Contents
8. Long-termLong-Term Debt
TheIn 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 Loanprior loan and Security Agreementsecurity agreement with Silicon Valley BankBank. As of December 31, 2021, the amended interest rate on the Term Loan was the prime rate published in February 2019.The Wall Street Journal plus a margin of 1.5%, with a floor of 5.50%. The Term Loan was amended 5 times before December 31, 2021. The amended interest rate on the Term Loan is the prime rate published in The Wall Street Journal plus 1.5% with a floor of 5.50% per annum.
As of March 31,June 30, 2022, the nominal interest rate was 5.50%6.25% and the effective interest rate was 6.65%. TheAs of June 30, 2022 and December 31, 2021, the Company iswas in compliance with its debt covenants under the covenants asTerm Loan.
During the six months ended June 30, 2022, the Company repaid a total of March$4.0 million on amounts outstanding under the Term Loan. During the six months ended June 30, 2021, the Company did not make any repayments on amounts outstanding under the Term Loan. As of June 30, 2022 and December 31, 2022.2021, the amount outstanding under the Term Loan was $32.0 million and $36.0 million, respectively.
During the three months ended June 30, 2022 and June 30, 2021, the Company recognized $0.2 million and $0.6 million, respectively, of interest expense relating to the Term Loan. During the six months ended June 30, 2022 and June 30, 2021, the Company recognized $0.7 million and $1.1 million, respectively, of interest expense relating to the Term Loan.
The Company has repaid $6.0 millionAs of June 30, 2022, future annual scheduled principal payments of the Term Loan were as of March 31, 2022. The remaining maturities of the loan agreement as of March 31, 2022 are as follows (in thousands):follows:
ThredUp Inc. | | | | | | | | |
| | Amount |
| | (in thousands) |
2022 | | $ | 4,000 | |
2023 | | 8,000 | |
2024 | | 20,000 | |
Thereafter | | — | |
Total future principal | | 32,000 | |
Less: unamortized debt discount | | (504) | |
Less: current portion of long-term debt | | (7,791) | |
Non-current portion of long-term debt | | $ | 23,705 | |
Notes
On July 14, 2022, the Term Loan was amended. Refer to Condensed Consolidated Financial Statements (Unaudited)
| | | | | |
| Amount |
Remainder of 2022 | $ | 6,000 | |
2023 | 8,000 | |
2024 | 20,000 | |
Thereafter | — | |
Total future principal | 34,000 | |
Less: unamortized debt discount | (586) | |
Less: current portion of long-term debt | (7,780) | |
Non-current portion of long-term debt | $ | 25,634 | |
Note 14, Subsequent Events, for additional information.9. Common Stock
Each share of Class A common stock is entitled to 1 vote per share. Each share of Class B common stock is entitled to 10 votes per share and is convertible at any time into 1 share of Class A common stock.
The table below summarizes the Class A common stock and Class B common stock issued and outstanding as of March 31,June 30, 2022.
| | | | | | | | | | | | | | | |
| As of March 31, 2022 | | |
| | | | | |
| Authorized | | Issued and Outstanding | | | | |
| (in thousands) | | | | |
Common stock Class A | 1,000,000 | | | 58,558 | | | | | |
Common stock Class B | 120,000 | | | 40,384 | | | | | |
Total common stock | 1,120,000 | | | 98,942 | | | | | |
| | | | | | | | | | | | | | |
| | As of June 30, 2022 |
| | Authorized | | Issued and Outstanding |
| | (in thousands) |
Class A common stock | | 1,000,000 | | | 65,465 | |
Class B common stock | | 120,000 | | | 34,488 | |
Total common stock | | 1,120,000 | | | 99,953 | |
10. Stock-Based Compensation Plans
The Company's stock-based compensation plans are described in more detail in Note 11, Stock-Based Compensation Plans, to the consolidated financial statements in the 2021 Form 10-K.
2021 Stock Option and IncentiveIncentive Plan
In February 2021, in connection with the Initial Public Offering (“IPO”), the Company’s board of directors adopted the 2021 Stock Option and Incentive Plan (“2021 Plan”) to replace the Second Amended and Restated 2010 Stock Plan, which was subsequently approved by the Company’s stockholders in March 2021. The 2021 Plan became effective on March 24, 2021.
2021 Employee Stock Purchase Plan
In February 2021, the Company’s board of directors adopted the Employee Stock Purchase Plan (“ESPP”), which was subsequently approved by the stockholders in March 2021. The ESPP became effective on March 24, 2021. There wasThe Company recognized $0.2 million and zero$0.2 million in stock-based compensation expense related to the ESPP for the three months ended March 31,June 30, 2022 and June 30, 2021,, respectively, and $0.4 million and $0.2 million for the six months ended June 30, 2022 and June 30, 2021, respectively.
Restricted Stock Units
The Company issues service-based and performance-based restricted stock units (“RSU”) to employees. The RSUs automatically convert to shares of the Company’s common stock on a 1-for-one basis as the awards vest. RSUs granted to newly hired employees typically vest 25% annually over 4four years commencing on the date of grant. The RSUs are measured at grant date fair value, at the market price of the Company’s Class A common stock on the grant date. The Company records stock-based compensation expense related to the RSUs ratably over the employee’s respective requisite service
ThredUp Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
period. During the threesix months ended March 31,June 30, 2022, the Company granted 749,8429,444,468 shares of RSUs with a weighted average grant date fair value at $8.81$7.43 under the 2021 Plan.
Stock-basedStock-Based Compensation
Total stock-based compensation expense by department is as follows (in thousands):follows:
| | | | | | | | | | | | | | |
| Three Months Ended March 31, | |
| 2022 | | 2021 | |
| | | | |
Operations, product and technology | $ | 1,392 | | | $ | 1,350 | | |
Marketing | 333 | | | 437 | | |
Sales, general and administrative | 1,798 | | | 1,711 | | |
Total stock-based compensation expense | $ | 3,523 | | | $ | 3,498 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | (in thousands) |
Operations, product and technology | | $ | 3,970 | | | $ | 984 | | | $ | 5,362 | | | $ | 2,334 | |
Marketing | | 1,226 | | | 289 | | | 1,559 | | | 726 | |
Sales, general and administrative | | 4,862 | | | 1,623 | | | 6,660 | | | 3,334 | |
Total stock-based compensation expense | | $ | 10,058 | | | $ | 2,896 | | | $ | 13,581 | | | $ | 6,394 | |
11. Commitments and Contingencies
Legal Contingencies
The Company is subject to litigation claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
Indemnifications
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but that have not yet been made.
12. 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 six months ended March 31,June 30, 2022 and 2021 was determined based upon estimates of the Company’s annual effective tax rate for the years ending December 31, 2022 and 2021, respectively. Since the Company is in a full valuation allowance position due to losses incurred since inception, the provision for taxes consistconsists solely of certain state income taxes.
ThredUp Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
13. Net Loss Per Share Attributable to Common Stockholders
The following participating securities werehave been excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive:
| | | | | | | | | | | |
| As of March 31, |
| 2022 | | 2021 |
| (in thousands) |
Outstanding stock options | 18,825 | | | 22,068 | |
Restricted stock units | 1,830 | | | 96 | |
Delayed share issuance related to acquisition | 130 | | | — | |
Employee stock purchase plan | 105 | | | — | |
Outstanding Class B common stock warrants | — | | | 138 | |
Total | 20,890 | | | 22,302 | |
| | | |
| | | | | | | | | | | | | | |
| | As of June 30, |
| | 2022 | | 2021 |
| | (in thousands) |
Outstanding stock options | | 18,514 | | | 21,600 | |
Restricted stock units | | 9,285 | | | 218 | |
Delayed share issuance related to acquisition | | 131 | | | — | |
Employee stock purchase plan | | 59 | | | 101 | |
Total | | 27,989 | | | 21,919 | |
14. Subsequent Events
On July 14, 2022, (the “Closing Date”), the Company entered into a Second Amended and Restated Loan and Security Agreement (the “Second Amended Term Loan”), which amends and restates the Term Loan to, among other things, increase the aggregate borrowing ability to $70.0 million, reduce the applicable margin for borrowings under the Term Loan to the prime rate published in The Wall Street Journal plus a margin of 1.25%, with a floor of 6.00%, and extend the maturity date of the outstanding Term Loan to July 14, 2027. The Second Amended Term Loan contains several financial covenants, including cash availability and cash holding requirements, minimum revenue amounts and, beginning in the first quarter of fiscal year 2025, a minimum Fixed Charge Coverage Ratio.
