Debt & Liquidity

9 Months Ended

Sep. 30, 2024

Debt Disclosure [Abstract]

DEBT & LIQUIDITY

DEBT & LIQUIDITY

Debt

On March 6, 2023, the Company entered into the 15th amendment to the loan and security agreement (as amended, the “15th Amendment" to the “Credit Agreement”) with Midtown Madison Management LLC, as agent for various funds of Atalaya Capital Management (the “Lender”). As part of the amendment, the maturity date of the revolving line of credit (“RLOC”) and the senior secured term loan (“Term Loan”) was extended to June 4, 2025 and the commitments under the RLOC were reduced to $75 million from $125 million. The interest rate for interest paid-in-kind (“PIK”) on the Term Loan (as defined in the 15th Amendment) is (A) if Liquidity is greater than $25 million, 4.5% or (B) if Liquidity is less than $25 million, 6%. The spread on the RLOC was increased to 8.5% from 7.5%, while the spread on the Term Loan remained at 8.0%. Additionally, effective April 1, 2023, the Secured Overnight Financing Rate (“SOFR”) replaced the London Interbank Offered Rate (“LIBOR”), plus a 0.10% credit adjustment spread, for both the RLOC and the Term Loan’s benchmark rate for interest rate calculations. As of September 30, 2024, the interest rates for the RLOC and Term Loan, were 13.8% and 17.8%, respectively, (which includes the 4.5% interest rate applicable to PIK with respect to the Term Loan).

In connection with the 15th Amendment, the Company repaid $25 million of outstanding principal amount of the Term Loan and issued a warrant to purchase up to 80,000 shares of its common stock at an exercise price of $0.25 per share, which vested on September 6, 2023. On December 5, 2023, the Company issued a warrant to purchase an additional 80,000 shares of its common stock at an exercise price of $0.25 per share which vested on March 5, 2024. In conjunction with the 15th Amendment, the Company incurred a loss on partial extinguishment of debt of $2.4 million during the six months ended June 30, 2023. The loss on partial extinguishment of debt is attributed to the derecognition of a proportionate amount of the unamortized debt discount, a result of repaying the $25 million of outstanding principal on the Term Loan.

In addition, the 15th Amendment also updated certain financial covenants each as defined in the 15th Amendment, including the Minimum Adjusted EBITDA levels, Minimum Tangible Net Worth, Minimum Liquidity and compliance with a Total Advance Rate.

As noted above, the RLOC and Term Loan current maturity date are June 4, 2025. Due to the maturity date being less than one year from the balance sheet date of September 30, 2024, debt is classified as a current liability in the condensed consolidated balance sheet as of September 30, 2024. The Company is currently seeking to refinance the loans prior to maturity in June 2025.

A reconciliation of the outstanding principal to the carrying amount of the RLOC is as follows:

	September 30,		December 31,
	2024		2023
Principal balance	$	67,304	$	60,744
Less: Unamortized issuance costs	(198)		(397)
Total carrying amount	$	67,106	$	60,347

The issuance costs are amortized over the life of the RLOC and included in interest expense and other fees in the condensed consolidated statements of operations and comprehensive loss.

A reconciliation of the outstanding principal to the carrying amount of the Term Loan is as follows:

	September 30,		December 31,
	2024		2023
Principal balance	$	25,000	$	25,000
PIK	6,396		5,340
Less: Unamortized debt discount and issuance costs	(2,615)		(4,837)
Total carrying amount	$	28,781	$	25,503

Amortization expense related to the Term Loan discount and issuance costs of $0.8 million and $0.6 million was recognized for the three months ended September 30, 2024 and 2023, respectively; and $2.2 million and $2.1 million for the nine months ended September 30, 2024 and 2023, respectively. Amortization of debt discount and issuance costs is included in interest expense and other fees in the condensed consolidated statements of operations and comprehensive loss.

The RLOC and Term Loan are also subject to certain customary representations, affirmative covenants, which consist of maintaining lease performance metrics, financial ratios related to operating results, and lease delinquency ratios, along with customary negative covenants.

On April 24, 2024, the Company entered into the Limited Waiver and 16th Amendment to the Credit Agreement with the Lender (the "16th Amendment"). Pursuant to such 16th Amendment, the Lender granted the Company a waiver of any Specified Defaults (as defined in the 16th Amendment) related to the accounting errors that led to the restatement of the Company’s financial statements for all reporting periods prior to the date of the amendment. In addition, the 16th Amendment also updated certain financial covenants each as defined in the 16th Amendment, including Minimum Adjusted EBITDA (Trailing 3 Months), Minimum Adjusted EBITDA (YTD) and Minimum Tangible Net Worth. The Company is in compliance with all of its covenants as of September 30, 2024 and December 31, 2023.

Liquidity

The Company’s principal sources of liquidity are our cash and cash equivalents generated from leases and borrowings from the RLOC. Principal liquidity needs for the next 12 months and beyond are to fund normal recurring operational expenses, including purchases of assets held for lease, debt obligations, and litigation settlement amounts. As of September 30, 2024, cash and cash equivalents totaled $25.9 million, restricted cash totaled $4.4 million, and unused capacity on the RLOC was $7.7 million.

The Company’s revenue and operating results depend significantly on gross originations, which is defined as the retail price of the merchandise associated with lease-purchase agreements entered into during the period. Gross originations are a leading indicator of potential revenue streams, as a percentage of revenue is recognized in the quarter in which the gross originations occur and the remaining revenue is recognized in subsequent quarters.

The Company’s financing is generally comprised of cash from leases and borrowings from the RLOC, which is fully collateralized by the Company’s assets. As of November 1, 2024, the Company had a combined principal balance outstanding of approximately $98.6 million related to the RLOC and term loan, both of which mature within twelve months of the date that these financial statements are issued. Both loans were previously refinanced on March 6, 2023 to extend the maturity date from December 4, 2023 to June 4, 2025.

The Company projects that it will not have sufficient cash available to pay off the loans upon maturity and is currently seeking to refinance the loans prior to maturity in June 2025. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. Under the Company's debt agreements, the Company is subject to certain covenants. The Company was in compliance with all covenants in the RLOC and Term Loan as of September 30, 2024.