Boxed (BOXDQ) 10-Q2022 Q1 Quarterly report

This Quarterly Report on Form 10-Q (this “Quarterly Report”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that express Boxed, Inc.’s (the “Company,” “we,” “us,” “our,” “Boxed,” or "New Boxed") opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They may appear in a number of places throughout this Quarterly Report, including Part II, Item 1A, “Risk Factors,” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our future results of operations, financial condition and liquidity.

These forward-looking statements are based on information available as of the date of this Quarterly Report and current expectations, forecasts and assumptions, which involve a number of judgments, risks and uncertainties, including without limitation, risks related to:

The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed under Part 1, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as updated in our subsequent filings with the SEC, and in Part II, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in Quarterly Report . The forward-looking statements in this Quarterly Report are based upon information available to us as of the date of this Quarterly Report and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed as exhibits to this Quarterly Report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report.

We may use the Investor Relations section of our Website as a distribution channel of material information about the Company including through press releases, investor presentations, and notices of upcoming events. We intend to utilize the Investor Relations section of our Website at https://investors.boxed.com as a channel of distribution to reach public investors and as a means of disclosing material non-public information for complying with disclosure obligations under Regulation FD.

Each of the terms the “Company,” “we,” “our,” “us,” “Boxed,” “New Boxed,” and similar terms used herein refer collectively to Boxed, Inc., a Delaware Corporation, and its consolidated subsidiaries, unless otherwise stated.

The Post Combination Company common stock and warrants commenced trading on the New York Stock Exchange under the symbols “BOXD” and “BOXD WS,” respectively, on December 9, 2021. See Note 2, “Business Combination,” for additional details.

The unaudited results of operations for the three months ended March 31, 2022 are not necessarily indicative of future results or results to be expected for the full fiscal year ended December 31, 2022.

These unaudited Condensed Consolidated Financial Statements, including the Company’s significant accounting policies, should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 and related notes thereto included in the Annual Report on Form 10-K.

In the preparation of these condensed consolidated financial statements and related disclosures we have assessed the impact that COVID-19 has had on the Company’s estimates, assumptions, forecasts, and accounting policies and made additional disclosures, as necessary. As COVID-19 and its impacts are unprecedented and ever evolving, future events and effects related to the pandemic cannot be determined with precision and actual results could significantly differ from estimates or forecasts.

In addition, as disclosed in Note 7, the Company entered into a term loan agreement (the “New Term Loan”) in August 2021 for principal of $45,000. The New Term Loan contains a certain number of financial covenants, which requires the Company to (i) maintain minimum unrestricted cash balance of $15,000, (ii) maintain minimum net Retail revenue based upon agreed quarterly targets; and (iii) maintain a Retail gross margin percentage of at least 8%. In order to achieve these targets, the Company expects to invest in growth initiatives including substantially increasing and maintaining higher levels of its marketing spend compared to historical periods. The Company expects these investments, among others, to result in an increase in cash used in operating activities over the next twelve months.

As of March 31, 2022, the Company was in compliance with the financial covenants required by its New Term Loan. However, the inherent uncertainties described above may impact the Company’s ability to remain in compliance with these covenants over the next twelve months. If the Company breaches its financial covenants and fails to secure a waiver or forbearance from the third-party lender, such breach or failure could accelerate the repayment of the outstanding borrowings under the New Term Loan or the exercise of other rights or remedies the third-party lender may have under applicable law. No assurance can be provided a waiver or forbearance will be granted or the outstanding borrowings under the New Term Loan will be successfully refinanced on terms that are acceptable to the Company.

To date, the Company has raised a substantial amount of capital from outside investors and lenders through the issuance of stock and borrowings, including under our term loans and revolving credit facilities, as well as through the consummation of the Business Combination, and expects this reliance to continue for the foreseeable future. However, as of March 31, 2022, the Company had no additional capital available for borrowing and no firm commitment from current or prospective investors to provide the Company additional capital to fund operations in the foreseeable future. While management believes the Company will be able to obtain additional capital, no assurance can be provided that such capital will be obtained or on terms that are acceptable to the Company. These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. If management is unsuccessful in securing additional capital and/or executing its strategy of growth whereby the Company realizes profits and generates sufficient cash inflows from operations to fund the Company’s obligations as they become due, management may be required to seek other strategic alternatives such as a further reduction in the Company’s current cost structure, or a recapitalization of the Company’s balance sheet, including related outstanding debt and equity securities.

The accompanying Condensed Consolidated Financial Statements have been prepared on the basis that the Company will continue to operate as a going concern, which contemplates that the Company will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future. Accordingly, the accompanying Condensed Consolidated Financial Statements do not include any adjustments that may result from the outcome of these uncertainties.

