2,993 $35,984 
 __________________________________________
(1)    Represents the future minimum lease payments under non-cancellable operating leases. For information regarding our operating lease obligations, see Note 9—Leases, in the Notes to Unaudited Consolidated Financial Statements included in Item 1, Part I, Financial Statements (Unaudited) of this Quarterly Report on Form 10-Q.
(2)    Represents future interest and principal payments on the financing agreements with Loan Core Capital Funding Corporation LLC. For information regarding our financing agreements, see Note 8—Borrowings, in the Notes to Unaudited Consolidated Financial Statements included in Item 1, Part I, Financial Statements (Unaudited) of this Quarterly Report on Form 10-Q.

Tax contingencies

We are involved in various tax matters, the outcomes of which are uncertain. As of March 31, 2024, accrued tax contingencies were $3.7 million. Changes in federal, foreign, state, and local tax laws may increase our tax contingencies. The timing of the resolution of income tax contingencies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax authorities. These assessments may or may not result in changes to our contingencies related to positions on prior years' tax filings.

Critical Accounting Policies and Estimates
 
The preparation of our financial statements requires that we make estimates and judgments. We base these on historical experience and on other assumptions that we believe to be reasonable. Except as disclosed in Note 2—Summary of Significant Accounting Policies, in the Notes to Unaudited Consolidated Financial Statements included in Item 1, Part I, Financial Statements (Unaudited) of this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in Critical Accounting Policies and Estimates, included in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note 2—Accounting Policies and Supplemental Disclosures, included in Part II, Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the year ended December 31, 2023.

Government Regulation

We are subject to a wide variety of laws, rules, mandates, and regulations, some of which apply or may apply to us as a result of our retail business, and others of which apply to us for other reasons, such as our status as a publicly held company or the places in which we sell certain types or amounts of products. Our retail business is subject to general business regulations and laws, regulations and laws specifically governing the internet, e-commerce, and other services we offer. Existing and future laws and regulations may result in increasing expense and may impede our growth. Applicable and potentially applicable regulations and laws include regulations and laws regarding taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, electronic device certification, electronic waste, energy consumption, environmental regulation, electronic contracts and other communications, competition, consumer protection, employment, import and export matters, information reporting requirements, access to our services and facilities, the design and operation of websites, health, safety, and sanitation standards, the characteristics and quality of products and services, product labeling and unfair and deceptive trade practices.

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Our efforts to expand our retail business outside of the U.S. expose us to foreign and additional U.S. laws and regulations, including but not limited to, laws and regulations relating to taxation, business licensing or certification requirements, advertising practices, online services, the importation of specified or proscribed items, importation quotas, consumer protection, environmental protection, intellectual property rights, consumer and data protection, privacy, encryption, restrictions on pricing or discounts, and the U.S. Foreign Corrupt Practices Act and other applicable U.S. and foreign laws prohibiting corrupt payments to government officials and other third parties.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are exposed to market risk from interest rate changes, foreign currency fluctuations, and changes in the market values of our securities. Information relating to quantitative and qualitative disclosures about these market risks is set forth below.

Interest Rate Sensitivity

The fair value of our cash and cash equivalents (highly liquid instruments with a remaining maturity of 90 days or less at the date of purchase) would not be significantly affected by either an increase or decrease in interest rates due mainly to the short-term nature of these instruments.

Our Senior Note carries a fixed annual interest rate of 4.242%. As a result, we have no material direct financial statement risk associated with changes in interest rates.

Foreign Currency Risk

Most of our sales and operating expenses are denominated in U.S. dollars, and therefore, our net revenue and operating expenses are not currently subject to significant foreign currency risk. As we grow our operations, our exposure to foreign currency risk could become more significant.

Inflation

Increases in commodity and shipping prices and energy and labor costs have resulted in inflationary pressures across various parts of our business and operations, including our partners and supply chain. We continue to monitor the impact of inflation to minimize its effects on our customers. We work with our partners to limit the amount of cost increases that are passed on through higher pricing. If costs borne by the Company or our partners were to be subject to incremental inflationary pressures, we may not be able to fully offset such higher costs through pricing actions or other cost efficiency measures. Our inability or failure to do so could harm our business, financial condition, and results of operations. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our historical results of operations and financial condition have been immaterial. We cannot assure you, however, that our results of operations and financial condition will not be materially impacted by inflation in the future.

