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 |
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20222023
or
☐ 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: 001-40249
ThredUp Inc.
(Exact name of registrant as specified in its charter)
| | | | | |
☐Delaware | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193426-4009181 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
969 Broadway, Suite 200 Oakland, California | 94607 |
| (Address of principal executive offices) | (Zip Code) |
For the transition period from to
Commission file(415) 402-5202
(Registrant’s telephone number, 001-40249including area code)
______________________
ThredUp Inc.
______________________Securities registered pursuant to Section 12(b) of the Act:
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
Delaware | | 26-4009181 | |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
969 Broadway, Suite 200 | | | | |
Oakland, CA |
| | 94607 | |
(Address of Principal Executive Offices) | | (Zip Code) | |
(415) 402-5202Registrant's telephone number, including area code
______________________
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,Common Stock, $0.0001 par value per share | | TDUP | | The Nasdaq Stock Market LLC Long-Term 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 ☒
The registrant had 58,666,102There were 72,605,495 shares of Class A common stock $0.0001 par value per share, and 40,383,66230,484,786 shares of Class B common stock $0.0001 par value per share, outstanding as of April 29, 2022.
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are statements that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential”“potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
•our future financial performance, including our revenue, cost of revenue and operating expenses and our ability to achieve and maintain future profitability;
•the sufficiency of our cash, cash equivalents and capital resources to meet our liquidity needs;
•our ability to effectively manage or sustain our growth and to effectively expand our operations;
•our strategies, plans, objectives and goals, including our expectations regarding future infrastructure investments;investments as well as restructuring activities;
•our ability to attract and retain buyers and sellers and the continued impact of network effects as we scale our platform;
•our ability to continue to generate revenue from new Resale-as-a-Service (“RaaS”) offerings that are our futureas sources of revenue;
•trends in our key financial and operating metrics;
•our estimated market opportunity;
•economic and industry trends, projected growth or trend analysis;analysis, including the effects of foreign currency exchange rate fluctuations, inflationary pressures, increased interest rates, changing consumer habits and general global economic uncertainty;
•our ability to comply with applicable laws and regulations;
•the effect of uncertainties related to the global COVID-19 pandemic, including as a result of the recent Omicron variant, the BA.2 subvariants and any new strains or variants of the virus and recovery therefrom on United States and global economies, our business, results of operations, financial condition, demand for secondhand and resale items, sales cycles and buyer and seller retention;
•our ability to remediate our material weakness in our internal control over financial reporting;
•our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments; and
•the increased expenses associated with being a public company.
You should not rely upon forward-looking statements as predictions of future events. 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” inPart I, Item 1A, Risk Factors, of our Annual Report on Form 10-K filed withfor the SEC on March 22,year ended December 31, 2022 and and elsewhere in this Quarterly Report on Form 10-Q, as well as in our other filings with the Securities and Exchange Commission (“SEC”). 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.
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.
***
Unless otherwise indicated or unless the context requires otherwise, all references in this document to “thredUP”, “the Company”, “we”, “us”, “our”, or similar references are to ThredUp Inc. and its consolidated subsidiaries.
thredUP is one of the world’s largest online resale platforms for women’s and kids’ apparel, shoes and accessories, based primarily on items processed, items sold and the capacity of our distribution centers.
The “estimated retail price” of an item is based on the estimated original retail price of a comparable item of the same quality, construction and material offered elsewhere in new condition. Our estimated original retail prices are set by our team of merchants who periodically monitor market prices for the brands and styles that we offer on our marketplace.
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements (Unaudited)
ThredUp Inc.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited) | | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| | | |
| | | |
| Assets | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 68,597 | | | $ | 84,550 | |
| Marketable securities | 115,189 | | | 121,277 | |
| Accounts receivable, net | 2,971 | | | 4,136 | |
| Inventory, net | 12,025 | | | 9,825 | |
| Other current assets | 9,634 | | | 8,625 | |
| Total current assets | 208,416 | | | 228,413 | |
| Operating lease right-of-use assets | 42,937 | | | 39,340 | |
| Property and equipment, net | 73,132 | | | 55,466 | |
| Goodwill | 12,043 | | | 12,238 | |
| Intangible assets | 12,942 | | | 13,854 | |
| Other assets | 11,558 | | | 11,515 | |
| Total assets | $ | 361,028 | | | $ | 360,826 | |
| Liabilities, Convertible Preferred Stock and Stockholders’ Equity | | | |
| Current liabilities | | | |
| Accounts payable | $ | 19,529 | | | $ | 13,336 | |
| Accrued and other current liabilities | 50,970 | | | 45,253 | |
| Seller payable | 20,640 | | | 19,125 | |
| Operating lease liabilities, current | 4,433 | | | 3,931 | |
| Current portion of long-term debt | 7,780 | | | 7,768 | |
| Total current liabilities | 103,352 | | | 89,413 | |
| Operating lease liabilities, non-current | 42,030 | | | 36,997 | |
| Long-term debt | 25,634 | | | 27,559 | |
| Other non-current liabilities | 2,324 | | | 1,123 | |
| Total liabilities | 173,340 | | | 155,092 | |
| Commitments and contingencies (Note 11) | 0 | | 0 |
| Convertible preferred stock: $0.0001 par value; 100,000 shares authorized as of March 31, 2022 and December 31, 2021; no shares issued and outstanding as of March 31, 2022 and December 31, 2021 | — | | | — | |
| Stockholders’ equity: | | | |
| Class A and B common stock, $0.0001 par value; 1,120,000 shares authorized as of March 31, 2022 and December 31, 2021; 98,942 and 98,435 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | 10 | | | 10 | |
| Additional paid-in capital | 526,533 | | | 522,161 | |
| Accumulated other comprehensive loss | (2,804) | | | (1,094) | |
| Accumulated deficit | (336,051) | | | (315,343) | |
| Total stockholders’ equity | 187,688 | | | 205,734 | |
| Total liabilities, convertible preferred stock and stockholders’ equity | $ | 361,028 | | | $ | 360,826 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ThredUp Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | | | |
| | 2022 | | 2021 |
| | |
| Revenue: | | | | |
| Consignment | | $ | 47,435 | | | $ | 44,688 | |
| Product | | 25,260 | | | 10,992 | |
| Total revenue | | 72,695 | | | 55,680 | |
| Cost of revenue: | | | | |
| Consignment | | 10,049 | | | 10,832 | |
| Product | | 12,418 | | | 5,130 | |
| Total cost of revenue | | 22,467 | | | 15,962 | |
| Gross profit | | 50,228 | | | 39,718 | |
| Operating expenses: | | | | |
| Operations, product and technology | | 39,161 | | | 28,312 | |
| Marketing | | 16,978 | | | 15,446 | |
| Sales, general and administrative | | 14,664 | | | 10,638 | |
| Total operating expenses | | 70,803 | | | 54,396 | |
| Operating loss | | (20,575) | | | (14,678) | |
| Interest expense | | (423) | | | (559) | |
| Other income (expense), net | | 303 | | | (907) | |
| Loss before provision for income taxes | | (20,695) | | | (16,144) | |
| Provision for income taxes | | 13 | | | 27 | |
| Net loss | | $ | (20,708) | | | $ | (16,171) | |
| Net loss per share attributable to common stockholders, basic and diluted | | $ | (0.21) | | | $ | (0.86) | |
| Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted | | 98,624 | | | 18,701 | |
| | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ThredUp Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | | | | |
| | 2022 | | 2021 | |
| | | | |
| Net loss | | $ | (20,708) | | | $ | (16,171) | | |
| Other comprehensive loss, net of tax: | | | | | |
| Foreign currency translation adjustments | | (708) | | | — | | |
| Unrealized loss on available-for-sale debt securities | | (1,002) | | | — | | |
| Total comprehensive loss | | $ | (22,418) | | | $ | (16,171) | | |
| | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ThredUp Inc.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Convertible
Preferred Stock | | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Stockholders’ Equity |
| Shares | | Amount | | | Shares | | Amount | | | | |
| Balance as of December 31, 2021 | — | | | $ | — | | | | 98,435 | | | $ | 10 | | | $ | 522,161 | | | $ | (1,094) | | | $ | (315,343) | | | $ | 205,734 | |
| Exercise of stock options | — | | | — | | | | 334 | | | — | | | 754 | | | — | | | — | | | 754 | |
| Stock-based compensation | — | | | — | | | | — | | | — | | | 3,618 | | | — | | | — | | | 3,618 | |
| Issuance of common stock to settle restricted stock units | — | | | — | | | | 173 | | | — | | | — | | | — | | | — | | | — | |
| Other comprehensive loss | — | | | — | | | | — | | | — | | | — | | | (1,710) | | | — | | | (1,710) | |
| Net loss | — | | | — | | | | — | | | — | | | — | | | — | | | (20,708) | | | (20,708) | |
| Balance as of March 31, 2022 | — | | | $ | — | | | | 98,942 | | | $ | 10 | | | $ | 526,533 | | | $ | (2,804) | | | $ | (336,051) | | | $ | 187,688 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Convertible
Preferred Stock | | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
| Shares | | Amount | | | Shares | | Amount | | | | |
| Balance as of December 31, 2020 | 65,971 | | | $ | 247,041 | | | | 12,890 | | | $ | 1 | | | $ | 29,989 | | | $ | — | | | $ | (252,167) | | | $ | (222,177) | |
| Exercise of stock options | — | | | — | | | | 1,458 | | | — | | | 1,875 | | | — | | | — | | | 1,875 | |
| Stock-based compensation | — | | | — | | | | — | | | — | | | 3,498 | | | — | | | — | | | 3,498 | |
| Conversion of preferred stock warrants to Class B common stock warrants | — | | | — | | | | — | | | — | | | 1,827 | | | — | | | — | | | 1,827 | |
| Preferred stock conversion to Class B common stock | (65,971) | | | (247,041) | | | | 65,971 | | | 7 | | | 247,034 | | | — | | | — | | | 247,041 | |
| Sale of Class A common stock upon initial public offering, net of issuance costs | — | | | — | | | | 13,800 | | | 1 | | | 175,533 | | | — | | | — | | | 175,534 | |
| Cashless exercise of common stock warrant | — | | | — | | | | 25 | | | — | | | — | | | — | | | — | | | — | |
| Net loss | — | | | — | | | | — | | | — | | | — | | | — | | | (16,171) | | | (16,171) | |
| Balance as of March 31, 2021 | — | | | $ | — | | | | 94,144 | | | $ | 9 | | | $ | 459,756 | | | $ | — | | | $ | (268,338) | | | $ | 191,427 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.marketplaces.
ThredUp Inc.PART I. FINANCIAL INFORMATION
Condensed Consolidated
Item 1. Financial Statements of Cash Flows
(in thousands)
(unaudited)THREDUP INC.
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2022 | | 2021 |
| | | |
| Cash flows from operating activities | | | |
| Net loss | $ | (20,708) | | | $ | (16,171) | |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | |
| Depreciation and amortization | 3,271 | | | 2,038 | |
| Stock-based compensation expense | 3,523 | | | 3,498 | |
| Reduction in the carrying amount of right-of-use assets | 1,398 | | | 1,318 | |
| Changes in fair value of convertible preferred stock warrants and others | 481 | | | 1,048 | |
| Changes in operating assets and liabilities: | | | |
| Accounts receivable, net | 1,143 | | | 97 | |
| Inventory, net | (2,313) | | | 37 | |
| Other current and non-current assets | (2,162) | | | (457) | |
| Accounts payable | 1,601 | | | 4,722 | |
| Accrued and other current liabilities | 4,912 | | | 4,784 | |
| Seller payable | 1,521 | | | 1,470 | |
| Operating lease liabilities | 539 | | | (1,311) | |
| Other non-current liabilities | 115 | | | 4 | |
| Net cash (used in) provided by operating activities | (6,679) | | | 1,077 | |
| Cash flows from investing activities | | | |
| Maturities of marketable securities | 4,726 | | | — | |
| Purchase of property and equipment | (12,638) | | | (4,099) | |
| Net cash used in investing activities | (7,912) | | | (4,099) | |
| Cash flows from financing activities | | | |
| Proceeds from debt issuance | — | | | 4,625 | |
| Repayment of debt | (2,000) | | | — | |
| Proceeds from issuance of Class A common stock, net of underwriting discounts and commissions | — | | | 180,284 | |
| Proceeds from exercise of common stock options | 809 | | | 1,875 | |
| Payment of costs for the initial public offering | — | | | (1,733) | |
| Net cash (used in) provided by financing activities | (1,191) | | | 185,051 | |
| Effect of exchange rate changes on cash and cash equivalents | (172) | | | — | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | (15,954) | | | 182,029 | |
| Cash, cash equivalents and restricted cash | | | |
| Beginning of period | 91,840 | | | 67,539 | |
| End of period | $ | 75,886 | | | $ | 249,568 | |
| | | |
(Unaudited)
| | | | | | | | | | | | | | |
| | March 31,
2023 | | December 31,
2022 |
| | (in thousands, except par value amounts) |
| ASSETS |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 50,739 | | | $ | 38,029 | |
| Marketable securities | | 42,733 | | | 66,902 | |
| Accounts receivable, net | | 4,232 | | | 4,669 | |
| Inventory | | 20,933 | | | 17,519 | |
| Other current assets | | 6,338 | | | 7,076 | |
| Total current assets | | 124,975 | | | 134,195 | |
| Operating lease right-of-use assets | | 45,180 | | | 46,153 | |
| Property and equipment, net | | 95,806 | | | 92,482 | |
| Goodwill | | 11,805 | | | 11,592 | |
| Intangible assets | | 10,044 | | | 10,499 | |
| Other assets | | 6,960 | | | 7,027 | |
| Total assets | | $ | 294,770 | | | $ | 301,948 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | | |
| Accounts payable | | $ | 12,747 | | | $ | 7,800 | |
| Accrued and other current liabilities | | 47,976 | | | 50,155 | |
| Seller payable | | 17,868 | | | 16,166 | |
| Operating lease liabilities, current | | 5,792 | | | 6,413 | |
| Current portion of long-term debt | | 3,882 | | | 3,879 | |
| Total current liabilities | | 88,265 | | | 84,413 | |
| Operating lease liabilities, non-current | | 47,521 | | | 48,727 | |
| Long-term debt, net of current portion | | 24,831 | | | 25,788 | |
| Other non-current liabilities | | 3,066 | | | 3,019 | |
| Total liabilities | | 163,683 | | | 161,947 | |
| Commitments and contingencies (Note 10) | | | | |
| Stockholders’ equity: | | | | |
| Class A and B common stock, $0.0001 par value; 1,120,000 shares authorized as of March 31, 2023 and December 31, 2022; 102,836 and 101,532 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | | 10 | | | 10 | |
| Additional paid-in capital | | 561,577 | | | 551,852 | |
| Accumulated other comprehensive loss | | (3,080) | | | (4,234) | |
| Accumulated deficit | | (427,420) | | | (407,627) | |
| Total stockholders’ equity | | 131,087 | | | 140,001 | |
| Total liabilities and stockholders’ equity | | $ | 294,770 | | | $ | 301,948 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ThredUp Inc.
