chwy-20230430

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 001-38936

CHEWY, INC.

(Exact name of registrant as specified in its charter)


Delaware						90-1020167
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
7700 West Sunrise Boulevard, Plantation, Florida						33322
(Address of principal executive offices)						(Zip Code)

(786) 320-7111

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.01 per share	CHWY	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒


Class						Outstanding as of May 24, 2023
Class A Common Stock, $0.01 par value per share						116,239,180
Class B Common Stock, $0.01 par value per share						311,188,356

CHEWY, INC.

FORM 10-Q

For the Quarterly Period Ended April 30, 2023

TABLE OF CONTENTS


		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets as of April 30, 202 3 and January 29 , 202 3	2
	Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended April 30, 202 3 and May 1 , 202 2	3
	Condensed Consolidated Statements of Stockholders’ Equity for the Thirteen Weeks Ended April 30, 202 3 and Ma y 1 , 202 2	4
	Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended April 30, 202 3 and May 1, 202 2	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	25
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25

Item 6.	Exhibits	26
	SIGNATURES	27

PART I. FINANCIAL INFORMATION

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning our ability to:

•sustain our recent growth rates and successfully manage challenges to our future growth, including introducing new products or services, improving existing products and services, and expanding into new offerings;

•successfully manage risks related to the macroeconomic environment, including any adverse impacts on our business operations, financial performance, supply chain, workforce, facilities, customer services and operations;

•acquire and retain new customers in a cost-effective manner and increase our net sales, improve margins and maintain profitability;

•manage our growth effectively;

•maintain positive perceptions of our company and preserve, grow and leverage the value of our reputation and our brand;

•limit operating losses as we continue to expand our business;

•forecast net sales and appropriately plan our expenses in the future;

•estimate the size of our addressable market;

•strengthen our current supplier relationships, retain key suppliers and source additional suppliers;

•negotiate acceptable pricing and other terms with third-party service providers, suppliers and outsourcing partners and maintain our relationships with such parties;

•mitigate changes in, or disruptions to, our shipping arrangements and operations;

•optimize, operate and manage the expansion of the capacity of our fulfillment centers;

•provide our customers with a cost-effective platform that is able to respond and adapt to rapid changes in technology;

•limit our losses related to online payment methods;

•maintain and scale our technology, including the reliability of our website, mobile applications, and network infrastructure;

•maintain adequate cybersecurity with respect to our systems and ensure that our third-party service providers do the same with respect to their systems;

•maintain consumer confidence in the safety, quality and health of our products;

•limit risks associated with our suppliers and our outsourcing partners;

•comply with existing or future laws and regulations in a cost-efficient manner;

•compete with other retailers and service providers;

•utilize tax attributes, net operating loss and tax credit carryforwards, and limit fluctuations in our tax obligations and effective tax rate;

•adequately protect our intellectual property rights;

•successfully defend ourselves against any allegations or claims that we may be subject to;

•attract, develop, motivate and retain highly-qualified and skilled employees;

•predict and respond to economic conditions, industry trends, and market conditions, and their impact on the pet products market;

•reduce merchandise returns or refunds;

•respond to severe weather and limit disruption to normal business operations;

•manage new acquisitions, investments or alliances, and integrate them into our existing business;

•successfully compete in the pet insurance market;

•manage challenges presented by international markets;

•successfully compete in the pet products and services health and retail industry, especially in the e-commerce sector;

•raise capital as needed; and

•maintain effective internal control over financial reporting and disclosure controls and procedures.

You should not rely on forward-looking statements as predictions of future events, and you should understand that these statements are not guarantees of performance or results, and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of factors. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current assumptions, expectations and projections about future events and trends that we believe may affect our business, financial condition, and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 29, 2023, our subsequent quarterly reports, and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

Investors and others should note that we may announce material information to our investors using our investor relations website (https://investor.chewy.com/), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our investors and the public about our company, our business and other issues. It is possible that the information that we post on these channels could be deemed to be material information. We therefore encourage investors to visit these websites from time to time. The information contained on such websites and social media posts is not incorporated by reference into this filing. Further, our references to website URLs in this filing are intended to be inactive textual references only.