Accounts receivable includes $2,177 and $2,318 of trade receivables at March 31, 2022 and December 31, 2021, respectively. The Company has recorded an allowance of $157 and $96 as of March 31, 2022 and December 31, 2021, respectively.

The hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The risk with respect to accounts receivable is managed by the Company through its policy of monitoring the creditworthiness of its customers to which it grants credit terms in the normal course of business. As of March 31, 2022 and December 31, 2021, one third-party seller accounted for approximately 31.6% and 40.9% of the Company’s outstanding receivables, respectively.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. ROU assets are also adjusted for prepaid rent, initial indirect costs, and lease incentives. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise or not exercise that option, respectively. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company elected to exclude from its balance sheets the recognition of leases having a term of 12 months or less (short-term leases) and elected to not separate lease components and non-lease components for its long-term real-estate leases.

Immediately prior to Closing, all Series of Old Boxed preferred stock was converted into Old Boxed common stock based on the applicable conversion rate for each security and then upon Closing converted into the right to receive approximately 0.9498 shares of New Boxed common stock. As of December 31, 2021, the Company no longer had temporary equity on its Condensed Consolidated Balance Sheets.

The use of the Black-Scholes Merton model requires management to make the following assumptions:

Prior to becoming a public company, the Company estimated the fair value of common stock. The Board of Directors considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards are approved. The factors considered included, but was not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices, rights, preferences, and privileges of the Company’s convertible preferred stock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions involving the Company’s shares.

Since the Company's common shares began trading on the New York Stock Exchange, the Company utilizes the closing share trade price of the Company's shares as the fair value of the Company's common stock.

Historically, basic and diluted net loss per share attributable to common stockholders was presented in conformity with the two-class method required for participating securities as the convertible preferred stock was considered to be participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income (loss) available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in undistributed earnings as if all income (loss) for the period had been distributed. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. Accordingly, the Company’s net loss was attributed entirely to common stockholders. As all of the Company's convertible preferred stock converted to common stock immediately prior to the Closing, the Company is no longer required to present its net loss per share in conformity with the two-class method as it no longer has participating securities.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company records a valuation allowance to reduce deferred income tax assets to the amount that is more likely than not to be realized.

Upon adoption of ASC 842 the Company recognized operating lease ROU assets and operating lease liabilities related to its office leases and fulfillment centers of $11,298 and $11,742, respectively. The difference in the initial operating lease ROU assets and operating lease liabilities balances is $444 related to the de-recognition of existing deferred rent and incentive balances.

The Company’s accounting for lessee finance leases remains substantially unchanged from legacy guidance. All prior periods are presented in accordance with legacy guidance for both operating and finance leases. The standard did not have a significant impact on the Company's Condensed Consolidated Statements of Operations or Statements of Cash Flows.

On December 8, 2021, the Company consummated its Business Combination pursuant to the terms of the Business Combination Agreement, by and among the Company, Blossom Merger Sub, Inc., Blossom Merger Sub II, LLC, and Old Boxed.

Upon consummation of the Business Combination and other transactions, the following occurred:

Property and equipment, net consist of the following at March 31, 2022 and December 31, 2021:

The Company recorded depreciation and amortization expense of $1,016 and $1,230 for the three months ended March 31, 2022 and 2021, respectively, of which $305 and $499 related to software development costs, respectively.

As of March 31, 2022 and December 31, 2021, the major components of prepaid expenses and other current assets consisted of the following:

As of March 31, 2022 and December 31, 2021, the major components of other current liabilities consisted of the following:

On August 4, 2021, the Company entered into a new term loan agreement (“the New Term Loan”). The New Term Loan will provide the Company with $45,000 at a floating per annum rate of LIBOR plus 8.5%, with a maturity date of August 4, 2025. Should LIBOR no longer be published, the agreement provides for an alternative rate of interest based on the per annum rate equal to the greatest of the Prime Rate or the Federal Funds Effective Rate plus 1/2 of 1% in effect on such day. The agreement provides the lender with a first priority security interest in all of the Company’s assets and contains a certain number of financial covenants, which requires us to (i) maintain minimum unrestricted cash balance of $15,000, (ii) maintain minimum net Retail revenue based upon agreed upon quarterly targets, and (iii) maintain a Retail gross margin percentage of at least 8%. These net Retail revenue and Retail gross margin targets are tested quarterly on a trailing twelve-month basis. The agreement also includes other affirmative and negative covenants, which, among other things, restricts the Company’s ability to pay dividends or make any distributions, incur indebtedness, incur liens, and sell substantially all of its assets. The agreement also subjects the Company to certain reporting covenants. The Company is required to provide monthly, quarterly and annual financial statements, operating budget and metrics, and other financial information as requested. Also in connection with the New Term Loan, the Company issued 126,993 warrants to purchase price stock at an exercise price of $7.0871, which were cashless exercised immediately prior to the closing of the Business Combination.