Notes to Condensed Consolidated Financial Statements THREDUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31,
2023 | | March 31,
2022 |
| | (in thousands, except per share amounts) |
| Revenue: | | | | |
| Consignment | | $ | 46,479 | | | $ | 47,435 | |
| Product | | 29,443 | | | 25,260 | |
| Total revenue | | 75,922 | | | 72,695 | |
| Cost of revenue: | | | | |
| Consignment | | 9,220 | | | 10,049 | |
| Product | | 15,609 | | | 12,418 | |
| Total cost of revenue | | 24,829 | | | 22,467 | |
| Gross profit | | 51,093 | | | 50,228 | |
| Operating expenses: | | | | |
| Operations, product, and technology | | 38,347 | | | 39,161 | |
| Marketing | | 16,870 | | | 16,978 | |
| Sales, general, and administrative | | 16,059 | | | 14,664 | |
| Total operating expenses | | 71,276 | | | 70,803 | |
| Operating loss | | (20,183) | | | (20,575) | |
| Interest expense | | 77 | | | 423 | |
| Other income, net | | (476) | | | (303) | |
| Loss before provision for income taxes | | (19,784) | | | (20,695) | |
| Provision for income taxes | | 9 | | | 13 | |
| Net loss | | $ | (19,793) | | | $ | (20,708) | |
| Loss per share, basic and diluted | | $ | (0.19) | | | $ | (0.21) | |
| Weighted-average shares used in computing loss per share, basic and diluted | | 101,984 | | | 98,624 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
THREDUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31,
2023 | | March 31,
2022 |
| | (in thousands) |
| Net loss | | $ | (19,793) | | | $ | (20,708) | |
| Other comprehensive income (loss), net of tax: | | | | |
| Foreign currency translation adjustments | | 544 | | | (708) | |
| Unrealized gain (loss) on available-for-sale securities | | 610 | | | (1,002) | |
| Total other comprehensive income (loss) | | 1,154 | | | (1,710) | |
| Total comprehensive loss | | $ | (18,639) | | | $ | (22,418) | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
THREDUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | | | |
| | Shares | | Amount | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Stockholders’ Equity |
| | (in thousands) |
| Balance as of December 31, 2022 | | 101,532 | | | $ | 10 | | | $ | 551,852 | | | $ | (4,234) | | | $ | (407,627) | | | $ | 140,001 | |
| Issuance of common stock from exercise of stock options and restricted stock units | | 1,484 | | | — | | | 275 | | | | | | | 275 | |
| Stock-based compensation | | | | | | 9,720 | | | | | | | 9,720 | |
| Shares withheld related to net share settlement | | (180) | | | — | | | (270) | | | | | | | (270) | |
| Net income | | | | | | | | | | (19,793) | | | (19,793) | |
| Other comprehensive income | | | | | | | | 1,154 | | | | | 1,154 | |
| Balance as of March 31, 2023 | | 102,836 | | | 10 | | | 561,577 | | | (3,080) | | | (427,420) | | | 131,087 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | | | |
| | Shares | | Amount | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Stockholders’ Equity |
| | (in thousands) |
| Balance as of December 31, 2021 | | 98,435 | | | $ | 10 | | | $ | 522,161 | | | $ | (1,094) | | | $ | (315,343) | | | $ | 205,734 | |
| Issuance of common stock from exercise of stock options and restricted stock units | | 507 | | | — | | | 754 | | | | | | | 754 | |
| Stock-based compensation | | | | | | 3,618 | | | | | | | 3,618 | |
| Net income | | | | | | | | | | (20,708) | | | (20,708) | |
| Other comprehensive loss | | | | | | | | (1,710) | | | | | (1,710) | |
| Balance as of March 31, 2022 | | 98,942 | | | 10 | | | 526,533 | | | (2,804) | | | (336,051) | | | 187,688 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
THREDUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31,
2023 | | March 31,
2022 |
| | (in thousands) |
| Cash flows from operating activities: | | | | |
| Net loss | | $ | (19,793) | | | $ | (20,708) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
| Depreciation and amortization | | 3,681 | | | 3,271 | |
| Stock-based compensation expense | | 9,391 | | | 3,523 | |
| Reduction in carrying amount of right-of-use assets | | 1,207 | | | 1,398 | |
| Other | | 41 | | | 481 | |
| Changes in operating assets and liabilities: | | | | |
| Accounts receivable, net | | 1,010 | | | 1,143 | |
| Inventory | | (3,157) | | | (2,313) | |
| Other current and non-current assets | | 22 | | | (2,162) | |
| Accounts payable | | 4,102 | | | 1,601 | |
| Accrued and other current liabilities | | (1,851) | | | 4,912 | |
| Seller payable | | 1,696 | | | 1,521 | |
| Operating lease liabilities | | (2,062) | | | 539 | |
| Other non-current liabilities | | 1,255 | | | 115 | |
| Net cash used in operating activities | | (4,458) | | | (6,679) | |
| Cash flows from investing activities: | | | | |
| Maturities of marketable securities | | 24,579 | | | 4,726 | |
| Purchases of property and equipment | | (5,679) | | | (12,638) | |
| Net cash provided by (used in) investing activities | | 18,900 | | | (7,912) | |
| Cash flows from financing activities: | | | | |
| Repayment of debt | | (1,000) | | | (2,000) | |
| Proceeds from exercise of stock options and employee stock purchase plan | | 446 | | | 965 | |
| Payment of withholding taxes on stock-based awards | | (638) | | | (156) | |
| Net cash used in financing activities | | (1,192) | | | (1,191) | |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | | (540) | | | (172) | |
| Net change in cash, cash equivalents, and restricted cash | | 12,710 | | | (15,954) | |
| Cash, cash equivalents, and restricted cash, beginning of period | | 44,051 | | | 91,840 | |
| Cash, cash equivalents, and restricted cash, end of period | | $ | 56,761 | | | $ | 75,886 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
THREDUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Organization and Description of Business
ThredUp Inc. (“ThredUp”thredUP” or the “Company”) was formed as a corporation in the State of Delaware in January 2009. ThredUp isthredUP operates a large resale platform that enables consumers to buy and sell primarily secondhand women’s and kid’s apparel, shoes, and accessories. The Company has corporate offices in Oakland, California, Scottsdale, Arizona and Bulgaria, distribution centers in Pennsylvania, Georgia, Arizona and Bulgaria and processing centers in Texas and Tennessee. We have additional distribution centers in Texas and Bulgaria under construction.
2. Significant Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany account balances and transactions have been eliminated upon consolidation. The unaudited condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Quarterly Report on Form 10‑Q and Article 10 of Regulation S-X. As permitted under those rules, certain footnotes or other financial information can be condensed or omitted.
The preparation of consolidated financial statements in conformityaccordance with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and the related disclosures. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include, but are not limited to, the useful lives of property and equipment and intangibles, allowance for sales returns, allowance for bad debts, breakage on loyalty points and rewards and gift cards, valuation of inventory, stock-based compensation, right-of-use assets, goodwill and acquired intangibles, and income taxes.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal and recurring adjustments necessary to present fairly the financial position of the Company as of March 31, 2022,2023, and the results of operations and cash flows for the interim periods presented.
The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed withfor the Securities and Exchange Commission (“SEC”year ended December 31, 2022 (the “2022 10-K”) on March 22, 2022..
Reclassifications
Certain reclassifications were made to the prior period condensed consolidated statement of cash flows to conform to the current period presentation.
Recently Adopted Accounting Pronouncements
ConcentrationsFinancial Instruments — Credit Losses (Topic 326): Measurement of Credit Risk
Losses on Financial instruments that potentially subjectInstruments. This ASU changes the Companyimpairment model for most financial assets, requiring the use of an expected loss model which requires entities to concentrationsestimate the lifetime expected credit loss on financial assets measured at amortized cost. Such credit losses will be recorded as an allowance to offset the amortized cost of credit risk consist principallythe financial asset, resulting in a net presentation of cash, cash equivalents, marketable securities and accounts receivable. The Company deposits cash at major financial institutions, and at times, such cash may exceed federally insured limits. The credit risk is believedthe amount expected to be minimal duecollected on the financial asset. In addition, credit losses relating to available-for-sale debt securities will now be recorded through an allowance for credit losses rather than as a direct write-down to the security. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of this guidance during the first quarter of 2023 did not have a material impact on the Company’s condensed consolidated financial position of the depository institutions in which those deposits are held. The Company has never experienced any losses on deposits since inception. The Company’s investment policy restricts cash investments to highly liquid, short to intermediate-term, high grade fixed income securities, and as a result, the Company believes its cash equivalents and marketable securities represent minimal credit risk.
Revenue from Loyalty Reward Redemption orand Expiration
As of March 31, 20222023 and December 31, 2021,2022, the Company had a liability of $3.4$3.3 million and $4.0$3.3 million, respectively, related to theits customer loyalty program, which is included in accrued and other current liabilities inwithin the Company’s condensed consolidated balance sheets. The Company recognized $2.7 million and $3.3 million of
ThredUp Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
revenue from loyalty reward redemption or expirationof $2.1 million and $2.7 million for the three months ended March 31, 20222023 and 2021,2022, respectively.
Net Loss Per Share Attributable to Common Stockholders
Gift Cards and Site Credits
The Company followssells thredUP gift cards on its e-commerce website. thredUP gift cards do not expire or lose value over periods of inactivity. The Company accounts for gift cards by recognizing a gift card liability at the two-class methodtime a gift card is delivered to the customer. As of March 31, 2023 and December 31, 2022, $10.8 million and $10.9 million of gift card liability, respectively, was included in accrued and other current liabilities within the Company’s condensed consolidated balance sheets. Revenue from gift cards is generally recognized when computing net loss per common share when shares issued meet the definition of participating securities. gift cards are redeemed by the customer and amounted to $0.5 million and $0.3 million for the three months ended March 31, 2023 and 2022, respectively.
The rights, includingCompany issues site credits for order refunds. Site credits can be applied toward future charges but may not be converted into cash. Site credits may also be converted to thredUP gift cards after one year at the liquidation and dividend rights and sharing of losses,discretion of the Class A common stockCompany. These credits are recognized as revenue when used. As of March 31, 2023 and Class B common stock are identical,December 31, 2022, $6.3 million and $7.2 million, respectively, of such customer site credits were included in accrued and other than voting rights. Ascurrent liabilities within the liquidationCompany’s condensed consolidated balance sheets. Revenue recognized from the redemption of site credits was $9.4 million and dividend rights$11.0 million for the three months ended March 31, 2023 and sharing2022, respectively.
The Company recognizes breakage revenue when it determines that the redemption of losses are identical,gift cards and site credits is remote. Breakage was not material for the undistributed earnings are allocated on a proportionate basisthree months ended March 31, 2023 and the resulting net loss per share attributed to common stockholders will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis.
For periods in which the Company reports net losses, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.2022.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company’s condensed consolidated balance sheets that sum to the total of the same such amounts shown in the Company’s condensed consolidated statements of cash flows (in thousands):flows:
| | | | | | | | | | | | |
| March 31, | | | December 31, |
| 2022 | | | 2021 |
| Cash and cash equivalents | $ | 68,597 | | | $ | 84,550 |
| Restricted cash, current | 560 | | | 560 |
| Restricted cash, non-current | 6,729 | | | 6,730 |
| Total cash, cash equivalents and restricted cash | $ | 75,886 | | | | $ | 91,840 | |
Restricted cash, non-current of $6.7 million and $6.7 million is included in the other assets in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively. | | | | | | | | | | | | | | |
| | March 31,
2023 | | December 31,
2022 |
| | (in thousands) |
| Cash and cash equivalents | | $ | 50,739 | | | $ | 38,029 | |
| Restricted cash included in Other current assets | | 475 | | | 383 | |
| Restricted cash included in Other assets | | 5,547 | | | 5,639 | |
| Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | | $ | 56,761 | | | $ | 44,051 | |
Fair Value Measurements
The Company applies the provisions of FASB ASC Topic 820, Fair Value Measurements and Disclosures, for its financial and non-financial assets and liabilities. ASC 820 defines fair value accounting is appliedas 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. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
•Level 1 inputs are quoted prices (unadjusted) in active markets for all financialidentical assets or liabilities that the reporting entity has the ability to access at the measurement date.
•Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•Level 3 inputs are unobservable inputs for the asset or liability.
