The Company measures certain assets and liabilities at fair value as discussed throughout the notes to its condensed consolidated financial statements. As of both SeptemberJune 30, 20222023 and December 31, 2021,2022, the carrying amounts 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 values 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, and as such, the carrying value of the Company’s long-term debt approximated its fair value as of both SeptemberJune 30, 20222023 and December 31, 2021.2022.
The following tables provide information about the Company’s financial instruments that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such values as of SeptemberJune 30, 20222023 and December 31, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | (in thousands) |
Assets: | | | | | | | | |
Cash equivalents: | | | | | | | | |
Money market funds | | $ | 8,025 | | | $ | — | | | $ | — | | | $ | 8,025 | |
Commercial paper | | — | | | 5,646 | | | — | | | 5,646 | |
Total cash equivalents | | 8,025 | | | 5,646 | | | — | | | 13,671 | |
Marketable securities: | | | | | | | | |
Corporate debt securities | | 32,473 | | | — | | | — | | | 32,473 | |
U.S. treasury securities | | 29,073 | | | — | | | — | | | 29,073 | |
U.S. government agency bonds | | 24,955 | | | — | | | — | | | 24,955 | |
Total marketable securities | | 86,501 | | | — | | | — | | | 86,501 | |
Total assets at fair value | | $ | 94,526 | | | $ | 5,646 | | | $ | — | | | $ | 100,172 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | (in thousands) |
Assets: | | | | | | | | |
Cash equivalents: | | | | | | | | |
Money market funds | | $ | 41,376 | | | $ | — | | | $ | — | | | $ | 41,376 | |
Commercial paper | | — | | | 12,098 | | | — | | | 12,098 | |
Total cash equivalents | | 41,376 | | | 12,098 | | | — | | | 53,474 | |
Marketable securities: | | | | | | | | |
Corporate debt securities | | 55,921 | | | — | | | — | | | 55,921 | |
U.S. treasury securities | | 37,190 | | | — | | | — | | | 37,190 | |
U.S. government agency bonds | | 28,166 | | | — | | | — | | | 28,166 | |
Total marketable securities | | 121,277 | | | — | | | — | | | 121,277 | |
Total assets at fair value | | $ | 162,653 | | | $ | 12,098 | | | $ | — | | | $ | 174,751 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | (in thousands) |
Assets: | | | | | | | | |
Cash equivalents: | | | | | | | | |
Money market funds | | $ | 1,110 | | | $ | — | | | $ | — | | | $ | 1,110 | |
Commercial paper | | — | | | 14,460 | | | — | | | 14,460 | |
Total cash equivalents | | 1,110 | | | 14,460 | | | — | | | 15,570 | |
Marketable securities: | | | | | | | | |
Corporate debt securities | | 25,488 | | | — | | | — | | | 25,488 | |
U.S. treasury securities | | 19,176 | | | — | | | — | | | 19,176 | |
U.S. government agency bonds | | 22,238 | | | — | | | — | | | 22,238 | |
Total marketable securities | | 66,902 | | | — | | | — | | | 66,902 | |
Total assets at fair value | | $ | 68,012 | | | $ | 14,460 | | | $ | — | | | $ | 82,472 | |
The following tables summarize the cost, gross unrealized gains, gross unrealized losses and fair value of the marketable securities as of SeptemberJune 30, 20222023 and December 31, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 |
| | Cost or Amortized Cost | | Unrealized | | Fair Value |
| | | Gains | | Losses | |
| | (in thousands) |
| | | | | | | | |
U.S. treasury securities | | 14,440 | | | — | | | (64) | | | 14,376 | |
U.S. government agency bonds | | 11,712 | | | — | | | (232) | | | 11,480 | |
Total | | $ | 26,152 | | | $ | — | | | $ | (296) | | | $ | 25,856 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 |
| | Cost or Amortized Cost | | Unrealized | | Fair Value |
| | | Gains | | Losses | |
| | (in thousands) |
Corporate debt securities | | $ | 32,984 | | | $ | — | | | $ | (511) | | | $ | 32,473 | |
U.S. treasury securities | | 29,596 | | | — | | | (523) | | | 29,073 | |
U.S. government agency bonds | | 25,553 | | | — | | | (598) | | | 24,955 | |
Total | | $ | 88,133 | | | $ | — | | | $ | (1,632) | | | $ | 86,501 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Cost or Amortized Cost | | Unrealized | | Fair Value |
| | | Gains | | Losses | |
| | (in thousands) |
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 SeptemberJune 30, 20222023 and December 31, 2021,2022, the Company’s cash equivalents approximated their estimated fair value. As such, there are no unrealized gains or losses related to the Company’s cash equivalents.
For 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 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 and six months ended June 30, 2023 and 2022, the Company did not recognize any losses on its marketable securities due to credit-related factors.
TheAs of June 30, 2023, the Company’s money market funds were valued using Level 1 inputs because they were valued using quoted prices in active markets.
The Company’s U.S. treasury securities, corporate debt securitiescommercial paper, U.S. government agency discount notes, and U.S. government agency bonds were valued using Level 12 inputs because they are valued using quoted prices in active markets.
The Company’s commercial paper is valued using Level 2 inputs because it iswere 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.
As of June 30, 2023, there were no transfers between levelsinto or out of Level 3 during the ninethree and six months ended SeptemberJune 30, 2022.2023. As of SeptemberJune 30, 2022,2023, of the $86.5$25.9 million carrying amount of marketable securities, $83.0 millionall had a contractual maturity date of less than one year and $3.5 million had a contractual maturity date between one to two years.year.
4. Property and Equipment, Net
Property and equipment, net consisted of the following:
| | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
| | (in thousands) |
Property and equipment | | $ | 132,892 | | | $ | 124,412 | |
Less: accumulated depreciation and amortization | | (39,106) | | | (31,930) | |
Property and equipment, net | | $ | 93,786 | | | $ | 92,482 | |
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| | (in thousands) |
Property and equipment | | $ | 118,244 | | | $ | 76,028 | |
Less: accumulated depreciation and amortization | | (28,715) | | | (20,562) | |
Property and equipment, net | | $ | 89,529 | | | $ | 55,466 | |
Depreciation and amortization expense of property and equipment was $2.9$4.2 million and $2.2$2.8 million for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, and $8.3$7.2 million and $6.1$5.4 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively.
5. Goodwill and Other Intangible Assets
Goodwill is primarily attributable to the planned growth in the combined business after the acquisition of Remix Global EAD (“Remix”). Goodwill is reviewed for impairment at least annually, absent any interim indicators of impairment. Goodwill was $10.6$11.8 million and $12.2$11.6 million as of SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. The decreaseincrease in goodwill during the ninesix months ended SeptemberJune 30, 20222023 was due to foreign currency translation adjustments.
The gross carrying amounts and accumulated amortization of the Company’s intangible assets with determinable lives as of SeptemberJune 30, 20222023 and December 31, 20212022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | June 30, 2023 |
| | Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | (in years) | | (in thousands) |
Customer relationships | | 8 | | $ | 4,882 | | | $ | (1,055) | | | $ | 3,827 | |
Developed technology | | 3 | | 4,600 | | | (2,651) | | | 1,949 | |
Trademarks | | 9 | | 4,418 | | | (848) | | | 3,570 | |
Total | | | | $ | 13,900 | | | $ | (4,554) | | | $ | 9,346 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2022 |
| | Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | (in years) | | (in thousands) |
Customer relationships | | 8 | | $ | 4,420 | | | $ | (542) | | | $ | 3,878 | |
Developed technology | | 3 | | 4,166 | | | (1,362) | | | 2,804 | |
Trademarks | | 9 | | 3,995 | | | (435) | | | 3,560 | |
Total | | | | $ | 12,581 | | | $ | (2,339) | | | $ | 10,242 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2021 |
| | Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | (in years) | | (in thousands) |
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 were due to foreign currency translation adjustments.