The Second Amended Term Loan provides for an aggregate principal amount of $70.0 million of term loans, to be made available as either the “Term A Loan” or “Term B Loan.” The Term A Loan is for an aggregate principal amount of $32.0 million and was fully advanced on the Closing Date to refinance the outstanding obligations under the Term Loan. The Term B Loan is for an aggregate principal amount of $38.0 million. The Term B Loan is available to be drawn by the Company through the four-year anniversary of the Closing Date to finance the purchase price of eligible equipment purchased by the Company.
ITEMItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our condensed financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes and our Annual Report on Form 10-K filed with the SEC on March 22, 2022. 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 is one of the world’s largest online resale platforms for women’s and kids’ apparel, shoes and accessories. Our mission is to inspire a new generation of consumers to think secondhand first. We believe in a sustainable fashion future and we are proud that our business model creates a positive impact to the benefit of our buyers, sellers, clients, employees, investors and the environment. Our custom-built operating platform consists of distributed processing infrastructure, proprietary software and systems and data science expertise. This platform is powering the rapidly emerging resale economy, one of the fastest growing sectors in retail, according to a GlobalData market survey conducted in April 2021.
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 marketplace we have built enables buyers to browse and purchase resale items for primarily women’s and kids’ apparel, shoes and accessories across a wide range of price points. Buyers love shopping value, premium and luxury brands all in one place, at up to 90% off estimated retail price. Sellers love thredUP because we make it easy to clean out their closets and unlock value for themselves or for the charity of their choice while doing good for the planet. thredUP’s sellers order a Clean Out Kit, fill it and return it to us using our prepaid label. We take it from there and do the work to make those items available for resale.
In 2018, based on our success with consumers directly, we extended our platform to enable brands and retailers to participate in the resale economy. Some of the world’s leading brands and retailers are already taking advantage of our RaaS offering, which allows them to conveniently offer a scalable closet clean out service and/or resale shop to their customers. We believe RaaS will accelerate the growth of this emerging category and form the backbone of the modern resale experience domestically and internationally.
In October 2021, we closed thecompleted our acquisition of Remix Global EAD (“Remix”), a fashion resale company headquarteredbased in Sofia, Bulgaria, whichBulgaria. With this acquisition, we further expandsexpanded our reach to European customers. With this acquisition, wecustomers, added a complementary operational infrastructure and added an experienced management team to enable our expansion into Europe. In addition, Remix’s product assortment extendsextended our resale offering to include men’s items and items sourced from a variety of supply channels, such as wholesale supply.
Recent Business Developments
Acquisition of Remix Global EAD
On July 24, 2021, we entered into Share Purchase Agreements with the shareholders of Remix to purchase 100% of the outstanding equity interests of Remix and its subsidiary. On October 7, 2021, we completed our acquisition of Remix.
COVID-19 Update
The ongoing development of the COVID-19 pandemic has beencontinued to impact our business, primarily driven by the emergence of new variants and continuesrelated subvariants. Our performance was adversely affected by market instability, supply chain disruptions, labor challenges caused by the pandemic and the U.S. government response to be a complex and evolving situation. We continue to monitor the development of theCOVID-19 pandemic, including the impactabsence of any economic stimulus in 2022. We are actively engaging with our customers and are continuing to take measures to protect the Omicron variant, the BA.2 subvariantshealth and other SARS-CoV-2 viruses, federal, state and local government response, vaccination rates, the impact on our supply chain and the impact on our employees. We have prioritized the safety of our employees during the pandemic. In 2020, we shifted all of our corporate employees and contract engineers to a remote work model and implemented additional measures to better enable remote work. employees. As of March 31,June 30, 2022, our remote work model remains largely in place.
The long-term impact of COVID-19 on our operations and financial performance remains uncertain and will depend on various unpredictable factors, including the duration of the pandemic, potential subsequent waves of COVID-19 infection or potential new variants, the effectiveness of COVID-19 vaccines and treatments and government actions to prevent and manage disease spread. The long-term impact of the pandemic on demand and supply for our products and services is also difficult to predict, but could negatively affect our future results and performance.
Financial Impact
In the threesix months ended March 31,June 30, 2022, we experienced an increase in consumer demand partially due to the reduced severity of the COVID-19 recoverypandemic and re-opening efforts.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.
Impact on Processing at our Distribution and Processing Centers
The COVID-19 pandemic and the ongoing recovery also contributed to a tightened labor supply. We continue to face challenges in hiring and retaining employees.employees in our distribution and processing centers. 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 the section titled “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 22, 2022 for further discussion of the possible impact of the COVID-19 pandemic on our business, operations and financial condition.
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. A strengthening U.S. dollar will have 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 "Foreign Currency Exchange Rate Risk" in Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Restructuring
In June 2022, we restructured certain back-office functions to improve efficiencies and to reduce overhead costs. In addition, we closed our processing center in Tennessee and consolidated its 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.
Overview of FirstSecond Quarter Results
Revenue:Total revenue was a record at $72.7$76.4 million, an increase of 31%27% year-over-year.
Gross Profit and Margin: Gross profit totaled $50.2$52.6 million representing growth of 26%19% year-over-year. Gross margin decreased by 224471 basis points to 69% from 71%74% in the comparable quarter last year.
Net Loss: GAAP net loss was $20.7$28.4 million, or a negative 37% of revenue, for the firstsecond quarter of 2022, compared to a GAAP net loss of $16.2$14.4 million for the firstsecond quarter 2021.
Adjusted EBITDA:Adjusted EBITDA loss was $13.0$13.5 million, aor negative 18% of revenue for the second quarter of 2022, compared to an Adjusted EBITDA loss of $9.1$9.0 million for the firstsecond quarter of 2021, aor negative 16%15% of the firstrevenue for the second quarter 2021 revenue.of 2021.
Active Buyers and Orders:Total first quarter of 2022 Active Buyers oftotaled 1.72 million and Orders totaled 1.70 million in the second quarter of 1.64 million grew 33%2022, representing growth of 29% and 45%40%, respectively, compared to the firstsecond quarter of 2021.
Key Financial and Operating Metrics
Our unaudited condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”). We review a number of operating and financial metrics, including the following key business and Non-GAAPnon-GAAP metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. These key financial and operating metrics are set forth below for the periods presented.
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | % Change |
| 2022 | | 2021 | | 2022 vs 2021 |
| | | | | |
| (in thousands) | | |
Active Buyers (as of period end) | 1,715 | | | 1,290 | | | 33 | % |
Orders | 1,640 | | | 1,128 | | | 45 | % |
Net loss | $ | (20,708) | | | $ | (16,171) | | | 28 | % |
Net loss margin | (28) | % | | (29) | % | | 1 | % |
Adjusted EBITDA loss(1) | $ | (12,963) | | | $ | (9,119) | | | 42 | % |
Adjusted EBITDA margin | (18) | % | | (16) | % | | (2) | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
| | (in thousands, except percentages and basis points) |
Active Buyers (as of period end) | | 1,724 | | | 1,341 | | | 29 | % | | 1,724 | | | 1,341 | | | 29 | % |
Orders | | 1,704 | | | 1,218 | | | 40 | % | | 3,344 | | | 2,346 | | | 43 | % |
Net loss | | $ | (28,399) | | | $ | (14,379) | | | (98) | % | | $ | (49,107) | | | $ | (30,550) | | | (61) | % |
Net loss margin | | (37) | % | | (24) | % | | (1,318) | bps | | (33) | % | | (26) | % | | (651) | bps |
Adjusted EBITDA loss(1) | | $ | (13,541) | | | $ | (9,036) | | | (50) | % | | $ | (26,504) | | | $ | (18,155) | | | (46) | % |
Adjusted EBITDA margin | | (18) | % | | (15) | % | | (262) | bps | | (18) | % | | (16) | % | | (210) | bps |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(1)See below for a reconciliation of Adjusted EBITDA 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 in our marketplace. A thredUP buyermarketplace and is identified by a unique email address and aaddress. A single person could have multiple thredUP accounts and count as multiple Active Buyers. The number of Active Buyers is a key driver of revenue for our marketplace and we expect the number of Active Buyers to increase over time.
Orders
Orders means the total number of orders placed by buyers across our marketplace, including through our RaaS clients, in a given period, net of cancellations. We expect Orders to increase over time.