The Company measures certain assets and liabilities that are recognized or disclosed at fair value inas discussed throughout the notes to its condensed consolidated financial statements on a recurring basis (at least annually).statements. As of March 31, 20222023 and December 31, 2021,2022, the carrying amountamounts of the Company’s accounts receivable, other current assets, other assets, accounts payable, seller payable and accrued and other current liabilities approximated their estimated fair valuevalues due to their relatively short maturities. Management believes the terms of its long-term variable-rate debt reflect current market conditions for an instrument with similar terms and maturity, thereforeand as such, the carrying value of the Company’s long-term debt approximated its fair value.value as of March 31, 2023 and December 31, 2022.
3. Financial Instruments and liabilities recordedFair Value Measurements
The following tables provide information about the Company’s financial instruments that are measured at fair value on a recurring basis onand indicate the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
ThredUp Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Level 2—Inputs (other than quoted prices in active markets included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.valuation techniques utilized to determine such values as of March 31, 2023 and December 31, 2022:
New Accounting Pronouncements Recently Issued But Not Yet Adopted | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | (in thousands) |
| Assets: | | | | | | | | |
| Cash equivalents: | | | | | | | | |
| Money market funds | | $ | 10,052 | | | $ | — | | | $ | — | | | $ | 10,052 | |
| Commercial paper | | — | | | 21,062 | | | — | | | 21,062 | |
| U.S. government agency discount notes | | 2,992 | | | — | | | — | | | 2,992 | |
| Total cash equivalents | | 13,044 | | | 21,062 | | | — | | | 34,106 | |
| Marketable securities: | | | | | | | | |
| Corporate debt securities | | 13,505 | | | — | | | — | | | 13,505 | |
| U.S. treasury securities | | 12,322 | | | — | | | — | | | 12,322 | |
| U.S. government agency bonds | | 16,906 | | | — | | | — | | | 16,906 | |
| Total marketable securities | | 42,733 | | | — | | | — | | | 42,733 | |
| Total assets at fair value | | $ | 55,777 | | | $ | 21,062 | | | $ | — | | | $ | 76,839 | |
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, ASU 2020-02, ASU 2020-03 and ASU 2022-02 which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company has not early adopted this standard and is currently evaluating the impact of this standard on its consolidated financial statements.
3.Financial Instruments and Fair Value Measurements
The following table provides the financial instruments measured at fair value (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value as of March 31, 2022 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | |
| Cash equivalents: | | | | | | | | |
| Money market fund | | $ | 8,858 | | | $ | — | | | $ | — | | | $ | 8,858 | |
| U.S. treasury securities | | 4,798 | | | — | | | — | | | 4,798 | |
| Commercial paper | | — | | | 18,532 | | | — | | | 18,532 | |
| U.S. government agency bonds | | 2,450 | | | — | | | — | | | 2,450 | |
| Total cash equivalents | | $ | 16,106 | | | $ | 18,532 | | | $ | — | | | $ | 34,638 | |
| | | | | | | | |
| Marketable securities | | | | | | | | |
| Corporate debt securities | | $ | 50,573 | | | $ | — | | | $ | — | | | $ | 50,573 | |
| U.S. treasury securities | | 36,873 | | | — | | | — | | | 36,873 | |
| U.S. government agency bonds | | 27,743 | | | — | | | — | | | 27,743 | |
| Total marketable securities | | $ | 115,189 | | | $ | — | | | $ | — | | | $ | 115,189 | |
| | | | | | | | |
| Total | | $ | 131,295 | | | $ | 18,532 | | | $ | — | | | $ | 149,827 | |
ThredUp Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | Fair Value as of December 31, 2021 | | December 31, 2022 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | |
| | | (in thousands) |
| Assets: | | Assets: | |
| Cash equivalents: | Cash equivalents: | | Cash equivalents: | |
| Money market fund | | $ | 41,376 | | | $ | — | | | $ | — | | | $ | 41,376 | | |
| Money market funds | | Money market funds | | $ | 1,110 | | | $ | — | | | $ | — | | | $ | 1,110 | |
| Commercial paper | Commercial paper | | — | | | 12,098 | | | — | | | 12,098 | | Commercial paper | | — | | | 14,460 | | | — | | | 14,460 | |
| Total cash equivalents | Total cash equivalents | | $ | 41,376 | | | $ | 12,098 | | | $ | — | | | $ | 53,474 | | Total cash equivalents | | 1,110 | | | 14,460 | | | — | | | 15,570 | |
| | Marketable securities | | |
| Marketable securities: | | Marketable securities: | | | | | | | | |
| Corporate debt securities | Corporate debt securities | | $ | 55,921 | | | $ | — | | | $ | — | | | $ | 55,921 | | Corporate debt securities | | 25,488 | | | — | | | — | | | 25,488 | |
| U.S. treasury securities | U.S. treasury securities | | 37,190 | | | — | | | — | | | 37,190 | | U.S. treasury securities | | 19,176 | | | — | | | — | | | 19,176 | |
| U.S. government agency bonds | U.S. government agency bonds | | 28,166 | | | — | | | — | | | 28,166 | | U.S. government agency bonds | | 22,238 | | | — | | | — | | | 22,238 | |
| Total marketable securities | Total marketable securities | | $ | 121,277 | | | $ | — | | | $ | — | | | $ | 121,277 | | Total marketable securities | | 66,902 | | | — | | | — | | | 66,902 | |
| | Total | | $ | 162,653 | | | $ | 12,098 | | | $ | — | | | $ | 174,751 | | |
| Total assets at fair value | | Total assets at fair value | | $ | 68,012 | | | $ | 14,460 | | | $ | — | | | $ | 82,472 | |
The following tables summarize the cost or amortized cost, gross unrealized gains, gross unrealized losses and fair value of the marketable securities as of March 31, 20222023 and December 31, 2021 (in thousands):2022:
| | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2023 |
| | March 31, 2022 | | Cost or Amortized Cost | | Unrealized | | Fair Value |
| | Cost or Amortized Cost | | Unrealized | | Fair Value | | Gains | | Losses | |
| | Gains | | Losses | | | (in thousands) |
| Corporate debt securities | Corporate debt securities | | $ | 51,106 | | | $ | — | | | $ | (533) | | | $ | 50,573 | | Corporate debt securities | | $ | 13,568 | | | $ | — | | | $ | (63) | | | $ | 13,505 | |
| U.S. treasury securities | U.S. treasury securities | | 37,267 | | | — | | | (394) | | | 36,873 | | U.S. treasury securities | | 12,501 | | | — | | | (179) | | | 12,322 | |
| U.S. government agency bonds | U.S. government agency bonds | | 28,183 | | | — | | | (440) | | | 27,743 | | U.S. government agency bonds | | 17,138 | | | — | | | (232) | | | 16,906 | |
| Total | Total | | $ | 116,556 | | | $ | — | | | $ | (1,367) | | | $ | 115,189 | | Total | | $ | 43,207 | | | $ | — | | | $ | (474) | | | $ | 42,733 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Cost or Amortized Cost | | Unrealized | | Fair Value |
| | | Gains | | Losses | |
| Corporate debt securities | | $ | 56,098 | | | $ | — | | | $ | (177) | | | $ | 55,921 | |
| U.S. treasury securities | | 37,286 | | | — | | | (96) | | | 37,190 | |
| U.S. government agency bonds | | 28,258 | | | — | | | (92) | | | 28,166 | |
| Total | | $ | 121,642 | | | $ | — | | | $ | (365) | | | $ | 121,277 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Cost or Amortized Cost | | Unrealized | | Fair Value |
| | | Gains | | Losses | |
| | (in thousands) |
| Corporate debt securities | | $ | 25,774 | | | $ | — | | | $ | (286) | | | $ | 25,488 | |
| U.S. treasury securities | | 19,531 | | | — | | | (355) | | | 19,176 | |
| U.S. government agency bonds | | 22,679 | | | — | | | (441) | | | 22,238 | |
| Total | | $ | 67,984 | | | $ | — | | | $ | (1,082) | | | $ | 66,902 | |
As of March 31, 20222023 and December 31, 2021, the amortized cost of2022, the Company’s cash equivalents approximateapproximated their estimated fair value. As such, there are no unrealized gains or losses related to the Company’s cash equivalents.
For all of the Company’s marketable securities, which were all classified as available-for-sale, the Company utilizes third-party pricing services to obtain fair value. Third-party pricing methodologies incorporate bond terms and conditions, current performance
ThredUp Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
data, proprietary pricing models, real-time quotes from contributing dealers, trade prices and other market data. The Company determined that the declines in the fair value of its marketable securities were not driven by credit-related factors. During the three months ended March 31, 2023 and 2022, the Company did not recognize any losses on its marketable securities due to credit-related factors.
The Company’s money market funds, corporate debt securities, U.S. treasury securities, corporate debt securitiesU.S. government agency bonds, and U.S. government agency bondsdiscount notes were valued using Level 1 inputs because they are valued using quoted market prices.prices in active markets.
The Company’s commercial papers werepaper is valued using Level 2 inputs because they areit is valued using quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
There were no transfers between levels during the three months ended March 31, 2022.2023. As of March 31, 2022,2023, all of the $115.2$42.7 million carrying amount of marketable securities, $71.6 millionall had a contractual maturity date of less than one year and $43.6 million had a contractual maturity date between one to two years.year.
4.Property and Equipment, Net
Property and equipment, net consistsconsisted of the following (in thousands):following:
| | | March 31, | | December 31, | | | | | | | | | | | | | |
| | 2022 | | 2021 | | | March 31,
2023 | | December 31,
2022 |
| | | (in thousands) |
| Property and equipment | Property and equipment | $ | 96,316 | | | $ | 76,028 | | | Property and equipment | | $ | 130,819 | | | $ | 124,412 | |
| Less: accumulated depreciation and amortization | Less: accumulated depreciation and amortization | (23,184) | | | (20,562) | | | Less: accumulated depreciation and amortization | | (35,013) | | | (31,930) | |
| Property and equipment, net | Property and equipment, net | $ | 73,132 | | | $ | 55,466 | | | Property and equipment, net | | $ | 95,806 | | | $ | 92,482 | |
Depreciation and amortization expense of property and equipment was $2.6$3.0 million and $2.0$2.6 million for the three months ended March 31, 20222023 and 2021,2022, respectively.
5. Goodwill and Other Intangible Assets
The goodwillGoodwill is primarily attributable to the planned growth in the combined business after the acquisition of Remix Global EAD (“Remix”). Goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually, absent any interim indicators of impairment. The carrying amount of goodwillGoodwill was $12.0$11.8 million and $11.6 million as of March 31, 20222023 and $12.2 million as of December 31, 2021.2022, respectively. The change isincrease in goodwill during the three months ended March 31, 2023 was due to the foreign currency translation adjustments.
The gross carrying amounts and accumulated amortization of the Company’s intangible assets with determinable lives are as follows (in thousands):of March 31, 2023 and December 31, 2022 were as follows:
| | | As of March 31, 2022 | | March 31, 2023 |
| Intangible assets with determinable lives | Amortization Period (years) | Gross carrying amount | | Accumulated
amortization | | Carrying amount, net | |
| | | Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | | | | | | | (in years) | | (in thousands) |
| Customer relationships | Customer relationships | 8 | $ | 5,001 | | | $ | (301) | | | $ | 4,700 | | Customer relationships | | 8 | | $ | 4,902 | | | $ | (907) | | | $ | 3,995 | |
| Developed technology | Developed technology | 3 | 4,712 | | | (753) | | | 3,959 | | Developed technology | | 3 | | 4,619 | | | (2,278) | | | 2,341 | |
| Trademarks | Trademarks | 9 | 4,520 | | | (237) | | | 4,283 | | Trademarks | | 9 | | 4,436 | | | (728) | | | 3,708 | |
| Total | Total | | $ | 14,233 | | | $ | (1,291) | | | $ | 12,942 | | Total | | $ | 13,957 | | | $ | (3,913) | | | $ | 10,044 | |
ThredUp Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2021 |
| Intangible assets with determinable lives | Amortization Period (years) | Gross carrying amount | | Accumulated
amortization | | Carrying amount, net |
| | | | | | |
| Customer relationships | 8 | $ | 5,092 | | | $ | (150) | | | $ | 4,942 | |
| Developed technology | 3 | 4,798 | | | (373) | | | 4,425 | |
| Trademarks | 9 | 4,602 | | | (115) | | | 4,487 | |
| Total | | $ | 14,492 | | | $ | (638) | | | $ | 13,854 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2022 |
| | Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | (in years) | | (in thousands) |
| Customer relationships | | 8 | | $ | 4,814 | | | $ | (742) | | | $ | 4,072 | |
| Developed technology | | 3 | | 4,536 | | | (1,864) | | | 2,672 | |
| Trademarks | | 9 | | 4,351 | | | (596) | | | 3,755 | |
| Total | | | | $ | 13,701 | | | $ | (3,202) | | | $ | 10,499 | |
The changes in the gross carrying amounts arewere due to foreign currency translation.translation adjustments.
DevelopedAmortization expense related to developed technology, customer relationships, and trademarks intangibles amortization is recorded within operations, product, and technology,technology; sales, general, and administrative,administrative; and marketing expense, lines, respectively, within the Company’s condensed consolidated statements of operations. The amortizationAmortization expense of intangible assets with determinable lives was $0.7$0.6 million and zero$0.7 million for the three months ended as of March 31, 20222023 and 2021,2022, respectively.
6. Balance Sheet Components
Inventories consistconsisted of the following (in thousands):following:
| | | | | | | | | | | | | |
| March 31, | | December 31, | | |
| 2022 | | 2021 | |
| | | | | |
| Finished goods | $ | 9,907 | | | $ | 8,247 | | | |
| Raw materials | 1,450 | | | 908 | | | |
| Work in progress | 668 | | | 670 | | | |
| $ | 12,025 | | | $ | 9,825 | | | |
| | | | | | | | | | | | | | |
| | March 31,
2023 | | December 31,
2022 |
| | (in thousands) |
| Work in process | | $ | 2,432 | | | $ | 2,639 | |
| Finished goods | | 18,501 | | | 14,880 | |
| Total | | $ | 20,933 | | | $ | 17,519 | |
Work in process inventory relates to items that are currently undergoing preparation for sale, including itemization, cleaning, and repair.
