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OFFON

COUPANG, INC.

(CPNG)
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COUPANG, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/12/2021 | 04:37pm EST
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q ("Form 10-Q"), as well as our consolidated financial
statements and related notes included in our final prospectus filed with the
Securities and Exchange Commission (the "SEC") pursuant to Rule 424(b) under the
Securities Act of 1933, as amended ("Securities Act"), (File No. 333-253030) on
March 11, 2021 ("Final Prospectus"). This discussion, particularly information
with respect to our future results of operations or financial condition,
business strategy and plans, and objectives of management for future operations,
includes forward-looking statements that involve risks and uncertainties as
described under the heading "Special Note Regarding Forward-Looking Statements"
in this Form 10-Q. You should review the disclosure in Part II-Item 1A. "Risk
Factors" in this Form 10-Q for a discussion of important factors that could
cause our actual results to differ materially from those anticipated in these
forward-looking statements.
Overview
We are a leading e-commerce player in Korea. We believe that we are the
preeminent online destination for e-commerce in the market because of our broad
selection, low prices, and exceptional convenience across our owned inventory
selection as well as products offered by third-party merchants. Our unique
end-to-end fulfillment, logistics, and technology network enables Rocket
Delivery, which provides free, next-day delivery for orders placed anytime of
the day, even seconds before midnight-across millions of products. Our
structural advantages from complete end-to-end integration, investments in
technology, and scale economies generate higher efficiencies that allow us to
pass savings to customers in the form of lower prices. The capabilities we have
built provide us with opportunities to expand into other offerings and
geographies.
Initial Public Offering
On March 15, 2021, we completed our initial public offering ("IPO") in which we
issued and sold 100,000,000 shares of our Class A common stock at an IPO price
of $35.00 per share. We received net proceeds of $3.4 billion after deducting
underwriting discounts of $69 million and other offering costs.
Immediately prior to effectiveness of the Company's IPO registration statement
on Form S-1, Coupang, LLC, a Delaware limited liability company, converted into
a Delaware corporation pursuant to a statutory conversion, which changed our
name to Coupang, Inc. ("Corporate Conversion").
As a result of the Corporate Conversion and IPO, our redeemable convertible
preferred units ("preferred units") and common units (which included common
units designated as profits interests ("PIUs")), in each case, automatically
converted into an equal number of shares of Class A or Class B common stock,
except with respect to a conversion adjustment to certain PIUs, which reduced
the outstanding common units designated as PIUs that converted into the shares
of Class A common stock. Also, our convertible notes were automatically
converted into 171,750,446 shares of our Class A common stock. For additional
information related to the Corporate Conversion and IPO, see Note 10 -
"Redeemable Convertible Preferred Units and Stockholders'/Members' Equity
(Deficit)" and Note 8 - "Convertible Notes and Derivative Instrument."
Fulfillment Center Fire
On June 17, 2021, a fire extensively damaged our Deokpyeong fulfillment center
(the "FC Fire"), resulting in a loss of the building, equipment, inventory, and
other assets at the site. Inventory and property and equipment losses from the
FC Fire of $158 million and $127 million were recognized in "Cost of sales" and
"Operating, general and administrative," respectively, during the second quarter
of 2021. Whether and to what extent we may recover insurance proceeds to cover
these losses is currently unknown, and as such, no insurance recoveries have
been recognized. During the second quarter of 2021, the Company also incurred or
accrued for other costs directly related to the FC Fire of $11 million. The FC
Fire resulted in an increase to our net loss of $296 million ("FC Fire Losses")
for the nine months ended September 30, 2021.
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Key Financial and Operating Highlights:

                                   Three Months Ended September 30,                                      Nine Months Ended September 30,
(in thousands)                         2021                    2020               % Change                  2021                    2020               % Change
Total net revenues             $      4,644,705$ 3,136,507                    48  %       $   13,329,679$ 8,163,846                    63  %
Total net revenues, constant
currency(1)                    $      4,513,626$ 3,139,384                    44  %       $   12,555,591$ 8,434,714                    54  %
Gross profit(2)                $        754,527$   466,955                    62  %       $    2,145,527$ 1,336,985                    61  %
Net loss(4)                    $       (323,977)$  (172,999)                   87  %       $   (1,137,611)$  (380,402)                  199  %
Net loss margin                            (7.0)  %              (5.5) %                                       (8.5)   %              (4.7) %
Adjusted EBITDA(1)             $       (207,434)$  (176,649)                   17  %       $     (462,547)$  (275,524)                   68  %
Adjusted EBITDA margin(1)                  (4.5)  %              (5.6) %                                       (3.5)   %              (3.4) %
Net cash (used in) provided by
operating activities           $        (55,366)$   210,378                  (126) %       $     (207,832)$   285,088                  (173) %
Free cash flow(1)              $       (244,589)$    (3,440)                   NM(3)       $     (712,426)$   (29,631)                   NM(3)

                                                                                                      Trailing twelve months ended September
                                                                                                                       30,
(in thousands)                                                                                              2021                    2020               % Change
Net cash (used in) provided by
operating activities                                                                                 $     (191,366)$   340,729                  (156) %
Free cash flow(1)                                                                                    $     (865,364)$   (61,104)                   NM(3)