Adjusted EBITDA
Adjusted EBITDA means net loss adjusted to exclude, where applicable in a given period, depreciation and amortization, stock-based compensation expense, interest expense, acquisition and offering related expenses, interest expense,restructuring charges, change in fair value of convertible preferred stock warrant liability and provision for income taxes and organizational alignment expenses.taxes. We use Adjusted EBITDA, a Non-GAAPnon-GAAP metric, to evaluate and assess our operating performance and the operating leverage in our business, and for internal planning and forecasting purposes. We believe that Adjusted EBITDA, when taken collectively with our GAAP results, may be helpful to investors because it provides consistency and comparability with past financial performance and assists 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 Adjusted EBITDA (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Adjusted EBITDA Reconciliation: | | | |
GAAP Net loss | $ | (20,708) | | | $ | (16,171) | |
Depreciation and amortization | 3,271 | | | 2,038 | |
Stock-based compensation expense | 3,523 | | | 3,498 | |
Interest expense | 423 | | | 559 | |
Acquisition related expenses | 204 | | | — | |
Organizational alignment expenses | 311 | | | — | |
Change in fair value of convertible preferred stock warrant liability | — | | | 930 | |
Provision for income taxes | 13 | | | 27 | |
Non-GAAP Adjusted EBITDA | $ | (12,963) | | | $ | (9,119) | |
| | | |
EBITDA:
20 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | (in thousands) |
Adjusted EBITDA Reconciliation: | | | | | | | | |
GAAP net loss | | $ | (28,399) | | | $ | (14,379) | | | $ | (49,107) | | | $ | (30,550) | |
Depreciation and amortization | | 3,407 | | | 1,861 | | | 6,678 | | | 3,899 | |
Stock-based compensation expense | | 10,058 | | | 2,896 | | | 13,581 | | | 6,394 | |
Interest expense | | 238 | | | 573 | | | 661 | | | 1,132 | |
Acquisition-related expenses | | 70 | | | — | | | 274 | | | — | |
Restructuring charges | | 1,076 | | | — | | | 1,387 | | | — | |
Change in fair value of convertible preferred stock warrant liability | | — | | | — | | | — | | | 930 | |
Provision for income taxes | | 9 | | | 13 | | | 22 | | | 40 | |
Non-GAAP Adjusted EBITDA | | $ | (13,541) | | | $ | (9,036) | | | $ | (26,504) | | | $ | (18,155) | |
Results of Operations
The following table sets forth our results of operations for the periods presented:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| | | |
Revenue: | (in thousands) |
Consignment | $ | 47,435 | | | $ | 44,688 | |
Product | 25,260 | | | 10,992 | |
Total revenue | 72,695 | | | 55,680 | |
Cost of revenue: | | | |
Consignment | 10,049 | | | 10,832 | |
Product | 12,418 | | | 5,130 | |
Total cost of revenue | 22,467 | | | 15,962 | |
Gross profit | 50,228 | | | 39,718 | |
Operating expenses: | | | |
Operations, product and technology | 39,161 | | | 28,312 | |
Marketing | 16,978 | | | 15,446 | |
Sales, general and administrative | 14,664 | | | 10,638 | |
Total operating expenses | 70,803 | | | 54,396 | |
Operating loss | (20,575) | | | (14,678) | |
Interest expense | (423) | | | (559) | |
Other income (expense), net | 303 | | | (907) | |
Loss before provision for income taxes | (20,695) | | | (16,144) | |
Provision for income taxes | 13 | | | 27 | |
Net loss | $ | (20,708) | | | $ | (16,171) | |
Net loss per share attributable to common stockholders, basic and diluted | $ | (0.21) | | | $ | (0.86) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | (in thousands) |
Revenue: | | | | | | | | |
Consignment | | $ | 48,536 | | | $ | 48,597 | | | $ | 95,971 | | | $ | 93,285 | |
Product | | 27,885 | | | 11,362 | | | 53,145 | | | 22,354 | |
Total revenue | | 76,421 | | | 59,959 | | | 149,116 | | | 115,639 | |
Cost of revenue: | | | | | | | | |
Consignment | | 10,218 | | | 10,687 | | | 20,267 | | | 21,519 | |
Product | | 13,555 | | | 5,140 | | | 25,973 | | | 10,270 | |
Total cost of revenue | | 23,773 | | | 15,827 | | | 46,240 | | | 31,789 | |
Gross profit | | 52,648 | | | 44,132 | | | 102,876 | | | 83,850 | |
Operating expenses: | | | | | | | | |
Operations, product and technology | | 43,961 | | | 31,062 | | | 83,122 | | | 59,374 | |
Marketing | | 19,640 | | | 15,957 | | | 36,618 | | | 31,403 | |
Sales, general and administrative | | 17,380 | | | 10,999 | | | 32,044 | | | 21,637 | |
Total operating expenses | | 80,981 | | | 58,018 | | | 151,784 | | | 112,414 | |
Operating loss | | (28,333) | | | (13,886) | | | (48,908) | | | (28,564) | |
Interest expense | | (238) | | | (573) | | | (661) | | | (1,132) | |
Other income (expense), net | | 181 | | | 93 | | | 484 | | | (814) | |
Loss before provision for income taxes | | (28,390) | | | (14,366) | | | (49,085) | | | (30,510) | |
Provision for income taxes | | 9 | | | 13 | | | 22 | | | 40 | |
Net loss | | $ | (28,399) | | | $ | (14,379) | | | $ | (49,107) | | | $ | (30,550) | |
Net loss per share, basic and diluted | | $ | (0.29) | | | $ | (0.15) | | | $ | (0.50) | | | $ | (0.54) | |
Comparison of the Three and Six Months Ended March 31,June 30, 2022 and 2021
Revenue
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change |
| | | | | | | |
| 2022 | | 2021 | | Amount | | % |
| | | | | | | |
| (in thousands, except percentages) |
Consignment revenue | $ | 47,435 | | | $ | 44,688 | | | $ | 2,747 | | | 6 | % |
Product revenue | 25,260 | | | 10,992 | | | 14,268 | | | 130 | % |
Total revenue | $ | 72,695 | | | $ | 55,680 | | | $ | 17,015 | | | 31 | % |
Consignment revenue as a % of total revenue | 65 | % | | 80 | % | | | | |
Product revenue as a % of total revenue | 35 | % | | 20 | % | | | | |
The $17.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | Change | | June 30, | | Change |
| | 2022 | | 2021 | | Amount | | % | | 2022 | | 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Consignment revenue | | $ | 48,536 | | | $ | 48,597 | | | $ | (61) | | | — | % | | $ | 95,971 | | | $ | 93,285 | | | $ | 2,686 | | | 3 | % |
Product revenue | | 27,885 | | | 11,362 | | | 16,523 | | | 145 | % | | 53,145 | | | 22,354 | | | 30,791 | | | 138 | % |
Total revenue | | $ | 76,421 | | | $ | 59,959 | | | $ | 16,462 | | | 27 | % | | $ | 149,116 | | | $ | 115,639 | | | $ | 33,477 | | | 29 | % |
Consignment revenue as a % of total revenue | | 64 | % | | 81 | % | | | | (17) | % | | 64 | % | | 81 | % | | | | (17) | % |
Product revenue as a % of total revenue | | 36 | % | | 19 | % | | | | 17 | % | | 36 | % | | 19 | % | | | | 17 | % |
Total revenue increased by $16.5 million, increase in total revenue represents a 31% increase in total revenueor 27%, for the three months ended March 31,June 30, 2022, as compared to the three months ended March 31,June 30, 2021. This increase in total revenue was primarily attributable to a 45%40% increase in Orders and a 29% growth in Active Buyers of 33% largely driven
by the additionresulting from our acquisition of our European operations offset by a 10% decrease in October 2021 and the increases in our domestic Orders and Active Buyers. We experienced slowing revenue and Order growth in the back half of June 2022 that is attributable to various factors including, but not limited to, general global economic uncertainty, increased inflation and weakening consumer discretionary spending. Overall, revenue per Order over the same period. The 10% decrease in revenue per Order wasdecreased by 9% primarily due to lower revenue per Order for our European operationsoperations; domestic revenue per Order increased by 6% in the comparative period due to intensified marketing, advertising and promotional efforts and sales acceleration connected with revamp of our loyalty program.
Total revenue increased by $33.5 million, or 29%, for the six months ended June 30, 2022, as compared with ourto the six months ended June 30, 2021. Orders increased by 43% and Active Buyers grew by 29% partially offset by a 10% decrease in revenue per Order due to lower pricing in Europe; domestic operations.revenue per Order increased by 4% in the comparative period. Our intensified marketing, advertising and promotional efforts largely contributed to the increases in Orders and Active Buyers.
Product revenue increased by 130%145% and 138%, respectively, for the three and six months ended March 31,June 30, 2022, as compared to the three and six months ended March 31, 2021 and represented 35% of total revenue. This revenue increased primarilyJune 30, 2021. The increase was mainly due to the introductionaddition of our European operations, which is primarily product revenue, and a smalleran increase in our domestic product revenue.revenue which is due to increased upfront finished goods purchases, for which revenue is recognized as product revenue when shipped to the end customer.