Accrued and other current liabilities consistconsisted of the following (in thousands):following:
| | | March 31, | | December 31, | | | | | | | | | | | | | |
| | 2022 | | 2021 | | | March 31,
2023 | | December 31,
2022 |
| | | (in thousands) |
| Gift card and site credit liabilities | Gift card and site credit liabilities | $ | 13,770 | | | $ | 13,223 | | | Gift card and site credit liabilities | | $ | 17,093 | | | $ | 18,101 | |
| Accrued vendor liabilities | Accrued vendor liabilities | 9,398 | | | 6,031 | | | Accrued vendor liabilities | | 8,936 | | | 9,116 | |
| Deferred revenue | | Deferred revenue | | 6,398 | | | 7,582 | |
| Accrued compensation | | Accrued compensation | | 4,459 | | | 4,993 | |
| Allowance for returns | Allowance for returns | 7,366 | | | 6,209 | | | Allowance for returns | | 4,779 | | | 4,907 | |
| Accrued compensation | 6,795 | | | 6,438 | | | |
| Deferred revenue | 6,213 | | | 5,878 | | | |
| Accrued taxes | Accrued taxes | 5,419 | | | 5,728 | | | Accrued taxes | | 4,195 | | | 4,326 | |
| Accrued other | Accrued other | 2,009 | | | 1,746 | | | Accrued other | | 2,116 | | | 1,130 | |
| $ | 50,970 | | | $ | 45,253 | | | |
| Total | | Total | | $ | 47,976 | | | $ | 50,155 | |
ThredUp Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
7. Lease Agreements
The Company’s operating lease expense was $2.4 million and $2.1 million for the three months ended March 31, 2022 and 2021, respectively.
Maturities of operating lease liabilities were as follows as of March 31, 2022 (in thousands):
| | | | | |
| Amount |
| Remainder of 2022 | $ | 6,804 | |
| 2023 | 8,487 | |
| 2024 | 7,543 | |
| 2025 | 6,740 | |
| 2026 | 6,386 | |
| Thereafter | 29,947 | |
| Total lease payments | 65,907 | |
| Less: imputed interest | (14,934) | |
| Less: tenant improvement allowance yet to be received | (4,510) | |
| Total lease liabilities | 46,463 | |
| Less: current lease liabilities | (4,433) | |
| Total non-current lease liabilities | $ | 42,030 | |
In December 2021, the Company entered into an agreement to lease a distribution center in Sofia, Bulgaria. The leased property, which contains both logistics and office areas, is divided into 3 spaces with separate commencement dates of March 1, 2022 and targeted dates in May 2022 and June 2023. The base rent for the first stage space is approximately €6.1 million or $6.8 million, estimated at March 31, 2022 Euro to USD spot rate, in aggregate over the original term of 10 years from the commencement date.
In January 2022,February 2019, the Company entered into an agreement to lease office space in Sofia, Bulgaria. The Company anticipates delivery of the leased property, accounting commencement and recording of the related right of use asset and liability to occur during the second quarter of 2022. The base rent is approximately €4.3 million or $4.7 million, estimated at March 31, 2022 Euro to USD spot rate, in aggregate over the original term of 10 years from the commencement date.
8. Long-term Debt
The Company entered into a loan and security agreement (“Term Loan”) with Western Alliance Bank for an aggregate amount of up to $40.0 million to refinance itsmillion. The Company incurred an immaterial amount of debt issuance costs in connection with the Term Loan. The debt issuance costs are recorded on the Company’s condensed consolidated balance sheets and are being amortized over the life of the Term Loan and Security Agreement with Silicon Valley Bank in February 2019. using the effective-interest method.
The Term Loan was subsequently amended 5several times, before December 31, 2021. Thewith the most recent amendment taking place in July 2022. As amended, interest rate on the Term Loan ismatures on July 14, 2027 and provides for an aggregate borrowing amount of up to $70.0 million, which bears interest at the prime rate published in Thethe Wall Street Journal plus 1.5%a margin of 1.25%, with a floor of 5.50% per annum.6.00%. The Company incurred an immaterial amount of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to FASB ASC Topic 470, Debt, this transaction was accounted for as a modification of the Term Loan. The debt issuance costs were recognized in interest expense within the Company’s condensed consolidated statement of operations during the third quarter of 2022.
The Term Loan requires the Company to comply with certain financial covenants, including, among other things, liquidity requirements, minimum cash deposits with Western Alliance bank, performance metrics, and a debt service coverage ratio. The Term Loan also contains affirmative and negative covenants customary for financings of this type, including, among other things, limitations or prohibitions on repurchasing common shares, declaring and paying dividends and other distributions, redeeming and repurchasing certain other indebtedness, loans and investments, additional indebtedness, liens, mergers, asset sales and transactions with affiliates. In addition, the Term Loan contains customary events of default. As of March 31, 2023 and December 31, 2022, the Company was in compliance with its debt covenants under the Term Loan.
The Term Loan is payable in consecutive monthly installments. Interest is due monthly on amounts outstanding under the Term Loan. The Company is also permitted to make voluntary prepayments without penalty or premium at any time.
As of March 31, 2023 and December 31, 2022, the nominal interest rate was 5.50% and the effective interest rate for borrowings under the Term Loan was 6.65%. The10.22% and 9.70%, respectively.
During the three months ended March 31, 2023, the Company is in compliance withdid not make any borrowings under the covenants asTerm Loan and repaid a total of $1.0 million on amounts outstanding under the Term Loan. During the three months ended March 31, 2022, the Company did not make any borrowings under the Term Loan and repaid a total of $2.0 million on amounts outstanding under the Term Loan. As of March 31, 2022.2023 and December 31, 2022, the amount outstanding under the Term Loan was $29.3 million and $30.3 million, respectively.
The Company has repaid $6.0 millionAs of March 31, 2023, annual scheduled principal payments of the Term Loan were as of March 31, 2022. The remaining maturities of the loan agreement as of March 31, 2022 are as follows (in thousands):follows:
ThredUp Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | Amount | | Amount |
| Remainder of 2022 | $ | 6,000 | | |
| | | (in thousands) |
| 2023 | 2023 | 8,000 | | 2023 | | $ | 3,000 | |
| 2024 | 2024 | 20,000 | | 2024 | | 4,000 | |
| Thereafter | — | | |
| Total future principal | 34,000 | | |
| 2025 | | 2025 | | 4,000 | |
| 2026 | | 2026 | | 4,000 | |
| 2027 | | 2027 | | 14,333 | |
| Total principal payments | | Total principal payments | | 29,333 | |
| Less: unamortized debt discount | Less: unamortized debt discount | (586) | | Less: unamortized debt discount | | (620) | |
| Less: current portion of long-term debt | Less: current portion of long-term debt | (7,780) | | Less: current portion of long-term debt | | (3,882) | |
| Non-current portion of long-term debt | Non-current portion of long-term debt | $ | 25,634 | | Non-current portion of long-term debt | | $ | 24,831 | |
9.8. Common Stock and Stockholders’ Equity
Each share of Class A common stock is entitled to 1 one vote per share. Each share of Class B common stock is entitled to 10ten votes per share and is convertible at any time into 1one share of Class A common stock.
The table below summarizes the Class A common stock and Class B common stock authorized, issued and outstanding as of March 31, 2022.2023 and December 31, 2022:
| | | | | | | | | | | | | | | |
| As of March 31, 2022 | | |
| | | | | |
| Authorized | | Issued and Outstanding | | | | |
| (in thousands) | | | | |
| Common stock Class A | 1,000,000 | | | 58,558 | | | | | |
| Common stock Class B | 120,000 | | | 40,384 | | | | | |
| Total common stock | 1,120,000 | | | 98,942 | | | | | |
| | | | | | | | | | | | | | |
| | March 31, 2023 |
| | Authorized | | Issued and Outstanding |
| | (in thousands) |
| Class A common stock | | 1,000,000 | | | 72,351 | |
| Class B common stock | | 120,000 | | | 30,485 | |
| Total | | 1,120,000 | | | 102,836 | |
| | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Authorized | | Issued and Outstanding |
| | (in thousands) |
| Class A common stock | | 1,000,000 | | | 70,723 | |
| Class B common stock | | 120,000 | | | 30,809 | |
| Total | | 1,120,000 | | | 101,532 | |
Accumulated Other Comprehensive Loss
The following table summarizes changes in accumulated other comprehensive loss by component during the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Change in Accumulated Other Comprehensive Loss by Component |
| | Three Months Ended |
| | March 31,
2023 | | March 31,
2022 |
| | Foreign Currency Translation Adjustments | | Unrealized Gain (Loss) on Available-For-Sale Securities | | Total | | Foreign Currency Translation Adjustments | | Unrealized Loss on Available-For-Sale Securities | | Total |
| | (in thousands) |
| Beginning balance | | $ | (3,147) | | | $ | (1,087) | | | $ | (4,234) | | | $ | (729) | | | $ | (365) | | | $ | (1,094) | |
| Other comprehensive income (loss) before reclassifications | | 544 | | | 610 | | | 1,154 | | | (708) | | | (1,002) | | | (1,710) | |
| Amounts reclassified from accumulated other comprehensive loss to income | | — | | | — | | | — | | | — | | | — | | | — | |
| Total other comprehensive income (loss), net of reclassifications | | 544 | | | 610 | | | 1,154 | | | (708) | | | (1,002) | | | (1,710) | |
| Ending balance | | $ | (2,603) | | | $ | (477) | | | $ | (3,080) | | | $ | (1,437) | | | $ | (1,367) | | | $ | (2,804) | |
10.9. Stock-Based Compensation Plans
The Company'sCompany has stock-based compensation plans, which are described in more detailfully described in Note 11, Stock-Based Compensation Plans, to the consolidated financial statementsConsolidated Financial Statements included in the 2021 Form2022 10-K.
2021 Stock Option and Incentive Plan During the three months ended March 31, 2023, the Company granted restricted stock units subject to service conditions.
In February 2021, in connection with
The following table provides information about stock-based compensation expense by financial statement line item:
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31,
2023 | | March 31,
2022 |
| | |
| Operations, product, and technology | | $ | 3,671 | | | $ | 1,392 | |
| Marketing | | 1,205 | | | 333 | |
| Sales, general, and administrative | | 4,515 | | | 1,798 | |
| Total stock-based compensation expense | | $ | 9,391 | | | $ | 3,523 | |
During the Initial Public Offering (“IPO”),three months ended March 31, 2023, the Company’s boardCompany modified the vesting schedule of directors adopted the 2021 Stock Optionsubstantially all restricted stock unit awards outstanding as of December 31, 2022 from 4 years to 3 years and Incentive Plan (“2021 Plan”) to replace the Second Amended and Restated 2010 Stock Plan, which was subsequently approved by the Company’s stockholders in March 2021. The 2021 Plan became effective on March 24, 2021.
2021 Employee Stock Purchase Plan
In February 2021, the Company’s boardrecognized compensation expense of directors adopted the Employee Stock Purchase Plan (“ESPP”), which was subsequently approved by the stockholders in March 2021. The ESPP became effective on March 24, 2021. There was $0.2$2.4 million and zero in stock-based compensation related to the ESPPacceleration of the vesting schedule. As of March 31, 2023, the total unrecognized compensation cost related to all nonvested stock options was $3.1 million and the related weighted-average period over which it is expected to be recognized was approximately 1.27 years. As of March 31, 2023, the total unrecognized compensation cost related to all nonvested restricted stock units was $64.0 million and the related weighted-average period over which it is expected to be recognized was approximately 2.36 years.
The following table summarizes the activities for all stock options under the Company’s share-based compensation plans for the three months ended March 31, 2022 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Options Outstanding | | Weighted-Average Exercise Price Per Share | | Weighted-Average Remaining Contractual Life | | Aggregate Intrinsic Value(1) |
| | (in thousands) | | | | | | (in thousands) |
| Outstanding as of December 31, 2022 | | 17,872 | | | $ | 1.97 | | | 5.20 years | | $ | 1,442 | |
| Granted | | — | | | $ | — | | | | | |
| Exercised | | (178) | | | $ | 1.48 | | | | | |
| Forfeited or expired | | (126) | | | $ | 3.61 | | | | | |
| Outstanding as of March 31, 2023 | | 17,568 | | | $ | 1.96 | | | 4.98 years | | $ | 11,622 | |
| Exercisable as of March 31, 2023 | | 14,787 | | | $ | 1.91 | | | 4.55 years | | $ | 10,351 | |
(1)2021, respectively.
Restricted Stock Units
The Company issues service-based and performance-based restricted stock units (“RSU”) to employees. The RSUs automatically convert to sharesintrinsic value is the amount by which the current market value of the Company’s commonunderlying stock on a 1-for-one basis asexceeds the awards vest. RSUs granted to newly hired employees typically vest 25% annually over 4 years commencing on the date of grant. The RSUs are measured at grant date fair value, at the marketexercise price of the Company’s Class A common stock on the grant date. The Company records stock-based compensation expense related to the RSUs ratably over the employee’s respective requisite service
ThredUp Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
period. DuringThere were no options granted during the three months ended March 31, 2023 and 2022. The total intrinsic value of stock options exercised during the three months ended March 31, 2023 and 2022 was $0.1 million and $2.1 million, respectively.