Amortization expense related to developed technology, customer relationships, and trademarks is recorded within operations, product, and technology; sales, general, and administrative; and marketing expense, respectively, within the Company’s condensed consolidated statements of operations. Amortization expense of intangible assets with determinable lives was $0.6$0.7 million and zero$0.6 million for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, and $1.9$1.3 million and zero$1.3 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively.
6. Balance Sheet Components
Inventories consisted of the following:
| | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
| | (in thousands) |
Work in process | | $ | 3,087 | | | $ | 2,639 | |
Finished goods | | 17,275 | | | 14,880 | |
Total | | $ | 20,362 | | | $ | 17,519 | |
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| | (in thousands) |
Raw materials | | $ | 888 | | | $ | 908 | |
Work in process | | 592 | | | 670 | |
Finished goods | | 13,523 | | | 8,247 | |
Total | | $ | 15,003 | | | $ | 9,825 | |
Work in process inventory relates to items that are currently undergoing preparation for sale, including itemization, cleaning, and repair.
Accrued and other current liabilities consisted of the following:
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| | (in thousands) |
Gift card and site credit liabilities | | $ | 18,980 | | | $ | 13,223 | |
Accrued vendor liabilities | | 8,701 | | | 6,031 | |
Allowance for returns | | 7,326 | | | 6,209 | |
Accrued compensation | | 5,623 | | | 6,438 | |
Deferred revenue | | 6,326 | | | 5,878 | |
Accrued taxes | | 4,440 | | | 5,728 | |
Accrued other | | 1,969 | | | 1,746 | |
Total | | $ | 53,365 | | | $ | 45,253 | |
| | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
| | (in thousands) |
Gift card and site credit liabilities | | $ | 16,313 | | | $ | 18,101 | |
Accrued vendor liabilities | | 6,206 | | | 9,116 | |
Deferred revenue | | 5,685 | | | 7,582 | |
Accrued compensation | | 4,227 | | | 4,993 | |
Allowance for returns | | 4,346 | | | 4,907 | |
Accrued taxes | | 4,345 | | | 4,326 | |
Accrued other | | 2,212 | | | 1,130 | |
Total | | $ | 43,334 | | | $ | 50,155 | |
7. Long-Term Debt
In February 2019, 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 its prior loan and security agreement with Silicon Valley Bank. 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 sheet and are being amortized over the life of the Term Loan using the effective-interest method.million.
The Term Loan was subsequently amended several times, with the most recent amendment taking place in July 2022. As amended, the Term Loan matures 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 the Wall Street Journal plus a margin of 1.25%, with a floor of 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 SeptemberJune 30, 20222023 and December 31, 2021,2022, 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 SeptemberJune 30, 20222023 and December 31, 2021,2022, the effective interest rate for borrowings under the Term Loan was 8.22%10.47% and 6.65%9.70%, respectively.
During the ninesix months ended SeptemberJune 30, 2022,2023, the Company borrowed an aggregate amount of $0.7 million under the Term Loan and repaid a total of $5.3 million on amounts outstanding under the Term Loan. During the nine months ended September 30, 2021, the Company borrowed an aggregate amount of $5.0 milliondid not make any borrowings under the Term Loan and repaid a total of $2.0 million on amounts outstanding under the Term Loan. During the six months ended June 30, 2022, the Company did not make any borrowings under the Term Loan and repaid a total of $4.0 million on amounts outstanding under the Term Loan. As of SeptemberJune 30, 20222023 and December 31, 2021,2022, the amount outstanding under the Term Loan was $31.3$28.3 million and $36.0$30.3 million, respectively.
During the three months ended SeptemberJune 30, 20222023 and 2021,2022, the Company recognized $0.1incurred $0.7 million and $0.6$0.5 million, respectively, of interest expensecosts relating to the Term Loan. There was no capitalized interest during the three months ended June 30, 2023 and $0.3 million was capitalized as part of an asset for the three month ended June 30, 2022 .
During the six months ended June 30, 2023 and 2022, the Company incurred $1.4 million and $1.1 million, respectively, of interest costs relating to the Term Loan, of which included $0.1$0.6 million and $0.1$0.4 million, respectively, relating to amortizationwere capitalized as part of debt discount and issuance costs. During the nine months ended September 30, 2022 and 2021, the Company recognized $0.8 million and $1.8 million, respectively, of interest expense relating to the Term Loan, which included $0.3 million and $0.3 million, respectively, relating to amortization of debt discount and issuance costs.an asset.
As of SeptemberJune 30, 2022,2023, the future annual scheduled principal payments of the Term Loan were as follows:
| | | | | | | | |
| | Amount |
| | (in thousands) |
2022 | | $ | 1,000 | |
2023 | | 4,000 | |
2024 | | 4,000 | |
2025 | | 4,000 | |
2026 | | 4,000 | |
Thereafter | | 14,333 | |
Total principal payments | | 31,333 | |
Less: unamortized debt discount | | (593) | |
Less: current portion of long-term debt | | (3,881) | |
Non-current portion of long-term debt | | $ | 26,859 | |
| | | | | | | | |
| | Amount |
| | (in thousands) |
2023 | | $ | 2,000 | |
2024 | | 4,000 | |
2025 | | 4,000 | |
2026 | | 4,000 | |
2027 | | 14,333 | |
Total principal payments | | 28,333 | |
Less: unamortized debt discount | | (575) | |
Less: current portion of long-term debt | | (3,830) | |
Non-current portion of long-term debt | | $ | 23,928 | |
8. Common Stock and Stockholders’ Equity
Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible at any time into one 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 SeptemberJune 30, 20222023 and December 31, 2021:2022:
| | | | | | | | | | | | | | |
| | June 30, 2023 |
| | Authorized | | Issued and Outstanding |
| | (in thousands) |
Class A common stock | | 1,000,000 | | | 74,904 | |
Class B common stock | | 120,000 | | | 30,431 | |
Total | | 1,120,000 | | | 105,335 | |
| | | | | | | | | | | | | | |
| | 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 | |
| | | | | | | | | | | | | | |
| | September 30, 2022 |
| | Authorized | | Issued and Outstanding |
| | (in thousands) |
Class A common stock | | 1,000,000 | | | 69,887 | |
Class B common stock | | 120,000 | | | 30,845 | |
Total | | 1,120,000 | | | 100,732 | |
| | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Authorized | | Issued and Outstanding |
| | (in thousands) |
Class A common stock | | 1,000,000 | | | 57,779 | |
Class B common stock | | 120,000 | | | 40,656 | |
Total | | 1,120,000 | | | 98,435 | |
9. Stock-Based Compensation
The Company has stock-based compensation plans, which are more fully described in Note 11, Stock-Based Compensation Plans,, to the Consolidated Financial Statements included in the 20212022 10-K. During the ninesix months ended SeptemberJune 30, 2022,2023, the Company granted 10.2 million restricted stock unit awards with a weighted-average grant date fair value of $7.09 per award.units subject to service conditions.