Item 1. Financial Statements (Unaudited)

CHEWY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	As of
	April 30, 2023		January 29, 2023
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	408,685	$	330,441
Marketable securities	394,487		346,944
Accounts receivable	151,719		126,349
Inventories	731,376		675,520
Prepaid expenses and other current assets	47,345		41,067
Total current assets	1,733,612		1,520,321
Property and equipment, net	474,764		478,738
Operating lease right-of-use assets	447,581		423,423
Goodwill	39,442		39,442
Other non-current assets	42,945		53,152
Total assets	$	2,738,344	$	2,515,076
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	1,113,849	$	1,030,882
Accrued expenses and other current liabilities	779,625		738,467
Total current liabilities	1,893,474		1,769,349
Operating lease liabilities	500,578		471,765
Other long-term liabilities	61,927		60,005
Total liabilities	2,455,979		2,301,119
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding as of April 30, 2023 and January 29, 2023	—		—
Class A common stock, $0.01 par value per share, 1,500,000,000 shares authorized, 115,919,876 and 114,160,531 shares issued and outstanding as of April 30, 2023 and January 29, 2023, respectively	1,159		1,141
Class B common stock, $0.01 par value per share, 395,000,000 shares authorized, 311,188,356 shares issued and outstanding as of April 30, 2023 and January 29, 2023	3,112		3,112
Additional paid-in capital	2,217,456		2,171,247
Accumulated deficit	(1,939,362)		(1,961,543)
Total stockholders’ equity	282,365		213,957
Total liabilities and stockholders’ equity	$	2,738,344	$	2,515,076

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)


	13 Weeks Ended
	April 30, 2023		May 1, 2022
Net sales	$	2,784,675	$	2,428,327
Cost of goods sold	1,993,220		1,760,507
Gross profit	791,455		667,820
Operating expenses:
Selling, general and administrative	583,666		504,283
Advertising and marketing	183,733		144,721
Total operating expenses	767,399		649,004
Income from operations	24,056		18,816
Interest income (expense), net	8,016		(344)
Other expense, net	(8,888)		—
Income before income tax provision	23,184		18,472
Income tax provision	1,003		—
Net income	$	22,181	$	18,472

Earnings per share attributable to common Class A and Class B stockholders:
Basic	$	0.05	$	0.04
Diluted	$	0.05	$	0.04
Weighted-average common shares used in computing earnings per share:
Basic	426,852		420,406
Diluted	430,471		426,710

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)


	13 Weeks Ended April 30, 2023
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of January 29, 2023	425,349	$	4,253	$	2,171,247	$	(1,961,543)	$	213,957

Share-based compensation expense	—	—		48,553		—		48,553
Vesting of share-based compensation awards	1,759	18		(18)		—		—


Tax sharing agreement with related parties	—	—		(2,326)		—		(2,326)
Net income	—	—		—		22,181		22,181
Balance as of April 30, 2023	427,108	$	4,271	$	2,217,456	$	(1,939,362)	$	282,365

	13 Weeks Ended May 1, 2022
	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of January 30, 2022	420,106	$	4,201	$	2,021,310	$	(2,010,775)	$	14,736

Share-based compensation expense	—	—		25,794		—		25,794
Vesting of share-based compensation awards	553	6		(6)		—		—


Tax withholdings for share-based compensation awards	(53)	(1)		(2,467)		—		(2,468)
Tax sharing agreement with related parties	—	—		2,076		—		2,076
Net income	—	—		—		18,472		18,472
Balance as of May 1, 2022	420,606	$	4,206	$	2,046,707	$	(1,992,303)	$	58,610

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	13 Weeks Ended
	April 30, 2023		May 1, 2022
Cash flows from operating activities
Net income	$	22,181	$	18,472
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	28,877		17,340
Share-based compensation expense	48,553		25,794
Non-cash lease expense	11,924		9,109
Change in fair value of equity warrants and investments	8,948		—
Other	489		234
Net change in operating assets and liabilities:
Accounts receivable	(25,370)		(9,723)
Inventories	(55,856)		(37,770)
Prepaid expenses and other current assets	(10,721)		(14,248)
Other non-current assets	298		(1,469)
Trade accounts payable	82,967		73,678
Accrued expenses and other current liabilities	39,399		2,881
Operating lease liabilities	(5,219)		(5,338)
Other long-term liabilities	1,922		3,473
Net cash provided by operating activities	148,392		82,433
Cash flows from investing activities
Capital expenditures	(21,573)		(76,021)

Cash paid for acquisition of business, net of cash acquired	(367)		—
Purchases of marketable securities	(394,098)		—
Proceeds from maturities of marketable securities	350,000		—
Other	—		(1,400)
Net cash used in investing activities	(66,038)		(77,421)
Cash flows from financing activities


Payments for tax sharing agreement with related parties	(3,761)		(675)
Payment of debt modification costs	(175)		—
Principal repayments of finance lease obligations	(174)		(187)

Payments for tax withholdings related to vesting of share-based compensation awards	—		(2,468)
Net cash used in financing activities	(4,110)		(3,330)
Net increase in cash and cash equivalents	78,244		1,682
Cash and cash equivalents, as of beginning of period	330,441		603,079
Cash and cash equivalents, as of end of period	$	408,685	$	604,761

See accompanying Notes to Condensed Consolidated Financial Statements.