The following table summarizes the Company granted 749,842 shares of RSUs with a weighted average grantactivities for all restricted stock units under the Company’s share-based compensation plans for the three months ended March 31, 2023:
| | | | | | | | | | | | | | |
| | Number of Shares | | Weighted-Average Grant Date Fair Value Per Share |
| | (in thousands) | | |
| Outstanding and nonvested as of December 31, 2022 | | 7,855 | | | $ | 8.01 | |
| Granted | | 8,310 | | | $ | 1.78 | |
| Vested | | (1,383) | | | $ | 5.79 | |
| Forfeited | | (167) | | | $ | 5.70 | |
| Outstanding and nonvested as of March 31, 2023 | | 14,615 | | | $ | 4.71 | |
The total vesting date fair value at $8.81 underof restricted stock units which vested during the 2021 Plan.three months ended March 31, 2023 and 2022 was $8.0 million and $2.7 million, respectively.
Stock-based Compensation17
Total stock-based compensation expense by department is as follows (in thousands):
| | | | | | | | | | | | | | |
| Three Months Ended
March 31, | |
| 2022 | | 2021 | |
| | | | |
| Operations, product and technology | $ | 1,392 | | | $ | 1,350 | | |
| Marketing | 333 | | | 437 | | |
| Sales, general and administrative | 1,798 | | | 1,711 | | |
| Total stock-based compensation expense | $ | 3,523 | | | $ | 3,498 | | |
10. Commitments and Contingencies
Legal Contingencies
The Company is subject to litigation claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
Indemnifications
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification.limited and customary indemnification obligations. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but that have not yet been made.
12.11. Income Taxes
The quarterly income tax provision reflects an estimate of the corresponding quarter’s state taxes in the United States. The provision for income tax expense for the three months ended March 31, 20222023 and 20212022 was determined based upon estimates of the Company’s annual effective tax rate for the years ending December 31, 20222023 and 2021,2022, respectively. Since the Company is in a full valuation allowance position due to losses incurred since inception, the provision for taxes consistconsists solely of certain state income taxes.
ThredUp Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
13. Net12. Loss Per Share Attributable to Common Stockholders
The following participating securities werehave been excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive:
| | | | | | | | | | | |
| As of March 31, |
| 2022 | | 2021 |
| (in thousands) |
| Outstanding stock options | 18,825 | | | 22,068 | |
| Restricted stock units | 1,830 | | | 96 | |
| Delayed share issuance related to acquisition | 130 | | | — | |
| Employee stock purchase plan | 105 | | | — | |
| Outstanding Class B common stock warrants | — | | | 138 | |
| Total | 20,890 | | | 22,302 | |
| | | |
| | | | | | | | | | | | | | |
| | March 31,
2023 | | March 31,
2022 |
| | (in thousands) |
| Outstanding stock options | | 17,569 | | | 18,825 | |
| Restricted stock units | | 14,615 | | | 1,830 | |
| Delayed share issuance related to acquisition | | 130 | | | 130 | |
| Employee stock purchase plan | | 152 | | | 105 | |
| Total | | 32,466 | | | 20,890 | |
ITEMItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read togetherin conjunction with other information, including our condensed consolidated financial statements and related notes thereto included elsewhere in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q10-Q; Part I, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q; and our auditedconsolidated financial statements and related notes andappearing in our Annual Report on Form 10-K filed withfor the SEC on March 22, 2022. year ended December 31, 2022 (the “2022 10-K”). The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full calendar year or any other period.
Overview
thredUP isoperates one of the world’s largest online resale platforms for women’s and kids’ apparel, shoes and accessories. Our mission is to inspire a new generation of consumers to think secondhand first. We believe in a sustainable fashion future and we are proud that our business model creates a positive impact to the benefit of our buyers, sellers, clients, employees, investors and the environment. Our custom-built operating platform consists of distributed processing infrastructure, proprietary software and systems and data science expertise. This platform is powering the rapidly emerging resale economy, one of the fastest growing sectors in retail, according to a GlobalData market survey conducted in April 2021.January 2023.
thredUP’s proprietary operating platform is the foundation for our managed marketplace, where we have bridged online and offline technology to make the buying and selling of tens of millions of unique items easy and fun. The core marketplace we have built in the U.S. enables buyers to browse and purchase resale items for primarily women’s and kids’ apparel, shoes and accessories across a wide range of price points. Buyers love shopping value, premium and luxury brands all in one place, at up to 90% off estimated retail price. Sellers love thredUP because we make it easy to clean out their closets and unlock value for themselves or for the charity of their choice while doing good for the planet. thredUP’s sellers order a Clean Out Kit, fill it and return it to us using our prepaid label. We take it from there and do the work to make those items available for resale.
In 2018, based onaddition to our success with consumers directly, we extended our platform to enable brands and retailers to participate in the resale economy. Somecore marketplace, some of the world’s leading brands and retailers are already taking advantage of our RaaS offering, which allows them to conveniently offer a scalable closet clean out service and/or resale shop to their customers. We believe RaaS will accelerate the growth of this emerging category and form the backbone of the modern resale experience domestically and internationally.
In October 2021, we closed the acquisition ofacquired Remix Global EAD (“Remix”), a fashion resale company headquarteredbased in Sofia, Bulgaria, whichBulgaria. With this acquisition, we further expandsexpanded our reach to European customers. With this acquisition, wecustomers, added a complementary operational infrastructure and added an experienced management team to enable our expansion into Europe. In addition, Remix’s product assortment extendsextended our resale offering to include men’s items and items sourced from a variety of supply channels, such as wholesale supply.
Recent Business DevelopmentsKey Factors Affecting Our Performance
Acquisition of Remix Global EADMacroeconomic Factors
On July 24, 2021, we entered into Share Purchase Agreements with the shareholders of Remix to purchase 100% of the outstanding equity interests of RemixMacroeconomic factors, including inflation, increased interest rates, significant capital market volatility, and its subsidiary. On October 7, 2021, we completed our acquisition of Remix.
COVID-19 Update
The COVID-19 pandemic has beenglobal economic and continues to be a complexgeopolitical developments have direct and evolving situation. We continue to monitor the development of the pandemic, including the impact of the Omicron variant, the BA.2 subvariants and other SARS-CoV-2 viruses, federal, state and local government response, vaccination rates, the impactindirect impacts on our supply chain and the impact on our employees. We have prioritized the safety of our employees during the pandemic. In 2020, we shifted all of our corporate employees and contract engineers to a remote work model and implemented additional measures to better enable remote work. As of March 31, 2022, our remote work model remains largely in place.
Financial Impact
In the three months ended March 31, 2022, we experienced an increase in demand partially due to COVID-19 recovery and re-opening efforts. Gross margin and operating expenses were impacted due to rising labor, processing and other costs to support the demand
Impact on Processing at our Distribution and Processing Centers
COVID-19 and ongoing recovery also contributed to a tightened labor supply. We continue to face challenges in hiring and retaining employees. We have implemented compensation and benefits programs to attract potential employees and to improve employee retention. These programs caused, along with an inflationary labor market, higher Cost of Revenue and higher Operations, Product and Technology expenses and negatively impacted our results of operations.
operations that are difficult to isolate and quantify. These factors contributed to increases in our operating costs during 2022 and the first quarter of 2023 primarily due to increased transportation costs and wage rates. In addition, rising fuel, utility, and food costs, rising interest rates, and recessionary fears may impact customer demand and our ability to forecast consumer spending patterns. We expect that the COVID-19 pandemic willsome or all of these factors to continue to have an adverse impact on our business, resultsoperations throughout the rest of operations and financial condition, including our revenue and cash flows in the short term. Due to the unpredictable nature of the pandemic, it is difficult to predict the long-term impact on our business. See the section titled “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 22, 2022 for further discussion of the possible impact of the COVID-19 pandemic on our business, operations and financial condition.2023.
Overview of First Quarter Results
Revenue:Total revenue was a record at $72.7$75.9 million, representing an increase of 31%4.4% year-over-year.
Gross Profit and Margin: Gross profit totaled $50.2$51.1 million, representing growthan increase of 26%1.7% year-over-year. Gross margin decreased by 224was 67.3%, a decrease of 180 basis points to 69% from 71%69.1% in the comparable quarter last year.
Net Loss: GAAPNet loss was $19.8 million, or a negative 26.1% of revenue, for the first quarter of 2023, compared to a net loss wasof $20.7 million for the first quarter 2022, compared toof 2022.
Non-GAAP Adjusted EBITDA Loss: Non-GAAP Adjusted EBITDA loss was $6.6 million, or a GAAP net lossnegative 8.7% of $16.2 millionrevenue, for the first quarter 2021.
Adjusted EBITDA: Adjusted EBITDA loss was $13.0 million, a negative 18% of revenue,2023, compared to Non-GAAP Adjusted EBITDA loss of $9.1$13.0 million, or a negative 17.8% of revenue, for the first quarter 2021,of 2022. Non-GAAP Adjusted EBITDA loss and Non-GAAP Adjusted EBITDA loss margin are non-GAAP measures which may not be comparable to similarly-titled measures used by other companies. See below for a negative 16%reconciliation of the first quarter 2021 revenue.Non-GAAP Adjusted EBITDA loss to net loss.
Active Buyers and Orders:Total Active Buyers totaled 1.7 million and Orders totaled 1.5 million in the first quarter of 2022 Active Buyers2023, representing a decrease of 1.72 million2.7% and Orders of 1.64 million grew 33% and 45%7.9%, respectively, compared to the first quarter of 2021.2022.
Key Financial and Operating Metrics
Our unaudited condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”). We review a number of operating and financial metrics, including the following key business and Non-GAAPnon-GAAP metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. These key financial and operating metrics are set forth below for the periods presented.
| | | Three Months Ended
March 31, | | % Change | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2022 vs 2021 | | Three Months Ended |
| | | | | | | | March 31,
2023 | | March 31,
2022 | | Change |
| | (in thousands) | | | (in thousands, except percentages) |
| Active Buyers (as of period end) | Active Buyers (as of period end) | 1,715 | | | 1,290 | | | 33 | % | Active Buyers (as of period end) | | 1,668 | | | 1,715 | | | (2.7) | % |
| Orders | Orders | 1,640 | | | 1,128 | | | 45 | % | Orders | | 1,511 | | | 1,640 | | | (7.9) | % |
| Total revenue | | Total revenue | | $ | 75,922 | | | $ | 72,695 | | | 4.4 | % |
| Gross profit | | Gross profit | | $ | 51,093 | | | $ | 50,228 | | | 1.7 | % |
| Gross margin | | Gross margin | | 67.3 | % | | 69.1 | % | | (180) | bps |
| Net loss | Net loss | $ | (20,708) | | | $ | (16,171) | | | 28 | % | Net loss | | $ | (19,793) | | | $ | (20,708) | | | (4.4) | % |
| Net loss margin | Net loss margin | (28) | % | | (29) | % | | 1 | % | Net loss margin | | (26.1) | % | | (28.5) | % | | 240 | bps |
Adjusted EBITDA loss(1) | $ | (12,963) | | | $ | (9,119) | | | 42 | % | |
| Adjusted EBITDA margin | (18) | % | | (16) | % | | (2) | % | |
| | Non-GAAP Adjusted EBITDA loss(1) | | Non-GAAP Adjusted EBITDA loss(1) | | $ | (6,635) | | | $ | (12,963) | | | (48.8) | % |
| Non-GAAP Adjusted EBITDA loss margin(1) | | Non-GAAP Adjusted EBITDA loss margin(1) | | (8.7) | % | | (17.8) | % | | 910 | bps |
(1)Non-GAAP Adjusted EBITDA loss and Non-GAAP Adjusted EBITDA loss margin are non-GAAP measures which may not be comparable to similarly-titled measures used by other companies. See below for a reconciliation of Non-GAAP Adjusted EBITDA loss to net loss.
Active Buyers
An Active Buyer is a thredUP buyer who has made at least one purchase in the last twelve months. A thredUP buyer is a customer who has created an account and purchased in our marketplace. A thredUP buyermarketplaces, including through our RaaS clients, and is identified by a unique email address and aaddress. A single person could have multiple thredUP accounts and count as multiple Active Buyers. The number of Active Buyers is a key driver of revenue for our marketplace and we expect the number of Active Buyers to increase over time.marketplaces.
Orders
Orders means the total number of orders placed by buyers across our marketplace,marketplaces, including through our RaaS clients, in a given period, net of cancellations. We expect Orders to increase over time.
Non-GAAP Financial Metrics
Non-GAAP Adjusted EBITDA
Loss and Non-GAAP Adjusted EBITDA Loss Margin
Non-GAAP Adjusted EBITDA loss means net loss adjusted to exclude, where applicable in a given period, interest expense, provision for income taxes, depreciation and amortization, stock-based compensation expense, acquisitionacquisition-related expenses, and offering related expenses, interest expense, change in fair value of convertible preferred stock warrant liability, provision for income taxes and organizational alignment expenses.restructuring charges. Non-GAAP Adjusted EBITDA loss margin represents Non-GAAP Adjusted EBITDA loss divided by Total revenue. We use Non-GAAP Adjusted EBITDA aloss and Non-GAAP metric,Adjusted EBITDA loss margin, non-GAAP metrics, to evaluate and assess our operating performance and the operating leverage in our business, and for internal planning and forecasting purposes. We believe that Non-GAAP Adjusted EBITDA loss and Non-GAAP Adjusted EBITDA loss margin, when taken collectively with our GAAP results, may be helpful to investors because it providesthey provide consistency and comparability with past financial performance and assistsassist in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results.