Investment Risk

The fair values of our equity and debt securities may be subject to fluctuations due to volatility of the stock market in general, investment-specific circumstances, and changes in general economic conditions. At March 31, 2024, our recorded value in equity securities of private companies was $137.4 million. At March 31, 2024, $32.3 million of our equity securities and $10.6 million of our debt securities are of private companies, recorded at fair value using Level 3 inputs. Our fair value assessment of private companies includes a review of recent operating results and trends, recent sales/acquisitions of the securities, and other publicly available data. Valuations of private companies are inherently more complex due to the lack of readily available market data. As such, we believe that providing a sensitivity analysis is not practicable. These investments valued using Level 3 inputs represent 17.7% of assets measured at fair value. See Note 3—Fair Value Measurement for further information. For our equity interest in Medici Ventures, L.P., we record our proportionate share of the entity's reported net income or loss, which reflects the fair value changes of the underlying investments of the entity and any other income or losses of the entity.



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ITEM 4. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures

We carried out an evaluation of the effectiveness of our disclosure controls and procedures as required by Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") under the supervision and with the participation of our principal executive officers and principal financial officer, as of the end of the period covered by this report. Based on this evaluation, our principal executive officers and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Limitations on Disclosure Controls and Procedures
    
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
From time to time, we are involved in, or become subject to litigation or other legal proceedings concerning consumer protection, employment, privacy, intellectual property, claims under the securities laws, and other commercial matters related to the conduct and operation of our business and the sale of products on our Website. We also prosecute lawsuits to enforce our legal rights. In connection with such litigation or other legal proceedings, we have been in the past and we may be in the future subject to significant damages, associated costs, or equitable remedies relating to the operation of our business. Such litigation could be costly and time consuming and could divert or distract our management and key personnel from our business operations. Due to the uncertainty of litigation and depending on the amount and the timing, an unfavorable resolution of some or all of such matters could materially affect our business, results of operations, financial position, or cash flows. For additional details, see the information set forth under Item I of Part I, Financial Statements (Unaudited)—Note 10—Commitments and Contingencies, subheading Legal Proceedings and Contingencies, contained in the Notes to Unaudited Consolidated Financial Statements of this Quarterly Report on Form 10-Q, which is incorporated by reference in answer to this Item.
 
ITEM 1A. RISK FACTORS

There are no material changes from the risk factors previously disclosed in Part I, Item 1A, "Risk Factors," of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 23, 2024.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
Recent Purchases of Equity Securities

See Note 12—Stockholders' Equity, in the Notes to Unaudited Consolidated Financial Statements included in Item 1, Part I, Financial Statements (Unaudited) of this Quarterly Report on Form 10-Q for information regarding our authorized share repurchase program. There were no repurchases made during the three months ended March 31, 2024. As of March 31, 2024, the approximate dollar value of shares that may yet be purchased under the stock repurchase program is $69.9 million.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4. MINE SAFETY DISCLOSURES
 
Not applicable.
 
ITEM 5. OTHER INFORMATION
 
(a) Disclosure in lieu of reporting on a Current Report on Form 8-K.

None.

(b) Material changes to the procedures by which security holders may recommend nominees to the board of directors

None.

(c) Insider trading arrangements and policies.

, , a of the Company, a "Rule 10b5-1 trading arrangement" as defined in Item 408(a) of Regulation S-K intended to satisfy Rule 10b5-1(c) to sell up to shares of our common stock between May 22, 2024 and May 23, 2024, subject to the terms and conditions of such arrangement.

Other than as disclosed above, during the three months ended March 31, 2024, no director or officer of the Company or a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
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ITEM 6. EXHIBITS

(a)Exhibit NumberExhibit Description
2.1***
3.1
3.2
3.3
10.1*
10.2*
10.3*
10.4*
18.1*
31.1*
31.2*
31.3*
32.1**
32.2**
32.3**
101
Attached as Exhibit 101 to this report are the following documents formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Stockholders' Equity, and (vi) Notes to Consolidated Financial Statements.
104
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL (included as Exhibit 101).
______________________________________
* Filed herewith.
** Furnished herewith.
*** Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Reporting
Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

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SIGNATURE
 
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.
 
Date:May 8, 2024BEYOND, INC.
  
 /s/ ADRIANNE B. LEE
 Adrianne B. Lee
 Chief Financial & Administrative Officer
(Principal Financial Officer and Principal Accounting Officer)

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