Financial Data and Key Metrics Changes - Revenue for Q3 2022 was $67.9 million, representing a 7% year-over-year increase [38] - Active buyers rose 18% year-over-year to 1.7 million, while orders increased 24% year-over-year to 1.6 million [41] - GAAP net loss for Q3 2022 was $23.7 million, compared to a net loss of $14.7 million in the same quarter last year [43] - Adjusted EBITDA loss was $11 million, primarily due to planned investments in operating infrastructure and technology [11][43] Business Line Data and Key Metrics Changes - Consignment revenue decreased year-over-year, while product revenue grew by 74%, driven by the growth of the RaaS supply and the European acquisition [39] - Gross margin for U.S. operations declined slightly to 72.4%, a 40 basis point decrease year-over-year [41] - Consolidated gross margin was 65.5%, a 740 basis point decline due to the consolidation of the lower-margin European business [42] Market Data and Key Metrics Changes - The company observed a deterioration in consumer health towards the end of Q2, which continued into Q3, impacting revenue [12] - The promotional environment in Q4 is expected to be highly competitive, affecting revenue projections [48] Company Strategy and Development Direction - The company aims to reach adjusted EBITDA breakeven in the second half of 2023, assuming quarterly revenue of $80 million to $85 million [45] - Investments are being made to improve the buying experience and enhance the RaaS business model, which is expected to drive long-term profitability [30][27] - The company is focusing on expense management and reducing operating costs while maintaining strong unit economics [25][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the challenging consumer environment and believes that the resale market will gain share as retail inventory positions improve [15][36] - The company anticipates that the hyper-promotional landscape will subside, allowing it to compete effectively once again [51] - Management noted that consumer behavior is changing, with a growing expectation for lower prices, which could benefit resale in the long term [15] Other Important Information - The company is making significant improvements to its infrastructure, including a new high-tech processing and distribution center in Bulgaria [28] - The company released its inaugural impact report, highlighting its commitment to environmental, social, and governance (ESG) initiatives [32] Q&A Session Summary Question: What macro expectations underpin the view of flat growth in the first half of 2023? - Management indicated that the plan assumes the extreme promotional environment and inventory excess will have subsided [54] Question: How have budget value consumers trended in Q4? - Management noted that both budget and premium shoppers are currently sitting out, impacted by early promotions and a competitive environment [57] Question: What is the outlook for return rates in Q4? - Management expects return rates to remain elevated, similar to Q3, which negatively impacted revenue by approximately $3 million [71] Question: What are the expectations for the RaaS business in 2023? - Management is optimistic about RaaS growth, expecting more retailers to consider circular economy strategies as inventory positions improve [74] Question: How is the marketing budget planned for next year? - Management sees attractive acquisition costs and plans to ramp up marketing efforts in Q1 after the holiday season [82]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ____________________ Commission File Number: 001-40249 ThredUp Inc. (Exact name of registrant as specified in its charter) Delawar ...

| --- | --- | |-----------------------|----------------------------------------------------------------------------------------| | INVESTOR PRESENTATION | | | Second Quarter 2022 | The following contains confidential information. Do not distribute without permission. | Safe Harbor This presentation contains forward-looking statements within the meaning of the federal securities laws, which are statements that involve substantial risks and uncertainties. Forward-looking statements generally relate to future ...

Financial Data and Key Metrics Changes - Revenue for Q2 2022 was $76.4 million, a 27% increase year-over-year, despite a slowdown in demand towards the end of the quarter [11][31] - Gross profit reached $52.6 million, representing a 19% year-over-year growth, with gross margins at 68.9% overall and 74.2% in the U.S. [11][34] - Adjusted EBITDA loss was $13.5 million, which is a decline compared to the adjusted EBITDA loss of $9 million in Q2 2021 [35][39] Business Line Data and Key Metrics Changes - Consignment revenue remained flat year-over-year, while product revenue grew by 145%, driven by the European acquisition and growth in the Resale-as-a-Service (RaaS) channel [31][32] - Active buyers increased by 29% to 1.7 million, and orders rose by 40% year-over-year, totaling 1.7 million [31][33] Market Data and Key Metrics Changes - The consumer environment has deteriorated, particularly affecting budget consumers, who make up a significant portion of the customer base [9][12] - The average order value for discount shoppers declined by 7%, while upscale shoppers saw a 15% increase in average order value [13] Company Strategy and Development Direction - The company aims to reach adjusted EBITDA breakeven by managing costs and adjusting its business model to adapt to changing consumer behavior [10][20] - Investments are being made in customer experience and operational improvements, including the launch of new features and tools to enhance the shopping experience [20][21] - The company is focusing on its marketplace model's flexibility to adjust pricing and inventory based on consumer demand [15][17] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the challenges posed by inflation and changing consumer habits, particularly among budget consumers [9][12] - The company expects to maintain strong gross margins and is prepared to adjust pricing and promotions to remain competitive [19][65] - There is a cautious outlook for the second half of 2022, with expectations that current trends will persist without significant recovery [59][60] Other Important Information - The company has made significant cost-cutting measures, including layoffs and reducing discretionary spending, to position itself for profitability [18][40] - The European business is expected to contribute more significantly in Q4, with higher average selling prices and gross margins [83] Q&A Session Summary Question: What needs to go right for breakeven in 2H 2023? - Management expects current trends to persist, with no significant recovery anticipated in the near term [59] Question: Are trends stabilizing or deteriorating? - Trends are stabilizing at lower levels, with management projecting to operate at these levels for some time [63] Question: Are customer acquisition costs coming down? - There is a noted decrease in advertising costs, which may allow for more customer acquisition opportunities [71] Question: What level of promotional activity is assumed in the outlook? - A highly competitive environment is anticipated, with adjustments in pricing and promotions expected [76] Question: How did Remix perform during the quarter? - Remix performed well and is expected to have its strongest quarter in Q4 due to seasonal trends [83] Question: What are the trends in merchandise and pricing adjustments? - Discount shoppers are trading down to cheaper items, while upscale shoppers are buying more expensive items [91]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the periods ended June 30, 2022, showing a decrease in total assets to **$345.9 million** and an increase in total liabilities to **$178.0 million**, with Q2 