Stock-Based Compensation Expense The following table provides information about stock-based compensation expense by financial statement line item:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
| | (in thousands) |
Operations, product, and technology | | $ | 2,913 | | | $ | 3,970 | | | $ | 6,584 | | | $ | 5,362 | |
Marketing | | 923 | | | 1,226 | | | 2,128 | | | 1,559 | |
Sales, general, and administrative | | 3,792 | | | 4,862 | | | 8,307 | | | 6,660 | |
Total stock-based compensation expense | | $ | 7,628 | | | $ | 10,058 | | | $ | 17,019 | | | $ | 13,581 | |
Stock Options
The following table summarizes the activities for all stock options under the Company’s share-based compensation plans for the six months ended June 30, 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 | | (265) | | | $ | 1.70 | | | | | |
Forfeited or expired | | (313) | | | $ | 3.25 | | | | | |
Outstanding as of June 30, 2023 | | 17,294 | | | $ | 1.95 | | | 4.70 years | | $ | 10,002 | |
Exercisable as of June 30, 2023 | | 15,028 | | | $ | 1.91 | | | 4.34 years | | $ | 9,156 | |
(1)The intrinsic value is the amount by which the current market value of the underlying stock exceeds the exercise price of the stock awards.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| | (in thousands) |
Operations, product and technology | | $ | 2,480 | | | $ | 1,024 | | | $ | 7,842 | | | $ | 3,358 | |
Marketing | | 818 | | | 341 | | | 2,377 | | | 1,067 | |
Sales, general and administrative | | 3,879 | | | 1,630 | | | 10,539 | | | 4,964 | |
Total stock-based compensation expense | | $ | 7,177 | | | $ | 2,995 | | | $ | 20,758 | | | $ | 9,389 | |
There were no options granted during the three and six months ended June 30, 2023 and 2022. The total intrinsic value of stock options exercised during the six months ended June 30, 2023 was $0.2 million.As of June 30, 2023, the total unrecognized compensation cost related to all nonvested stock options was $2.2 million and the related weighted-average period over which it is expected to be recognized was approximately 1.17 years.
Restricted Stock Units
The following table summarizes the activities for all restricted stock units (“RSUs”) under the Company’s share-based compensation plans for the six months ended June 30, 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 | | 8,814 | | | $ | 1.84 | |
Vested | | (3,356) | | | $ | 5.16 | |
Forfeited | | (947) | | | $ | 4.46 | |
Outstanding and nonvested as of June 30, 2023 | | 12,366 | | | $ | 4.65 | |
The total vesting date fair value of RSUs that vested during the six months ended June 30, 2023 was $17.3 million.
During the three months ended March 31, 2023, the Company modified the vesting schedule of substantially all RSUs outstanding as of December 31, 2022 from 4 years to 3 years and recognized compensation expense of $2.4 million related to the acceleration of the vesting schedule.
As of June 30, 2023, the total unrecognized compensation cost related to all nonvested RSUs was $54.9 million and the related weighted-average period over which it is expected to be recognized was approximately 2.11 years.
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 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.
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 and ninesix months ended SeptemberJune 30, 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 consists solely of certain state income taxes.
12. Loss Per Share
The following participating securities have been excluded from the computation of diluted loss per share for the periods presented because including them would have been anti-dilutive:
| | | | | | | | | | | | | | |
| | September 30, 2022 | | September 30, 2021 |
| | (in thousands) |
Outstanding stock options | | 17,966 | | | 20,796 | |
Restricted stock units | | 8,693 | | | 352 | |
Delayed share issuance related to acquisition | | 131 | | | — | |
Employee stock purchase plan | | 230 | | | 101 | |
Total | | 27,020 | | | 21,249 | |
| | | | | | | | | | | | | | |
| | June 30, 2023 | | June 30, 2022 |
| | (in thousands) |
Outstanding stock options | | 17,294 | | | 18,514 | |
Restricted stock units | | 12,366 | | | 9,285 | |
Delayed share issuance related to acquisition | | — | | | 131 | |
Employee stock purchase plan | | 24 | | | 59 | |
Total | | 29,684 | | | 27,989 | |
Item 2. Management'sManagement’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 in conjunction with other information, including our condensed consolidated financial statements and related notes included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q; Part I, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q; and our consolidated financial statements and related notes appearing in our Annual Report on Form 10-K for the year ended December 31, 20212022 (the “2021“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 February 2022.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 marketplacemarketplaces we have built enablesenable buyers in the US and in Europe 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. Aside from Clean Out Kits, thredUP also sources inventory from a variety of supply channels, such as wholesale supply in Europe.
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 2021, we completedKey Factors Affecting Our Performance
Macroeconomic Factors
Macroeconomic factors, including inflation, increased interest rates, significant capital market volatility, and global economic and geopolitical developments have direct and indirect impacts on our acquisitionresults of Remix Global EAD (“Remix”), a fashion resale company basedoperations that are difficult to isolate and quantify. These factors contributed to increases in Sofia, Bulgaria. With this acquisition, we further expanded our reachoperating costs during 2022 and the first half of 2023 primarily due to European customers, added a complementary operational infrastructureincreased transportation costs and added an experienced management team to enable our expansion into Europe.wage rates. In addition, Remix’s product assortment extendedrising fuel, utility, and food costs, rising interest rates, and recessionary fears may impact customer demand and our resale offeringability to include men’s items and items sourced from a varietyforecast consumer spending patterns. We expect some or all of supply channels, such as wholesale supply.
Recent Business Developments
COVID-19 Update
The ongoing COVID-19 pandemic and its varied social and macroeconomic consequences have continuedthese factors to continue to impact our business. Our performance has been adversely affected by market instability, supply chain disruptions, labor challenges caused byoperations at least throughout the pandemic and the U.S. government response to the COVID-19 pandemic, including the absencerest of any U.S. economic stimulus in 2022. If any of these conditions are sustained then our future results and performance may be be similarly adversely affected.
During the nine months ended September 30, 2022, we experienced an increase in consumer demand partially due to the reduced severity of the COVID-19 pandemic and shift in consumer and lifestyle patterns. Gross margin and operating expenses were impacted due to rising labor, processing and other costs to support the consumer demand experienced to date.
The COVID-19 pandemic and the ongoing recovery also contributed to a tightened labor supply. We continue to experience challenges in hiring and retaining employees in our distribution network. 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.
We expect that the COVID-19 pandemic will continue to have an adverse impact on our business, results 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 Part I, Item 1A, Risk Factors, of the 2021 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business, operations and financial condition.
Inflation
The Russia-Ukraine conflict and other geopolitical conflicts, as well as the related international response, have exacerbated inflationary pressures during the pandemic. We continue to actively monitor, evaluate and respond to developments relating to operational challenges in an inflationary environment. Global supply chain disruptions and the higher inflationary environment remain unpredictable and our past results may not be indicative of future performance.
Foreign Currency
In recent months, the U.S. dollar has been appreciating against major European currencies, including the Bulgarian lev, for both economic and geopolitical reasons. The strengthening U.S. dollar had a negative impact on our consolidated sales. We are managing the currency risk related to earnings through natural hedges and have offsetting costs relating to operating our business and a regional source of supply. Therefore, changes to exchange rates have not had a significant impact to our earnings. We continue to monitor our foreign exchange exposure as we grow our business globally. For further details, please refer to Part I, Item 3, Quantitative and Qualitative Disclosures About Market Risk, of this Quarterly Report on Form 10-Q.