_____________
(1)Total net revenues, constant currency; total net revenues growth, constant
currency; adjusted EBITDA; adjusted EBITDA margin; and free cash flow are
non-GAAP measures. See "Non-GAAP Financial Measures and Reconciliations" below
for the reconciliation of the Non-GAAP measures with their comparable amounts
prepared in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP").
(2)Gross profit is calculated as total net revenues minus cost of sales, and for
the nine months ended September 30, 2021 includes $158 million related to
inventory losses recognized during the second quarter of 2021 from the FC Fire.
(3)Non-meaningful.
(4)Net loss for the nine months ended September 30, 2021 includes $296 million
in losses recognized during the second quarter of 2021 related to the FC Fire.
Key Business Metrics and Non-GAAP Financial Measures
We review the key business and financial metrics discussed below. We use these
measures to evaluate our business, measure our performance, identify trends
affecting our business, formulate business plans, and make strategic decisions.
Key Business Metrics
                                                                                 Three Months Ended
(in thousands, except net revenues    September 30,         December 31,                                                          September 30,
per Active Customer)                      2020                  2020              March 31, 2021           June 30, 2021              2021
Active Customers                           13,987               14,850                   16,037                  17,022                16,823
Total net revenues per Active
Customer                             $        224$       256          $           262          $          263          $        276


Active Customers
As of the last date of each reported period, we determine our number of Active
Customers by counting the total number of individual customers who have ordered
at least once directly from our apps or websites during the relevant period. A
customer is anyone who has created an account on our apps or websites,
identified by a unique email address. The change in Active Customers in a
reported period captures both the inflow of new customers as well as the outflow
of existing customers who have not made a purchase in the period. We view the
number of Active Customers as a key indicator of our potential for growth in
total net revenues, the reach of our network, the awareness of our brand, and
the engagement of our customers.
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Net Revenues per Active Customer
Net revenues per Active Customer is the total net revenues generated in a period
divided by the total number of Active Customers in that period. A key driver of
growth is increasing the frequency and the level of spend of Active Customers
who are shopping on our apps or websites. We therefore view net revenues per
Active Customer as a key indicator of engagement and retention of our customers
and our success in increasing the share of wallet.
Non-GAAP Financial Measures and Reconciliations
We report our financial results in accordance with U.S. GAAP. However,
management believes that certain non-GAAP financial measures provide investors
with additional useful information in evaluating our performance. These non-GAAP
financial measures may be different than similarly titled measures used by other
companies.
Our non-GAAP financial measures should not be considered in isolation from, or
as substitutes for, financial information prepared in accordance with U.S. GAAP.
Non-GAAP measures have limitations in that they do not reflect all the amounts
associated with our results of operations as determined in accordance with U.S.
GAAP. These measures should only be used to evaluate our results of operations
in conjunction with the corresponding U.S. GAAP measures.
Free Cash Flow
Free cash flow is defined as cash flow from operations less purchases of
property and equipment, plus proceeds from sale of property and equipment. We
believe that free cash flow is an additional and useful indicator of liquidity
that provides information to management and investors about the amount of cash
generated from our core operations that, after purchases of property and
equipment, can be used for strategic initiatives, including investing in our
business and strengthening our balance sheet. Free cash flow has limitations as
an analytical tool and should not be considered in isolation or as substitutes
for analysis of other U.S. GAAP financial measures, such as net cash provided by
operating activities. A limitation of free cash flow is that it may be
calculated differently by other companies in our industry, limiting its
usefulness as a comparative measure. We expect our free cash flow to fluctuate
in future periods as we invest in our business to support our plans for growth.
Adjusted EBITDA and Adjusted EBITDA Margin
During the first quarter of 2021, we began using adjusted EBITDA and adjusted
EBITDA margin as non-GAAP financial measures. Adjusted EBITDA is defined as net
income/(loss) for a period before depreciation and amortization, interest
expense, interest income, income tax expense (benefit), other income (expense),
net, equity-based compensation, impairments, and other items that we do not
believe are reflective of our ongoing operations. Adjusted EBITDA margin is
defined as adjusted EBITDA as a percentage of total net revenues. We use
adjusted EBITDA and adjusted EBITDA margin as key measures to evaluate and
assess our performance and allocate internal resources. We believe adjusted
EBITDA and adjusted EBITDA margin are frequently used by investors and other
interested parties in evaluating companies in the e-commerce industry for
period-to-period comparisons as they remove the impact of certain items that are
not representative of our core business, such as material non-cash items and
certain variable charges. However, other companies may calculate adjusted EBITDA
and adjusted EBITDA margin in a manner different from ours and therefore they
may not be directly comparable to similar terms used by other companies.
Adjusted EBITDA and adjusted EBITDA margin are not measures of financial
performance under U.S. GAAP and should not be considered as alternatives to cash
flow from operating activities or as measures of liquidity or alternatives to
net income/(loss) as indicators of operating performance or any other measures
of performance derived in accordance with U.S. GAAP. Adjusted EBITDA and
adjusted EBITDA margin have limitations as analytical tools, and you should
consider them in addition to, and not in isolation or as substitutes, for
analysis of our results as reported under U.S. GAAP.
Constant Currency Revenue and Constant Currency Revenue Growth
The effect of currency exchange rates on our business is an important factor in
understanding period-to-period comparisons. Our financial reporting currency is
the U.S. dollar ("USD") and changes in foreign exchange rates can significantly
affect our reported results and consolidated trends. For example, our business
generates sales predominantly in Korean Won ("KRW"), which are favorably
affected as the USD weakens relative to the KRW, and unfavorably affected as the
USD strengthens relative to the KRW. We use constant currency revenue and
constant currency revenue growth for financial and operational decision-making
and as a means to evaluate comparisons between periods. We believe the
presentation of our results on a constant currency basis in addition to U.S.
GAAP results helps improve the ability to understand our performance because
they exclude the effects of foreign currency volatility that are not indicative
of our actual results of operations.
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Constant currency information compares results between periods as if exchange
rates had remained constant. We define constant currency revenue as total
revenue excluding the effect of foreign exchange rate movements, and use it to
determine the constant currency revenue growth on a comparative basis. Constant
currency revenue is calculated by translating current period revenues using the
prior period exchange rate. Constant currency revenue growth (as a percentage)
is calculated by determining the increase in current period revenue over prior
period revenue, where current period foreign currency revenue is translated
using prior period exchange rates.
These results should be considered in addition to, not as a substitute for,
results reported in accordance with U.S. GAAP. Results on a constant currency
basis, as we present them, may not be comparable to similarly titled measures
used by other companies and are not a measure of performance presented in
accordance with U.S. GAAP.
The following tables present the reconciliations from each U.S. GAAP measure to
its corresponding non-GAAP measure for the periods noted:
Free Cash Flow
                                                                                                                       Trailing Twelve Months Ended
                             Three Months Ended September 30,            Nine Months Ended September 30,                       September 30,
(in thousands)                   2021                2020                    2021                   2020                 2021                 2020
Net cash (used in) provided
by operating activities     $   (55,366)$  210,378$        (207,832)$  285,088$   (191,366)$  340,729
Adjustments:
Purchases of property and
equipment                      (190,058)           (213,818)                  (505,554)           (314,941)             (675,243)           (405,458)
Proceeds from sale of
property and equipment              835                   -                        960                 222                 1,245               3,625
Free cash flow              $  (244,589)$   (3,440)         $      