Further, on August 4, 2021, the Company repaid the outstanding principal balance of the Seventh Amendment of its existing term loan and security agreement (the “Credit Agreement”) of $5,000 and recognized a loss on extinguishment of debt in the amount of $203. In connection with the loan repayment, the Company’s letter of credit was modified and the Company is now required to maintain cash collateral for the outstanding letters of credit. As a result, the cash collateral related to the outstanding letters of credit are segregated in restricted cash accounts as of March 31, 2022. Refer to the Notes to the Annual Report for further detail on the Seventh Amendment and corresponding Credit Agreement.

As of both March 31, 2022 and December 31, 2021, the Company had approximately $2,768 of letters of credit issued, respectively, of which none were drawn.

Amounts outstanding under long-term debt, including the PIPE Convertible Notes (discussed in Note 6), consisted of the following as of March 31, 2022 and December 31, 2021. The estimated fair value of long-term debt is approximated at its carrying value as of these reporting dates.

Aggregate maturities of long-term debt as of March 31, 2022 are as follows:

For software license, revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $1,043 as of March 31, 2022 for maintenance fees for the remainder of the initial contract term of five years. The Company recognized $1,668 and $60 in implementation and maintenance fees during the first quarter of 2022, respectively, and expects to recognize approximately $240 in maintenance fees, respectively, over the next 12 months.

The unbilled receivables and deferred revenue for the Company’s Software & Services segment are presented net at the contract level. The remaining deferred revenue that is presented separately on the Company’s Condensed Consolidated Balance Sheets as of March 31, 2022 is related to the Company’s Retail segment.

The Company had total revenue of $46,626 and $40,858 for the three months ended March 31, 2022 and 2021, respectively. The Company manages and reports operating results through 2 reportable segments defined by our products and services: Retail and Software & Services. The Company’s Retail operations represent the majority of its consolidated total revenues.

The following table summarizes the Company’s net revenue disaggregated by sales channel:

The Company has an effective tax rate of 0.00% and 0.00% for the three months ended March 31, 2022 and 2021, respectively.

The Company has evaluated the available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized. Due to uncertainties surrounding the realization of the deferred tax assets, the Company maintains a full valuation allowance against substantially all of its net deferred tax assets. When the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets would have the effect of increasing net income in the period such determination is made.

The Company leases its principal offices in New York, New York and maintains fulfillment centers and office space in various locations throughout the United States under operating leases which expire on various dates through January 2030. Certain of these arrangements have escalating rent payment provisions or optional renewal clauses. The table below only considers lease obligations through the committed term as the Company is not reasonably certain to elect the option to extend its leases beyond the option date.

The Company also entered into various finance lease arrangements for fulfillment center equipment. These agreements range from three years to approximately six years.

Supplemental balance sheet information related to operating and finance leases as of March 31, 2022 was as follows:

As of March 31, 2022, for operating leases, the weighted-average remaining lease term is 5.1 years and the weighted-average discount rate is 11.16%. As of March 31, 2022, for finance leases, the weighted-average remaining lease term is 2.1 years, and the weighted-average discount rate is 8.84%.

For office and fulfillment center leases and leased equipment, the variable lease cost primarily represents variable payments such as common area maintenance, utilities and equipment maintenance.

The following represents a schedule of maturing lease commitments for operating and finance leases as of March 31, 2022:

Future minimum lease payments under non-cancelable operating leases as of December 31, 2021 under ASC 840 were as follows:

Other supplemental cash flow information for the three months ended March 31, 2022 was as follows:

There were no right-of-use assets obtained in exchange for new finance lease or new operating lease liabilities during the period.

On February 8, 2022, a putative stockholder of the Company filed a complaint in the Delaware Chancery Court alleging that he is entitled to attorney’s fees and expenses in connection with a demand he made on the Company regarding the ability of Seven Oaks Class A common stockholders to vote on certain charter amendments in connection with the Business Combination, which closed on December 8, 2021. The stockholder has not specified the amount of attorneys’ fees and expenses sought. The Company’s response to the complaint was filed on May 2, 2022. As of March 31, 2022, no estimate of reasonably possible losses was available due to the early stage of this matter and the uncertainty inherent in litigation and investigations.