2022 revenue at **$76.4 million** and a net loss of **$28.4 million** Condensed Consolidated Balance Sheets (June 30, 2022 vs. Dec 31, 2021) | Account | June 30, 2022 ($ in thousands) | December 31, 2021 ($ in thousands) | | :--- | :--- | :--- | | **Total Current Assets** | 177,694 | 228,413 | | **Total Assets** | 345,898 | 360,826 | | **Total Current Liabilities** | 100,142 | 89,413 | | **Total Liabilities** | 177,969 | 155,092 | | **Total Stockholders' Equity** | 167,929 | 205,734 | Condensed Consolidated Statements of Operations (Q2 & H1 2022 vs. 2021) | Metric ($ in thousands) | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | 76,421 | 59,959 | 149,116 | 115,639 | | **Gross Profit** | 52,648 | 44,132 | 102,876 | 83,850 | | **Operating Loss** | (28,333) | (13,886) | (48,908) | (28,564) | | **Net Loss** | (28,399) | (14,379) | (49,107) | (30,550) | | **Net Loss Per Share** | (0.29) | (0.15) | (0.50) | (0.54) | Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Cash Flow Activity ($ in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | (24,835) | (9,090) | | Net cash used in investing activities | (4,764) | (66,417) | | Net cash (used in) provided by financing activities | (2,332) | 184,081 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The MD&A section details the company's performance, highlighting a **27%** year-over-year revenue increase to a record **$76.4 million** in Q2 2022, driven by growth in Active Buyers and Orders, while noting a widening net loss to **$28.4 million** and a decrease in gross margin to **69%** [Overview of Second Quarter Results](index=23&type=section&id=Overview%20of%20Second%20Quarter%20Results) In Q2 2022, ThredUp achieved record revenue of **$76.4 million**, a **27%** year-over-year increase, with gross profit growing **19%** to **$52.6 million**, despite a gross margin decline of **471 basis points** to **69%**, and an expanded GAAP net loss of **$28.4 million** Q2 2022 Financial Highlights | Metric | Q2 2022 | YoY Change | | :--- | :--- | :--- | | Revenue | $76.4 million | +27% | | Gross Profit | $52.6 million | +19% | | Gross Margin | 69% | -471 bps | | GAAP Net Loss | ($28.4 million) | Increased from ($14.4 million) | | Active Buyers | 1.72 million | +29% | | Orders | 1.70 million | +40% | [Results of Operations](index=25&type=section&id=Results%20of%20Operations) This sub-section provides a detailed comparison of financial results for the three and six months ended June 30, 2022, versus the same periods in 2021, showing **27%** Q2 revenue growth driven by a **145%** increase in Product revenue from European operations, a gross margin decline from **74%** to **69%**, and a **40%** rise in total operating expenses - Total revenue increased by **27%** in Q2 2022, primarily due to a **40%** increase in Orders and **29%** growth in Active Buyers, largely resulting from the acquisition of European operations in October 2021. However, revenue per Order decreased by **9%** due to lower pricing in Europe[102](index=102&type=chunk) - Gross profit margin decreased by **471 basis points** in Q2 2022 compared to Q2 2021. This was primarily due to the inclusion of European operations, where revenue is mainly from lower-margin product sales, making up a larger percentage of total revenue[105](index=105&type=chunk) - Total operating expenses increased by **40%** in Q2 2022 YoY, driven by investments in distribution center capacity, marketing, infrastructure to support being a public company, and expansion into Europe[111](index=111&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2022, the company held **$148.5 million** in cash, cash equivalents, and short-term marketable securities, with negative cash flows from operations amounting to **$24.8 million** for the first half of 2022, and an amended term loan increasing borrowing capacity to **$70.0 million** - As of June 30, 2022, the company had cash, cash equivalents, and short-term marketable securities of **$148.5 million**[125](index=125&type=chunk) - In July 2022, the company amended its term loan facility, increasing its aggregate borrowing ability to **$70.0 million** and extending the maturity date to July 14, 2027[125](index=125&type=chunk) - Net cash used in operating activities for the six months ended June 30, 2022, was **$24.8 million**, compared to **$9.1 million** for the same period in 2021[128](index=128&type=chunk)[129](index=129&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company identifies its primary market risks as interest rate risk, affecting its **$32.0 million** variable-rate debt, inflation risk, potentially increasing operating costs and reducing consumer spending, and foreign currency exchange rate risk from European operations, primarily exposure to the Bulgarian lev (BGN), resulting in a **$3.0 million** negative translation adjustment - The company is exposed to interest rate risk through its variable-rate loan and security agreement, which had **$32.0 million** outstanding as of June 30, 2022[140](index=140&type=chunk) - Inflation is identified as a risk that could increase operating costs (wages, freight) and negatively impact consumer spending, potentially harming profitability[142](index=142&type=chunk) - Foreign currency risk from European operations, mainly the Bulgarian lev (BGN), resulted in a negative translation adjustment of **$3.0 million** to equity for the six months ended June 30, 2022[143](index=143&type=chunk)[144](index=144&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that as of June 30, 2022, the company's disclosure controls and procedures were not effective due to a previously reported material weakness in internal control over financial reporting related to deficiencies in IT systems controls and inadequate controls over account reconciliations and journal entries, with remediation plans in progress - The CEO and CFO concluded that as of June 30, 2022, the company's disclosure controls and procedures were not effective[147](index=147&type=chunk) - The ineffectiveness is due to a previously identified material weakness related to deficiencies in controls over IT systems, user access, account reconciliations, and journal entries[148](index=148&type=chunk)[150](index=150&type=chunk) - Remediation plans are in progress, including hiring additional personnel and implementing new processes, but the material weakness has not yet been fully remediated[150](index=150&type=chunk)[151](index=151&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company states it is not a party to any material pending legal proceedings and that any claims arising in the ordinary course of business are not expected to have a material adverse effect - The company is not a party to any material pending legal proceedings[154](index=154&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) This section supplements previously disclosed risk factors, adding new risks related to international operations, restructuring activities, and interest rates, including potential negative impacts from foreign currency exchange rate fluctuations, the possibility of not realizing expected savings from restructuring, and increased borrowing costs due to rising interest rates - New risk factors disclosed include potential negative impacts from foreign currency exchange rate fluctuations due to international operations[156](index=156&type=chunk) - The company may not realize expected savings or benefits from its restructuring activities, which could disrupt operations[157](index=157&type=chunk) - Recent increases in interest rates and capital market volatility may increase borrowing costs and affect the ability to raise additional funds[158](index=158&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities during the period and confirms no material change in the planned use of proceeds from its March 2021 IPO, which raised net proceeds of **$175.5 million**, or its August 2021 public offering, which raised net proceeds of **$45.5 million** - The company's March 2021 IPO resulted in net proceeds of **$175.5 million** after deducting costs and commissions[160](index=160&type=chunk) - There has been no material change in the planned use of proceeds from the IPO or the subsequent August 2021 public offering[160](index=160&type=chunk)[161](index=161&type=chunk) [Other Items (Items 3, 4, 5, 6)](index=39&type=section&id=Other%20Items%20(Items%203%2C%204%2C%205%2C%206)) This section consolidates minor items, reporting no defaults upon senior securities (Item 3), stating that mine safety disclosures are not applicable (Item 4), providing no other material information (Item 5), and listing the exhibits filed with the report (Item 6) - Item 3: No defaults upon senior securities are reported[163](index=163&type=chunk) - Item 4: Mine safety disclosures are not applicable to the company[164](index=164&type=chunk) - Item 6: A list of exhibits filed with the 10-Q is provided, including certifications and XBRL data files[167](index=167&type=chunk)