Restructuring
In the second and third quarters of 2022, we restructured certain back-office functions to improve efficiencies and to reduce overhead costs. In addition, we closed our processing centers in Tennessee and Texas and consolidated their operations into our distribution center in Texas, which is under construction. These and future restructuring activities are expected to provide future growth and efficiency benefits; however, the actual results may differ.2023.
Overview of ThirdSecond Quarter Results
Revenue: Total revenue was $67.9$82.7 million, representing an increase of 7.4%8.2% year-over-year.
Gross Profit and Margin: Gross profit totaled $44.5$55.7 million, representing a declinean increase of 3.5%5.9% year-over-year. Gross margin decreased by 736was 67.4%, a decrease of 150 basis points to 65.5% from 72.8%68.9% in the comparable quarter last year.
Net Loss: Net loss was $23.7$18.8 million, or a negative 34.8%22.7% of revenue, for the thirdsecond quarter of 2022,2023, compared to a net loss of $14.7$28.4 million, or a negative 37.2% of revenue, for the thirdsecond quarter of 2021.2022.
Non-GAAP Adjusted EBITDA:EBITDA Loss: Non-GAAP Adjusted EBITDA loss was $11.0$5.0 million, or a negative 16.2%6.1% of revenue, for the thirdsecond quarter of 20222023, compared to anNon-GAAP Adjusted EBITDA loss of $7.8$13.5 million, or a negative 12.4%17.7% of revenue, for the thirdsecond quarter of 2021.2022. 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 reconciliation of Non-GAAP Adjusted EBITDA loss to net loss.
Active Buyers and Orders: Active Buyers totaled 1.7 million and Orders totaled 1.61.8 million in the thirdsecond quarter of 2022,2023, representing growtha decrease of 17.7%0.8% and 24.5%an increase of 5.0%, respectively, compared to the thirdsecond quarter of 2021.2022.
Key Financial and Operating Metrics
We review a number of operating and financial metrics, including the following key business and non-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 | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2022 | | September 30, 2021 | | Change | | September 30, 2022 | | September 30, 2021 | | Change | | June 30, 2023 | | June 30, 2022 | | Change | | June 30, 2023 | | June 30, 2022 | | Change |
| | (in thousands, except percentages) | | (in thousands, except percentages) |
Active Buyers (as of period end) | Active Buyers (as of period end) | | 1,694 | | | 1,439 | | | 17.7 | % | | 1,694 | | | 1,439 | | | 17.7 | % | Active Buyers (as of period end) | | 1,710 | | | 1,724 | | | (0.8) | % | | 1,710 | | | 1,724 | | | (0.8) | % |
Orders | Orders | | 1,618 | | | 1,300 | | | 24.5 | % | | 4,962 | | | 3,646 | | | 36.1 | % | Orders | | 1,789 | | | 1,704 | | | 5.0 | % | | 3,300 | | | 3,344 | | | (1.3) | % |
Total revenue | | Total revenue | | $ | 82,658 | | | $ | 76,421 | | | 8.2 | % | | $ | 158,580 | | | $ | 149,116 | | | 6.3 | % |
Gross profit | | Gross profit | | $ | 55,732 | | | $ | 52,648 | | | 5.9 | % | | $ | 106,825 | | | $ | 102,876 | | | 3.8 | % |
Gross margin | | Gross margin | | 67.4 | % | | 68.9 | % | | (150) | bps | | 67.4 | % | | 69.0 | % | | (160) | bps |
Net loss | Net loss | | $ | (23,678) | | | $ | (14,715) | | | 60.9 | % | | $ | (72,785) | | | $ | (45,265) | | | 60.8 | % | Net loss | | $ | (18,760) | | | $ | (28,399) | | | (33.9) | % | | $ | (38,553) | | | $ | (49,107) | | | (21.5) | % |
Net loss margin | Net loss margin | | (34.8) | % | | (23.3) | % | | (33.5) | % | | (25.3) | % | | Net loss margin | | (22.7) | % | | (37.2) | % | | 1,450 | bps | | (24.3) | % | | (32.9) | % | | 860 | bps |
Adjusted EBITDA loss(1) | | $ | (11,041) | | | $ | (7,816) | | | 41.3 | % | | $ | (37,545) | | | $ | (25,971) | | | 44.6 | % | |
Adjusted EBITDA loss margin | | (16.2) | % | | (12.4) | % | | (17.3) | % | | (14.5) | % | | |
Non-GAAP Adjusted EBITDA loss(1) | | Non-GAAP Adjusted EBITDA loss(1) | | $ | (5,012) | | | $ | (13,541) | | | (63.0) | % | | $ | (11,647) | | | $ | (26,504) | | | (56.1) | % |
Non-GAAP Adjusted EBITDA loss margin(1) | | Non-GAAP Adjusted EBITDA loss margin(1) | | (6.1) | % | | (17.7) | % | | 1,160 | bps | | (7.3) | % | | (17.8) | % | | 1,050 | 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 orand purchased in our marketplaces, including through our RaaS clients, and is identified by a unique email address. 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 marketplaces 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 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, interest expense, acquisition relatedacquisition-related expenses, and restructuring charges, change in fair value of convertible preferred stock warrant liability and provision for income taxes.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 Adjusted EBITDA loss margin, non-GAAP metric,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:EBITDA loss:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| | (in thousands) |
Net loss | | $ | (23,678) | | | $ | (14,715) | | | $ | (72,785) | | | $ | (45,265) | |
Interest expense | | 103 | | | 619 | | | 764 | | | 1,751 | |
Provision for income taxes | | 9 | | | 17 | | | 31 | | | 57 | |
Depreciation and amortization | | 3,539 | | | 2,248 | | | 10,217 | | | 6,147 | |
Stock-based compensation expense | | 7,177 | | | 2,995 | | | 20,758 | | | 9,389 | |
Acquisition-related expenses | | — | | | 1,020 | | | 274 | | | 1,020 | |
Restructuring charges | | 1,809 | | | — | | | 3,196 | | | — | |
Change in fair value of convertible preferred stock warrant liability | | — | | | — | | | — | | | 930 | |
Adjusted EBITDA loss | | $ | (11,041) | | | $ | (7,816) | | | $ | (37,545) | | | $ | (25,971) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
| | (in thousands) |
Net loss | | $ | (18,760) | | | $ | (28,399) | | | $ | (38,553) | | | $ | (49,107) | |
Interest expense | | 721 | | | 238 | | | 798 | | | 661 | |
Provision for income taxes | | 12 | | | 9 | | | 21 | | | 22 | |
Depreciation and amortization | | 4,836 | | | 3,407 | | | 8,517 | | | 6,678 | |
Stock-based compensation expense | | 7,628 | | | 10,058 | | | 17,019 | | | 13,581 | |
Acquisition-related expenses | | — | | | 70 | | | — | | | 274 | |
Severance and other | | 551 | | | 1,076 | | | 551 | | | 1,387 | |
| | | | | | | | |
Non-GAAP Adjusted EBITDA loss | | $ | (5,012) | | | $ | (13,541) | | | $ | (11,647) | | | $ | (26,504) | |
Total revenue | | $ | 82,658 | | | $ | 76,421 | | | $ | 158,580 | | | $ | 149,116 | |
Non-GAAP Adjusted EBITDA loss margin | | (6.1) | % | | (17.7) | % | | (7.3) | % | | (17.8) | % |
Comparison of the Three and NineSix Months Ended SeptemberJune 30, 20222023 and 20212022
Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Nine Months Ended | | Change |
| | September 30, 2022 | | September 30, 2021 | | Amount | | % | | September 30, 2022 | | September 30, 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Consignment revenue | | $ | 41,553 | | | $ | 48,071 | | | $ | (6,518) | | | (13.6) | % | | $ | 137,524 | | | $ | 141,356 | | | $ | (3,832) | | | (2.7) | % |
Product revenue | | 26,392 | | | 15,203 | | | 11,189 | | | 73.6 | % | | 79,537 | | | 37,557 | | | 41,980 | | | 111.8 | % |
Total revenue | | $ | 67,945 | | | $ | 63,274 | | | $ | 4,671 | | | 7.4 | % | | $ | 217,061 | | | $ | 178,913 | | | $ | 38,148 | | | 21.3 | % |
Consignment revenue as a percentage of total revenue | | 61.2 | % | | 76.0 | % | | | | | | 63.4 | % | | 79.0 | % | | | | |
Product revenue as a percentage of total revenue | | 38.8 | % | | 24.0 | % | | | | | | 36.6 | % | | 21.0 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Six Months Ended | | Change |
| | June 30, 2023 | | June 30, 2022 | | Amount | | % | | June 30, 2023 | | June 30, 2022 | | Amount | | % |
| | (in thousands, except percentages) |
Consignment revenue | | $ | 53,415 | | | $ | 48,536 | | | $ | 4,879 | | | 10.1 | % | | $ | 99,894 | | | $ | 95,971 | | | $ | 3,923 | | | 4.1 | % |
Product revenue | | 29,243 | | | 27,885 | | | 1,358 | | | 4.9 | % | | 58,686 | | | 53,145 | | | 5,541 | | | 10.4 | % |
Total revenue | | $ | 82,658 | | | $ | 76,421 | | | $ | 6,237 | | | 8.2 | % | | $ | 158,580 | | | $ | 149,116 | | | $ | 9,464 | | | 6.3 | % |
Consignment revenue as a percentage of total revenue | | 64.6 | % | | 63.5 | % | | | | | | 63.0 | % | | 64.4 | % | | | | |
Product revenue as a percentage of total revenue | | 35.4 | % | | 36.5 | % | | | | | | 37.0 | % | | 35.6 | % | | | | |
Total revenue increased $4.7$6.2 million, or 7.4%8.2%, for the three months ended SeptemberJune 30, 20222023 as compared to the same period in 2021.2022. The increase was primarily attributable to the inclusion of our European operations beginning October 2021, which is included in product revenue and resultant increases in total Orders and Active Buyers of 24.5% and 17.7%, respectively, partially offset by a decrease in U.S. revenue from lower Orders, higher returns and increased promotional strategy in response to the U.S. macroeconomic environment.
Total revenue increased $38.1 million, or 21.3%, for the ninethree months ended SeptemberJune 30, 20222023 as compared to the same period in 2021. The increase2022 was primarily attributabledue to a $4.9 million increase in consignment revenue due to the inclusion ofmix shift between consignment and product revenue primarily in the United States and a $1.4 million increase in product revenue as our European operations beginning October 2021, which is included in product revenue,continue to scale and resultant increases in total Orders and Active Buyers of 36.1% and 17.7%, respectively.
We experienced slowing revenue and Order growth beginning in the back half of June 2022 and continuing into the third quarter that is attributable to various factors including, but not limited to, general global economic uncertainty, rising interest rates, increased inflation and weakening consumer discretionary spending.grow.
Cost of Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Nine Months Ended | | Change |
| | September 30, 2022 | | September 30, 2021 | | Amount | | % | | September 30, 2022 | | September 30, 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Cost of consignment revenue | | $ | 9,087 | | | $ | 10,080 | | | $ | (993) | | | (9.9) | % | | $ | 29,354 | | | $ | 31,599 | | | $ | (2,245) | | | (7.1) | % |
Cost of product revenue | | 14,362 | | | 7,100 | | | 7,262 | | | 102.3 | % | | 40,335 | | | 17,370 | | | 22,965 | | | 132.2 | % |
Total cost of revenue | | $ | 23,449 | | | $ | 17,180 | | | $ | 6,269 | | | 36.5 | % | | $ | 69,689 | | | $ | 48,969 | | | $ | 20,720 | | | 42.3 | % |
Gross profit | | $ | 44,496 | | | $ | 46,094 | | | $ | (1,598) | | | (3.5) | % | | $ | 147,372 | | | $ | 129,944 | | | $ | 17,428 | | | 13.4 | % |
Gross margin | | 65.5 | % | | 72.8 | % | | | | | | 67.9 | % | | 72.6 | % | | | | |
Gross margin was 65.5% and 72.8%Total revenue increased $9.5 million, or 6.3%, for the threesix months ended SeptemberJune 30, 2022 and 2021, respectively, or an unfavorable change of 736 basis points, and 67.9% and 72.6%2023 as compared to the same period in 2022. The increase in revenue for the ninesix months endedSeptember June 30, 2022 and 2021, respectively, or an unfavorable change of 474 basis points.
The decrease2023 as compared to the same period in gross margin for the three and nine months ended September 30, 2022 was primarily due to the inclusion of operating results ofa $5.5 million increase in product revenue as our European operations from October 2021 onward.continue to scale and grow and a $3.9 million increase in consignment revenue due to the mix shift described previously.
Cost of Revenue from our European operations is primarily derived from product sales with a lower gross margin. Consignment sales have a higher gross
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Six Months Ended | | Change |
| | June 30, 2023 | | June 30, 2022 | | Amount | | % | | June 30, 2023 | | June 30, 2022 | | Amount | | % |
| | (in thousands, except percentages) |
Cost of consignment revenue | | $ | 9,580 | | | $ | 10,218 | | | $ | (638) | | | (6.2) | % | | $ | 18,800 | | | $ | 20,267 | | | $ | (1,467) | | | (7.2) | % |
Cost of product revenue | | 17,346 | | | 13,555 | | | 3,791 | | | 28.0 | % | | 32,955 | | | 25,973 | | | 6,982 | | | 26.9 | % |
Total cost of revenue | | $ | 26,926 | | | $ | 23,773 | | | $ | 3,153 | | | 13.3 | % | | $ | 51,755 | | | $ | 46,240 | | | $ | 5,515 | | | 11.9 | % |
Gross profit | | $ | 55,732 | | | $ | 52,648 | | | $ | 3,084 | | | 5.9 | % | | $ | 106,825 | | | $ | 102,876 | | | $ | 3,949 | | | 3.8 | % |
Gross margin | | 67.4 | % | | 68.9 | % | | | | | | 67.4 | % | | 69.0 | % | | | | |
Gross margin than product sales but made up a smaller percentage of total revenuewas 67.4% and 68.9% for both the three and nine months ended SeptemberJune 30, 2023 and 2022, as compared torespectively, or a decrease of 150 basis points, and 67.4% and 69.0% for the same periods in 2021. Revenue for consignment salessix months endedJune 30, 2023 and 2022, respectively, or a decrease of 160 basis points.
Consignment revenue is recognized net of seller payouts and cost of items sold, whereas for product sales,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.