CHEWY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Description of Business

Chewy, Inc. and its wholly-owned subsidiaries (collectively “Chewy” or the “Company”) is a pure play e-commerce business geared toward pet products and services for dogs, cats, fish, birds, small pets, horses, and reptiles. Chewy serves its customers through its retail website, www.chewy.com, and its mobile applications and focuses on delivering exceptional customer service, competitive prices, outstanding convenience (including Chewy’s Autoship subscription program, fast shipping, and hassle-free returns), and a large selection of high-quality pet food, treats and supplies, and pet healthcare products.

The Company is controlled by a consortium including private investment funds advised by BC Partners and its affiliates, La Caisse de dépôt et placement du Québec, affiliates of GIC Special Investments Pte Ltd, affiliates of StepStone Group LP, and funds advised by Longview Asset Management, LLC (collectively, the “Sponsors”). The Company was controlled by PetSmart LLC (“PetSmart”), a wholly-owned subsidiary of the Sponsors through February 11, 2021.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related notes include the accounts of Chewy, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. The unaudited condensed consolidated financial statements and notes thereto of Chewy, Inc. have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as set forth in the Financial Accounting Standards Board’s (“FASB”) accounting standards codification (“ASC”). In the opinion of management, all adjustments necessary for a fair statement of the financial information, which are of a normal and recurring nature, have been made for the interim periods reported. Results of operations for the quarterly period ended April 30, 2023 are not necessarily indicative of the results for the entire fiscal year. The unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2023 (“10-Q Report”) should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2023 (“10-K Report”).

Fiscal Year

The Company has a 52- or 53-week fiscal year ending each year on the Sunday that is closest to January 31 of that year. The Company’s 2023 fiscal year ends on January 28, 2024 and is a 52-week year. The Company’s 2022 fiscal year ended January 29, 2023 and was a 52-week year.

Significant Accounting Policies

Other than policies noted herein, there have been no significant changes from the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” included in the 10-K Report.

Use of Estimates

GAAP requires management to make certain estimates, judgments, and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates these estimates and judgments. Actual results could differ from those estimates.

Key estimates relate primarily to determining the net realizable value and demand for inventory, useful lives associated with property and equipment and intangible assets, valuation allowances with respect to deferred tax assets, contingencies, self-insurance accruals, evaluation of sales tax positions, and the valuation and assumptions underlying share-based compensation and equity warrants. On an ongoing basis, management evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

Accrued Expenses and Other Current Liabilities

The following table presents the components of accrued expenses and other current liabilities (in thousands):


	As of
	April 30, 2023		January 29, 2023
Outbound fulfillment	$	425,944	$	369,661
Advertising and marketing	104,522		99,593
Payroll liabilities	47,231		66,799
Accrued expenses and other	201,928		202,414
Total accrued expenses and other current liabilities	$	779,625	$	738,467

Stockholders’ Equity

Conversion of Class B Common Stock

On May 8, 2020, Buddy Chester Sub LLC, a wholly-owned subsidiary of the Sponsors, converted 17,584,098 shares of the Company’s Class B common stock into Class A common stock. On May 11, 2020, Buddy Chester Sub LLC entered into a variable forward purchase agreement (“the Contract”) to deliver up to 17,584,098 shares of the Company’s Class A common stock at the exchange date, with the number of shares to be issued based on the trading price of the Company’s common stock during a 20-day observation period. On each of May 15, 2023 and May 16, 2023, Buddy Chester Sub LLC settled its obligations under the Contract and delivered a total of 17,584,098 shares.