Company Overview - thredUP's Q1 2022 revenue reached $73 million, representing a year-over-year (YoY) growth of 31%[16] - The company's gross profit for Q1 2022 was $50 million, a 26% increase YoY[16] - thredUP's revenue for 2021 was $252 million, a 35% increase YoY[16] - Gross profit for 2021 was $178 million, a 39% increase YoY[16] - The platform has 17 million active buyers[16] - thredUP facilitated 16 million orders in Q1 2022[16] RaaS (Resale-as-a-Service) - Madewell resale shop listings increased by over 500% after expanding into a broader range of categories[26] Sustainability Impact - thredUP estimates it has saved 11 billion pounds of carbon emissions[16] - The company estimates it has saved 20 billion kWh of energy[16] - thredUP estimates it has saved 44 billion gallons of water[16] - Buying used clothing instead of new reduces carbon footprint by 82%[57]

Financial Data and Key Metrics Changes - Revenue for Q1 2022 reached $73 million, a 31% increase year-over-year, while gross profits grew 26% to a record $50 million [10] - Gross margins were reported at 69.1%, reflecting a 300 basis point improvement over Q4 2021 [10] - Adjusted EBITDA loss was $13 million, with a margin of 17.8% of revenue, compared to a loss of $9.1 million or 16.4% of revenue in Q1 2021 [41][42] Business Line Data and Key Metrics Changes - Consignment revenue increased by 6% year-over-year, while product revenue surged by 130% [38] - Active buyers rose by 33% to 1.7 million, and orders increased by 45% to 1.6 million [39] Market Data and Key Metrics Changes - The U.S. gross margins expanded to 74.1%, a 280 basis point increase from the same quarter last year [39] - The European business contributed to a consolidated gross margin of 69.1%, which was a 220 basis point decline year-over-year due to lower-margin operations [40] Company Strategy and Development Direction - The company is focused on long-term growth, investing in infrastructure and technology to support future revenue growth and widen its competitive moat [15][47] - ThredUp is expanding its Resale-As-A-Service (RaaS) platform, expecting to onboard approximately 40 brands by year-end [20] - The company is also building a new processing facility in Bulgaria to enhance its European operations and capture market share [29] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of rising consumer prices and inflation on consumer spending, noting a general softening across the market [11][12] - Despite near-term uncertainties, management remains confident in the long-term retail opportunity and the company's path to profitability [16][47] Other Important Information - The company is investing in four new facilities in 2022, which will significantly increase processing capacity [26][27] - The company is also focusing on improving its pricing and payout systems to expand margins and enhance customer acquisition [30] Q&A Session Summary Question: Revenue outlook and customer cohort pressures - Management noted no significant warning signs from customers but acknowledged a general softening in consumer behavior [56] Question: Freight component of guidance - Freight impact increased from an expected $6 million to $9 million year-over-year [57] Question: RaaS business potential - RaaS is currently small but has the potential to grow significantly with many enterprise clients expected [61] Question: Impact of macroeconomic conditions on consumer spending - Management indicated that while inflation is affecting consumer spending, resale may perform well as consumers trade down [62] Question: Marketing growth expectations - Marketing spend was moderated in Q1 due to processing constraints but is expected to increase in the back half of the year [75] Question: Inventory levels and concerns - Elevated inventory levels are primarily related to European operations, with no concerns about carryover in the U.S. [76] Question: Gross margin guidance increase - Gross margin guidance was raised due to improved shipment consolidation and automation [96]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for ThredUp Inc., including the balance sheets, statements of operations, comprehensive loss, convertible preferred stock and stockholders' equity, and cash flows, prepared in accordance with GAAP for interim financial information [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $68.6 | $84.6 | | Marketable securities | $115.2 | $121.3 | | Inventory, net | $12.0 | $9.8 | | Total current assets | $208.4 | $228.4 | | Total assets | $361.0 | $360.8 | | Total current liabilities | $103.4 | $89.4 | | Total liabilities | $173.3 | $155.1 | | Total stockholders' equity | $187.7 | $205.7 | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | YoY Change (%) | | :--------------- | :--------------------------------------------- | :--------------------------------------------- | :------------- | | Total revenue | $72.7 | $55.7 | 30.5% | | Gross profit | $50.2 | $39.7 | 26.5% | | Operating loss | $(20.6) | $(14.7) | -40.2% | | Net loss | $(20.7) | $(16.2) | -28.1% | | Net loss per share | $(0.21) | $(0.86) | 75.6% | [Condensed Consolidated Statements of Comprehensive Loss](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Condensed Consolidated Statements of Comprehensive Loss | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :---------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net loss | $(20.7) | $(16.2) | | Foreign currency translation adjustments | $(0.7) | — | | Unrealized loss on available-for-sale debt securities | $(1.0) | — | | Total comprehensive loss | $(22.4) | $(16.2) | [Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity) Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity | Metric | As of March 31, 2022 (in millions) | As of December 31, 2021 (in millions) | | :----------------------------------- | :---------------------------------- | :----------------------------------- | | Total Stockholders' Equity | $187.7 | $205.7 | | Net loss (Q1 2022) | $(20.7) | N/A | | Stock-based compensation (Q1 2022) | $3.6 | N/A | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash (used in) provided by operating activities | $(6.7) | $1.1 | | Net cash used in investing activities | $(7.9) | $(4.1) | | Net cash (used in) provided by financing activities | $(1.2) | $185.1 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(16.0) | $182.0 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations for the unaudited condensed consolidated financial statements, covering accounting policies, financial instruments, asset components, debt, equity, and commitments [1. Organization and Description of Business](index=11&type=section&id=1.