The decrease in gross margin for the three months ended June 30, 2023 as compared to the same period in 2022 was primarily due to higher inventory costs, partially offset by lower labor and outbound shipping costs in cost of consignment revenue and an increase in consignment revenue as a percentage of total revenue.
The decrease in gross margin for the six months ended June 30, 2023 as compared to the same period in 2022 was primarily due to an increase in product revenue as a percentage of total revenue and higher inventory costs, partially offset by lower labor and outbound shipping costs in cost of consignment revenue.
Cost of Consignment Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Nine Months Ended | | Change |
| | September 30, 2022 | | September 30, 2021 | | Amount | | % | | September 30, 2022 | | September 30, 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Cost of consignment revenue | | $ | 9,087 | | | $ | 10,080 | | | $ | (993) | | | (9.9) | % | | $ | 29,354 | | | $ | 31,599 | | | $ | (2,245) | | | (7.1) | % |
Consignment gross margin | | 78.1 | % | | 79.0 | % | | | | | | 78.7 | % | | 77.6 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Six Months Ended | | Change |
| | June 30, 2023 | | June 30, 2022 | | Amount | | % | | June 30, 2023 | | June 30, 2022 | | Amount | | % |
| | (in thousands, except percentages) |
Cost of consignment revenue | | $ | 9,580 | | | $ | 10,218 | | | $ | (638) | | | (6.2) | % | | $ | 18,800 | | | $ | 20,267 | | | $ | (1,467) | | | (7.2) | % |
Consignment gross margin | | 82.1 | % | | 78.9 | % | | | | | | 81.2 | % | | 78.9 | % | | | | |
Consignment gross margin was 78.1%82.1% and 79.0%78.9% for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, or an unfavorable changeincrease of 90320 basis points, and 78.7%81.2% and 77.6%78.9% for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, or a favorable changean increase of 101230 basis points.
The decreaseincrease in consignment gross margin for the three months ended SeptemberJune 30, 20222023 as compared to the same period in 20212022 was primarily due to an unfavorable impact160 basis points of lower outbound shipping of 49costs, 110 basis points unfavorable impact of lower direct labor of 27costs and 50 basis points of lower scrap and other unfavorable cost changespackaging costs.
The increase in consignment gross margin for the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period in 20212022 was primarily due to a favorable impact110 basis points of lower direct labor costs, 100 basis points of lower outbound shipping of 222costs and 15 basis points as a result of order consolidation and a favorable impact of packaging of 3 basis points, partially offset by an unfavorable impact of direct labor of 87 basis points and other unfavorable cost changes of 37 basis points.
Cost of Product Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Nine Months Ended | | Change |
| | September 30, 2022 | | September 30, 2021 | | Amount | | % | | September 30, 2022 | | September 30, 2021 | | Amount | | % |
| | (in thousands, except percentages) | | |
Cost of product revenue | | $ | 14,362 | | | $ | 7,100 | | | $ | 7,262 | | | 102.3 | % | | $ | 40,335 | | | $ | 17,370 | | | $ | 22,965 | | | 132.2 | % |
Product gross margin | | 45.6 | % | | 53.3 | % | | | | | | 49.3 | % | | 53.8 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Six Months Ended | | Change |
| | June 30, 2023 | | June 30, 2022 | | Amount | | % | | June 30, 2023 | | June 30, 2022 | | Amount | | % |
| | (in thousands, except percentages) |
Cost of product revenue | | $ | 17,346 | | | $ | 13,555 | | | $ | 3,791 | | | 28.0 | % | | $ | 32,955 | | | $ | 25,973 | | | $ | 6,982 | | | 26.9 | % |
Product gross margin | | 40.7 | % | | 51.4 | % | | | | | | 43.8 | % | | 51.1 | % | | | | |
Product gross margin was 45.6%40.7% and 53.3%51.4% for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, or an unfavorable changea decrease of 7721,070 basis points, and 49.3%43.8% and 53.8%51.1% for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, or an unfavorable changea decrease of 446730 basis points.
Our European operations, which have been included in our operating results beginning October 2021, have lower product gross margin mainly due to the capitalization of production costs into inventory.
The decrease in product gross margin for the three months ended SeptemberJune 30, 20222023 as compared to the same period in 20212022 was primarily due to the net unfavorable impact750 basis points increase related to growth of including our European operations as a percentage of 1,245product revenue and 280 basis points an unfavorable impact of packaging of 41 basis points, and an unfavorable impact of direct labor of 39 basis points, partially offset by a favorable impact of inventory costs of 450 basis points and a favorable impact of outbound shipping of 104 basis points.due to higher payouts.
The decrease in product gross margin for the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period in 20212022 was primarily due to the net unfavorable impact of including our European operations of 1,002700 basis points an unfavorable impact of direct labor of 81 basis points, and an unfavorable impact of packaging of 13 basis points, partially offset by a favorable impact ofhigher inventory costs of 395 basis points and a favorable impact of outbound shipping of 254 basis points.costs.
Operations, Product, and Technology
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Nine Months Ended | | Change |
| | September 30, 2022 | | September 30, 2021 | | Amount | | % | | September 30, 2022 | | September 30, 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Operations, product and technology | | $ | 38,702 | | | $ | 32,081 | | | $ | 6,621 | | | 20.6 | % | | $ | 121,824 | | | $ | 91,455 | | | $ | 30,369 | | | 33.2 | % |
Operations, product and technology as a percentage of total revenue | | 57.0 | % | | 50.7 | % | | | | | | 56.1 | % | | 51.1 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Six Months Ended | | Change |
| | June 30, 2023 | | June 30, 2022 | | Amount | | % | | June 30, 2023 | | June 30, 2022 | | Amount | | % |
| | (in thousands, except percentages) |
Operations, product, and technology | | $ | 39,771 | | | $ | 43,961 | | | $ | (4,190) | | | (9.5) | % | | $ | 78,118 | | | $ | 83,122 | | | $ | (5,004) | | | (6.0) | % |
Operations, product, and technology as a percentage of total revenue | | 48.1 | % | | 57.5 | % | | | | | | 49.3 | % | | 55.7 | % | | | | |
Operations, product, and technology expenses increased $6.6decreased $4.2 million, or 20.6%9.5%, for the three months ended SeptemberJune 30, 20222023 as compared to the same period in 2021.2022. The increasedecrease was primarily due to a $2.1$4.3 million decrease in personnel-related costs and a $1.0 million decrease in inbound shipping and other costs, offset by a $1.1 million increase in facilities, technology, and other allocated costs.
Operations, product, and technology expenses decreased $5.0 million, or 6.0% for the six months ended June 30, 2023 as compared to the same period in 2022. The decrease was due to a $5.1 million decrease in personnel-related costs and a $1.4 million decrease in inbound shipping and other costs, offset by a $1.5 million increase in facilities, technology, and other allocated costs.
Marketing
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Six Months Ended | | Change |
| | June 30, 2023 | | June 30, 2022 | | Amount | | % | | June 30, 2023 | | June 30, 2022 | | Amount | | % |
| | (in thousands, except percentages) |
Marketing | | $ | 18,643 | | | $ | 19,640 | | | $ | (997) | | | (5.1) | % | | $ | 35,513 | | | $ | 36,618 | | | $ | (1,105) | | | (3.0) | % |
Marketing as a percentage of total revenue | | 22.6 | % | | 25.7 | % | | | | | | 22.4 | % | | 24.6 | % | | | | |
Marketing expenses decreased $1.0 million, or 5.1%, for the three months ended June 30, 2023 as compared to the same period in 2022. The decrease was due to a $0.6 million decrease in social and other advertising costs and a $0.4 million decrease in personnel-related, professional services, and other costs.