(712,426) $ (29,631)$ (865,364)$ (61,104)


Net cash used in investing
activities                  $  (201,231)$ (251,611)         $      

(506,812) $ (350,348)$ (677,118)$ (437,242) Net cash provided by financing activities $ 115,833$ 54,757 $

3,672,191 $ 108,537$ 3,742,156$ 34,449

Adjusted EBITDA and Adjusted EBITDA Margin

                                           Three Months Ended September 30,                   Nine Months Ended September 30,
(in thousands)                                 2021                    2020                    2021                         2020
Total net revenues                     $      4,644,705$ 3,136,507$     13,329,679$ 8,163,846

Net loss                                       (323,977)             (172,999)               (1,137,611)                  (380,402)
Net loss margin                                    (7.0)  %              (5.5) %                   (8.5)  %                   (4.7) %
Adjustments:
Depreciation and amortization                    51,540                32,296                   145,866                     85,551
Interest expense                                  7,376                25,712                    38,047                     78,423
Interest income                                  (2,603)               (1,267)                   (5,450)                    (9,512)
Income tax expense                                   66                    21                       171                        228
Other expense (income), net                       4,026               (67,704)                    7,479                    (73,829)
Equity-based compensation                        56,138                 7,292                   193,450                     24,017
FC Fire Losses                                        -                     -                   295,501                          -
Adjusted EBITDA                        $       (207,434)$  (176,649)$       (462,547)$  (275,524)
Adjusted EBITDA margin                             (4.5)  %              (5.6) %                   (3.5)  %                   (3.4) %



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Constant Currency Revenue and Constant Currency Revenue Growth

                                           Three Months Ended September 30,                   Nine Months Ended September 30,
(in thousands)                                 2021                    2020                    2021                         2020
Total net revenues                     $      4,644,705$ 3,136,507$     13,329,679$ 8,163,846
Total net revenues growth                            48   %                95  %                     63   %                     87  %

Adjustment:

Exchange rate effect                           (131,079)                2,877                  (774,088)                   270,868
Total net revenues, constant currency  $      4,513,626$ 3,139,384$     12,555,591$ 8,434,714
Total net revenues growth, constant
currency                                             44   %                95  %                     54   %                     93  %