%20Organization%20and%20Description%20of%20Business) - ThredUp Inc. is a large online resale platform for secondhand women's and kid's apparel, shoes, and accessories, with corporate offices and distribution/processing centers in the US and Bulgaria[31](index=31&type=chunk) [2. Significant Accounting Policies](index=11&type=section&id=2.%20Significant%20Accounting%20Policies) - Financial statements are prepared in accordance with GAAP, requiring management estimates for items like asset useful lives, allowances, inventory valuation, and stock-based compensation[32](index=32&type=chunk)[33](index=33&type=chunk) - The Company's loyalty program liability was **$3.4 million** as of March 31, 2022, down from **$4.0 million** as of December 31, 2021[37](index=37&type=chunk) - Revenue from loyalty reward redemption or expiration was **$2.7 million** for Q1 2022, a decrease from **$3.3 million** in Q1 2021[39](index=39&type=chunk) Significant Accounting Policies | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :-------------------------------------- | :---------------------------- | :------------------------------- | | Cash and cash equivalents | $68.6 | $84.6 | | Restricted cash, current | $0.6 | $0.6 | | Restricted cash, non-current | $6.7 | $6.7 | | Total cash, cash equivalents and restricted cash | $75.9 | $91.8 | - The Company is evaluating the impact of ASU 2016-13 (Credit Losses), effective for fiscal years beginning after December 15, 2022[47](index=47&type=chunk) [3. Financial Instruments and Fair Value Measurements](index=13&type=section&id=3.%20Financial%20Instruments%20and%20Fair%20Value%20Measurements) Financial Instruments and Fair Value Measurements | Asset Category | Fair Value as of March 31, 2022 (in millions) | | :---------------------- | :--------------------------------------------- | | Money market fund | $8.9 (Level 1) | | U.S. treasury securities | $4.8 (Level 1) | | Commercial paper | $18.5 (Level 2) | | U.S. government agency bonds | $2.5 (Level 1) | | **Total cash equivalents** | **$34.6** | | Corporate debt securities | $50.6 (Level 1) | | U.S. treasury securities | $36.9 (Level 1) | | U.S. government agency bonds | $27.7 (Level 1) | | **Total marketable securities** | **$115.2** | | **Grand Total** | **$149.8** | - As of March 31, 2022, marketable securities had total unrealized losses of **$1,367 thousand**[50](index=50&type=chunk) - Of the **$115.2 million** marketable securities as of March 31, 2022, **$71.6 million** had a contractual maturity of less than one year, and **$43.6 million** had a maturity between one to two years[55](index=55&type=chunk) [4. Property and Equipment, Net](index=15&type=section&id=4.%20Property%20and%20Equipment,%20Net) Property and Equipment, Net | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Property and equipment, net | $73.1 | $55.5 | | Depreciation and amortization expense (Q1) | $2.6 | $2.0 | [5. Goodwill and Other Intangible Assets](index=15&type=section&id=5.%20Goodwill%20and%20Other%20Intangible%20Assets) - Goodwill decreased from **$12.2 million** as of December 31, 2021, to **$12.0 million** as of March 31, 2022, primarily due to foreign currency translation adjustments[57](index=57&type=chunk) Goodwill and Other Intangible Assets | Intangible Asset | Carrying amount, net as of March 31, 2022 (in millions) | | :--------------------- | :----------------------------------------------------- | | Customer relationships | $4.7 | | Developed technology | $4.0 | | Trademarks | $4.3 | | **Total** | **$12.9** | - Amortization expense of intangible assets with determinable lives was **$0.7 million** for Q1 2022, compared to zero for Q1 2021[61](index=61&type=chunk) [6. Balance Sheet Components](index=16&type=section&id=6.%20Balance%20Sheet%20Components) Balance Sheet Components | Inventory Component | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :------------------ | :---------------------------- | :------------------------------- | | Finished goods | $9.9 | $8.2 | | Raw materials | $1.5 | $0.9 | | Work in progress | $0.7 | $0.7 | | **Total Inventories** | **$12.0** | **$9.8** | Balance Sheet Components | Accrued and Other Current Liabilities Component | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :---------------------------------------------- | :---------------------------- | :------------------------------- | | Gift card and site credit liabilities | $13.8 | $13.2 | | Accrued vendor liabilities | $9.4 | $6.0 | | Allowance for returns | $7.4 | $6.2 | | Accrued compensation | $6.8 | $6.4 | | Deferred revenue | $6.2 | $5.9 | | Accrued taxes | $5.4 | $5.7 | | Accrued other | $2.0 | $1.7 | | **Total** | **$51.0** | **$45.3** | [7. Lease Agreements](index=17&type=section&id=7.%20Lease%20Agreements) - Operating lease expense increased to **$2.4 million** for Q1 2022 from **$2.1 million** for Q1 2021[64](index=64&type=chunk) - The Company entered into new lease agreements in Sofia, Bulgaria, for a distribution center (approx. **€6.1 million** or **$6.8 million** over 10 years) and office space (approx. **€4.3 million** or **$4.7 million** over 10 years)[64](index=64&type=chunk)[65](index=65&type=chunk) Lease Agreements | Maturity Period (as of March 31, 2022) | Amount (in millions) | | :------------------------------------- | :-------------------- | | Remainder of 2022 | $6.8 | | 2023 | $8.5 | | 2024 | $7.5 | | 2025 | $6.7 | | 2026 | $6.4 | | Thereafter | $29.9 | | **Total lease payments** | **$65.9** | | Less: imputed interest | $(14.9) | | Less: tenant improvement allowance yet to be received | $(4.5) | | **Total lease liabilities** | **$46.5** | | Less: current lease liabilities | $(4.4) | | **Total non-current lease liabilities** | **$42.0** | [8. Long-term Debt](index=17&type=section&id=8.%20Long-term%20Debt) - The Company has a Term Loan with Western Alliance Bank for up to **$40.0 million**, with **$34.0 million** principal outstanding as of March 31, 2022[66](index=66&type=chunk)[67](index=67&type=chunk) - The interest rate on the Term Loan is prime rate plus **1.5%** with a floor of **5.50%** per annum, and the effective interest rate was **6.65%** as of March 31, 2022[66](index=66&type=chunk)[67](index=67&type=chunk) Long-term Debt | Remaining Maturities (as of March 31, 2022) | Amount (in millions) | | :------------------------------------------ | :-------------------- | | Remainder of 2022 | $6.0 | | 2023 | $8.0 | | 2024 | $20.0 | | Thereafter | — | | **Total future principal** | **$34.0** | | Less: unamortized debt discount | $(0.6) | | Less: current portion of long-term debt | $(7.8) | | **Non-current portion of long-term debt** | **$25.6** | [9. Common Stock](index=18&type=section&id=9.%20Common%20Stock) Common Stock | Common Stock Class | Authorized (in thousands) | Issued and Outstanding (in thousands) as of March 31, 2022 | | :----------------- | :------------------------ | :--------------------------------------------------------- | | Class A | 1,000,000 | 58,558 | | Class B | 120,000 | 40,384 | | **Total** | **1,120,000** | **98,942** | - Class A common stock is entitled to one vote per share, while Class B common stock is entitled to ten votes per share and is convertible into Class A common stock[70](index=70&type=chunk) [10. Stock-Based Compensation Plans](index=18&type=section&id=10.%20Stock-Based%20Compensation%20Plans) - The 2021 Stock Option and Incentive Plan and the 2021 Employee Stock Purchase Plan (ESPP) became effective on March 24, 2021[73](index=73&type=chunk)[74](index=74&type=chunk) - The Company granted **749,842 shares** of RSUs with a weighted average grant date fair value of **$8.81** during Q1 2022[77](index=77&type=chunk) Stock-Based Compensation Plans | Department | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Operations, product and technology | $1.4 | $1.4 | | Marketing | $0.3 | $0.4 | | Sales, general and administrative | $1.8 | $1.7 | | **Total stock-based compensation expense** | **$3.5** | **$3.5** | [11. Commitments and Contingencies](index=19&type=section&id=11.