Marketing expenses decreased $1.1 million, or 3.0%, for the six months ended June 30, 2023 as compared to the same period in 2022. The decrease was due to a $1.7 million decrease in social and other advertising costs and a $0.4 million decrease in professional services, offset by a $1.0 million increase in personnel-related costs, of which $0.6 million was related to stock-based compensation expense.
Sales, General and Administrative
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Six Months Ended | | Change |
| | June 30, 2023 | | June 30, 2022 | | Amount | | % | | June 30, 2023 | | June 30, 2022 | | Amount | | % |
| | (in thousands, except percentages) |
Sales, general, and administrative | | $ | 16,030 | | | $ | 17,380 | | | $ | (1,350) | | | (7.8) | % | | $ | 32,089 | | | $ | 32,044 | | | $ | 45 | | | 0.1 | % |
Sales, general, and administrative as a percentage of total revenue | | 19.4 | % | | 22.7 | % | | | | | | 20.2 | % | | 21.5 | % | | | | |
Sales, general and administrative decreased $1.4 million, or 7.8%, for the three months ended June 30, 2023 as compared to the same period in 2022. The decrease was due to a $1.1 million decrease in stock-based compensation expense, and a $0.9 million decrease in professional services, offset by a $0.7 million increase in facilities, technology, and other allocated costs, due to the expansion of our distribution network and European operations and a $3.3$0.2 million increase in personnel-related costs related to our European operations, restructuring, higher stock based compensation expense mainly from restricted stock vestingother corporate expenses.
Sales, general, and administrative expenses associated with our distribution network. In addition, we experienced a $1.2 million increase in inbound shipping and other costs due mainly to our European operations and increased bag processing and other costs.
Operations, product and technology expenses increased $30.4 million, or 33.2%,remained flat for the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period in 2021. Personnel-related costs increased by $18.5 million2022. This was due to our European operations, highera $1.9 million increase in personnel-related costs, of which $1.6 million was related to stock-based compensation expense, from restricted stock vesting, expenses associated with our distribution network, restructuring and a $0.6 million increase in employee salaries and wages. Facilities,facilities, technology, and other allocated costs, increasedoffset by $7.1a $2.5 million due to expansion of our distribution network, our European operations and higher technologydecrease in professional services and other costs. In addition, inbound shipping and other expensescorporate expenses.
Interest Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Six Months Ended | | Change |
| | June 30, 2023 | | June 30, 2022 | | Amount | | % | | June 30, 2023 | | June 30, 2022 | | Amount | | % |
| | (in thousands, except percentages) |
Interest expense | | $ | 721 | | | $ | 238 | | | $ | 483 | | | 202.9 | % | | $ | 798 | | | $ | 661 | | | $ | 137 | | | 20.7 | % |
Interest expense increased by $4.7$0.5 million due to our European operations, increased bag processing and other costs.
Marketing
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Nine Months Ended | | Change |
| | September 30, 2022 | | September 30, 2021 | | Amount | | % | | September 30, 2022 | | September 30, 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Marketing | | $ | 14,752 | | | $ | 16,941 | | | $ | (2,189) | | | (12.9) | % | | $ | 51,370 | | | $ | 48,344 | | | $ | 3,026 | | | 6.3 | % |
Marketing as a percentage of total revenue | | 21.7 | % | | 26.8 | % | | | | | | 23.7 | % | | 27.0 | % | | | | |
Marketing expenses decreased $2.2 million, or 12.9%, for the three months ended SeptemberJune 30, 20222023 as compared to the same period in 2021. The decrease2022. During the three months ended June 30, 2022, $0.3 million was primarily due to a $4.1capitalized in conjunction with the build-out of our distribution centers and reclassified from interest expense. There was no such interest capitalization during the three months ended June 30, 2023.
Interest expense increased $0.1 million decrease in marketing and advertising costs, partially offset by a $1.1 million increase in personnel-related costs related to salaries, stock compensation, restructuring and other expenses, a $0.6 million increase in technology and other costs, and a $0.2 million increase in professional services.
Marketing expenses increased $3.0 million, or 6.3%, for the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period in 2021. The2022. This increase was primarily due to a $3.0 million increase in personnel-related costs related to salaries, stock compensation and other expenses, a $1.3 million increase in technology and other costs, and a $0.6 million increase in professional services, partially offset by a $1.9 million decrease in marketingamounts capitalized in conjunction with the build-out of our distribution centers and advertising costs.reclassified from interest expense in 2022.There was no such interest capitalization during the three months ended June 30,2023.
Sales, General and AdministrativeOther Income, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Six Months Ended | | Change |
| | June 30, 2023 | | June 30, 2022 | | Amount | | % | | June 30, 2023 | | June 30, 2022 | | Amount | | % |
| | (in thousands, except percentages) |
Other income, net | | $ | (685) | | | $ | (181) | | | $ | (504) | | | 278.5 | % | | $ | (1,161) | | | $ | (484) | | | $ | (677) | | | 139.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | Nine Months Ended | | Change |
| | September 30, 2022 | | September 30, 2021 | | Amount | | % | | September 30, 2022 | | September 30, 2021 | | Amount | | % |
| | (in thousands, except percentages) | | |
Sales, general and administrative | | $ | 15,232 | | | $ | 12,569 | | | $ | 2,663 | | | 21.2 | % | | $ | 47,276 | | | $ | 34,206 | | | $ | 13,070 | | | 38.2 | % |
Sales, general and administrative as a percentage of total revenue | | 22.4 | % | | 19.9 | % | | | | | | 21.8 | % | | 19.1 | % | | | | |
Sales, general and administrative expensesOther income, net increased $2.7$0.5 million or 21.2%, for the three months ended SeptemberJune 30, 20222023 as compared to the same period in 2021.2022. The increase was primarily due to a $4.6 millionan increase in personnel-related costs related to salaries, stock compensation, restructuring,interest income on our European operations and other costs, partially offset by a $1.8 million decrease in professional servicesmarketable securities due to expenses related to our follow-on offering incurred in 2021 and the impact of cost savings initiatives in 2022, and a $0.2higher interest rate environment.
Other income, net increased $0.7 million decrease in other costs.
Sales, general and administrative expenses increased $13.1 million, or 38.2%, for the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period in 2021.2022. The increase was primarily due to an $12.2 million increase in personnel-related costs relatedinterest income on our marketable securities due to salaries, stock compensation, restructuring, our European operations and other personnel costs and a $2.8 million increase in technology, payment processing, insurance, workplace and other costs, partially offset by a $1.9 million decrease in tax and professional fee expenses.higher interest rate environment.
Liquidity and Capital Resources
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 SeptemberJune 30, 2022,2023, we had cash, cash equivalents and short-term marketable securities of $123.2$76.9 million. Additionally, we have a term loan facility (“Term Loan”) under which $38.0 million remained available to be drawn as of SeptemberJune 30, 20222023 and we were in full compliance with our 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 a further discussion on our Term Loan.