Cost of Revenue
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change |
| | | | | | | |
| 2022 | | 2021 | | Amount | | % |
| | | | | | | |
| (in thousands, except percentages) |
Cost of consignment revenue | $ | 10,049 | | | $ | 10,832 | | | $ | (783) | | | (7) | % |
Cost of product revenue | 12,418 | | | 5,130 | | | 7,288 | | | 142 | % |
Total cost of revenue | $ | 22,467 | | | $ | 15,962 | | | $ | 6,505 | | | 41 | % |
Gross profit | $ | 50,228 | | | $ | 39,718 | | | $ | 10,510 | | | 26 | % |
Gross profit margin | 69 | % | | 71 | % | | | | |
Cost of revenue as a % of total revenue | 31 | % | | 29 | % | | | | |
Cost of consignment revenue as a % of total cost of revenue | 45 | % | | 68 | % | | | | |
Cost of product revenue as a % of total cost of revenue | 55 | % | | 32 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | Change | | June 30, | | Change |
| | 2022 | | 2021 | | Amount | | % | | 2022 | | 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Cost of consignment revenue | | $ | 10,218 | | | $ | 10,687 | | | $ | (469) | | | (4) | % | | $ | 20,267 | | | $ | 21,519 | | | $ | (1,252) | | | (6) | % |
Cost of product revenue | | 13,555 | | | 5,140 | | | 8,415 | | | 164 | % | | 25,973 | | | 10,270 | | | 15,703 | | | 153 | % |
Total cost of revenue | | $ | 23,773 | | | $ | 15,827 | | | $ | 7,946 | | | 50 | % | | $ | 46,240 | | | $ | 31,789 | | | $ | 14,451 | | | 45 | % |
Gross profit | | $ | 52,648 | | | $ | 44,132 | | | $ | 8,516 | | | 19 | % | | $ | 102,876 | | | $ | 83,850 | | | $ | 19,026 | | | 23 | % |
Gross profit margin | | 69 | % | | 74 | % | | | | | | 69 | % | | 73 | % | | | | |
Cost of revenue as a % of total revenue | | 31 | % | | 26 | % | | | | | | 31 | % | | 27 | % | | | | |
Cost of consignment revenue as a % of total cost of revenue | | 43 | % | | 68 | % | | | | | | 44 | % | | 68 | % | | | | |
Cost of product revenue as a % of total cost of revenue | | 57 | % | | 32 | % | | | | | | 56 | % | | 32 | % | | | | |
Total cost of revenue as a percentage of total revenue was 31% for the three months ended March 31,June 30, 2022, an increase of 200471 basis points from 29%26% for the three months ended March 31,June 30, 2021. Total cost of revenue as a percentage of total revenue was 31% for the six months ended June 30, 2022, an increase of 352 basis points from 27% for the six months ended June 30, 2021. This decrease in gross profit margin was primarily attributabledue to the additioninclusion of operating results of our European operations beginning infrom October 2021 whichonward. Revenue from our European operations is primarily derived from product sales with a lower gross profit gross margin compared to our consignment sales.
margin. Consignment sales result inhave a higher gross profit margin than product sales becausebut made up a smaller percentage of total revenue for both the three and six months ended June 30, 2022 due to combination with revenue coming from our European operations. Revenue for consignment sales is recognized net of seller payouts and cost of items sold, whereas, for product sales, seller payouts and cost of items sold are recognizedincluded as a component of cost of revenue.
We expect cost of revenue leading to different gross margin profiles between consignment sales and product sales.decrease in absolute dollars but increase as a percentage of revenue as our European operations become a greater share of our overall business in the short-term.
Cost of Consignment Revenue
22 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | Change | | June 30, | | Change |
| | 2022 | | 2021 | | Amount | | % | | 2022 | | 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Cost of consignment revenue | | $ | 10,218 | | | $ | 10,687 | | | $ | (469) | | | (4) | % | | $ | 20,267 | | | $ | 21,519 | | | $ | (1,252) | | | (6) | % |
As a percent of consignment revenue | | 21 | % | | 22 | % | | | | | | 21 | % | | 23 | % | | | | |
Consignment gross margin | | 79 | % | | 78 | % | | | | | | 79 | % | | 77 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change |
| | | | | | | |
| 2022 | | 2021 | | Amount | | % |
| | | | | | | |
| (in thousands, except percentages) |
Cost of consignment revenue | $ | 10,049 | | | $ | 10,832 | | | $ | (783) | | | (7) | % |
As a percent of consignment revenue | 21 | % | | 24 | % | | | | |
Consignment gross margin | 79 | % | | 76 | % | | | | |
The $0.8 million decrease in costCost of consignment revenue represents a 7% decrease in the cost of consignment revenuedecreased by $0.5 million, or 4% for the three months ended March 31,June 30, 2022 compared to the three months ended March 31,June 30, 2021.
The decrease in cost Cost of consignment revenue decreased by $1.3 million or 6% for the threesix months ended March 31,June 30, 2022 was driven bycompared to the six months ended June 30, 2021. The decreases in the comparative periods were due to consignment revenue being a smaller percentage of total revenue and changes in related costs outlined in the below table. table as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | Change | | June 30, | | Change |
| | 2022 | | 2021 | | Amount | | % | | 2022 | | 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Outbound shipping | | $ | 6,471 | | | $ | 7,942 | | | $ | (1,471) | | | (19) | % | | $ | 13,088 | | | $ | 16,059 | | | $ | (2,971) | | | (19) | % |
Direct labor | | 2,554 | | | 1,918 | | | 636 | | | 33 | % | | 5,013 | | | 3,783 | | | 1,230 | | | 33 | % |
Packaging | | 883 | | | 620 | | | 263 | | | 42 | % | | 1,619 | | | 1,533 | | | 86 | | | 6 | % |
Other | | 310 | | | 207 | | | 103 | | | 50 | % | | 547 | | | 144 | | | 403 | | | 280 | % |
Total cost of consignment revenue | | $ | 10,218 | | | $ | 10,687 | | | $ | (469) | | | (4) | % | | $ | 20,267 | | | $ | 21,519 | | | $ | (1,252) | | | (6) | % |
Consignment gross margin increased 30094 basis points to 79% for the three months ended March 31,June 30, 2022. Consignment gross margin increased 195 basis points to 79% for the six months ended June 30, 2022. Outbound shipping and packaging costs decreased mainly due to consolidation of our outbound shipping process across distribution centers.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change |
| 2022 | | 2021 | | Amount | | % |
| | | | | | | |
| (in thousands, except percentages) |
Outbound shipping | $ | 6,617 | | | $ | 8,117 | | | $ | (1,500) | | | (18) | % |
Direct labor | 2,459 | | | 1,865 | | | 594 | | | 32 | % |
Packaging | 736 | | | 913 | | | (177) | | | (19) | % |
Other | 237 | | | (63) | | | 300 | | | * |
Total cost of consignment revenue | $ | 10,049 | | | $ | 10,832 | | | $ | (783) | | | (7) | % |
* Not meaningful | | | | | | | |
centers which was partially offset by higher shipping rates and increased direct labor.Cost of Product Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change | |
| | | | | | | | |
| 2022 | | 2021 | | Amount | | % | |
| | | | | | | | |
| (in thousands, except percentages) |
Cost of product revenue | $ | 12,418 | | | $ | 5,130 | | | $ | 7,288 | | | 142 | % | |
As a percent of product revenue | 49 | % | | 47 | % | | | | | |
Product gross margin | 51 | % | | 53 | % | | | | | |
The $7.3 million increase in cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | Change | | June 30, | | Change |
| | 2022 | | 2021 | | Amount | | % | | 2022 | | 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Cost of product revenue | | $ | 13,555 | | | $ | 5,140 | | | $ | 8,415 | | | 164 | % | | $ | 25,973 | | | $ | 10,270 | | | $ | 15,703 | | | 153 | % |
As a percent of product revenue | | 49 | % | | 45 | % | | | | | | 49 | % | | 46 | % | | | | |
Product gross margin | | 51 | % | | 55 | % | | | | | | 51 | % | | 54 | % | | | | |
Cost of product revenue represents a 142% increase in the cost of product revenueincreased $8.4 million, or 164%, for the three months ended March 31,June 30, 2022 compared to the three months ended March 31,June 30, 2021.