%20Commitments%20and%20Contingencies) - The Company is subject to litigation claims in the ordinary course of business, but management does not believe they will have a material adverse effect[79](index=79&type=chunk) - The Company enters into contracts with indemnification provisions, with unknown exposure for future claims[80](index=80&type=chunk) [12. Income Taxes](index=19&type=section&id=12.%20Income%20Taxes) - The provision for income tax expense was **$13 thousand** for Q1 2022, compared to **$27 thousand** for Q1 2021[81](index=81&type=chunk) - The Company is in a full valuation allowance position due to accumulated losses, so the tax provision consists solely of certain state income taxes[81](index=81&type=chunk) [13. Net Loss Per Share Attributable to Common Stockholders](index=20&type=section&id=13.%20Net%20Loss%20Per%20Share%20Attributable%20to%20Common%20Stockholders) Net Loss Per Share Attributable to Common Stockholders | Participating Securities Excluded from Diluted EPS (as of March 31, 2022, in thousands) | | :-------------------------------------------------------------------- | | Outstanding stock options | 18,825 | | Restricted stock units | 1,830 | | Delayed share issuance related to acquisition | 130 | | Employee stock purchase plan | 105 | | **Total** | **20,890** | - These securities were excluded from the diluted net loss per share computation because their effect would have been anti-dilutive[84](index=84&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on ThredUp's financial condition and results of operations for the three months ended March 31, 2022, discussing key financial and operating metrics, recent business developments, and future outlook [Overview](index=22&type=section&id=Overview) - ThredUp is one of the world's largest online resale platforms for women's and kids' apparel, shoes, and accessories, aiming to inspire consumers to think secondhand first for a sustainable fashion future[86](index=86&type=chunk) - The Company's proprietary operating platform supports a managed marketplace and extends to brands and retailers through its Resale-as-a-Service (RaaS) offering[87](index=87&type=chunk)[88](index=88&type=chunk) - The acquisition of Remix Global EAD in October 2021 expanded the Company's reach to European customers and diversified its product assortment to include men's items and wholesale supply[89](index=89&type=chunk) [Recent Business Developments](index=22&type=section&id=Recent%20Business%20Developments) This section highlights the acquisition of Remix Global EAD and the ongoing impact of the COVID-19 pandemic on the company's operations and financial performance [Acquisition of Remix Global EAD](index=22&type=section&id=Acquisition%20of%20Remix%20Global%20EAD) - The acquisition of Remix Global EAD, a fashion resale company headquartered in Sofia, Bulgaria, was completed on October 7, 2021, expanding the Company's European presence[89](index=89&type=chunk)[90](index=90&type=chunk) [COVID-19 Update](index=22&type=section&id=COVID-19%20Update) - In Q1 2022, the Company experienced increased demand partly due to COVID-19 recovery, but gross margin and operating expenses were negatively impacted by rising labor, processing, and other costs[92](index=92&type=chunk)[93](index=93&type=chunk) - The tightened labor supply and inflationary labor market led to challenges in hiring and retention, resulting in higher Cost of Revenue and Operations, Product and Technology expenses[93](index=93&type=chunk) - The COVID-19 pandemic is expected to continue to adversely impact the business, results of operations, and financial condition in the short term[94](index=94&type=chunk) [Overview of First Quarter Results](index=24&type=section&id=Overview%20of%20First%20Quarter%20Results) Overview of First Quarter Results | Metric | Q1 2022 (in millions) | Q1 2021 (in millions) | YoY Change (%) | | :----------------- | :-------------------- | :-------------------- | :------------- | | Total Revenue | $72.7 | $55.7 | 31% | | Gross Profit | $50.2 | $39.7 | 26% | | Gross Margin | 69% | 71% | -224 bps | | GAAP Net Loss | $(20.7) | $(16.2) | -28% | | Adjusted EBITDA Loss | $(13.0) | $(9.1) | -42% | | Active Buyers | 1.72 | 1.29 | 33% | | Orders | 1.64 | 1.13 | 45% | [Key Financial and Operating Metrics](index=24&type=section&id=Key%20Financial%20and%20Operating%20Metrics) This section defines and presents key financial and operating metrics used by management to evaluate business performance, including Active Buyers, Orders, and Adjusted EBITDA, along with their reconciliation to GAAP net loss [Active Buyers](index=24&type=section&id=Active%20Buyers) - Active Buyers, defined as customers making at least one purchase in the last twelve months, increased by **33%** to **1.715 million** as of March 31, 2022, from **1.290 million** as of March 31, 2021[99](index=99&type=chunk)[100](index=100&type=chunk) [Orders](index=24&type=section&id=Orders) - Total Orders, net of cancellations, increased by **45%** to **1.640 million** for Q1 2022, from **1.128 million** for Q1 2021[99](index=99&type=chunk)[101](index=101&type=chunk) [Adjusted EBITDA](index=25&type=section&id=Adjusted%20EBITDA) - Adjusted EBITDA loss increased by **42%** to **$(12.963) million** for Q1 2022, from **$(9.119) million** for Q1 2021[99](index=99&type=chunk)[103](index=103&type=chunk) - Adjusted EBITDA margin was **(18)%** for Q1 2022, compared to **(16)%** for Q1 2021[99](index=99&type=chunk) - Adjusted EBITDA is a Non-GAAP metric used to evaluate operating performance, excluding items like depreciation, stock-based compensation, and acquisition-related expenses[102](index=102&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of the company's revenue, cost of revenue, gross profit, and operating expenses for the three months ended March 31, 2022, and 2021, highlighting key drivers and changes [Revenue](index=26&type=section&id=Revenue) Revenue | Revenue Type | Q1 2022 (in millions) | Q1 2021 (in millions) | Change Amount (in millions) | % Change | | :----------------- | :--------------------- | :--------------------- | :--------------------------- | :------- | | Consignment revenue | $47.4 | $44.7 | $2.7 | 6% | | Product revenue | $25.3 | $11.0 | $14.3 | 130% | | **Total revenue** | **$72.7** | **$55.7** | **$17.0** | **31%** | | Consignment revenue as % of total revenue | 65% | 80% | N/A | N/A | | Product revenue as % of total revenue | 35% | 20% | N/A | N/A | - The **31% increase** in total revenue was primarily driven by a **45% increase** in Orders and **33% growth** in Active Buyers, largely due to the addition of European operations, offset by a **10% decrease** in revenue per Order[105](index=105&type=chunk)[106](index=106&type=chunk) - Product revenue increased by **130%**, primarily due to the introduction of European operations, which are largely product revenue, and a smaller increase in domestic product revenue[107](index=107&type=chunk) [Cost of Revenue](index=27&type=section&id=Cost%20of%20Revenue) Cost of Revenue | Cost of Revenue Type | Q1 2022 (in millions) | Q1 2021 (in millions) | Change Amount (in millions) | % Change | | :------------------- | :--------------------- | :--------------------- | :--------------------------- | :------- | | Cost of consignment revenue | $10.0 | $10.8 | $(0.8) | (7)% | | Cost of product revenue | $12.4 | $5.1 | $7.3 | 142% | | **Total cost of revenue** | **$22.5** | **$16.0** | **$6.5** | **41%** | | Gross profit | $50.2 | $39.7 | $10.5 | 26% | | Gross profit margin | 69% | 71% | N/A | N/A | - Total cost of revenue as a percentage of total revenue increased by **200 