Impact of COVID-19
The COVID-19 pandemic and resulting global disruptions have affected our
business, as well as those of our customers, merchants, and suppliers. To serve
our customers while also providing for the safety of our employees, we have
adapted numerous aspects of our logistics and infrastructure, transportation,
supply chain, purchasing, and third-party merchant processes. We have
experienced and may continue to experience a net positive impact on our sales
and consumer demand for our products and services following changes in consumer
purchasing behavior and the implementation of governmental orders to mitigate
the spread of COVID-19, which has resulted in higher levels of customer
engagement.
Since the initial outbreak of COVID-19, we have made numerous process updates
across our operations and have adapted our fulfillment and delivery
infrastructure to implement additional employee and customer safety measures,
including enhanced cleaning and physical distancing, personal protective gear,
disinfectant spraying, and temperature checks. These measures have been
implemented to minimize the risk of spread of COVID-19 to our workers, our
customers, and the communities in which we operate, and we may take further
actions as may be required by government authorities or that we determine are in
the best interests of our workers, customers, merchants, and suppliers.
The global impact of COVID-19 continues to rapidly evolve, and we will continue
to monitor the situation and the effects on our business and operations closely.
Further, we do not yet know the full extent of potential impacts of the pandemic
on our business or operations, our industry, or on the global economy, including
the impact of any future developments related to the duration and scope of the
pandemic, any recurrence of the disease, the actions taken in response to the
pandemic, the scale and rate of economic recovery from the pandemic, new
variants that have emerged or may emerge in the future, subsequent waves of
infection, along with the adoption and effectiveness of vaccines, any ongoing
effects on consumer demand and spending patterns, logistics and fulfillment
related labor constraints and costs including costs to attract and retain
employees, or other impacts as a result of the pandemic, and whether these or
other currently unanticipated consequences of the pandemic are reasonably likely
to materially affect our results of operations, cash flows, or financial
condition. These drivers make it challenging to reasonably quantify the direct
impact the pandemic has had on our business versus those impacts that may have
been indirectly related to the pandemic. For additional details, refer to Part
II-Item 1A. "Risk Factors" contained elsewhere in this Form 10-Q.
Components of Results of Operations
Total Net Revenues
We categorize our revenue as (1) net retail sales and (2) net other revenue.
Total net revenues incorporate reductions for estimated returns, promotional
discounts, and earned loyalty rewards and exclude amounts collected on behalf of
third parties, such as value added taxes. We periodically provide customers with
promotional discounts to retail prices, such as percentage discounts and other
similar offers, to incentivize increased customer spending and loyalty. These
promotional discounts are discretionary and are reflected as reductions to the
selling price and revenue recognized on each corresponding transaction. Loyalty
rewards are offered as part of revenue transactions to all retail customers,
whereby rewards are earned as a percentage of each purchase, for the customer to
apply towards the purchase price of a future transaction. We defer a portion of
revenue from each originating transaction, based on the estimated standalone
selling price of the loyalty reward earned, and then recognize the revenue as
the loyalty reward is redeemed in a future transaction, or when they expire. The
amount of the deferred revenue related to these loyalty rewards is not material.
Net retail sales represent the majority of our total net revenues which we earn
from online product sales of our owned inventory to customers. Net other revenue
includes revenue from commissions earned from merchants that sell their products
through our apps or websites. We are not the merchant of record in these
transactions, nor do we take possession of the related inventory.
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Net other revenue also includes consideration from online restaurant ordering
and delivery services performed by us, as well as advertising services provided
on our apps or websites. We also earn subscription revenue from memberships to
our Rocket WOW membership program, which provides customers with access to
benefits such as access to Rocket Fresh, no minimum spend for Rocket Delivery,
and free shipping on returns, which is also included in net other revenue.
Cost of Sales
Cost of sales primarily consists of the purchase price of products sold directly
to customers where we record revenue gross, and includes logistics costs.
Inbound shipping and handling costs to receive products from suppliers are
included in inventory and recognized in cost of sales as products are sold.
Additionally, cost of sales includes outbound shipping and logistics related
expenses, and depreciation and amortization expense.
Operating, General and Administrative Expenses
Operating, general and administrative expenses include all our operating costs
excluding cost of sales, as described above. More specifically, these expenses
include costs incurred in operating and staffing our fulfillment centers
(including costs attributed to receiving, inspecting, picking, packaging, and
preparing customer orders), customer service related costs, payment processing
fees, costs related to the design, execution, and maintenance of our technology
infrastructure and online offerings, advertising costs, general corporate
function costs, and depreciation and amortization expense.
Interest Expense
Interest expense primarily consists of interest on our short-term borrowings and
long-term debt, our convertible notes issued in our 2018 convertible note
financing, and finance lease liabilities.
Income Tax Expense
The Company's tax expense or benefit from income taxes for interim periods is
determined using an estimate of our annual effective tax rate, adjusted for
discrete items, if any, that are taken into account in the relevant period. Each
quarter we update our estimate of the annual effective tax rate, and if our
estimated tax rate changes, we make a cumulative adjustment. We are subject to
income taxes in the United States and foreign jurisdictions in which we do
business. These foreign jurisdictions have different statutory tax rates than
those in the United States. Additionally, certain of our foreign earnings may
also be taxable in the United States. Accordingly, our effective tax rate will
vary depending on the relative proportion of foreign to domestic income, use of
foreign tax credits, changes in the valuation of our deferred tax assets and
liabilities and changes in tax laws.