On June 13, 2021, the Company executed a Master Subscription Agreement with Palantir Technologies Inc. (“Palantir”) under which it will pay $20,000 over five years for access to Palantir's Foundry software platform and related services for advanced data management and analytics to be used for the Company's strategic initiatives. In exchange for this agreement, Palantir agreed to purchase, and the Company agreed to sell to Palantir, an aggregate of 2,000,000 shares of Seven Oaks Class A common stock, for a purchase price of $10.00 per share and an aggregate purchase price of $20,000, in connection with the PIPE Investment. On December 8, 2021, upon the Closing (as discussed in Notes 1 and 2), $15,000 of the $20,000 was due to Palantir, pursuant to the terms of the Master Subscription Agreement, thirty days after Closing. As of March 31, 2022, the initial $15,000 was fully paid to Palantir. Also upon the Closing, each share of Seven Oaks Class A common stock was reclassified into 1 share of New Boxed common stock.

The Company received access to Palantir's Foundry software platform on June 25, 2021; however; no software expense was recognized until after the consummation of the Business Combination as the Company could cancel the agreement if the Business Combination was not consummated.

On December 1, 2021, the Company entered into an addendum to a prior service agreement with Google LLC for access to the Google Cloud Platform. The addendum includes 3 commitment periods, with the first commitment period beginning on the implementation date and lasting 12 months and the next two commitment periods beginning at the end of the preceding period and lasting 12 months each. The minimum commitments for the first, second, and third commitment periods are $2,000, $4,500, and $8,500, respectively. Any fees the Company incurs in a single commitment period (other than the final commitment period) that in total exceed the minimum commitment for such period will apply towards the Company's minimum commitment for the following commitment period. As of March 31, 2022, the total remaining commitment, gross of discounts, was approximately $14,360, with a minimum of approximately $2,800 due within the next 12 months.

Of such reserved shares of common stock, as of March 31, 2022, 2,588,500 options and restricted stock units have been granted and are currently outstanding, leaving 7,198,848 shares of common stock remain available for issuance pursuant to the 2021 Plan.

The following is a summary of stock options activity during the three months ended March 31, 2022:

Stock-based compensation expense related to stock options was $1,047 for the three months ended March 31, 2022. All stock-based compensation expense is recorded within selling, general, and administrative expense in the Condensed Consolidated Statements of Operations.

As of March 31, 2022, total unrecognized compensation costs related to unvested stock options was approximately $3,004, which is expected to be recognized over a weighted-average period of 0.90 years. The total fair value of options vested during the three months ended March 31, 2022 was $1,875.

As of March 31, 2022, 1,518,500 time-based RSUs and 1,070,000 share-price target RSUs have been granted, respectively, to certain of the Company’s executive officers, employees, non-employee directors, and third party consultants. Of these grants, 1,008,500 time-based RSUs and 300,000 share-price target RSUs were granted during the three months ended March 31, 2022. Of the RSUs issued to the Company’s executive officers, the time-based RSUs will vest annually over a three-year LTIP period, subject to the executives' continued service at each vesting date. The executive officer share-price target RSUs are subject to vesting based on the achievement of certain share price hurdles over the LTIP period. For the time-based RSUs, the stock-based compensation expense will be recognized evenly over the three-year LTIP period, with $1,312 being recognized in the three months ended March 31, 2022.

A valuation to determine the fair values for the share-price target RSUs was performed using a Monte-Carlo Simulation, which includes the probability of reaching the share price hurdles in determining the fair value of the award. Total stock-based compensation to be recognized for these share-price target RSUs is based on a derived service period, calculated by the model. Total stock-based compensation expense related to these awards recognized for the three months ended March 31, 2022 was $2,821.

As of March 31, 2022, total unrecognized compensation costs related to unvested time-based RSUs and share-price target RSUs was approximately $14,737 and $4,352, respectively, which is expected to be recognized over a weighted-average period of 3.02 years and 0.65 years, respectively. No RSUs have vested as of March 31, 2022. To date, the Company has not yet granted RSUs which vest based on the achievement of certain gross profit targets.

The table below presents information regarding financial assets and liabilities that are measured at fair value on a recurring basis and indicate the level within the fair value hierarchy reflecting the valuation techniques utilized to determine fair value.

The Company’s Level 3 financial liabilities include the forward purchase option derivative and earnout liability, which is comprised of (i) the contingent consideration related to the MaxDelivery acquisition (See Note 1) and (ii) the Sponsor Earnout Shares (See Note 2). The fair value of each instrument was estimated using a Monte-Carlo Simulation. The Company measures the fair value at each reporting period, with subsequent revisions to be recorded in the Condensed Consolidated Statement of Operations. Refer to Application of Critical Accounting Policies and Estimates within the Company’s Annual Report on Form 10-K for further detail on the valuations.