basis points** to **31%** for Q1 2022, primarily due to the addition of European operations, which have lower gross margins from product sales[108](index=108&type=chunk) - Consignment gross margin increased by **300 basis points** to **79%** for Q1 2022, driven by a decrease in outbound shipping and packaging costs due to process consolidation[110](index=110&type=chunk)[111](index=111&type=chunk) - Product gross margin decreased by **200 basis points** to **51%** for Q1 2022, as the **142% increase** in cost of product revenue outpaced product revenue growth, mainly due to higher inventory costs in European operations[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) [Operating Expenses](index=29&type=section&id=Operating%20Expenses) Operating Expenses | Operating Expense Category | Q1 2022 (in millions) | Q1 2021 (in millions) | Change Amount (in millions) | % Change | | :------------------------- | :--------------------- | :--------------------- | :--------------------------- | :------- | | Operations, product and technology | $39.2 | $28.3 | $10.8 | 38% | | Marketing | $17.0 | $15.4 | $1.5 | 10% | | Sales, general and administrative | $14.7 | $10.6 | $4.0 | 38% | | **Total operating expenses** | **$70.8** | **$54.4** | **$16.4** | **30%** | - Total operating expenses increased by **30%** (**$16.4 million**) for Q1 2022, driven by investments in distribution center processing capacity, marketing, public company infrastructure, and European expansion[117](index=117&type=chunk)[118](index=118&type=chunk) - Operations, product and technology expenses increased by **38%**, primarily due to a **36% rise** in personnel-related costs from increased U.S. headcount and the Remix acquisition, and a **38% increase** in facilities and other allocated costs[119](index=119&type=chunk)[120](index=120&type=chunk) - Sales, general and administrative expenses increased by **38%**, mainly due to a **33% increase** in personnel-related costs and a **37% increase** in professional services for scaling the business and public company processes[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) - Marketing expenses increased by **10%**, with marketing and advertising costs up **5%** due to organic and acquisition marketing, partially offset by the discontinuance of the Goody Box program[122](index=122&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) - As of March 31, 2022, the Company had **$183.8 million** in cash, cash equivalents, and short-term marketable securities, and an accumulated deficit of **$336.1 million**[129](index=129&type=chunk) - Operations have been primarily financed through private and public equity sales (IPO net proceeds of **$175.5 million** in March 2021; follow-on offering net proceeds of **$45.5 million** in August 2021) and debt[129](index=129&type=chunk) - The Company expects continued operating losses and negative cash flows as it invests in business growth and infrastructure, but believes existing financial resources are sufficient for short-term and long-term capital requirements[130](index=130&type=chunk) - Future capital requirements depend on expansion plans, marketing, new offerings, and economic conditions, and the Company may seek additional equity or debt financing[131](index=131&type=chunk) [Cash Flows](index=32&type=section&id=Cash%20Flows) This section provides a summary of cash flow activities for the three months ended March 31, 2022, and 2021, detailing changes in operating, investing, and financing cash flows [Changes in Cash Flow from Operating Activities](index=32&type=section&id=Changes%20in%20Cash%20Flow%20from%20Operating%20Activities) - Net cash used in operating activities was **$6.7 million** for Q1 2022, a shift from **$1.1 million** provided in Q1 2021[133](index=133&type=chunk)[134](index=134&type=chunk) - The Q1 2022 usage was driven by a net loss of **$20.7 million**, partially offset by **$8.7 million** in non-cash charges and **$5.4 million** from changes in operating assets and liabilities[134](index=134&type=chunk) [Changes in Cash Flow from Investing Activities](index=33&type=section&id=Changes%20in%20Cash%20Flow%20from%20Investing%20Activities) - Net cash used in investing activities was **$7.9 million** for Q1 2022, an increase from **$4.1 million** used in Q1 2021[133](index=133&type=chunk)[137](index=137&type=chunk) - Q1 2022 usage was primarily due to **$12.6 million** in capital expenditures for new distribution centers, partially offset by **$4.7 million** from marketable securities maturities[137](index=137&type=chunk) [Changes in Cash Flow from Financing Activities](index=33&type=section&id=Changes%20in%20Cash%20Flow%20from%20Financing%20Activities) - Net cash used in financing activities was **$1.2 million** for Q1 2022, a significant change from **$185.1 million** provided in Q1 2021[133](index=133&type=chunk)[139](index=139&type=chunk) - Q1 2022 usage was mainly from **$2.0 million** in debt repayment, partially offset by **$0.8 million** from common stock option exercises[139](index=139&type=chunk) - Q1 2021 cash provided was primarily from **$180.3 million** in IPO proceeds, **$4.6 million** in debt financing, and **$1.9 million** from stock option exercises[140](index=140&type=chunk) [Critical Accounting Policies and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - There have been no significant changes to the Company's critical accounting policies since December 31, 2021[142](index=142&type=chunk) - The preparation of consolidated financial statements requires management to make judgments and estimates that affect reported amounts[141](index=141&type=chunk) [Recent Accounting Pronouncements](index=33&type=section&id=Recent%20Accounting%20Pronouncements) - Information on recently issued accounting pronouncements is provided in Note 2 to the unaudited condensed consolidated financial statements[143](index=143&type=chunk) [JOBS Act Accounting Election](index=34&type=section&id=JOBS%20Act%20Accounting%20Election) - As an 'emerging growth company' under the JOBS Act, ThredUp has elected to use the extended transition period for new or revised accounting standards[144](index=144&type=chunk) - This election means the Company's financial statements may not be comparable to those of companies complying with public company effective dates[144](index=144&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, including interest rate risk, inflation risk, and foreign currency exchange rate risk, and how these risks are managed [Interest Rate Risk](index=35&type=section&id=Interest%20Rate%20Risk) - The Company is exposed to interest rate risk from its **$68.6 million** in cash and cash equivalents and **$115.2 million** in marketable securities, as well as its **$34.0 million** outstanding term loan at a **5.50%** interest rate[145](index=145&type=chunk)[146](index=146&type=chunk) - A hypothetical **100 basis point** change in interest rates would not have a material impact on the Company's financial condition or results of operations[147](index=147&type=chunk) [Inflation Risk](index=35&type=section&id=Inflation%20Risk) - Inflation has significantly increased in the U.S. and overseas, leading to rising interest rates, fuel, wages, and freight costs, but has not had a material effect on the Company's business to date[148](index=148&type=chunk) - Rising costs could negatively impact operating and borrowing costs, and inflation's effect on consumer budgets could decrease spending, potentially harming profitability if price increases cannot offset costs[148](index=148&type=chunk) [Foreign Currency Exchange Rate Risk](index=35&type=section&id=Foreign%20Currency%20Exchange%20Rate%20Risk) - The Company transacts business in Europe through Remix in multiple currencies, primarily Bulgarian lev (BGN), exposing it to foreign currency exchange rate