Results of Operations

                                            Three Months Ended September 30,                 Nine Months Ended September 30,
(in thousands)                                  2021                    2020                    2021                    2020
Net retail sales                        $       4,137,136$ 2,897,682$      11,938,685$ 7,555,592
Net other revenue                                 507,569              238,825                  1,390,994              608,254
Total net revenues                              4,644,705            3,136,507                 13,329,679            8,163,846
Cost of sales                                   3,890,178            2,669,552                 11,184,152            6,826,861
Operating, general and administrative           1,069,639              683,192                  3,242,891            1,722,077
Total operating cost and expenses               4,959,817            3,352,744                 14,427,043            8,548,938
Operating loss                                   (315,112)            (216,237)                (1,097,364)            (385,092)
Interest income                                     2,603                1,267                      5,450                9,512
Interest expense                                   (7,376)             (25,712)                   (38,047)             (78,423)
Other (expense) income, net                        (4,026)              67,704                     (7,479)              73,829
Loss before income taxes                         (323,911)            (172,978)                (1,137,440)            (380,174)
Income tax expense                                     66                   21                        171                  228
Net loss                                $        (323,977)$  (172,999)$      (1,137,611)$  (380,402)



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                                            Three Months Ended September 30,                   Nine Months Ended September 30,
(in thousands)                                 2021                     2020                     2021                     2020
Net retail sales                       $          4,137,136       $     

2,897,682 $ 11,938,685 $ 7,555,592 Net retail sales growth

                               43  %                96    %                      58  %                87    %
Exchange rate effect                              (115,707)                  2,389                  (693,310)                250,687

Net retail sales, constant currency $ 4,021,429 $ 2,900,071 $ 11,245,375 $ 7,806,279 Net retail sales growth, constant

                     39  %                96    %                      49  %                93    %
currency

Net other revenue                      $            507,569       $       

238,825 $ 1,390,994 $ 608,254 Net other revenue growth

                             113  %                77    %                     129  %                85    %
Exchange rate effect                               (15,372)                    488                   (80,778)                 20,181
Net other revenue, constant currency   $            492,197       $        

239,313 $ 1,310,216 $ 628,435 Net other revenue growth, constant

                   106  %                77    %                     115  %                91    %
currency


Net Retail Sales
Net retail sales increased $1.2 billion or 43% (39% on a constant currency
basis), and $4.4 billion, or 58% (49% on a constant currency basis), for the
three and nine months ended September 30, 2021, respectively, when compared to
the prior year periods. The increase was primarily due to continued growth in
our Active Customers compared to the prior year periods, as well as in net
retail sales per Active Customer, driven by increased product selection and
customer engagement across more product categories. In addition, the
year-over-year growth in net retail sales for the three and nine months ended
September 30, 2021 was impacted by the comparison to the three and nine months
ended September 30, 2020, which benefited from the increase in sales due to
COVID-19 related changes in consumer behavior.
Net Other Revenue
Net other revenue for the three and nine months ended September 30, 2021
increased $269 million or 113% (106% on a constant currency basis), and $783
million or 129% (115% on a constant currency basis), respectively, compared to
the prior year periods. The increase was primarily due to growth in our Active
Customers compared to the prior year periods, as well as growth in our net other
revenue per Active Customer during those same periods, driven by the continued
expansion of newer offerings and increased merchants on our marketplace and
related product selection.
Cost of Sales
Cost of sales for the three and nine months ended September 30, 2021 increased
$1.2 billion or 46%, and $4.4 billion or 64%, respectively, compared to the
prior year periods. The increase for the three months ended September 30, 2021,
was primarily attributable to increased product and logistics costs resulting
from increased sales and customer demand. Cost of sales as a percentage of
revenue decreased from 85.1% to 83.8% for the three months ended September 30,
2021, primarily due to a shift to higher margin revenue categories, partially
offset by higher labor and operations costs. The increase for the nine months
ended September 30, 2021 was impacted by increased product and logistics costs
resulting from increased sales and customer demand, as well as $158 million in
inventory losses related to the FC Fire which occurred in the second quarter of
2021. Cost of sales as a percentage of revenue increased from 83.6% to 83.9% for
the nine months ended September 30, 2021, primarily due to costs related to the
FC Fire and higher labor and operations costs, partially offset by a shift to
higher margin revenue categories. The portion of the FC Fire loss that was
recorded within cost of sales as a percentage of revenue was 1.2% for the nine
months ended September 30, 2021.
Operating, General and Administrative Expenses
Operating, general and administrative expenses for the three and nine months
ended September 30, 2021 increased $386 million or 57%, and $1.5 billion, or
88%, respectively, compared to the prior year periods. The increase for the
three months ended September 30, 2021 primarily reflects higher labor costs to
support growth and expansion of newer initiatives. The increase for the nine
months ended September 30, 2021 primarily reflects higher labor costs to support
growth and expansion of newer initiatives as well as property, equipment and
other losses recognized related to the FC Fire which occurred in the second
quarter of 2021. Operating, general and administrative expenses as a percentage
of revenue increased from 21.8% to 23.0% for the three months ended
September 30, 2021, and 21.1% to 24.3% for the nine months ended September 30,
2021, primarily related to higher labor costs. The increase for the nine months
ended September 30, 2021 was also impacted by the FC Fire.
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Interest Expense
Interest expense for the three and nine months ended September 30, 2021
decreased $18 million or (71)%, and $40 million or (52)%, respectively, compared
to the prior year periods. The decrease was primarily attributable to the
conversion of our convertible notes into shares of our Class A common stock as a
result of the Corporate Conversion and IPO during the first quarter of 2021.
Liquidity and Capital Resources
Liquidity
As of September 30, 2021 and December 31, 2020, we had stockholders' equity and
members' (deficit) of $2.6 billion and $(4.1) billion, respectively. We
anticipate that we will continue to incur losses for the next few years. We
expect that our investment into our growth strategy will continue to be
significant, including with respect to the expansion of our fulfillment,
logistics, and technology capabilities. As part of this expansion to fulfill
anticipated future customer demand, we plan to build several new fulfillment
centers. We have entered into various new construction contracts which are
expected to be completed over three years. These contracts have remaining
capital expenditure commitments of $133 million as of September 30, 2021. We
expect that our future expenditures for both infrastructure and
workforce-related costs will exceed several billion dollars over the next
several years.
Our primary source of funds has been, and we expect it to continue to be, cash
generated from our net revenues, supplemented through debt financing and sales
of our equity securities. We had total cash and cash equivalents and restricted
cash of $4.3 billion as of September 30, 2021, compared to $1.4 billion as of
December 31, 2020.
During the first quarter of 2021, we completed our IPO, in which we issued and
sold 100,000,000 shares of our Class A common stock at a price of $35.00 per
share. We received net proceeds of approximately $3.4 billion from the IPO after
deducting underwriting discounts of $69 million and other offering costs.
                                                                      Nine Months Ended
                                                                        September 30,
(in thousands)                                                                  2021                 2020
Net cash (used in) provided by operating activities                        $  (207,832)$   285,088
Net cash used in investing activities                                         (506,812)            (350,348)
Net cash provided by financing activities                                    3,672,191              108,537