Cost of product revenue increased $15.7 million or 153% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increaseincreases in cost of product revenue forin the three months ended March 31, 2022 wascomparative periods were primarily driven by higher domestic product revenue and related costs outlinedinclusion of our European operations in 2022 onward. The cost components are detailed in the below table. table as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | Change | | June 30, | | Change |
| | 2022 | | 2021 | | Amount | | % | | 2022 | | 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Inventory costs | | $ | 9,610 | | | $ | 3,035 | | | $ | 6,575 | | | 217 | % | | $ | 18,442 | | | 5,861 | | | $ | 12,581 | | | 215 | % |
Outbound shipping | | 2,633 | | | 1,625 | | | 1,008 | | | 62 | % | | 5,053 | | | 3,333 | | | 1,720 | | | 52 | % |
Direct labor | | 988 | | | 365 | | | 623 | | | 171 | % | | 1,875 | | | 757 | | | 1,118 | | | 148 | % |
Packaging | | 324 | | | 115 | | | 209 | | | 182 | % | | 603 | | | 319 | | | 284 | | | 89 | % |
Total cost of product revenue | | $ | 13,555 | | | $ | 5,140 | | | $ | 8,415 | | | 164 | % | | $ | 25,973 | | | $ | 10,270 | | | $ | 15,703 | | | 153 | % |
Product gross margin decreased 200337 basis points to 51% for the three months ended March 31,June 30, 2022.
The Product gross margin decreased 293 basis points to 51% for the six months ended June 30, 2022. Our European operations have lower product profit margin mainly due to capitalization of production costs into inventory and release from inventory to cost of product revenue increased by 142%, which was higher than the increase in product revenue, as our European operations currently have higher inventory costs, resulting in a relatively lower gross margin profile.items are shipped. The increase in outbound shipping from the additioninclusion of our European operations
in 2022 was offset by a decrease in domestic outbound shipping for our domestic operations relative to the revenue growth due to consolidation of our outbound shipping process across distribution centers. The 171% and 148% increases in direct labor for the three and six months ended June 30, 2022, respectively, as compared to the same periods in 2021 were due primarily to the 145% and 138% growth in revenues. We expect the gross margin profiles for product revenue during the three and six months ended June 30, 2022, respectively, as compared to convergethe same periods in the long-term as we integrate our European operations.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change | |
| | | | | | | | | |
| | 2022 | | 2021 | | Amount | | % | |
| | | | | | | | | |
| | (in thousands, except percentages) |
Inventory costs | | $ | 8,832 | | | $ | 2,826 | | | $ | 6,006 | | | 213 | % | |
Outbound shipping | | 2,420 | | | 1,708 | | | 712 | | | 42 | % | |
Direct labor | | 887 | | | 392 | | | 495 | | | 126 | % | |
Packaging | | 279 | | | 204 | | | 75 | | | 37 | % | |
Total cost of product revenue | | $ | 12,418 | | | $ | 5,130 | | | $ | 7,288 | | | 142 | % | |
Operating Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | Change | | June 30, | | Change |
| | 2022 | | 2021 | | Amount | | % | | 2022 | | 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Operations, product and technology | | $ | 43,961 | | | $ | 31,062 | | | $ | 12,899 | | | 42 | % | | $ | 83,122 | | | $ | 59,374 | | | $ | 23,748 | | | 40 | % |
Marketing | | 19,640 | | | 15,957 | | | 3,683 | | | 23 | % | | 36,618 | | | 31,403 | | | 5,215 | | | 17 | % |
Sales, general and administrative | | 17,380 | | | 10,999 | | | 6,381 | | | 58 | % | | 32,044 | | | 21,637 | | | 10,407 | | | 48 | % |
Total operating expenses | | $ | 80,981 | | | $ | 58,018 | | | $ | 22,963 | | | 40 | % | | $ | 151,784 | | | $ | 112,414 | | | $ | 39,370 | | | 35 | % |
Operations, product and technology as a % of total revenue | | 58 | % | | 52 | % | | | | | | 56 | % | | 51 | % | | | | |
Marketing as a % of total revenue | | 26 | % | | 27 | % | | | | | | 25 | % | | 27 | % | | | | |
Sales, general and administrative as a % of total revenue | | 23 | % | | 18 | % | | | | | | 21 | % | | 19 | % | | | | |
Operating Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change | |
| | | | | | | | |
| 2022 | | 2021 | | Amount | | % | |
| | | | | | | | |
| (in thousands, except percentages) |
Operations, product and technology | $ | 39,161 | | | $ | 28,312 | | | $ | 10,849 | | | 38 | % | |
Marketing | 16,978 | | | 15,446 | | | 1,532 | | | 10 | % | |
Sales, general and administrative | 14,664 | | | 10,638 | | | 4,026 | | | 38 | % | |
Total operating expenses | $ | 70,803 | | | $ | 54,396 | | | $ | 16,407 | | | 30 | % | |
Operations, product and technology as a % of total revenue | 54 | % | | 51 | % | | | | | |
Marketing as a % of total revenue | 23 | % | | 28 | % | | | | | |
Sales, general and administrative as a % of total revenue | 20 | % | | 19 | % | | | | | |
Operating expenses increased $16.4$23.0 million, or 30%40%, for the three months ended March 31,June 30, 2022 compared to the three months ended March 31,June 30, 2021. Gross profitOperating expenses increased $10.5$39.4 million, or 26%35%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 in the same period.
Operating expenses increased as we We continue to invest in the expansion of distribution center processing capacity, marketing efforts, infrastructure to support being a public company and expansion into Europe.
Results by operating expenses line item are discussed below.
Operations, Product and Technology
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change | |
| | | | | | | | | |
| | 2022 | | 2021 | | Amount | | % | |
| | | | | | | | | |
| | (in thousands, except percentages) |
Personnel-related costs | | $ | 25,494 | | | $ | 18,679 | | | $ | 6,815 | | | 36 | % | |
Facilities and other allocated costs | | 8,330 | | | 6,020 | | | 2,310 | | | 38 | % | |
Inbound shipping | | 4,876 | | | 3,555 | | | 1,321 | | | 37 | % | |
Other | | 461 | | | 58 | | | 403 | | | 695 | % | |
Total operations, product and technology expenses | | $ | 39,161 | | | $ | 28,312 | | | $ | 10,849 | | | 38 | % | |
Operations, product and technology as % of total revenue | | 54 | % | | 51 | % | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | Change | | June 30, | | Change |
| | 2022 | | 2021 | | Amount | | % | | 2022 | | 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Personnel-related costs | | $ | 27,674 | | | $ | 19,272 | | | $ | 8,402 | | | 44 | % | | $ | 53,168 | | | $ | 37,951 | | | $ | 15,217 | | | 40 | % |
Facilities and other allocated costs | | 9,203 | | | 6,481 | | | 2,722 | | | 42 | % | | 17,533 | | | 12,501 | | | 5,032 | | | 40 | % |
Inbound and other shipping | | 6,537 | | | 5,077 | | | 1,460 | | | 29 | % | | 11,413 | | | 8,632 | | | 2,781 | | | 32 | % |
Other | | 547 | | | 232 | | | 315 | | | 136 | % | | 1,008 | | | 290 | | | 718 | | | 248 | % |
Total operations, product and technology expenses | | $ | 43,961 | | | $ | 31,062 | | | $ | 12,899 | | | 42 | % | | $ | 83,122 | | | $ | 59,374 | | | $ | 23,748 | | | 40 | % |
Operations, product and technology as % of total revenue | | 58 | % | | 52 | % | | | | | | 56 | % | | 51 | % | | | | |
Personnel-related costs were $25.5$27.7 million for the three months ended March 31,June 30, 2022, which increased by 36%a 44% increase from $18.7$19.3 million for the three months ended March 31, 2021, drivenJune 30, 2021. Personnel-related costs were $53.2 million for the six months ended June 30, 2022, which increased by a 45% increase40% from $38.0 million for the six months ended June 30, 2021. Our average headcount in the average U.S. headcount mostly from distribution and processing centers, corporate and general operational support functions increased 37% and 55% for the inclusionthree and six months ended June 30, 2022, respectively, as compared to the three and six months ended June 30, 2021.
Facilities and other allocated costs were $8.3$9.2 million for the three months ended March 31,June 30, 2022, which increased by 38%42% from $6.0$6.5 million for the three months ended March 31,June 30, 2021, driven by increases of $0.5$1.9 million in Software-as-a-service subscriptions and hosting, $0.7 million inrent, depreciation, supplies and third partythird-party logistics related to new distribution and processing centers and clean out bag storage, $0.6$0.8 million in warehousesoftware subscriptions and hosting fees. Facilities and other allocated costs were $17.5 million for the six months ended June 30, 2022, which increased by 40% from $12.5 million for the six months ended June 30, 2021, driven by increases of $3.8 million in rent, related primarily to newdepreciation and other operating expenses in distribution and processing and distribution centers and $0.4$1.3 million in depreciation.software subscriptions and hosting fees.