fluctuations[149](index=149&type=chunk) - Foreign currency risk is managed through natural hedges, and a **$0.7 million** foreign currency translation adjustment was reflected in accumulated other comprehensive loss for Q1 2022[149](index=149&type=chunk)[150](index=150&type=chunk) - A hypothetical **10%** change in foreign currency exchange rates would not have a material impact on the Company's financial condition or results of operations[151](index=151&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of the company's disclosure controls and procedures, identifies previously reported material weaknesses in internal control over financial reporting, and outlines remediation plans [Evaluation of Disclosure Controls and Procedures](index=36&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - As of March 31, 2022, the Company's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting[154](index=154&type=chunk) - Despite the material weakness, management concluded that the unaudited interim condensed consolidated financial statements for the periods covered fairly present the Company's financial position, results of operations, and cash flows in conformity with GAAP after performing additional reconciliations and post-closing procedures[154](index=154&type=chunk) [Previously Reported Material Weaknesses in Internal Control Over Financial Reporting](index=36&type=section&id=Previously%20Reported%20Material%20Weaknesses%20in%20Internal%20Control%20Over%20Financial%20Reporting) - A material weakness in internal control over financial reporting was previously disclosed for fiscal years ended December 31, 2021, 2020, 2019, and 2018[155](index=155&type=chunk) - Control deficiencies included ineffective controls over accounting and proprietary data systems (user access, program change management, data validation) and inadequate controls over the preparation and review of account reconciliations and journal entries (segregation of duties, precision, timeliness)[156](index=156&type=chunk)[157](index=157&type=chunk) [Remediation Plans](index=37&type=section&id=Remediation%20Plans) - Remediation efforts include adding accounting, finance, and information technology personnel, implementing new financial accounting processes, enhancing controls within systems, and evolving accounting and quarterly close processes[160](index=160&type=chunk) - Full remediation will require completion of these steps and effective operation of controls for a sufficient period[160](index=160&type=chunk) [Changes in Internal Control over Financial Reporting](index=37&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - The Company is actively remediating the material weaknesses, and no other material changes in internal control over financial reporting occurred during the most recent fiscal quarter[161](index=161&type=chunk) - The Company is continually monitoring and assessing the COVID-19 situation's impact on internal controls[161](index=161&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the company is not currently a party to any material pending legal proceedings, though it may be subject to claims in the ordinary course of business - The Company is not a party to any material pending legal proceedings but may be subject to claims in the ordinary course of business[164](index=164&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the comprehensive discussion of risks affecting the business as previously disclosed in the company's Annual Report on Form 10-K for fiscal year 2021, noting no material changes - Risks affecting the business are discussed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, with no material changes reported[166](index=166&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no unregistered sales of equity securities and details the use of proceeds from the company's initial public offering (IPO) and subsequent registered public offering, stating no material change in planned use - There were no unregistered sales of equity securities[169](index=169&type=chunk) - The IPO in March 2021 generated net proceeds of **$175.5 million** from the sale of **13,800,000 Class A common shares**[170](index=170&type=chunk) - A follow-on public offering in August 2021 generated net proceeds of **$45.5 million** from the sale of **2,000,000 Class A common shares**[171](index=171&type=chunk) - There has been no material change in the planned use of proceeds from either public offering[170](index=170&type=chunk)[171](index=171&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, certifications, and XBRL interactive data files - The exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, Form of Class A common stock certificate, Investors' Rights Agreement, and certifications from principal executive and financial officers[172](index=172&type=chunk) - XBRL Instance Document and related taxonomy extension documents are also filed as exhibits[172](index=172&type=chunk)[173](index=173&type=chunk) [Signatures](index=43&type=section&id=Signatures) This section contains the required signatures of the registrant's Chief Executive Officer and Chief Financial Officer, certifying the report - The report is signed by James Reinhart, Chief Executive Officer, and Sean Sobers, Chief Financial Officer, on May 9, 2022[178](index=178&type=chunk)

Part I [Business](index=5&type=section&id=Item%201.%20Business) ThredUp operates one of the world's largest online resale platforms for apparel, shoes, and accessories, promoting sustainable fashion through its proprietary "single SKU" logistics platform and Resale-as-a-Service offering - ThredUp's core business is an online resale platform for women's and kids' apparel, shoes, and accessories, built on a custom operating platform for unique, single-SKU items[18](index=18&type=chunk)[19](index=19&type=chunk) - The company offers a Resale-as-a-Service (RaaS) platform for brands and retailers, serving **28 RaaS clients** as of December 31, 2021, including major brands like Adidas, GAP, and Walmart[20](index=20&type=chunk)[27](index=27&type=chunk) - In October 2021, ThredUp acquired Remix Global AD, a European fashion resale company, to facilitate its expansion into the European market[21](index=21&type=chunk) Key Operating Metrics (as of Dec 31, 2021) | Metric | Value | YoY Growth | | :--- | :--- | :--- | | Active Buyers | 1.69 million | 36% | | Orders (FY 2021) | 5.3 million | 34% | - The company faces intense competition from other secondhand marketplaces (e.g., Poshmark, The RealReal), large online retailers (e.g., Amazon, Walmart), and off-price retailers (e.g., TJX Companies, Ross Stores)[32](index=32&type=chunk)[33](index=33&type=chunk) [Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) The company faces a wide range of risks, including dependence on attracting buyers and sellers, complex logistics, a history of net losses, IT and data security vulnerabilities, and concentrated voting power from its dual-class stock structure [Risks Relating to Our Business and Industry](index=11&type=section&id=Risks%20Relating%20to%20Our%20Business%20and%20Industry) The company's growth is highly dependent on attracting and retaining both buyers and sellers, challenged by intense competition, economic downturns, operational complexities, and uncertainties from the COVID-19 pandemic and Remix acquisition - The company's continued growth is contingent on its ability to attract new buyers and sellers and retain existing ones, with failure in this area potentially harming business operations and financial condition[50](index=50&type=chunk)[51](index=51&type=chunk) History of Net Losses | Year | Net Loss (in millions) | | :--- | :--- | | 2021 | $63.2 | | 2020 | $47.9 | | 2019 | $38.2 | - The COVID-19 pandemic has adversely impacted business operations, causing delays in processing Clean Out