Effect of exchange rate changes on cash and cash equivalents and restricted cash

                                                            (88,842)              (6,236)
Net increase in cash and cash equivalents, and restricted cash             

$ 2,868,705$ 37,041 Cash and cash equivalents, and restricted cash, as of beginning of period

$ 1,401,302$ 1,371,535 Cash and cash equivalents, and restricted cash, as of end of period

$ 4,270,007$ 1,408,576



Operating Activities
Our net cash used in operating activities was $(208) million for the nine months
ended September 30, 2021, representing a change of $(493) million, compared to
$285 million of net cash from operations for the nine months ended September 30,
2020. The year-over-year change in operating cash flow was primarily driven by a
$(401) million reduction in cash flows due to changes in operating assets and
liabilities, consisting of increases in accounts receivable of $(35) million as
a result of higher sales volume and expanded available selection for customers,
decreases in accounts payable of $(387) million impacted from timing of
payments, and a decrease in other liabilities of $(70) million from the timing
of payments for employee withholdings and operating lease liabilities, partially
offset by a decrease in purchases of inventory of $105 million. Also
contributing to the increase in cash used in operating activities was a $(757)
million increase in net loss partially offset by a $665 million increase in our
non-cash expenses contributing to the net loss for the nine months ended
September 30, 2021.
Investing Activities
Our net cash used in investing activities was $(507) million for the nine months
ended September 30, 2021, representing an increase of $156 million, or 45%, as
compared to $(350) million used in investing activities for the nine months
ended September 30, 2020. This increase was mainly driven by a $191 million
increase in purchases of property and equipment, primarily related to
investments in our fulfillment and logistics infrastructure, including purchases
of buildings and land, as well as technology equipment and capabilities. For the
nine months ended September 30, 2021, purchases of land and buildings comprised
$177 million of the $506 million in total purchases of property and equipment.
For the nine months ended
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September 30, 2020, purchases of land and buildings comprised $36 million of the
$315 million in total purchases of property and equipment.
Financing Activities
Our net cash provided by financing activities for the nine months ended
September 30, 2021 increased $3.6 billion, compared to the nine months ended
September 30, 2020. This increase was primarily driven by $3.4 billion of
proceeds, net of underwriting discounts of $69 million and other offering costs,
from the issuance of 100,000,000 shares of our Class A common stock upon the
completion of our IPO, a $46 million increase in cash proceeds from the issuance
of common stocks/units related to equity awards and $97 million in repurchases
of common units and preferred units in the prior period, partially offset by a
$(87) million increase in repayment of debt and short-term borrowings.
We believe that our sources of liquidity will be sufficient to meet our
anticipated cash requirements for at least the next 12 months. However, we may
need additional cash resources in the future if we find and pursue opportunities
for investment, acquisition, strategic cooperation, or other similar actions,
which may include investing in technology, our logistics and fulfillment
infrastructure, or related talent. If we determine that our cash requirements
exceed our amounts of cash on hand or if we decide to further optimize our
capital structure, we may seek to issue additional debt or equity securities or
obtain credit facilities or other sources of financing. This financing may not
be available on favorable terms, or at all.
Capital Resources
Our short-term borrowings generally include lines of credit with financial
institutions available to be drawn upon for general operating purposes.
In February 2021, we entered into a new three-year senior unsecured credit
facility (the "new revolving credit facility") providing for revolving loans in
an aggregate principal amount of up to $475 million (which automatically
increased to an aggregate principal amount of $950 million based on us receiving
at least $2.0 billion in net proceeds from our IPO). The new revolving credit
facility provides us the right to request incremental commitments up to $1.25
billion, subject to customary conditions. During March 2021, the aggregate
principal amount of our new revolving credit facility increased to $1.0 billion
as a result of our IPO. As of September 30, 2021, there was no balance
outstanding on the new revolving credit facility.
Borrowings under the new revolving credit facility bear interest, at our option,
at a rate per annum equal to (i) a base rate equal to the highest of (A) the
prime rate, (B) the higher of the federal funds rate or a composite overnight
bank borrowing rate plus 0.50%, or (C) an adjusted London interbank offered rate
("LIBOR") for a one-month interest period plus 1.00% or (ii) an adjusted LIBOR
plus a margin equal to 1.00%. We are also required to pay other customary fees
for a credit facility of this size and type, including letter of credit fees, an
upfront fee, and an unused commitment fee. The new revolving credit facility
contains a number of covenants that, among other things, restrict our ability
to:
•incur or guarantee additional debt;
•make certain investments and acquisitions;
•make certain restricted payments and payments of certain indebtedness;
•incur certain liens or permit them to exist; and
•make fundamental changes and dispositions (including dispositions of the equity
interests of subsidiary guarantors).
Each of these restrictions is subject to various exceptions.
The new revolving credit facility requires us to (i) maintain a ratio of secured
indebtedness to total consolidated tangible assets of less than 35%, if we have