Inbound and other shipping costs were $4.9$6.5 million for the three months ended March 31,June 30, 2022, which increased by 37%29% from $3.6$5.1 million for the three months ended March 31, 2021,June 30, 2021. Inbound and other shipping costs were $11.4 million for the six months ended June 30, 2022, which increased by 32% from $8.6 million for the six months ended June 30, 2021. The increases in the comparative periods were driven by higher shipping rates and increases in transfers between our processing centers and distribution centers.
We expect operating, product and technology costs to decrease in absolute dollars but to be a higher percentage of $0.8 million in returnsrevenue next quarter due to fixed facilities and intra-company shipments and $0.5 million in the Clean Out Kits from sellers.technology costs.
Marketing
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change | |
| | 2022 | | 2021 | | Amount | | % | |
| | | | | | | | | |
| | (in thousands, except percentages) |
Marketing and advertising costs | | $ | 13,927 | | | $ | 13,220 | | | $ | 707 | | | 5 | % | |
Personnel-related costs | | 2,075 | | | 1,684 | | | 391 | | | 23 | % | |
Facilities and technology allocated costs | | 368 | | | 312 | | | 56 | | | 18 | % | |
Professional Services | | 267 | | | 94 | | | 173 | | | 184 | % | |
Other | | 341 | | | 136 | | | 205 | | | 151 | % | |
Total marketing expense | | $ | 16,978 | | | $ | 15,446 | | | $ | 1,532 | | | 10 | % | |
Marketing as % of total revenue | | 23 | % | | 28 | % | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | Change | | June 30, | | Change |
| | 2022 | | 2021 | | Amount | | % | | 2022 | | 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Marketing and advertising costs | | $ | 15,245 | | | $ | 13,743 | | | $ | 1,502 | | | 11 | % | | $ | 29,172 | | | $ | 26,963 | | | $ | 2,209 | | | 8 | % |
Personnel-related costs | | 3,122 | | | 1,555 | | | $ | 1,567 | | | 101 | % | | 5,197 | | | 3,239 | | | $ | 1,958 | | | 60 | % |
Facilities and technology allocated costs | | 239 | | | 337 | | | (98) | | | (29) | % | | 607 | | | 650 | | | (43) | | | (7) | % |
Professional services | | 346 | | | 176 | | | 170 | | | 97 | % | | 613 | | | 271 | | | 342 | | | 126 | % |
Other | | 688 | | | 146 | | | 542 | | | 371 | % | | 1,029 | | | 280 | | | 749 | | | 268 | % |
Total marketing expense | | $ | 19,640 | | | $ | 15,957 | | | $ | 3,683 | | | 23 | % | | $ | 36,618 | | | $ | 31,403 | | | $ | 5,215 | | | 17 | % |
Marketing as % of total revenue | | 26 | % | | 27 | % | | | | | | 25 | % | | 27 | % | | | | |
Marketing costs increased 10%23% for the three months ended March 31, 2022 compared to 26% gross profit growth.June 30, 2022. Marketing and advertising costs were $13.9$15.2 million for the three months ended March 31,June 30, 2022, which increased by 5%11% from $13.2$13.7 million for the three months ended March 31,June 30, 2021. IncreaseThe increase in marketing and advertising costs was driven by increasesan increase of $1.4$2.4 million from our acquisition of our European operations in organic and acquisition marketing and advertising,2021, offset by a decrease of $0.7$0.9 million from the discontinuance of our Goody Box program.
Marketing costs increased 17% for the six months ended June 30, 2022. Marketing and advertising costs were $29.2 million for the six months ended June 30, 2022, which increased by 8% from $27.0 million for the six months ended June 30, 2021. The increase in marketing and advertising costs was driven by an increase of $4.2 million from our acquisition of our European operations in 2021, offset by $2.0 million from the discontinuance of our Goody Box program and reduction in other domestic marketing costs.Personnel-related costs were $2.1$3.1 million for the three months ended March 31,June 30, 2022, which increased by 23%101% from $1.7$1.6 million for the three months ended March 31,June 30, 2021. This increase was primarilyPersonnel-related costs were $5.2 million for the six months ended June 30, 2022, which increased by 60% from $3.2 million for the six months ended June 30, 2021. The average headcount increased 86% and 88%, respectively, for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021. Stock-based compensation expenses for the U.S. increased $0.9 million and $0.8 million, respectively, for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021.
We expect marketing costs to decrease in absolute dollars but be a higher percentage of revenue next quarter due to 23% growth in the average U.S. based headcount and additional marketing employees from the acquisitionfixed personnel-related costs.
Sales, General and Administrative
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change | |
| | 2022 | | 2021 | | Amount | | % | |
| | | | | | | | | |
| | (in thousands, except percentages) |
Personnel-related costs | | $ | 7,372 | | | $ | 5,536 | | | $ | 1,836 | | | 33 | % | |
Professional services | | 2,506 | | | 1,835 | | | 671 | | | 37 | % | |
Payment processing fees | | 2,217 | | | 1,797 | | | $ | 420 | | | 23 | % | |
Other | | 2,569 | | | 1,470 | | | 1,099 | | | 75 | % | |
Total sales, general and administrative costs | | $ | 14,664 | | | $ | 10,638 | | | $ | 4,026 | | | 38 | % | |
Sales, general and administrative as % of total revenue | | 20 | % | | 19 | % | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | Change | | June 30, | | Change |
| | 2022 | | 2021 | | Amount | | % | | 2022 | | 2021 | | Amount | | % |
| | (in thousands, except percentages) |
Personnel-related costs | | $ | 11,123 | | | $ | 5,267 | | | $ | 5,856 | | | 111 | % | | $ | 18,495 | | | $ | 10,803 | | | $ | 7,692 | | | 71 | % |
Professional services | | 2,008 | | | 1,456 | | | 552 | | | 38 | % | | 4,514 | | | 3,291 | | | 1,223 | | | 37 | % |
Payment processing fees | | 2,264 | | | 2,029 | | | 235 | | | 12 | % | | 4,481 | | | 3,826 | | | 655 | | | 17 | % |
Other | | 1,985 | | | 2,247 | | | (262) | | | (12) | % | | 4,554 | | | 3,717 | | | 837 | | | 23 | % |
Total sales, general and administrative expenses | | $ | 17,380 | | | $ | 10,999 | | | $ | 6,381 | | | 58 | % | | $ | 32,044 | | | $ | 21,637 | | | $ | 10,407 | | | 48 | % |
Sales, general and administrative as % of total revenue | | 23 | % | | 18 | % | | | | | | 21 | % | | 19 | % | | | | |
Sales, general and administrative expenses increased 58% for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. Sales, general and administrative expense increased 38%48% for the threesix months ended March 31,June 30, 2022 as compared to 26% gross profit growth. This increasethe six months ended June 30, 2021. The increases for both comparative periods was mainly the result of investments, primarily in personnel and, to a lesser extent, professional services costs, made towards scaling our business and improving our processes as we became a public company.
Personnel-related costs were $7.4$11.1 million for the three months ended March 31,June 30, 2022, which increased by 111% from $5.5$5.3 million for the three months ended March 31, 2021, drivenJune 30, 2021. Personnel-related costs were $18.5 million for the six months ended June 30, 2022, which increased by a71% from $10.8 million for the six months ended June 30, 2021. The average headcount increase of 25% in U.S. operationsincreased 97% and 91%, respectively, for the inclusion of employees fromthree and six months ended June 30, 2022 as compared to the Remix acquisition.three and six months ended June 30, 2021.
Professional services costs were $2.5$2.0 million for the three months ended March 31,June 30, 2022, which increased 37%38% from $1.8$1.5 million compared to the three months ended March 31,June 30, 2021 primarily due to the inclusion of our European operations increase in legal fees and customer support services. Professional services costs were $4.5 million for the six months ended June 30, 2022, which increased 37% from $3.3 million compared to the six months ended June 30, 2021 due to an increase of $0.7$0.5 million in legal services, the inclusion of our European operations and accountinga general increase in services including customer support and other services.
Payment processing fees were $2.2$2.3 million for the three months ended March 31,June 30, 2022, which increased 23%12% from $1.8$2.0 million for the three months ended March 31,June 30, 2021. The increase was mainly due to the 31%27% increase in overall sales partially offset by lower payment processing rate in our European operations. Payment processing fees were $4.5 million for the six months ended June 30, 2022, which increased 17% from $3.8 million for the six months ended June 30, 2021. The increase was mainly due to the 29% increase in overall revenue, partially offset by lower payment processing rate in our European operations.