There were no transfers between levels during the reporting periods. All significant Level 3 fair value hierarchy were recorded during the periods ended March 31, 2022 and December 31, 2021.

The Company uses the two-class method to compute basic and diluted earnings per common share. In periods of net loss, no effect is given to the Company’s participating securities as they do not contractually participate in the losses of the Company. The following table sets forth the computation of basic and diluted net income (loss) per share:

The following securities were excluded from the computation of diluted loss per share in the periods presented, as their effect would be anti-dilutive:

In 2021 and prior, the Company identified 3 related parties, including (i) the employer of the Director elected by the shareholders of the Series C-1 class of preferred stock (ii) a shareholder of the Series D-1 class of preferred stock and (iii) AEON Integrated Business Services Co., Ltd, a wholly-owned subsidiary of AEON Co., Ltd. (“AEON”),

Immediately prior to the consummation of the Business Combination in December 2021, all shares of Old Boxed preferred stock converted into shares of Old Boxed common stock. Upon Closing, each share of Old Boxed common stock then converted into the right to receive approximately 0.9498 shares of New Boxed common stock.

As a result of the Business Combination and the related transactions, (i) the majority holder of the Series C-1 class was no longer a related party as of Closing as this holder no longer holds more than 10% of the Company's voting interest and the elected Director is no longer on the Board of Directors and (ii) the holder of the Series D-1 class, was no longer a related party.

As of December 31, 2021, the Company identified AEON as its only remaining related party. The following discussion includes related party transactions with AEON as well as prior year period related party transactions for the previously identified related parties related to holders of Series C-1 and Series D-1 preferred stock.

For the three months ended March 31, 2021, the majority holder of the Series C-1 class of preferred stock was a vendor from whom the Company purchases inventory. The collective shareholders of the Series C-1 class of preferred stock had the right to elect 1 Director to the Board of Directors and the elected Director was an employee of this vendor. In connection with the inventory purchases, the Company receives various volume rebates and incentives to continue doing business. Total inventory purchases and volume rebates and incentives for the three months ended March 31, 2021 were approximately $3,180 and $102, respectively.

For the three months ended March 31, 2021, a holder of the Series D-1 class of preferred stock was a vendor from whom the Company purchases inventory. The collective shareholders of the Series D-1 class of preferred stock had the right to elect 2 Directors to the Board of Directors. The Directors elected by the collective Series D-1 shareholders were not employees of this vendor. In connection with the inventory purchases, the Company receives various volume rebates and incentives to continue doing business. For the three months ended March 31, 2021, total inventory purchases and total dunnage purchases were $583 and $616, respectively. The Company did not receive volume rebates and incentives during the three months ended March 31, 2021.

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer. The profitability measure employed by the Company’s CODM for allocating resources to operating segments and assessing operating segment performance is operating loss. The CODM does not receive or regularly review asset information when allocating resources and assessing segment performance.

Therefore, asset information by segment has not been disclosed. Substantially all of the Company’s identifiable assets are located in the United States. The Company currently does not have substantial sales outside the United States, nor does any customer represent more than 10 percent of total revenues for any period presented.

There were no material inter-segment net sales and expenses to be eliminated in computing total revenue and operating income. In addition, the Company allocates its selling, general and administrative expenses to its segment results based on usage, which is generally reflected in the segment in which the costs are incurred. The following table provides information for the Company’s reportable segments, including product category disaggregation for its Retail segment:

Management has evaluated subsequent events to determine if events or transaction occurring through the filing date of this Quarterly Report on Form 10-Q require adjustments to or disclosures in the Company’s Consolidated Financial Statements. Aside from the items discussed below, the Company did not have any subsequent events that required recognition or disclosure in the Condensed Consolidated Financial Statements for the three months ended March 31, 2022.

Boxed is an e-commerce retailer and an e-commerce enabler. We operate an e-commerce Retail service that provides bulk pantry consumables to businesses and household customers. This service is powered by our own purpose-built storefront, marketplace, analytics, fulfillment, advertising, and robotics technologies. We further enable e-commerce through our Software & Services business, which offers customers in need of an enterprise-level e-commerce platform access to our end-to-end technology.

Founded in 2013 by an experienced group of tech pioneers, we have been a technology-first organization since our inception. The founders (including our Chief Executive Officer Chieh Huang and Chief Operating Officer Jared Yaman) had a simple idea: make shopping for bulk, household essentials easy, convenient and fun so customers can focus their time and energy on the things that really matter, instead of spending their weekends traveling to and shopping in traditional brick-&-mortar wholesale clubs with their families. From that initial concept, we grew into the e-commerce technology company that it is today, with our own purpose-built storefront, analytics, fulfillment, advertising, and robotics technologies. Now, in addition to offering B2C and B2B customers with bulk consumables, such as paper products, snacks, beverages, and cleaning supplies, we have also begun to drive high-margin revenue through our Software & Services business, helping the world to stock up through our technology.