$1 or more of revolving loans or any unreimbursed drawn letters of credit
outstanding under the new revolving credit facility at the end of each fiscal
quarter and (ii) maintain a minimum amount of liquidity of at least $625.0
million (or $312.5 million to the extent the aggregate commitment of the new
revolving credit facility is $500 million).
The new revolving credit facility is guaranteed on a senior unsecured basis by
certain material restricted subsidiaries of Coupang, Inc. (including Coupang
Corp.), subject to customary exceptions. The new revolving credit facility also
contains certain customary affirmative covenants and events of default for
facilities of this type.
During August 2021, we entered into a new $169 million three-year term loan. We
have pledged $203 million of certain land and buildings as collateral. The term
loan bears interest at a fixed rate of 3.155%.
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In October 2021, the Company entered into a new two-year loan agreement to
borrow up to $139 million to finance the construction of a fulfillment center.
The Company pledged up to $167 million of certain existing land and a building
to be constructed as collateral. The loan bears interest at a fixed rate of
3.45%.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet financing arrangements or any relationships with
unconsolidated entities or financial partnerships, including entities sometimes
referred to as structured finance or special purpose entities, that were
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
We prepare our financial statements in accordance with U.S. GAAP. Preparing
these financial statements requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, expenses, and
related disclosures. We evaluate our estimates and assumptions on an ongoing
basis. Our estimates are based on historical experience and various other
assumptions that we believe to be reasonable under the circumstances. Our actual
results could differ from these estimates.
Our significant accounting policies are discussed in Note 2 - "Significant
Accounting Policies" to our consolidated financial statements included in the
Final Prospectus. There have been no significant changes to these policies and
estimates for the nine months ended September 30, 2021, except as described in
Note 1 - "Basis of Presentation and Summary of Significant Accounting Policies"
and Note 2 - "Change in Accounting Principle" to our condensed consolidated
financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Recently Adopted Accounting Pronouncements
See Note 1 - "Basis of Presentation and Summary of Significant Accounting
Policies" to the condensed consolidated financial statements included elsewhere
in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
In addition to the risks inherent in our operations, we are exposed to market
risks in the ordinary course of our business. Market risk represents the risk of
loss that may impact our financial position due to adverse changes in financial
market prices and rates. Our market risk exposure is primarily the result of
fluctuations in interest rates, foreign currency, and credit.
Interest Rate Risk
As of September 30, 2021, we had cash, cash equivalents, and restricted cash of
$4.3 billion. Interest-earning instruments carry a degree of interest rate risk.
We do not enter into investments for trading or speculative purposes and have
not used any derivative financial instruments to manage our interest rate risk
exposure. Our interest rate risk arises primarily from our short-term
borrowings. Borrowings issued at variable rates expose us to variability in cash
flows. Our policy, in the management of interest rate risk, is to strike a
balance between fixed and floating rate financial instruments as well as our
cash and cash equivalents and any short-term investments we may hold. The
balance struck by our management is dependent on prevailing interest rate
markets at any point in time.
Our borrowings generally include lines of credit with financial institutions,
some of which carry variable interest rates. An assumed hypothetical 10% change
in prevailing interest rates would not have a material impact on our results of
operations for either the three or nine months ended September 30, 2021. Any
future borrowings incurred under the new revolving credit facility would accrue
interest at a floating rate based on a formula tied to certain market rates at
the time of incurrence.
Foreign Currency Risk
We have accounts on our foreign subsidiaries' ledgers, which are maintained in
the respective subsidiary's local currency and translated into USD for reporting
of our consolidated financial statements. As a result, we are exposed to
fluctuations in the exchange rates of various currencies against the USD and
other currencies, including the KRW.
Transactional
We generate the majority of our revenue from customers within Korea. Typically,
we aim to align costs with revenue denominated in the same currency, but we are
not always able to do so. As a result of the geographic spread of our operations
and
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due to our reliance on certain products and services priced in currencies other
than KRW, our business, results of operations, and financial condition have been
and will continue to be impacted by the volatility of the KRW against foreign
currencies.
Translational
Coupang, Inc.'s functional currency and reporting currency is the USD. The local
and functional currency for our Korean subsidiary, Coupang Corp., which is our
primary operating subsidiary, is the KRW. The other subsidiaries predominantly
utilize their local currencies as their functional currencies. Assets and
liabilities of each subsidiary are translated into USD at the exchange rate in
effect at the end of each period. Revenue and expenses for these subsidiaries
are translated into USD using average rates that approximate those in effect
during the period. Consequently, increases or decreases in the value of the USD