The following table provides a reconciliation of net loss to Non-GAAP Adjusted EBITDA (in thousands):loss:
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2022 | | 2021 |
| Adjusted EBITDA Reconciliation: | | | |
| GAAP Net loss | $ | (20,708) | | | $ | (16,171) | |
| Depreciation and amortization | 3,271 | | | 2,038 | |
| Stock-based compensation expense | 3,523 | | | 3,498 | |
| Interest expense | 423 | | | 559 | |
| Acquisition related expenses | 204 | | | — | |
| Organizational alignment expenses | 311 | | | — | |
| Change in fair value of convertible preferred stock warrant liability | — | | | 930 | |
| Provision for income taxes | 13 | | | 27 | |
| Non-GAAP Adjusted EBITDA | $ | (12,963) | | | $ | (9,119) | |
| | | |
Results of Operations
The following table sets forth our results of operations for the periods presented:
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2022 | | 2021 |
| | | |
| Revenue: | (in thousands) |
| Consignment | $ | 47,435 | | | $ | 44,688 | |
| Product | 25,260 | | | 10,992 | |
| Total revenue | 72,695 | | | 55,680 | |
| Cost of revenue: | | | |
| Consignment | 10,049 | | | 10,832 | |
| Product | 12,418 | | | 5,130 | |
| Total cost of revenue | 22,467 | | | 15,962 | |
| Gross profit | 50,228 | | | 39,718 | |
| Operating expenses: | | | |
| Operations, product and technology | 39,161 | | | 28,312 | |
| Marketing | 16,978 | | | 15,446 | |
| Sales, general and administrative | 14,664 | | | 10,638 | |
| Total operating expenses | 70,803 | | | 54,396 | |
| Operating loss | (20,575) | | | (14,678) | |
| Interest expense | (423) | | | (559) | |
| Other income (expense), net | 303 | | | (907) | |
| Loss before provision for income taxes | (20,695) | | | (16,144) | |
| Provision for income taxes | 13 | | | 27 | |
| Net loss | $ | (20,708) | | | $ | (16,171) | |
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.21) | | | $ | (0.86) | |
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31,
2023 | | March 31,
2022 |
| | (in thousands) |
| Net loss | | $ | (19,793) | | | $ | (20,708) | |
| Interest expense | | 77 | | | 423 | |
| Provision for income taxes | | 9 | | | 13 | |
| Depreciation and amortization | | 3,681 | | | 3,271 | |
| Stock-based compensation expense | | 9,391 | | | 3,523 | |
| Acquisition-related expenses | | — | | | 204 | |
| Restructuring charges | | — | | | 311 | |
| | | | |
| Non-GAAP Adjusted EBITDA loss | | $ | (6,635) | | | $ | (12,963) | |
| Total revenue | | 75,922 | | | 72,695 | |
| Non-GAAP Adjusted EBITDA loss margin | | (8.7) | % | | (17.8) | % |
Comparison of the Three Months Ended March 31, 20222023 and 20212022
Revenue
| | Three Months Ended
March 31, | | Change | |
| | | 2022 | | 2021 | | Amount | | % | | Three Months Ended | | Change |
| | | | | | | | | | March 31,
2023 | | March 31,
2022 | | Amount | | % |
| | (in thousands, except percentages) | | (in thousands, except percentages) |
| Consignment revenue | Consignment revenue | $ | 47,435 | | | $ | 44,688 | | | $ | 2,747 | | | 6 | % | Consignment revenue | | $ | 46,479 | | | $ | 47,435 | | | $ | (956) | | | (2.0) | % |
| Product revenue | Product revenue | 25,260 | | | 10,992 | | | 14,268 | | | 130 | % | Product revenue | | 29,443 | | | 25,260 | | | 4,183 | | | 16.6 | % |
| Total revenue | Total revenue | $ | 72,695 | | | $ | 55,680 | | | $ | 17,015 | | | 31 | % | Total revenue | | $ | 75,922 | | | $ | 72,695 | | | $ | 3,227 | | | 4.4 | % |
| Consignment revenue as a % of total revenue | 65 | % | | 80 | % | | | | | |
| Product revenue as a % of total revenue | 35 | % | | 20 | % | | |
| Consignment revenue as a percentage of total revenue | | Consignment revenue as a percentage of total revenue | | 61.2 | % | | 65.3 | % | | | |
| Product revenue as a percentage of total revenue | | Product revenue as a percentage of total revenue | | 38.8 | % | | 34.7 | % | |
Total revenue increased $3.2 million, or 4.4%, for the three months ended March 31, 2023 as compared to the same period in 2022. The $17.0 million increase in total revenue represents a 31% increase in total revenue for the three months ended March 31, 2022,2023 as compared to the three months ended March 31, 2021. This increase was primarily attributable to a 45% increasesame period in Orders and growth in Active Buyers of 33% largely driven
by the addition of our European operations, offset by a 10% decrease in revenue per Order over the same period. The 10% decrease in revenue per Order2022 was primarily due to lower revenue per Order for our European operations compared with our domestic operations.
Product revenue increased by 130% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021 and represented 35% of total revenue. This revenue increased primarily due to the introduction of our European operations, which is primarily product revenue, and a smaller increase in our domestic product revenue.
Cost of Revenue
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Change |
| | | | | | | |
| 2022 | | 2021 | | Amount | | % |
| | | | | | | |
| (in thousands, except percentages) |
| Cost of consignment revenue | $ | 10,049 | | | $ | 10,832 | | | $ | (783) | | | (7) | % |
| Cost of product revenue | 12,418 | | | 5,130 | | | 7,288 | | | 142 | % |
| Total cost of revenue | $ | 22,467 | | | $ | 15,962 | | | $ | 6,505 | | | 41 | % |
| Gross profit | $ | 50,228 | | | $ | 39,718 | | | $ | 10,510 | | | 26 | % |
| Gross profit margin | 69 | % | | 71 | % | | | | |
| Cost of revenue as a % of total revenue | 31 | % | | 29 | % | | | | |
| Cost of consignment revenue as a % of total cost of revenue | 45 | % | | 68 | % | | | | |
| Cost of product revenue as a % of total cost of revenue | 55 | % | | 32 | % | | | | |
Total cost of revenue as a percentage of total revenue was 31% for the three months ended March 31, 2022, an increase of 200 basis points from 29% for the three months ended March 31, 2021. This decrease in gross profit margin was primarily attributable to the addition of our European operations beginning in October 2021, which is primarily product sales with lower profit gross margin compared to our consignment sales.
Consignment sales result in higher gross profit margin than product sales because revenue for consignment sales is recognized net of seller payouts, whereas, for product sales, seller payouts are recognized as a component of cost of revenue, leading to different gross margin profiles between consignment sales and product sales.
Cost of Consignment Revenue
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Change |
| | | | | | | |
| 2022 | | 2021 | | Amount | | % |
| | | | | | | |
| (in thousands, except percentages) |
| Cost of consignment revenue | $ | 10,049 | | | $ | 10,832 | | | $ | (783) | | | (7) | % |
| As a percent of consignment revenue | 21 | % | | 24 | % | | | | |
| Consignment gross margin | 79 | % | | 76 | % | | | | |
The $0.8$4.2 million decrease in cost of consignment revenue represents a 7% decrease in the cost of consignment revenue for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
The decrease in cost of consignment revenue for the three months ended March 31, 2022 was driven by the related costs outlined in the below table. Consignment gross margin increased 300 basis points to 79% for the three months ended March 31, 2022. Outbound shipping and packaging costs decreased mainly due to consolidation of our outbound shipping process across distribution centers.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change |
| 2022 | | 2021 | | Amount | | % |
| | | | | | | |
| (in thousands, except percentages) |
| Outbound shipping | $ | 6,617 | | | $ | 8,117 | | | $ | (1,500) | | | (18) | % |
| Direct labor | 2,459 | | | 1,865 | | | 594 | | | 32 | % |
| Packaging | 736 | | | 913 | | | (177) | | | (19) | % |
| Other | 237 | | | (63) | | | 300 | | | * |
| Total cost of consignment revenue | $ | 10,049 | | | $ | 10,832 | | | $ | (783) | | | (7) | % |
| * Not meaningful | | | | | | | |
Cost of Product Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Change | |
| | | | | | | | |
| 2022 | | 2021 | | Amount | | % | |
| | | | | | | | |
| (in thousands, except percentages) |
| Cost of product revenue | $ | 12,418 | | | $ | 5,130 | | | $ | 7,288 | | | 142 | % | |
| As a percent of product revenue | 49 | % | | 47 | % | | | | | |
| Product gross margin | 51 | % | | 53 | % | | | | | |
The $7.3 million increase in cost of product revenue represents a 142% increase in the cost of product revenue for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
The increase in cost of product revenue for the three months ended March 31, 2022 was primarily driven by higher product revenue and related costs outlined in the below table. Product gross margin decreased 200 basis points to 51% for the three months ended March 31, 2022.
The cost of product revenue increased by 142%, which was higher than the increase in product revenue as our European operations currently have higher inventory costs, resultingcontinue to scale and grow as well as a mix shift due to growth in supply from our RaaS partners, which are recognized as part of product revenue, partially offset by a relatively lower gross margin profile. The increase$1.0 million decrease in outbound shipping fromconsignment revenue due to the addition of our European operationsmix shift described previously.
Cost of Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | March 31,
2023 | | March 31,
2022 | | Amount | | % |
| | (in thousands, except percentages) |
| Cost of consignment revenue | | $ | 9,220 | | | $ | 10,049 | | | $ | (829) | | | (8.2) | % |
| Cost of product revenue | | 15,609 | | | 12,418 | | | 3,191 | | | 25.7 | % |
| Total cost of revenue | | $ | 24,829 | | | $ | 22,467 | | | $ | 2,362 | | | 10.5 | % |
| Gross profit | | $ | 51,093 | | | $ | 50,228 | | | $ | 865 | | | 1.7 | % |
| Gross margin | | 67.3 | % | | 69.1 | % | | | | |
Gross margin was offset by a67.3% and 69.1% for the three months endedMarch 31, 2023 and 2022, respectively, or an unfavorable change of 180 basis points.
The decrease in outbound shipping for our domestic operations relative to the growth in revenues. We expect the gross margin profiles for product revenue to converge in the long-term as we integrate our European operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | Change | |
| | | | | | | | | |
| | 2022 | | 2021 | | Amount | | % | |
| | | | | | | | | |
| | (in thousands, except percentages) |
| Inventory costs | | $ | 8,832 | | | $ | 2,826 | | | $ | 6,006 | | | 213 | % | |
| Outbound shipping | | 2,420 | | | 1,708 | | | 712 | | | 42 | % | |
| Direct labor | | 887 | | | 392 | | | 495 | | | 126 | % | |
| Packaging | | 279 | | | 204 | | | 75 | | | 37 | % | |
| Total cost of product revenue | | $ | 12,418 | | | $ | 5,130 | | | $ | 7,288 | | | 142 | % | |
Operating Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Change | |
| | | | | | | | |
| 2022 | | 2021 | | Amount | | % | |
| | | | | | | | |
| (in thousands, except percentages) |
| Operations, product and technology | $ | 39,161 | | | $ | 28,312 | | | $ | 10,849 | | | 38 | % | |
| Marketing | 16,978 | | | 15,446 | | | 1,532 | | | 10 | % | |
| Sales, general and administrative | 14,664 | | | 10,638 | | | 4,026 | | | 38 | % | |
| Total operating expenses | $ | 70,803 | | | $ | 54,396 | | | $ | 16,407 | | | 30 | % | |
| Operations, product and technology as a % of total revenue | 54 | % | | 51 | % | | | | | |
| Marketing as a % of total revenue | 23 | % | | 28 | % | | | | | |
| Sales, general and administrative as a % of total revenue | 20 | % | | 19 | % | | | | | |
Operating expenses increased $16.4 million, or 30%, for the three months ended March 31, 20222023 as compared to the same period in 2022 was primarily due to a 410 basis point increase in product revenue as a percentage of total revenue, partially offset by favorable labor variances for cost of consignment revenue. Consignment revenue is recognized net of seller payouts and cost of items sold, whereas for product revenue, seller payouts and cost of items sold are included as a component of cost of revenue. As such, product revenue has a lower gross margin than consignment revenue.
Cost of Consignment Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | March 31,
2023 | | March 31,
2022 | | Amount | | % |
| | (in thousands, except percentages) |
| Cost of consignment revenue | | $ | 9,220 | | | $ | 10,049 | | | $ | (829) | | | (8.2) | % |
| Consignment gross margin | | 80.2 | % | | 78.8 | % | | | | |
Consignment gross margin was 80.2% and 78.8% for the three months endedMarch 31, 2021. Gross2023 and 2022, respectively, or a favorable change of 140 basis points. Consignment gross profit increased $10.5 million, or 26%,dollars were flat year-over-year.
The increase in the same period.
Operating expenses increased as we continue to invest in the expansion of distribution center processing capacity, marketing efforts, infrastructure to support being a public company and expansion into Europe.
Results by operating expenses line item are discussed below.
Operations, Product and Technology
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | Change | |
| | | | | | | | | |
| | 2022 | | 2021 | | Amount | | % | |
| | | | | | | | | |
| | (in thousands, except percentages) |
| Personnel-related costs | | $ | 25,494 | | | $ | 18,679 | | | $ | 6,815 | | | 36 | % | |
| Facilities and other allocated costs | | 8,330 | | | 6,020 | | | 2,310 | | | 38 | % | |
| Inbound shipping | | 4,876 | | | 3,555 | | | 1,321 | | | 37 | % | |
| Other | | 461 | | | 58 | | | 403 | | | 695 | % | |
| Total operations, product and technology expenses | | $ | 39,161 | | | $ | 28,312 | | | $ | 10,849 | | | 38 | % | |
| Operations, product and technology as % of total revenue | | 54 | % | | 51 | % | | | | | |
Personnel-related costs were $25.5 millionconsignment gross margin for the three months ended March 31, 2023 as compared to the same period in 2022 which increased by 36% from $18.7 millionwas primarily due to 120 basis points of lower direct labor costs.
Cost of Product Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | March 31,
2023 | | March 31,
2022 | | Amount | | % |
| | (in thousands, except percentages) | | |
| Cost of product revenue | | $ | 15,609 | | | $ | 12,418 | | | $ | 3,191 | | | 25.7 | % |
| Product gross margin | | 47.0 | % | | 50.8 | % | | | | |
Product gross margin was 47.0% and 50.8% for the three months endedMarch 31, 2023 and 2022, respectively, or an unfavorable change of 380 basis points. Product gross profit dollars were up 8% year-over-year.