We expect operating losses and negative cash flows from operations to continue into the foreseeable futurein 2023 as we continue to invest in growing our business and expanding our infrastructure. Our primary use of cash includes operating costs such as distribution network 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 distribution network and may be accelerated or delayed based on our operating position and business needs.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- and long-term capital 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, 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 results2022 10-K.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
| | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, 2022 | | September 30, 2021 |
| | (in thousands) |
Net cash provided by (used in): | | | | |
Operating activities | | $ | (36,939) | | | $ | (14,132) | |
Investing activities | | (6,961) | | | (116,322) | |
Financing activities | | (2,922) | | | 229,032 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (918) | | | — | |
Net change in cash, cash equivalents and restricted cash | | $ | (47,740) | | | $ | 98,578 | |
| | | | | | | | | | | | | | |
| | Six Months Ended |
| | June 30, 2023 | | June 30, 2022 |
| | (in thousands) |
Net cash provided by (used in): | | | | |
Operating activities | | $ | (14,839) | | | $ | (24,835) | |
Investing activities | | 29,309 | | | (4,764) | |
Financing activities | | (1,749) | | | (2,332) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 324 | | | (521) | |
Net change in cash, cash equivalents and restricted cash | | $ | 13,045 | | | $ | (32,452) | |
Changes in Cash Flows from Operating Activities
For the nine months ended September 30, 2022, net cash used in operating activities increased by $22.8 million and was $36.9 million compared to $14.1 million for the same period in 2021. The increase in netNet cash used in operating activities was partially$14.8 million during the resultsix months ended June 30, 2023, compared to net cash used of a $27.5$24.8 million increase induring the six months ended June 30, 2022. Operating cash flows during the six months ended June 30, 2023, reflect our net loss of $38.6 million, non-cash adjustments of $29.0 million primarily for depreciation, amortization, stock-based compensation, and the nine months ended September 30, 2022 as compared to the same period in 2021. This was offset by non-cash increases in stock based compensationreduction of $11.4 million due to higher restricted stock vesting, depreciation and amortization of $4.1 million due to intangibles relating to the Remix acquisition, capital and infrastructure investments, and reduction in the carrying amount of right of use assets, and a net cash outflow of $1.6 million.
Net cash used in operating activities further decreased$5.3 million due to a $12.0 million decreasechanges in flows fromour operating assets and liabilities. The increase in net cash used$5.3 million outflow from changes in operating activitiesassets and liabilities was primarily due to build of inventory$8.7 million in 2022 to meet European seasonal demand and higher owned inventory in the U.S and reduction in accounts payable, accrued liabilities and seller payable flows due to timing and reduction in spend, offset by flows from other current and non-current assets due to growth of prepaid expenses in 2021 and inflow fromlower operating lease liabilities, resulting from lease incentives.increased inventory and lower accrued and other liabilities partially offset by a $3.3 million increase in seller payables.
Changes in Cash Flows from Investing Activities
ForNet cash provided by investing activities for the ninesix months ended SeptemberJune 30, 2022, net cash used in investing activities decreased by $109.42023 increased $34.1 million and was $7.0 millionas compared to $116.3 million for the same period in 2021.2022. The decreaseincrease in net cash used in investing activities during the nine months ended September 30, 2022inflows was primarily due a $133.5to an increase in cash inflows of $18.8 million decrease infrom net cash used to purchasepurchases, sales and maturities of marketable securities and provided by marketable security maturities. The change in net cash from marketable securities was partially offset by an increasea $15.3 million decrease in purchases of property and equipment of $24.2 million.in the current period.
Changes in Cash Flows from Financing Activities
For the nine months ended September 30, 2022, netNet cash used in financing activities for the six months ended June 30, 2023 decreased by $232.0$0.6 million and was $2.9 million net cash used as compared to net cash provided by financing activities of $229.0 million for the same period in 2021. The increase in net cash used in financing activities during the nine months ended September 30, 2022 which was primarily due to $222.7a decrease of $2.0 million in repayments of debt, offset by a net decrease of $1.4 million in equity offerings and payments of offering transaction costs, an increase in net debt payments of $7.5 million and an increase in tax withholdingcash outflows related to vested restricted stock of $1.9 million.stock-based award activity.
Critical Accounting Policies and Estimates
U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses. Actual results could differ from those estimates.
There have been no material changes to our critical accounting policies since the 20212022 10-K. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our condensed consolidated financial statements, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the 20212022 10-K.
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
See discussion under Note 2, Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for information on new accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily include:
Interest Rate Risk
As of SeptemberJune 30, 2022,2023, we had cash and cash equivalents of $36.7$51.1 million and marketable securities of $86.5$25.9 million, consisting primarily of money market funds, commercial paper, corporate debt securities, U.S. treasury securities and U.S. government agency bonds and discount notes, which carry a degree of interest rate risk. 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- to intermediate-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to fluctuations in interest rates.
The Term Loan bears variable interest rates tied to the prime rate, with a floor of 6.00%, and therefore carrycarries interest rate risk. If 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 an adverse impact on our business, 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 financial services industry that may have an adverse impact on our business, results of operations and financial conditions.
Inflation Risk
In recent months,As of June 30, 2023, inflation has increased significantlyremains at elevated levels in the U.S. and overseas where we conduct our business, resulting in rising interest rates and fuel, labor and processing, freight and other costs that have affected our gross margin and operating expenses. We do not believe that inflation has had a material effect onthese increases have negatively impacted our business, financial condition, or results of operations to date. However, these increases could negatively impact our business by driving up our operating and borrowing costs. Althoughalthough difficult to quantify, we believe inflation is potentially having an adverse effect on our customers’ ability to purchase in our 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 SeptemberJune 30, 2022,2023, our most significant currency exposure was the Bulgarian lev. We manage our foreign currency exchange rate risks through natural hedges 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 becomes 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 were reflected as an unfavorablea favorable foreign currency translation adjustment of $5.3$0.3 million during the ninesix months ended SeptemberJune 30, 2022,2023, which was recognized in accumulated other comprehensive loss within our condensed consolidated balance sheet.
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
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 Rules 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 SeptemberJune 30, 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 put 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 the 20212022 10-K, in connection with the auditaudits of our consolidated financial statements for the fiscalin certain prior years, ended December 31, 2021, 2020, 2019we and 2018 weour independent registered public accounting firms 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:
•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.deficiency:
•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)ensure 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, 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 Rules 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.
PART II. OTHER INFORMATION
Item 1. Legal 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
Risks affecting our business are discussed in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 20212022 (“20212022 10-K”) and Part II, Item 1A, Risk Factors, of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022March 31, 2023 (“Q2 2022Q1 2023 10-Q”). There have been no material changes to our risk factors as previously disclosed in our 20212022 10-K and Q2 2022Q1 2023 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)None.Pursuant to a share purchase agreement entered into on July 24, 2021, on April 17, 2023 we issued 130,597 shares of our Class A common stock to four sellers who were accredited investors in connection with the acquisition of Remix Global EAD. The share issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
(b)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.
(c)None.
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
(a)Exhibit Index:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit Number | | Description | | Form | | Exhibit | | Filing Date |
3.1 | | | | S-1 | | 3.2 | | 3/3/2021 |
3.2 | | | | S-1 | | 3.4 | | 3/3/2021 |
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) | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 |
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) | | | | | | |
* Filed herewith.
** Furnished herewith.
† Certain schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K under the Securities Act. 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 Commission upon request.
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. |
| | |
| By: | /s/ SEAN SOBERS |
| | Sean Sobers |
| | Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |
Date: November 14, 2022August 8, 2023