Since our inception, we have been engaged in developing and expanding our Retail and Software & Services businesses. We have incurred net operating losses and have generated negative cash flows from operations in each year since our inception. For the three months ended March 31, 2022, we had a net operating loss and negative cash flows from operations of $36.2 million and $36.4 million, respectively. Since our inception, beyond sales of our product and services, we have funded our operations primarily with proceeds from the issuance of stock and borrowings, including under our term loans and revolving credit facilities, as well as through the consummation of the Business Combination.

On December 8, 2021, we consummated our previously announced Business Combination, at which time (i) Old Boxed merged with a subsidiary of Seven Oaks and became a wholly-owned subsidiary of Seven Oaks and (ii) Seven Oaks changed its name from Seven Oaks Acquisition Corp. to Boxed, Inc., and is referred to herein as “New Boxed” or “us” or “we”. In connection with the Closing, among other things:

As a result of becoming an NYSE-listed company, we have begun, and will continue to need to hire additional staff and implement processes and procedures to address public company regulatory requirements and customary practices. We incurred and expect to continue to incur additional annual expenses for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources and fees.

We believe that our performance and future success depend on many factors. While we believe that each of these factors present significant opportunities for our business, each factor also poses risks and challenges that we must successfully address in order to sustain our growth and continue to improve our results of operations.

COVID-19. During fiscal year 2020, the COVID-19 pandemic had a mixed impact on our results of operations. Throughout the pandemic our fulfillment centers have largely remained open as they were deemed as “essential businesses” in our locations. While we experienced increased demand from B2C customers, as many individuals adopted online shopping during the pandemic, that increase was offset by a decline of demand from our B2B customers, as many businesses reverted to work-from-home environments. The result of these two counteracting trends was slight growth in 2020 sales compared to fiscal year 2019. Further, during fiscal year 2020, we experienced a significant increase in organic new customer traffic to our web properties as a result of COVID-19. This rapid and variable surge in traffic put significant stress on our supply chain, with industry-wide inventory supply shortages limiting our ability to provide the products in demand from our customers. As such, during this period, we significantly reduced our growth-related investments (i.e. promotional spend and advertising expense) and temporarily shut down service to certain new customers in specific states. While industry-wide demand for e-commerce services remains elevated compared to pre-pandemic levels, the surge in organic new customer traffic we experienced in 2020 did not persist at the same levels in 2021, and we began to meaningfully increase our investments in advertising expense and promotional spend in order to drive additional demand. In addition, the wave of COVID-19 virus variants, including the proliferation of the Delta and Omicron variants, further delayed the return-to-office plans of many of our B2B customers in 2021, which yielded a slower recovery from our B2B customers than originally anticipated throughout 2021. While the Company remains optimistic on the recovery of B2B, the demand from our B2B customers may not fully recover to the levels that existed during 2019. These changes could adversely affect our business, financial condition, and results of operations.

Additionally, the higher propensity for online shopping has led to increased demand for our technology, which we have begun to monetize in 2021, but could also reverse in the future as customer behavior changes. Overall, the COVID-19 pandemic is unprecedented and continuously evolving and the long-term impacts on our financial condition and results of operations are still uncertain. We are continuing to monitor the impact of the pandemic on the overall macro-economic environment, as well as the impact it has had on cost inflation in consumable products and transportation, which continues to drive up our operating costs.

The COVID-19 pandemic may impact many of the factors discussed in this section, including, among others, overall economic trends, consumer preferences and demand, product mix, competitive dynamics, and sourcing and distribution, which in turn could adversely affect our business, financial condition and results of operations.

We measure our business using both financial and operating data and use the following metrics and measures to assess the near-term and long-term performance of our overall business, including identifying trends, formulating financial projections, making strategic decisions, assessing operational efficiencies and monitoring our business. Key performance indicators (“KPIs”) are typically operational in nature, are not measures of financial performance in accordance with U.S. GAAP and may exclude items that are significant in understanding and assessing the Company’s financial results. Therefore, these measures should not be considered in isolation or as an alternative to net revenue, cash flows from operations or other measures of growth, profitability, liquidity or performance under U.S. GAAP. You should be aware that our presentation of these measures may not be comparable to similarly-titled measures used by other companies.