Other expenses were $2.6$2.0 million for the three months ended March 31,June 30, 2022, an increasea decrease of 75%12% from $1.5$2.2 million for the three months ended March 31,June 30, 2021, primarily driven by a decrease in sales & use tax reserves and payroll service fees. Other expenses were $4.6 million for the six months ended June 30, 2022, an increase of 23% from $3.7 million for the six months ended June 30, 2021, primarily driven by higher insurance premiums associated with our public company status.
We expect sales, general and administrative costs to decrease in absolute dollars but be a higher percentage of revenue next quarter due to fixed corporate overhead costs.
Liquidity and Capital Resources
As of March 31,June 30, 2022, we had cash, cash equivalents and short-term marketable securities of $183.8 million and an accumulated deficit of $336.1 million. As of December 31, 2021, we had cash, cash equivalents and short-term marketable securities of $205.8 million and an accumulated deficit of $315.3$148.5 million. We have generated negative cash flows from operations and have primarily financed our operations through private and public sales of equity securities and debt. Additionally, we currently have a term loan facility with Western Alliance Bank (the “Term Loan”) for which we have drawn $40.0 million and repaid $6.0 million.$8.0 million, with $32.0 million outstanding as of June 30, 2022. In March 2021,July 2022, we completed our IPOentered into a Second Amended and Restated Loan and Security Agreement, which amends and restates the Term Loan to, among other things, increase the aggregate borrowing ability to $70.0 million, reduce the applicable margin for aggregate net proceedsborrowings under the Term Loan to the prime rate published in the Wall Street Journal plus a margin of $175.5 million, after deducting offering costs, underwriter discounts1.25% with a floor of 6.00% and commissionsextend the maturity date of $17.7 million. In August 2021, we completed our follow-on public offering and sold an aggregate of two million shares. The aggregate net proceeds were $45.5 million after deducting $3.3 million of underwriter discounts and commissions and offering costs.
the outstanding Term Loan to July 14, 2027.We expect operating losses and negative cash flows from operations to continue into the foreseeable future as we continue to invest in growing our business and expanding our infrastructure. Our primary use of cash includes operating costs such as processing center and distribution center spend, product and technology expenses, marketing expenses, personnel expenses and other expenditures necessary to support our operations and our growth. Additionally, our primary capital expenditures are related to the set-up, expansion and/or automation of our processing centers and distribution centers.centers and may be accelerated or delayed based on our operating position and needs of the Company. 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-term and long-term capital requirements. 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 marketplace and overall economic conditions. We may seek additional equity or debt financing. If we raise equity financing, our stockholders may experience significant dilution of their ownership interests. If we conduct an additional debt financing, the terms of such debt financing may be similar or more restrictive than our current term loan facility, and we would have additional debt service obligations. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations could be harmed.
Cash Flows
The following table summarizes our cash flows for the periods indicated.indicated:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| | | |
| (in thousands) |
Net cash (used in) provided by: | | | |
Operating activities | $ | (6,679) | | | $ | 1,077 | |
Investing activities | (7,912) | | | (4,099) | |
Financing activities | (1,191) | | | 185,051 | |
Effect of exchange rate changes on cash and cash equivalents | (172) | | | — | |
Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (15,954) | | | $ | 182,029 | |
| | | | | | | | | | | | | | |
| | Six Months Ended |
| | June 30, |
| | 2022 | | 2021 |
| | (in thousands) |
Net cash provided by (used in): | | | | |
Operating activities | | $ | (24,835) | | | $ | (9,090) | |
Investing activities | | (4,764) | | | (66,417) | |
Financing activities | | (2,332) | | | 184,081 | |
Effect of exchange rate changes on cash and cash equivalents | | (521) | | | — | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | $ | (32,452) | | | $ | 108,574 | |
Changes in Cash Flow from Operating Activities
For the threesix months ended March 31,June 30, 2022, net cash used in operating activities was $6.7$24.8 million, which consisted of a net loss of $20.7$49.1 million, partially offset by non-cash charges of $8.7 million and $5.4 million of net$24.3 million. The cash generated from changes in our operating assets and liabilities. The increaseflow decrease in operating assets and liabilities was primarily due to a $4.9$4.7 million increase in inventory to support seasonal sales for our European operations and to support business growth. We also experienced a $1.5 million increase in prepaid expenses for insurance, software and other expenses. Offsetting these cash flow decreases was a $6.2 million increase in accounts payable, accrued and other current liabilities and seller payable flows due to payment timing, increased sales and higher operating expenses as we grow our business.
For the six months ended June 30, 2021, net cash used in operating activities was $9.1 million, which consisted of a net loss of $30.6 million, partially offset by non-cash charges of $13.9 million and a net change of $7.6 million in our operating assets and liabilities. The change in operating assets and liabilities is due to an $8.2 million increase in accrued and other current liabilities, primarily resulting from an increase in allowance for returnsaccrued marketing and accrued vendor liabilitiescompensation, a $3.0 million increase in seller payable due to the timing of payments, a $2.7 million increase in accounts payable due to the timing of payments and higher operating expenses as we grow our business, and a $4.3 million cash inflow from changes in accounts receivable, accounts payable and seller payable due to the timing of payments.business. These changes were partially offset by increased inventory of $2.3 million to support business growth and a $2.2$3.4 million increase in other current and non-current assets resulting from an increase in contract assets and security deposits.
For the three months ended March 31, 2021, net cash provided by operating activities was $1.1 million, which consisted of non-cash charges of $7.9 million and net cash of $9.3 million generated from changes in operating assets and liabilities, partially offset by a net loss of $16.2 million. The increase in operating assets and liabilities was primarily due to a $4.8 million increase in accrued and other current liabilities, a $4.7 million increase in accounts payable due to the timing of payments and increased operating expenses as we grow our business, and a $1.5 million increase in seller payable due to the timing of payments, partially offset byprepaid insurance, a reduction in operating lease liabilities of $1.3 million.$2.3 million resulting from the payment of leases, and a $0.8 million increase in net inventory.
Changes in Cash Flow from Investing Activities
For the threesix months ended March 31,June 30, 2022, net cash used in investing activities was $7.9$4.8 million, which was driven by $12.6$27.6 million of capital expenditures primarily for our new distribution centers and $3.5 million purchases of marketable securities, partially offset by $4.7$26.3 million in maturities of marketable securities.
For the threesix months ended March 31,June 30, 2021, net cash used in investing activities was $4.1$66.4 million, which is attributable towas driven by $57.4 million in new purchases of propertymarketable securities and equipment,$9.0 million of capital expenditures primarily for automation assets for theour distribution center in Georgia.centers.
Changes in Cash Flow from Financing Activities
For the threesix months ended March 31,June 30, 2022, net cash used in financing activities was $1.2$2.3 million, which consisted mainly of $2.0$4.0 million in debt repayment, partially offset by $0.8$1.7 million in proceeds from the exercise of common stock options.options and employee stock purchases.
For the threesix months ended March 31,June 30, 2021, net cash provided by financing activities was $185.1$184.1 million, which consisted mainly of $180.3 million in net proceeds from the sale of Class A common stock in theour IPO, net of underwriting discounts and commissions, $4.6 million in net debt financing proceeds, and $1.9$2.8 million in proceeds from the exercise of common stock options,options. This was partially offset by $1.7$3.6 million in public offering costs for the IPO.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material.
There have been no significant changes to our critical accounting policies since December 31, 2021. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements, refer to the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the SEC on March 22, 2022.
Recent Accounting Pronouncements
For information on recently issued accounting pronouncements, refer toSee discussion under Note 2, titled “SignificantSignificant Accounting Policies”Policies, to our unaudited condensed consolidated financial statementsthe Condensed Consolidated Financial Statements included in Part 1,I, Item 1,Financial Statements, of this Quarterly Report on Form 10-Q, for a discussion of recentinformation on new accounting pronouncements.
JOBS Act Accounting Election
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, our condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily include:
Interest Rate Risk
As of March 31,June 30, 2022, we had unrestricted cash and cash equivalents of $68.6$52.2 million and marketable securities of $115.2$96.3 million, consisting primarily of money market funds, corporate debt securities, commercial paper, U.S. treasury securities and U.S. government agency bonds, which carry a degree of interest rate risk. Fluctuations in interest rates have not been significant to date. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term to intermediate term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. Fluctuations in interest rates have not been significant to date.