Interest Income (Expense), net

The Company generates interest income from its cash and cash equivalents and marketable securities and incurs interest expense from its borrowing facilities and finance leases. The following table provides additional information about the Company’s interest income (expense), net (in thousands):


	13 Weeks Ended
	April 30, 2023		May 1, 2022
Interest income	$	8,878	$	256
Interest expense	(862)		(600)
Interest income (expense), net	$	8,016	$	(344)

Other Income (Expense), net

The Company’s other income (expense), net consists of changes in the fair value of equity warrants and investments, foreign currency transaction gains and losses, and allowances for credit losses. The following table provides additional information about the Company’s other income (expense), net (in thousands):


	13 Weeks Ended
	April 30, 2023		May 1, 2022
Change in fair value of equity warrants	$	(8,934)	$	—
Change in fair value of equity investments	(14)		—
Foreign currency transaction gains	60		—
Other expense, net	$	(8,888)	$	—

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

ASU 2022-04—Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. In September 2022, the FASB issued this Accounting Standards Update (“ASU”) which requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about obligations outstanding at the end of the reporting period. This update became effective at the beginning of the Company’s 2023 fiscal year. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. In June 2022, the FASB issued this ASU to clarify the guidance when measuring the fair value of an equity security subject to contractual sale restrictions that prohibit the sale of an equity security. This update is effective at the beginning of the Company’s 2024 fiscal year, with early adoption permitted. The Company does not believe the adoption of this standard will have a material impact on the Company’s condensed consolidated financial statements.

3. Acquisitions

Petabyte Acquisition

On October 23, 2022, the Company entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Petabyte Technology Inc. (“Petabyte”), a Delaware corporation. Under the terms of the Merger Agreement, the Company and Petabyte effected a merger on November 7, 2022, and Petabyte became a wholly-owned subsidiary of the Company. Headquartered in Bellevue, Washington, Petabyte is a provider of cloud-based technology solutions to the veterinary sector and the acquisition is expected to further strengthen the Company’s pet healthcare product and service offering.

The following table reconciles the estimated purchase price to the cash paid for the acquisition, net of cash acquired (in thousands):


Estimated purchase price	$	43,281
Less: cash acquired	2,881


Cash paid for acquisition of business, net of cash acquired	$	40,400

The Petabyte transaction was accounted for as a business combination in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values, with the remaining unallocated purchase price recorded as goodwill. Goodwill represents the expected synergies and cost rationalization from the merger of operations as well as intangible assets that do not qualify for separate recognition such as an assembled workforce.

The following table summarizes the assets acquired and liabilities assumed as of the acquisition date (in thousands):


Assets acquired:
Cash and cash equivalents	$	2,881
Accounts receivable	104
Goodwill	39,442
Identified intangible assets	1,510
Other current and non-current assets	318
Liabilities assumed:

Other current and long-term liabilities	(974)
Estimated purchase price	$	43,281

As of April 30, 2023, the purchase price allocation is considered preliminary and is subject to change based on the final value of the net assets acquired. Pro forma information for the Petabyte acquisition has not been provided as the impact was not material to the Company’s consolidated results of operations.

Based on a preliminary allocation, in connection with this acquisition, the Company recorded goodwill of $39.4 million, none of which is anticipated to be deductible for tax purposes. The identified intangible assets consisted of $1.5 million of developed technology with an amortization period of 3.0 years.

4. Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1-Valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2-Valuations based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3-Valuations based on unobservable inputs reflecting the Company’s assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

Cash equivalents are carried at cost, which approximates fair value and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

Marketable securities are carried at fair value and are classified within Level 1 because they are valued using quoted market prices. Specific to marketable fixed income securities, the Company did not record any gross unrealized gains and losses as fair value approximates amortized cost. The Company did not record any credit losses during the thirteen weeks ended April 30, 2023. Further, as of April 30, 2023, the Company did not record an allowance for credit losses related to its fixed income securities.

Equity investments in public companies that have readily determinable fair values are carried at fair value and are classified within Level 1 because they are valued using quoted market prices.

Equity warrants are classified within Level 3 of the fair value hierarchy as they are valued based on observable and unobservable inputs reflecting the Company’s assumptions, consistent with reasonably available assumptions made by other market participants. The Company utilized certain valuation techniques such as the Black-Scholes option-pricing model and the Monte Carlo simulation model to determine the fair value of equity warrants. The application of these models requires the use of a number of complex assumptions based on unobservable inputs, including the expected term, expected equity volatility, discounts for lack of marketability, cash flow projections, and probability with respect to vesting requirements.

The following table includes a summary of financial instruments measured at fair value as of April 30, 2023 (in thousands):


	Level 1		Level 2		Level 3
Cash	$	225,837	$	—	$	—
Money market funds	163,040		—		—
Commercial paper	19,808		—		—
Cash and cash equivalents	408,685		—		—
U.S. Treasury securities	394,461		—

SEC Form 10-Q filed by Chewy Inc.