We present the following KPIs to assist investors in understanding our operating results on an on-going basis: (i) Retail Active Customers, (ii) Retail Average Order Value (Retail “AOV”), (iii) Retail Net Revenue per Retail Active Customer (“RPAC”) and (iv) Gross Merchandise Value (“GMV”). We have elected to update our disclosures from presenting information on a Last Twelve Month (“LTM”) basis to a quarterly basis in order to provide shareholders and investors with further insight into our quarterly trends and seasonal variability. We believe this disclosure change supports increased interpretability of our operating results. Further, we have elected to update our disclosures to not include Advertising Expenses within KPIs as it is discussed within Results of Operations, below.

This table sets forth our key performance indicators for the three months ended March 31, 2022 and 2021. Figures disclosed for Retail Active Customers and Retail AOV reflect Retail segment metrics only, and do not aggregate metrics from Software & Services customers who are leveraging our software or technology for their own retail operations.

We define active customers as the distinct number of customers in our Retail segment who placed at least one order in the referenced respective time-period (“Retail Active Customers”). The change in Retail Active Customers in a reporting period captures both the inflow of new customers as well as the outflow of customers who have not made a purchase in the time period. We view the number of Retail Active Customers as a key indicator of our performance, which is influenced by the level of investment in Advertising Expenses, the number of new customers acquired during a given time period, as well as the churn of previously Retail Active Customers.

The decrease in our Retail Active Customers when comparing the three months ended March 31, 2022 to the three months ended March 31, 2021 was primarily due to a decrease in B2C customers during the more recent period compared to the prior period, as the latter included the temporary impact of increased customer traffic resulting from COVID-19 related demand. Although there was a year over year decline, we saw quarter over quarter sequential growth in our Retail Active Customers during the first quarter of 2022 as compared to the fourth quarter of 2021.

We define Retail AOV as the GMV for the respective time-period divided by the total number of orders placed by customers during the same period. We believe Retail AOV is an important indicator of business performance as it is supported by our proprietary e-commerce technology, where our mobile app, website, and personalization engine provide a seamless shopping experience, enabling customers to easily discover new and relevant products and categories. This results in a trend where on average, Retail AOVs expand over the course of a customer’s lifecycle. Further, larger orders are on average more profitable, helping to drive margin improvement from shipping, packaging, and labor efficiencies.

Total Retail AOV increased when comparing the three months ended March 31, 2022 to the three months ended March 31, 2021 as the result of (i) an increasing percentage of orders from our B2B customers who have, on average, significantly higher Retail AOVs than our B2C customers, (ii) ongoing pricing optimizations, and (iii) adjustments to the user experience designed to help drive Retail AOV increases across both our new and repeat customers.

We measure Retail AOV on a gross basis, comparable to the way that we measure GMV. As a result, it does not account for any discounts, promotions, or rewards that are offered to or redeemed by our customers, and therefore it is not intended for use as an alternative to net revenue recorded in accordance with GAAP.

We define Retail Net Revenue per Active Customer as total Retail net revenue for the respective time-period divided by the total number of Retail Active Customers during the same period. We believe RPAC is an important indicator of business performance as it demonstrates customer engagement within our Retail business, combining the impact of both our Retail AOV as well as the order frequency of customers shopping our Retail e-Commerce offerings.

RPAC increased meaningfully by $67, or 32.4%, when comparing the three months ended March 31, 2022 to the three months ended March 31, 2021 as the result of (i) increasing mix of orders from our B2B customers who have, on average, significantly higher spend per customer than our B2C customer bases (ii) higher Retail AOVs and (iii) higher order frequency within both our B2C and B2B customer bases.

GMV increased by $8.6 million, or 19.2%, in the three months ended March 31, 2022 compared to the three months period March 31, 2021. The increase was largely attributable to accelerating B2B customer demand, combined with increases in GMV from MaxDelivery and Software & Services customer base. We believe that the COVID-19 pandemic primarily impacted our GMV through the Active Customer count, as discussed above.

We operate in two reportable segments: Retail and Software & Services, to reflect the way our chief operating decision maker (“CODM”) reviews and assesses the performance of the business. Our Retail segment engages in the sale of consumer products and goods in bulk sizes to consumers and businesses in the continental United States. Our Retail segment includes net revenue from merchandising sales, subscription sales, and outbound delivery and marketing fees, as discussed below and within Note 1 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report. Until the first quarter of 2021, we had not generated meaningful revenue under our Software & Services segment, which primarily relates to our research, development, marketing, and production of our propriety software for sale to third parties. Both our Retail and Software & Services segments are recorded within net revenue in our Condensed Consolidated Statements of Operations.

We derive net revenue primarily from the sale of both third-party brand and private-label brand merchandise through our e-commerce platform on which we offer merchandise in the following core categories: groceries, snacks, beverages, and household and cleaning products. Revenue generated through our e-commerce platform is generally recognized upon delivery to the customer, net of promotional discounts and refund allowances. Outbound delivery fees (if applicable) are included in customer billing and are also recorded as revenue upon delivery. Taxes collected from customers are excluded from net revenue.