The decrease in product gross margin for the three months ended March 31, 2021, driven by a 45% increase2023 as compared to the same period in the average U.S. headcount mostly from distribution2022 was primarily due to 290 basis points of higher inventory costs and processing centers and the inclusionan 60 basis points of employees from the Remix acquisition.
Facilitieshigher packaging and other allocated costs were $8.3costs.
Operations, Product, and Technology
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | March 31,
2023 | | March 31,
2022 | | Amount | | % |
| | (in thousands, except percentages) |
| Operations, product, and technology | | $ | 38,347 | | | $ | 39,161 | | | $ | (814) | | | (2.1) | % |
| Operations, product, and technology as a percentage of total revenue | | 50.5 | % | | 53.9 | % | | | | |
The $0.8 million decrease in operations, product, and technology expenses for the three months ended March 31, 2023 as compared to the same period in 2022 which increasedwas primarily due to a $1.4 million decrease in personnel-related costs, partially offset by 38% from $6.0a $0.8 million increase in inbound shipping and other costs.
Marketing
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | March 31,
2023 | | March 31,
2022 | | Amount | | % |
| | (in thousands, except percentages) |
| Marketing | | $ | 16,870 | | | $ | 16,978 | | | $ | (108) | | | (0.6) | % |
| Marketing as a percentage of total revenue | | 22.2 | % | | 23.4 | % | | | | |
The $0.1 million decrease in marketing expenses for the three months ended March 31, 2021, driven2023 as compared to the same period in 2022 was primarily due to a $1.1 million decrease in social and other advertising costs and a $0.2 million decrease in professional services, partially offset by increasesa $1.0 million increase in personnel-related costs, of $0.5which $0.9 million in Software-as-a-service subscriptions and hosting, $0.7 million in supplies and third party logisticswas related to new distributionstock-based compensation expense and processing centersa $0.2 million increase in facilities, technology, and clean out bag storage, $0.6other allocated costs.
Sales, General and Administrative
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | March 31,
2023 | | March 31,
2022 | | Amount | | % |
| | (in thousands, except percentages) | | |
| Sales, general, and administrative | | $ | 16,059 | | | $ | 14,664 | | | $ | 1,395 | | | 9.5 | % |
| Sales, general, and administrative as a percentage of total revenue | | 21.2 | % | | 20.2 | % | | | | |
The $1.4 million increase in warehouse rent related primarily to new processingsales, general, and distribution centers and $0.4 million in depreciation.
Inbound shipping costs were $4.9 millionadministrative expenses for the three months ended March 31, 2023 as compared to the same period in 2022 was primarily due to a $3.0 million increase in personnel-related costs, of which increased$2.7 million was related to stock-based compensation expense, and a $0.1 million increase in facilities, technology, and other allocated costs, partially offset by 37% from $3.6a $1.2 million decrease in professional services and a $0.5 million decrease in other corporate expenses.
Interest Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | March 31,
2023 | | March 31,
2022 | | Amount | | % |
| | (in thousands, except percentages) | | |
| Interest expense | | $ | 77 | | | $ | 423 | | | $ | (346) | | | (81.8) | % |
The $0.3 million decrease in interest expense for the three months ended March 31, 2021, driven by increases2023 as compared to the same period in 2022 was primarily due to an increase in amounts capitalized as part of $0.8an asset in conjunction with the build-out of our distribution centers and reclassified from interest expense.
Other Income, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | March 31,
2023 | | March 31,
2022 | | Amount | | % |
| | (in thousands, except percentages) | | |
| Other income, net | | $ | (476) | | | $ | (303) | | | $ | (173) | | | 57.1 | % |
The $0.2 million increase in returns and intra-company shipments and $0.5 million in the Clean Out Kits from sellers.
Marketing
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | Change | |
| | 2022 | | 2021 | | Amount | | % | |
| | | | | | | | | |
| | (in thousands, except percentages) |
| Marketing and advertising costs | | $ | 13,927 | | | $ | 13,220 | | | $ | 707 | | | 5 | % | |
| Personnel-related costs | | 2,075 | | | 1,684 | | | 391 | | | 23 | % | |
| Facilities and technology allocated costs | | 368 | | | 312 | | | 56 | | | 18 | % | |
| Professional Services | | 267 | | | 94 | | | 173 | | | 184 | % | |
| Other | | 341 | | | 136 | | | 205 | | | 151 | % | |
| Total marketing expense | | $ | 16,978 | | | $ | 15,446 | | | $ | 1,532 | | | 10 | % | |
| Marketing as % of total revenue | | 23 | % | | 28 | % | | | | | |
Marketing costs increased 10%other income, net for the three months ended March 31, 20222023 as compared to 26% gross profit growth. Marketing and advertising costs were $13.9 million for the three months ended March 31,same period in 2022 which increased by 5% from $13.2 million for the three months ended March 31, 2021. Increase in marketing and advertising costs was driven by increases of $1.4 million in organic and acquisition marketing and advertising, offset by a decrease of $0.7 million from the discontinuance of our Goody Box program.
Personnel-related costs were $2.1 million for the three months ended March 31, 2022, which increased by 23% from $1.7 million for the three months ended March 31, 2021. This increase was primarily due to 23% growthan increase in the average U.S. based headcount and additional marketing employees from the acquisition of Remix.
Sales, General and Administrative
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | Change | |
| | 2022 | | 2021 | | Amount | | % | |
| | | | | | | | | |
| | (in thousands, except percentages) |
| Personnel-related costs | | $ | 7,372 | | | $ | 5,536 | | | $ | 1,836 | | | 33 | % | |
| Professional services | | 2,506 | | | 1,835 | | | 671 | | | 37 | % | |
| Payment processing fees | | 2,217 | | | 1,797 | | | $ | 420 | | | 23 | % | |
| Other | | 2,569 | | | 1,470 | | | 1,099 | | | 75 | % | |
| Total sales, general and administrative costs | | $ | 14,664 | | | $ | 10,638 | | | $ | 4,026 | | | 38 | % | |
| Sales, general and administrative as % of total revenue | | 20 | % | | 19 | % | | | | | |
Sales, general and administrative expense increased 38% for the three months ended March 31, 2022, compared to 26% gross profit growth. This increase was mainly the result of investments, primarily in personnel and professional services costs, made towards scalinginterest income on our business and improving our processes as we became a public company.
Personnel-related costs were $7.4 million for the three months ended March 31, 2022, which increased from $5.5 million for the three months ended March 31, 2021, driven by a headcount increase of 25% in U.S. operations and the inclusion of employees from the Remix acquisition.
Professional services costs were $2.5 million for the three months ended March 31, 2022, which increased 37% from $1.8 million compared to the three months ended March 31, 2021marketable securities due to an increase of $0.7 million in legal and accounting services.
Payment processing fees were $2.2 million for the three months ended March 31, 2022, which increased 23% from $1.8 million for the three months ended March 31, 2021. The increase was mainly due to the 31% increase in overall sales partially offset by lower payment processinga higher interest rate in our European operations.
Other expenses were $2.6 million for the three months ended March 31, 2022, an increase of 75% from $1.5 million for the three months ended March 31, 2021, driven by primarily higher insurance premiums associated with our public company status.environment.
Liquidity and Capital Resources
As of March 31, 2022, we had cash, cash equivalents and short-term marketable securities of $183.8 million and an accumulated deficit of $336.1 million. As of December 31, 2021, we had cash, cash equivalents and short-term marketable securities of $205.8 million and an accumulated deficit of $315.3 million. We have historically generated negative cash flows from operations and have primarily financed our operations through private and public sales of equity securities and debt. As of March 31, 2023, we had cash, cash equivalents and short-term marketable securities of $93.5 million. Additionally, we currently have a term loan facility (“Term Loan”) under which $38.0 million remained available to be drawn as of March 31, 2023 and we were in full compliance with Western Alliance Bankour debt covenants under the Term Loan as of that date. See Note 7, Long-Term Debt, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for which we have drawn $40.0 million and repaid $6.0 million. In March 2021, we completeda further discussion on our IPO for aggregate net proceeds of $175.5 million, after deducting offering costs, underwriter discounts and commissions of $17.7 million. In August 2021, we completed our follow-on public offering and sold an aggregate of two million shares. The aggregate net proceeds were $45.5 million after deducting $3.3 million of underwriter discounts and commissions and offering costs.
We expect operating losses and negative cash flows from operations to continue intoin the foreseeable futurenear term as we continue to invest in growing our business and expanding our infrastructure. Our primary use of cash includes operating costs such as processing center and distribution centernetwork spend, product and technology expenses, marketing expenses, personnel expenses and other expenditures necessary to support our operations and our growth. Additionally, our primary capital expenditures are related to the set-up, expansion and/or automation of our processing centers and distribution centers.network. Based upon our current operating plans, we believe that our existing cash, cash equivalents and short-term marketable securities will be sufficient to meet our short-termshort- and long-term capital requirements.requirements and we do not anticipate expanding our distribution network to include additional locations in the near term. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.
Our future capital requirements will depend on many factors, including, but not limited to the timing of our increased distribution center automation and expansion plans to support planned revenue growth, the expansion of sales and marketing activities, the potential introduction of new offerings and new RaaS clients, the continuing growth of our marketplacemarketplaces and overall economic conditions. However, we expect that our capital expenditures will decline significantly in 2023 as we complete the first phase of our new distribution center in Texas. We may seek additional equity or debt financing. If we raise equity financing, our stockholdersSee the section titled “Risk Factors—Risks Relating to Our Indebtedness and Liquidity—We may experience significant dilution of their ownership interests. If we conduct anrequire additional debt financing, the terms of such debt financingcapital to support business growth, and this capital might not be available or may be similar or more restrictive than our current term loan facility and we would have additional debt service obligations. Inavailable only by diluting existing stockholders” within the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations could be harmed.2022 10-K.
Cash Flows
The following table summarizes our cash flows for the periods indicated.indicated:
| | | Three Months Ended
March 31, | | Three Months Ended |
| | 2022 | | 2021 | | March 31,
2023 | | March 31,
2022 |
| | | | | | (in thousands) |
| (in thousands) | |
| Net cash (used in) provided by: | | |
| Net cash provided by (used in): | | Net cash provided by (used in): | |
| Operating activities | Operating activities | $ | (6,679) | | | $ | 1,077 | | Operating activities | | $ | (4,458) | | | $ | (6,679) | |
| Investing activities | Investing activities | (7,912) | | | (4,099) | | Investing activities | | 18,900 | | | (7,912) | |
| Financing activities | Financing activities | (1,191) | | | 185,051 | | Financing activities | | (1,192) | | | (1,191) | |
| Effect of exchange rate changes on cash and cash equivalents | (172) | | | — | | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (15,954) | | | $ | 182,029 | | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (540) | | | (172) | |
| Net change in cash, cash equivalents and restricted cash | | Net change in cash, cash equivalents and restricted cash | | $ | 12,710 | | | $ | (15,954) | |
Changes in Cash FlowFlows from Operating Activities
ForNet cash used in operating activities for the three months ended March 31, 2022,2023 decreased $2.2 million, or 33.3%, as compared to the same period in 2022. The decrease in net cash used in operating activities was $6.7due to a $6.6 million which consisted of adecrease in net loss excluding non-cash and reconciling items disclosed within our consolidated statement of $20.7 million,cash flows, partially offset by non-cash charges of $8.7 million and $5.4$4.3 million of net cash generated fromunfavorable changes in our operating assets and liabilities. The increase$6.6 million decrease in net loss excluding non-cash and reconciling items was primarily driven by a favorable change in the reconciling impact of stock-based compensation expense as well as lower net loss. The $4.3 million of unfavorable changes in operating assets and liabilities was primarily due to a $4.9 million increasedriven by unfavorable changes in accrued and other current liabilities, primarily resulting from an increase in allowance for returnsoperating lease liabilities, and accrued vendor liabilities due to higher operating expenses as we grow our business, and a $4.3 million cash inflow frominventory, partially offset by favorable changes in accounts receivable, accounts payable, and seller payable due to the timing of payments. These changes were partially offset by increased inventory of $2.3 million to support business growth and a $2.2 million increase in other current and non-current assets, resultingand other non-current liabilities.
Changes in Cash Flows from an increase in contract assets and security deposits.Investing Activities
ForNet cash provided by investing activities for the three months ended March 31, 2021,2023 increased $26.8 million as compared to the same period in 2022. The increase in net cash provided by operatinginvesting activities was $1.1 million, which consisted of non-cash charges of $7.9 million and net cash of $9.3 million generated from changes in operating assets and liabilities, partially offset by a net loss of $16.2 million. The increase in operating assets and liabilities was primarily due to a $4.8$19.9 million increase in accrued and other current liabilities, a $4.7 million increase in accounts payable due to the timingmaturities of payments and increased operating expenses as we grow our business,marketable securities and a $1.5$7.0 million increasedecrease in seller payable due to the timingpurchases of payments, partially offset by a reduction in operating lease liabilities of $1.3 million.property and equipment.
Changes in Cash FlowFlows from InvestingFinancing Activities
ForNet cash used in financing activities for the three months ended March 31, 2023 remained flat as compared the same period in 2022 due to offsetting impacts of a $1.0 million decrease in repayments of debt against a $1.0 million net increase in cash used in investing activities was $7.9 million, which was driven by $12.6 million of capital expenditures primarily for our new distribution centers, partially offset by $4.7 million maturities of marketable securities.
For the three months ended March 31, 2021, net cash used in investing activities was $4.1 million, which is attributableoutflows related to purchases of property and equipment, primarily for automation assets for the distribution center in Georgia.