affect the value of these items with respect to the non-USD-denominated
businesses in the consolidated financial statements, even if their value has not
changed in their original currency. For example, a stronger USD will reduce the
reported results of operations of non-USD-denominated businesses and conversely
a weaker USD will increase the reported results of operations of
non-USD-denominated businesses. An assumed hypothetical 10% adverse change in
average exchange rates used to translate foreign currencies to USD would have
resulted in a decline in total net revenues of $417 million and $1.2 billion and
a decrease in net loss of $20 million and $72 million for the three and nine
months ended September 30, 2021, respectively.
At this time, we do not, but we may in the future, enter into derivatives or
other financial instruments in an attempt to hedge our foreign currency risk. It
is difficult to predict the impact hedging activities would have on our results
of operations.
Credit Risk
Our cash and cash equivalents, deposits, and loans with banks and financial
institutions are potentially subject to concentration of credit risk. We place
cash and cash equivalents with financial institutions that management believes
are of high credit quality. The degree of credit risk will vary based on many
factors, including the duration of the transaction and the contractual terms of
the agreement. As appropriate, management evaluates and approves credit
standards and oversees the credit risk management function related to
investments.
Item 4.  Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of September 30, 2021, our disclosure controls and procedures were evaluated,
under the supervision and with the participation of our Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO"), to assess whether they are
effective in providing reasonable assurance that information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934, as amended, is accumulated and communicated to our
management, including our CEO and CFO, as appropriate, to allow timely decisions
regarding required disclosure and to provide reasonable assurance that such
information is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms.
Based on this evaluation, our CEO and CFO concluded that our disclosure controls
and procedures were not effective as of September 30, 2021, due to the material
weaknesses in our internal control over financial reporting, as further
described below. As a result, our management has performed additional analyses,
reconciliations, and other post-closing procedures and has concluded that,
notwithstanding the material weaknesses in our internal control over financial
reporting, our condensed consolidated financial statements for the periods
covered by and included in this Quarterly Report on Form 10-Q fairly state, in
all material respects, our financial position, results of operations and cash
flows for the periods presented in conformity with U.S. GAAP.
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Previously Reported Material Weakness
As disclosed in Part II-Item 1A. "Risk Factors" contained elsewhere in this
Quarterly Report on Form 10-Q, we previously identified material weaknesses in
our internal control over financial reporting related to (i) the design and
effectiveness of information technology general controls, (ii) inadequate
segregation of duties, and (iii) inadequate internal control over the timely
preparation and review of account reconciliations. We have concluded that these
material weaknesses arose because we did not have sufficient qualified
accounting resources, formalized processes, and policies necessary to satisfy
the accounting and financial reporting requirements of a public company. We have
determined that these control deficiencies constituted material weaknesses in
our internal control over financial reporting. A material weakness is a
deficiency or combination of deficiencies in our internal control over financial
reporting such that there is a reasonable possibility that a material
misstatement of our consolidated financial statements would not be prevented or
detected on a timely basis. These deficiencies could result in additional
misstatements to our consolidated financial statements that would be material
and would not be prevented or detected on a timely basis.
Remediation Plan
Management has developed and is executing a remediation plan to address the
previously disclosed material weaknesses. We are actively engaged in the
remediation of each of the outstanding material weaknesses, including utilizing
the assistance of outside advisors where appropriate.
To remediate the existing material weaknesses, additional time is required to
demonstrate the effectiveness of the remediation efforts. The material
weaknesses cannot be considered remediated until the applicable remedial
controls operate for a sufficient period of time and management has concluded,
through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
We are taking actions to remediate the material weaknesses relating to our
internal control over financial reporting. There was no change in our internal
control over financial reporting that occurred during the quarter ended
September 30, 2021 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our management, including our CEO and CFO, do not expect that our disclosure
controls and procedures or our internal control over financial reporting will
prevent all errors and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of a simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people or by
management override of the controls. The design of any system of controls is
also based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions; over time, controls may
become inadequate because of changes in conditions, or the degree of compliance
with policies or procedures may deteriorate. Due to inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
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                          Part II.  Other Information

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