We earn additional Retail segment revenue through membership fees from customers who sign up for our Boxed Up subscription loyalty program. Membership fees allow customers to earn cash back on every purchase, gain access to exclusive discounts, and enjoy free shipping on all eligible orders. Because we have the obligation to provide access to our website for the duration of the membership term, we recognize membership fees on a straight-line basis over the life of the membership.

We also earn revenue through a mix of marketing services offered to merchants, including vendors, manufacturers, and other partners. We provide these merchants access to our e-commerce platform where merchants display and sell their products to users through our third-party marketplace offering. We also provide advertising services to help merchants promote their products within our platform. While these additional revenue streams have not historically been material, the generate higher margins and we believe there is substantial opportunity to expand these offerings to drive growth in both net revenue and profitability in the future.

In the first quarter of 2021, we began generating revenue through software license agreements with customers. A software license contract with multiple performance obligations typically includes the following elements: implementation services, software license, training services, and maintenance and support services.

Refer to the Notes to our Condensed Consolidated Financial Statements for additional definitions of our financial statement line items included within our Condensed Consolidated Statements of Operations.

The following tables presents our results of operations for the periods indicated:

Total net revenue for the three months ended March 31, 2022 increased by $5.8 million, or 14.1%, to $46.6 million as compared to $40.9 million for three months ended March 31, 2021. The total $5.8 million increase was attributable to increases of $4.5 million and $1.2 million in Retail revenue and Software & Services revenue, respectively.

The $4.5 million increase in Retail net revenue was primarily driven by a $5.8 million increase in merchandise sales generated through our e-commerce platform, partially offset by a $1.1 million increase in mark-downs (including refunds, promotions, and price discounts) during the period. This increase in merchandising sales primarily resulted from growth in demand from B2B customers in the three months ended March 31, 2022 compared to the three months ended March 31, 2021; as businesses have begun to return to in-person office environments, there has been an increase in demand from our B2B customers, who have begun to order at a higher frequency and in larger order quantities. This trend compared favorably to lower demand experienced during the prior year period due to the impacts of COVID-19 and a corresponding increase in work-from-home environments.

The Software & Services net revenue increase of $1.2 million for the three months ended March 31, 2022 was primarily the result of the completion of AEON implementation services.

Cost of sales for our Retail segment increased by $4.4 million, or 12.3%, to $40.0 million for the three months ended March 31, 2022 as compared to $35.7 million for the three months ended March 31, 2021. The increase in cost of sales is primarily driven by a combined $3.3 million increase in in product and outbound shipping costs as we experienced a higher volume of sales, and vendors passed on ongoing cost inflation. Retail gross profit as a percentage of Retail net revenue (Retail gross margin) decreased to 9.8% for the three months ended March 31, 2022 from 10.6% for the three months ended March 31, 2021. The slight decrease in Retail gross margin was primarily a result of increased promotions and discounts, as we strategically tried to offset some of the inflationary pricing pressures for our customer base with on-site sales.

Cost of sales for our Software & Services segment increased by $0.2 million to $0.5 million for the three months ended March 31, 2022 as compared to $0.3 million for the three months ended March 31, 2021. The increase in cost of sales is the result of a $0.2 million increase in wages incurred related to hours spent on implementation and maintenance services for our Software & Services segment.

Total gross profit increased by $1.2 million, or 23.7%, to $6.1 million for the three months ended March 31, 2022 compared to $4.9 million primarily due to higher Retail sales and additional Services & Services revenue earned in the current period, partially offset by an increase in Retail product costs and sales markdowns. Total gross margin increased slightly to 13.1% for the three months ended March 31, 2022 compared to 12.1% for the three months ended March 31, 2021, primarily resulting from an increase mix of revenue from our higher margin Software & Services segment, which more than offset a slight decline in Retail gross margin.

Advertising expense for the three months ended March 31, 2022 increased by $6.0 million to $11.7 million as compared to $5.7 million for the three months ended March 31, 2021. The increase was primarily driven by an increase in advertising media costs used to acquire and retain customers, including costs for television and advertising commercial content.

Selling, general and administrative expense for the three months ended March 31, 2022 increased by $10.9 million to $23.4 million as compared to $12.5 million for the three months ended March 31, 2021 primarily due to a $2.1 million increase in salary and compensation costs, a $4.8 million increase in stock-based compensation, and a combined $3.2 million increase in legal fees and third-party consulting and software costs. These increased costs are due to our overall growth and expansion initiatives as well as costs incurred as a newly public company.