Changes in Cash Flow from Financing Activities
For the three months ended March 31, 2022, net cash used in financing activities was $1.2 million, which consisted mainly of $2.0 million in debt repayment, partially offset by $0.8 million in proceeds from the exercise of common stock options.
For the three months ended March 31, 2021, net cash provided by financing activities was $185.1 million, which consisted mainly of $180.3 million in proceeds from the sale of Class A common stock in the IPO, net of underwriting discounts and commissions, $4.6 million in debt financing proceeds and $1.9 million in proceeds from the exercise of common stock options, partially offset by $1.7 million in public offering costs for the IPO.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statementsU.S. GAAP requires us to make judgmentsestimates and estimatesassumptions that affect the reported amounts of assets and liabilities and the disclosuredisclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements as well asand the reported amounts of revenue generated, and expenses incurred during the reporting periods. Ouryear. We base our estimates are basedand assumptions on ourcurrent facts, historical experience and on various other factors that we believe areto be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying valuevalues of assets and liabilities that are not readily apparent from other sources.and the recording of revenue, costs and expenses. Actual results maycould differ from these judgments and estimates under different assumptions or conditions and any such differences may be material.those estimates.
There have been no significantmaterial changes to our critical accounting policies since December 31, 2021.the 2022 10-K. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements, refer to the section titled “Management’ssee Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed withOperations, of the SEC on March 22, 2022.
Recent Accounting Pronouncements
For information on recently issued accounting pronouncements, refer to Note 2 titled “Significant Accounting Policies” to our unaudited condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
JOBS Act Accounting Election
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, our condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
New Accounting Pronouncements
Item 3. Quantitative and Qualitative Disclosures About Market Risk.Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily include:
Interest Rate Risk
As of March 31, 2022,2023, we had unrestricted cash and cash equivalents of $68.6$50.7 million and marketable securities of $115.2$42.7 million, consisting primarily of money market funds, commercial paper, corporate debt securities, commercial paper, U.S. treasury securities and U.S. government agency bonds, which carry a degree of interest rate risk. Fluctuations in interest rates have not been significant to date. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing 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. Due to the short-termshort- to intermediate termintermediate-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changesfluctuations in interest rates. Fluctuations in
The Term Loan bears variable interest rates have not been significant to date.
Interest rates under our loan and security agreement with Western Alliance Bank are tied to the prime rate, with a floor of 5.50%6.00%, and therefore carrycarries interest rate risk. As of March 31, 2022, we had borrowed $40.0 million under our loan and security agreement, with $34.0 million principal outstanding as of such date, at an interest rate of 5.50%. Fluctuations inIf interest rates were to increase or decrease by 1% for the year and our borrowing amounts on the Term Loan remained constant, our annual interest expense could increase or decrease by approximately $0.3 million, respectively. See the risk factor discussion captioned "Risks Relating to Our Indebtedness and Liquidity—Recent events affecting the financial services industry could have not been significant to date.
A hypothetical 100 basis point change in interest rates would not have a materialan adverse impact on our financial condition orbusiness, results of operations and financial conditions" under Part II, Item 1A of this Quarterly Report on Form 10-Q for more discussion on adverse developments affecting the periods presented.financial services industry that may have an adverse impact on our business, results of operations and financial conditions.
Inflation Risk
In recent months, inflation has increased significantly in the United StatesU.S. and overseas where we conduct our business, resulting in rising interest rates and fuel, wages,labor and processing, freight and other costs.costs that have affected our gross margin and operating expenses. We do not believe thatthese increases have negatively impacted our business, and although difficult to quantify, inflation has had a materialis potentially having an adverse effect on our business, financial condition, or results of operationscustomers’ ability to date. However, these increases could negatively impact our business by driving up our operating and borrowing costs. In addition, the effect of inflation on consumers’ budgets could result in a decreasepurchase in our customers’ spending.marketplaces, resulting in slowing revenue and Order growth. If we are unable to increase our prices to sufficiently offset the rising costs of doing business, our profitability and financial position could be adversely impacted.
Foreign Currency Exchange Rate Risk
We transact business in Europe through Remix in multiple currencies. As a result, our operating results, cash flows and net investment in Remix are subject to fluctuations due to changes in foreign currency exchange rates. As of March 31, 2022,2023, our most significant currency exposure was the Bulgarian lev (BGN).lev. We manage our foreign currency exchange rate risks through natural hedgehedges including foreign currency revenue and costs matching, as well as foreign currency assets offsetting liabilities. We have not entered into any hedging arrangements with respect to foreign currency risk, but we may do so in the future if our exposure to foreign currency becomebecomes more significant.
Assets and liabilities of our foreign operations are translated into dollars at period-end rates, while income and expenses are translated using the average exchange rate during the period in which the transactions occurred. The related translation adjustments arewere reflected as aan unfavorable foreign currency translation adjustment of $0.7$0.5 million forduring the three months ended March 31, 20222023, which was recognized in accumulated other comprehensive loss.
A hypothetical 10% change in foreign currency exchange rates would not have had a material impact on our financial condition or results of operations during any of the periods presented.
Item 4. Controls and Procedures.Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to RuleRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of the end of the period covered by this report. The term “disclosure controls and procedures,” as defined under the Exchange Act, means controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Further, no evaluation of control can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
Because of the material weakness in our internal control over financial reporting discussed below, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022,2023, our disclosure controls and procedures were not effective. In light of this fact, our management, including our Chief Executive Officer and Chief Financial Officer, has performed additional reconciliationsput in place processes and controls and other post-closing procedures and has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the unaudited interim condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
Previously Reported Material Weaknesses in Internal Control Over Financial Reporting
As previously discloseddescribed in our Annual Report on Formthe 2022 10-K, filed with the SEC on March 22, 2022, in connection with the auditaudits of our consolidated financial statements for the fiscalin certain prior years, ended December 31, 2021, 2020, 2019 and 2018 we and our independent registered public accounting firmfirms identified certain control deficiencies in the design and implementation of our internal control over financial reporting that, in the aggregate, constituted a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis.
Our material weakness related to the following control deficiencies:deficiency:
We did not design and maintain effective control over our accounting and proprietary data systems used in our financial reporting process. These systems lacked controls over user access, program change management, computer operation and data validation to ensure that IT program and data changes affecting financial accounting applications and underlying accounting records are identified, tested, authorized and implemented appropriately.
•We did not design and maintain adequate controls over the preparation and review of certain account reconciliations and journal entries. Specifically, we did not design and maintain controls and we did not maintain a sufficient complement of accounting personnel to ensure (i) the appropriate segregation of duties in the preparation and review of account reconciliations and journal entries and (ii) account reconciliations were prepared and reviewed at the appropriate level of precision on a consistent and timely basis.
The deficienciesdeficiency described above, if not remediated, could result in a misstatement of one or more account balances or disclosures in our annual or interim consolidated financial statements that would not
be prevented or detected, and, accordingly, we determined that thesethis control deficiencies constitutedeficiency constitutes a material weakness.
Remediation Plans
To address our material weakness, we have added accounting finance and information technologyfinance personnel and implemented new financial accounting processes.processes, controls, and systems. We are continuing to take steps to remediate the material weakness described above through implementing enhancements and controls within our accounting and proprietary systems, hiring additional qualified accounting finance and information technologyfinance resources and further evolving our accounting and quarterly close processes. We will not be able to fully remediate thesethis control deficienciesdeficiency until these steps have been completed and the controls have been operating effectively for a sufficient period of time.
Changes in Internal Control over Financial Reporting
We are taking actions to remediate the material weaknessesweakness relating to our internal control over financial reporting, as described above. Except as described above, there was not any change in our internal control over financial reporting (as such term is defined in RuleRules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite our employees working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
PART II. OTHER INFORMATION.INFORMATION
Item 1. Legal Proceedings.Proceedings
We are not a party to any material pending legal proceedings. From time to time, we may be subject to legal proceedings and claims arising in the ordinary course of business.
Item 1A. Risk Factors.Factors
Risks affecting our business are discussedThe Company is supplementing the risk factors previously disclosed in the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 filed with the SEC on March 22, 20227, 2023 (our “Fiscal 20212022 10-K”). There have been no material changes to ourinclude the following risk factor, which should be read in conjunction with the other risk factors as previously disclosedpresented in our Fiscal 20212022 10-K.
Recent events affecting the financial services industry could have an adverse impact on our business, results of operations and financial conditions.
On March 10, March 12 and May 1 of 2023, the Federal Deposit Insurance Corporation (the “FDIC”) took control and was appointed receiver of Silicon Valley Bank, Signature Bank and First Republic Bank, respectively, after each bank was unable to continue their operations. These events exposed vulnerabilities in the regional banking sector, including liquidity constraints, contagion and solvency risk and other legal uncertainties and caused significant volatility in the market prices of the common stock of certain other regional banks.
34
Although we do not have any deposits with any of the banks that have been placed into receivership to date, we are unable to predict the extent or nature of the impacts of these evolving circumstances at this time. For example, we are party to an amended and restated loan and security agreement with Western Alliance Bank, a regional bank, which provides a term loan and credit facility for an aggregate borrowing amount of up to $70.0 million. As of March 31, 2023, the balance of this debt is $29.3 million. While our restated loan and security agreement requires that we maintain minimum cash deposits with Western Alliance Bank that exceed the FDIC insurance limits, we utilize an insured cash sweep program to extend FDIC insurance to this balance. Further, while we maintain the contractual minimum cash deposits with Western Alliance Bank, most of our cash is invested in managed assets outside of Western Alliance Bank. If Western Alliance Bank or other financial institutions with which we have relationships were to enter into receivership or become insolvent, our ability to access the cash and cash equivalents that we hold at such institutions, as well as our ability to draw on our credit facility, may be impacted. In such an event, it could become more difficult for us to access sufficient liquidity or acquire financing on commercially reasonable terms or at all. Any such event could adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, which could result in breaches of our financial and other contractual obligations, any of which could materially and adversely impact our business, results of operations and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities.Proceeds
None.
Use of Proceeds(b)from our Public Offerings.
On March 30, 2021, we closed our IPO, in which we sold 13,800,000 shares of our Class A common stock at an offering price of $14.00 per share, including 1,800,000 shares pursuant to the exercise of the underwriters’ option to purchase additional shares of our Class A common stock, resulting in net proceeds to us of $175.5 million after deducting offering costs, underwriting discounts and commissions of $17.7 million. All of the shares offered, issued and sold in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-253834), which was declared effective by the SEC on March 25, 2021. There has been no material change in the planned use of proceeds from the IPO as disclosed in our final prospectus filed pursuant to Rule 424(b) on March 26, 2021.
On August 2, 2021, the Company issued and sold 2,000,000 shares of Class A common stock at a price of $24.25 per share in a registered public offering. The aggregate net proceeds were $45.5 million, after deducting $3.3 million of underwriting discounts and commissions and offering costs. There has been no material change in the planned use of proceeds from the registered public offering completed in August 2021.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a)None.
(b)None.
Item 6. EXHIBITS.Exhibits
| | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | | Exhibit Title | Incorporation by Reference |
| | | Form | File No. | Exhibit | Filing Date |
| 3.1 | | | S-1 | 333-253834 | 3.2 | 3/3/2021 |
| 3.2 | | | S-1 | 333-253834 | 3.4 | 3/3/2021 |
| 4.1 | | | S-1 | 333-253834 | 4.1 | 3/3/2021 |
| 4.2 | | | S-1 | 333-253834 | 4.2 | 3/3/2021 |
| 31.1 | | | Filed herewith | | | |
| 31.2 | | | Filed herewith | | | |
| 32.1* | | | Furnished herewith | | | |
| 32.2* | | | Furnished herewith | | | |
| 101.INS | | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | Filed herewith | | | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | Filed herewith | | | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | Filed herewith | | | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | Filed herewith | | | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | Filed herewith | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
| Exhibit Number | | Description | | Form | | Exhibit | | Filing Date |
| 3.1 | | | | S-1 | | 3.2 | | 3/3/2021 |
| 3.2 | | | | 8-K | | 3.1 | | 2/21/2023 |
| 4.1 | | | | S-1 | | 4.1 | | 3/3/2021 |
| 4.2 | | | | S-1 | | 4.2 | | 3/3/2021 |
| 10.1†^ | | | | 8-K | | 10.1 | | 7/20/2022 |
| 31.1* | | | | | | | | |
| 31.2* | | | | | | | | |
| 32.1** | | | | | | | | |
| 32.2** | | | | | | | | |
| 101.INS* | | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | |
| 101.SCH* | | Inline XBRL Taxonomy Extension Schema Document | | | | | | |
| 101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | |
| 101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | |
| 101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | | |
| 101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | |
| 104* | | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101) | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | Filed herewith | | | |
104 | | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). | Filed herewith | | | |
________________* Filed herewith.
* The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed* Furnished herewith.
† Certain schedules have been omitted pursuant to accompany this Quarterly Report on Form 10-Q and are not deemed “filed” for purposesItem 601(a)(5) of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filingRegulation S-K under the Securities ActAct. The Company agrees to furnish supplementally any omitted schedules to the Securities and Exchange Commission upon request.
^ Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because they are both (i) not material and (ii) the type that the registrant treats as private or confidential. A copy of the omitted portions will be furnished to the Securities and Exchange Act, irrespective of any general incorporation language contained in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | |
| | | THREDUP INC. |
| | | | |
Date: | May 9, 2022 | | By: | /s/ James Reinhart |
| | | | James Reinhart |
| | | | Chief Executive Officer |
| | | | (Principal Executive Officer) |
| | | | |
Date: | May 9, 2022 | | By: | /s/ Sean SobersSEAN SOBERS |
| | | | Sean Sobers |
| | | | Chief Financial Officer |
| | | | (Principal Financial and Accounting Officer) |
| | | | |
Date: May 9, 2023