Interest rates under our loan and security agreement with Western Alliance Bank are tied to the prime rate with a floor of 5.50% and therefore carry interest rate risk. As of March 31,June 30, 2022, we had borrowed $40.0 million under our loan and security agreement, with $34.0$32.0 million principal outstanding as of such date, at an interest rate of 5.50%6.25%. Fluctuations in interest rates have not been significant to date. See Note 14, Subsequent Events for discussion of our loan amendment and impact on interest rates effective July 14, 2022.
A hypothetical 100 basis point change in interest rates would not have a material impact on our financial condition or results of operations for the periods presented.
Inflation Risk
In recent months, inflation has increased significantly in the United States and overseas where we conduct our business, resulting in rising interest rates, fuel, wages, freight and other costs. We do not believe that inflation has had a material effect on 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. In addition, the effect of inflation on consumers’ budgets could result in a decrease in our customers’ spending. If we are unable to increase our prices to sufficiently offset the rising costs of doing business, our profitability and financial position could be adversely impacted.
Foreign Currency Exchange Rate Risk
We transact business in Europe through Remix in multiple currencies. As a result, our operating results, cash flows and net investment in Remix are subject to fluctuations due to changes in foreign currency exchange rates. As of March 31,June 30, 2022, our most significant currency exposure was the Bulgarian lev (BGN). We manage our foreign currency exchange rate risks through natural hedgehedges including foreign currency revenue and costs matching, as well as foreign currency assets offsetting liabilities. We have not entered into any hedging arrangements with respect to foreign currency risk, but we may do so in the future if our exposure to foreign currency becomebecomes more significant.
Assets and liabilities of our foreign operations are translated into dollars at period-end rates, while income and expenses are translated using the average exchange rate during the period in which the transactions occurred. The related translation adjustments are reflected as a negative foreign currency translation adjustment of $0.7$3.0 million impacting equity for the threesix months ended March 31,June 30, 2022 in accumulated other comprehensive loss.
A hypothetical 10% change in foreign currency exchange rates would not have had a material impact on our financial condition or results of operations during any of the periods presented.
Item 4. Controls and Procedures.Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to RuleRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of the end of the period covered by this report. The term “disclosure controls and procedures,” as defined under the Exchange Act, means controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Further, no evaluation of control can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
Because of the material weakness in our internal control over financial reporting discussed below, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31,June 30, 2022, our disclosure controls and procedures were not effective. In light of this fact, our management, including our Chief Executive Officer and Chief Financial Officer, has performed additional reconciliations 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 disclosed in our Annual Report on Form 10-K filed with the SEC on March 22, 2022, in connection with the audit of our financial statements for the fiscal years ended December 31, 2021, 2020, 2019 and 2018 we and our independent registered public accounting firm 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 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.
•We did not design and maintain adequate controls over the preparation and review of certain account reconciliations and journal entries. Specifically, we did not design and maintain controls and we did not maintain a sufficient complement of accounting personnel to ensure (i) the appropriate segregation of duties in the preparation and review of account reconciliations and journal entries and (ii) account reconciliations were prepared and reviewed at the appropriate level of precision on a consistent and timely basis.
The deficiencies 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 these control deficiencies constitute a material weakness.
Remediation Plans
To address our material weakness, we have added accounting, finance and information technology personnel and implemented new financial accounting processes. 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 technology resources and further evolving our accounting and quarterly close processes. We will not be able to fully remediate these control deficiencies 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 weaknesses relating to our internal control over financial reporting, as described above. Except as described above, there was not any change in our internal control over financial reporting (as such term is defined in RuleRules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite our employees working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
PART II. OTHER INFORMATION.INFORMATION
Item 1. Legal Proceedings.Proceedings
We are not a party to any material pending legal proceedings. From time to time, we may be subject to legal proceedings and claims arising in the ordinary course of business.
Item 1A. Risk Factors.Factors
Risks affecting our business are discussedThe Company is supplementing the risk factors previously disclosed in the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 22, 2022 (our “Fiscal 2021 10-K”). There have been no material changes to ourinclude the following risk factors, as previously disclosedwhich should be read in conjunction with the other risk factors presented in our Fiscal 2021 10-K.
Our international operations may subject us to exchange rate fluctuations and other currency risks.
Assets, liabilities, revenues and related expenses of our international operations are denominated in foreign currencies. Exchange rate fluctuations between a local currency and the U.S. dollar may negatively impact the financial conditions and operating results of our international operations when converted into U.S. dollars. In addition, the relative change in currency values creates fluctuations in product pricing for foreign end-customers, which may result in lost orders and reduce the competitiveness of our products in certain foreign markets. The reduction of our revenue as a result of exchange rate fluctuations could negatively impact our future growth prospects, results of operations and financial condition.
We may not realize expected savings or benefits from restructuring activities.
34We have entered into restructuring activities and may enter into such initiatives in the future to improve our operations, respond to changes in business conditions and markets and to streamline certain key functions to reduce costs. We may not realize expected savings or benefits from restructuring activities, incur additional restructuring charges and experience loss of key personnel, disruptions in our operations, and difficulties in the timely delivery of products. These factors could negatively impact our business, results of operations and financial condition.
Recent increases in interest rates and volatility in the capital markets may increase our borrowing costs and affect our ability to raise additional funds.
We have relied in part on borrowed funds to meet our liquidity needs and fund our operations and may continue to do so in the future. In July 2022, we entered into a Second Amended and Restated Loan and Security Agreement to, among other things, increase our aggregate borrowing ability to $70.0 million, reduce the applicable margin for borrowings under the Term Loan to the prime rate published in The Wall Street Journal plus a margin of 1.25% with a floor of 6.00% and extend the maturity date of the outstanding Term Loan to July 14, 2027. Continued increases in interest rates will increase the cost of servicing our outstanding indebtedness as well as the cost of any new indebtedness we may incur, including as a result of any future refinancings, and could negatively impact our business, results of operations and financial condition. In addition, uncertainty and volatility in the capital markets and other factors may negatively impact our access to debt and equity financing and such financing may not be available on terms favorable to us or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, we could face significant limitations on our ability to invest in our operations and otherwise suffer harm to our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities.
None.
Proceeds
Use of Proceeds(a)from our Public Offerings.None.
(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.Exhibits
| | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Title | Incorporation by Reference |
| | | Form | File No. | Exhibit | Filing Date |
3.1 | | | S-1 | 333-253834 | 3.2 | 3/3/2021 |
3.2 | | | S-1 | 333-253834 | 3.4 | 3/3/2021 |
4.1 | | | S-1 | 333-253834 | 4.1 | 3/3/2021 |
4.2 | | | S-1 | 333-253834 | 4.2 | 3/3/2021 |
31.1 | | | Filed herewith | | | |
31.2 | | | Filed herewith | | | |
32.1* | | | Furnished herewith | | | |
32.2* | | | Furnished herewith | | | |
101.INS | | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | Filed herewith | | | |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | Filed herewith | | | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | Filed herewith | | | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | Filed herewith | | | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | Filed herewith | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporation by Reference |
Exhibit Number | | Exhibit Title | | Form | | File No. | | Exhibit | | Filing Date |
3.1 | | | | S-1 | | 333-253834 | | 3.2 | | 3/3/2021 |
3.2 | | | | S-1 | | 333-253834 | | 3.4 | | 3/3/2021 |
4.1 | | | | S-1 | | 333-253834 | | 4.1 | | 3/3/2021 |
4.2 | | | | S-1 | | 333-253834 | | 4.2 | | 3/3/2021 |
31.1 | | | | Filed herewith | | | | | | |
31.2 | | | | Filed herewith | | | | | | |
32.1* | | | | Furnished herewith | | | | | | |
32.2* | | | | Furnished herewith | | | | | | |
101.INS | | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | Filed herewith | | | | | | |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | Filed herewith | | | | | | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | Filed herewith | | | | | | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | Filed herewith | | | | | | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | Filed herewith | | | | | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | Filed herewith | | | | | | |
104 | | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). | | Filed herewith | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | Filed herewith | | | |
104 | | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). | Filed herewith | | | |
________________
*The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and are not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, irrespective of any general incorporation language contained in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | |
| | | THREDUP INC. |
| | | | |
Date: | May 9, 2022 | | By: | /s/ James Reinhart |
| | | | James Reinhart |
| | | | Chief Executive Officer |
| | | | (Principal Executive Officer) |
| | | | |
Date: | May 9, 2022 | | By: | /s/ Sean SobersSEAN SOBERS |
| | | | Sean Sobers |
| | | | Chief Financial Officer |
| | | | (Principal Financial and Accounting Officer) |
| | | | |
Dated: August 15, 2022