Kits and increasing costs, with the full extent of its future impact remaining uncertain[84](index=84&type=chunk)[85](index=85&type=chunk)[87](index=87&type=chunk) - The integration of the newly acquired Remix business presents significant risks, including potential difficulties, higher-than-expected costs, and the possibility of not realizing the anticipated benefits of European expansion[91](index=91&type=chunk)[92](index=92&type=chunk) [Risks Relating to Information Technology, Intellectual Property, Data Security and Privacy](index=26&type=section&id=Risks%20Relating%20to%20Information%20Technology%2C%20Intellectual%20Property%2C%20Data%20Security%20and%20Privacy) The company faces significant risks related to data security breaches, compliance with evolving privacy laws like CCPA and GDPR, reliance on third-party services, and protecting its intellectual property - The company is vulnerable to data security compromises, which could result in unexpected expenses, litigation, regulatory fines, and significant harm to its reputation and operations[120](index=120&type=chunk)[121](index=121&type=chunk) - Compliance with numerous and evolving data privacy laws, such as the California Consumer Privacy Act (CCPA) and the EU's General Data Protection Regulation (GDPR), is complex and costly, with failure to comply potentially leading to substantial penalties[124](index=124&type=chunk)[126](index=126&type=chunk) - The business heavily relies on third-party services, including Amazon Web Services (AWS) for hosting and various payment processors, making any service interruptions from these providers potentially disruptive to operations[131](index=131&type=chunk)[132](index=132&type=chunk) [Risks Relating to Legal, Regulatory, Accounting and Tax Matters](index=33&type=section&id=Risks%20Relating%20to%20Legal%2C%20Regulatory%2C%20Accounting%20and%20Tax%20Matters) The company has identified a material weakness in its internal control over financial reporting and is subject to a complex web of regulations governing e-commerce, resale, and data privacy, with non-compliance posing financial and operational risks - A material weakness has been identified in the company's internal control over financial reporting, related to ineffective controls over IT systems and inadequate controls over the preparation and review of account reconciliations and journal entries[146](index=146&type=chunk)[149](index=149&type=chunk) - The business is subject to numerous laws and regulations pertaining to the internet, e-commerce, and the resale of secondhand items, with non-compliance potentially resulting in fines or penalties[151](index=151&type=chunk)[153](index=153&type=chunk) - Following the Supreme Court's Wayfair decision, the company is required to collect and remit sales taxes in numerous jurisdictions, creating administrative burdens and potential tax liabilities[173](index=173&type=chunk) - As an "emerging growth company," ThredUp is subject to reduced public company reporting requirements, which may make its stock less attractive to certain investors[178](index=178&type=chunk) [Risks Relating to Our Indebtedness and Liquidity](index=40&type=section&id=Risks%20Relating%20to%20Our%20Indebtedness%20and%20Liquidity) The company may require additional capital for growth, which might not be available on favorable terms or could dilute existing stockholders, and its loan agreement contains restrictive covenants that limit operational flexibility - The company may require additional capital to support its growth, and such financing might not be available on favorable terms, if at all, potentially leading to dilution for existing stockholders[182](index=182&type=chunk) - The company's loan and security agreement contains financial covenants and other restrictions that may limit operational flexibility, with a breach potentially resulting in an event of default and acceleration of the debt[185](index=185&type=chunk)[186](index=186&type=chunk) [Risks Relating to Ownership of Our Class A Common Stock](index=41&type=section&id=Risks%20Relating%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) The company's stock price may be volatile, and its dual-class stock structure concentrates voting power with pre-IPO stockholders, potentially limiting Class A stockholder influence and affecting stock index eligibility - The company's dual-class common stock structure concentrates significant voting power with holders of Class B stock, who have ten votes per share compared to one vote for Class A stock, with Class B holders controlling approximately **87.6% of the voting power** as of December 31, 2021[192](index=192&type=chunk)[193](index=193&type=chunk) - The dual-class structure may make the company's stock ineligible for inclusion in certain stock market indices (e.g., S&P 500, Russell 2000), which could negatively affect its market price and liquidity[196](index=196&type=chunk) - The company has never paid cash dividends and does not intend to do so in the foreseeable future, meaning returns for investors will depend solely on stock price appreciation[204](index=204&type=chunk) [Properties](index=49&type=section&id=Item%202.%20Properties) ThredUp maintains its corporate headquarters in Oakland, California, with additional offices in Arizona and Bulgaria, and operates a network of four main distribution centers across the US and Bulgaria, alongside new processing centers for logistics expansion - The company's corporate headquarters is located in Oakland, California, with additional offices in Scottsdale, Arizona, and Sofia, Bulgaria[226](index=226&type=chunk) - ThredUp operates four main distribution centers in Arizona, Georgia, Pennsylvania, and Bulgaria, and is expanding its capacity with a new distribution center under construction in Texas and two new processing centers in Texas and Tennessee[227](index=227&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=50&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) ThredUp's Class A common stock began trading on Nasdaq on March 26, 2021, with no public market for its Class B common stock, and the company has not paid cash dividends, intending to retain earnings for business expansion - The company's Class A common stock is listed on the Nasdaq Global Select Market under the symbol "TDUP," with trading having commenced on **March 26, 2021**[233](index=233&type=chunk) - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, retaining funds for business development[235](index=235&type=chunk) - Net proceeds from the March 2021 IPO were **$175.5 million**, with a subsequent registered public offering in August 2021 generating additional net proceeds of **$45.5 million**[241](index=241&type=chunk)[242](index=242&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal year 2021, ThredUp achieved record revenue of $251.8 million, a 35% increase, driven by growth in active buyers and orders, while gross margin improved to 71%, despite a widened net loss of $63.2 million due to significant investments in growth and public company operations [Overview of 2021 Results](index=56&type=section&id=Overview%20of%202021%20Results) For the full year 2021, ThredUp achieved record revenue of $251.8 million, a 35% year-over-year increase, with gross margin expanding to 71%, though the GAAP net loss increased to $63.2 million, reflecting strong operational growth in active buyers and orders 2021 Financial Highlights vs. 2020 | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $251.8M | $186.0M | +35% | | Gross Profit | $178.1M | $128.1M | +39% | | Gross Margin | 71% | 69% | +185 bps | | Net Loss | ($63.2M) | ($47.9M) | +32% | | Adjusted EBITDA Loss | ($36.5M) | ($33.4M) | +9% | 2021 Key Operating Metrics vs. 2020 | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Active Buyers | 1.69 million | 1.24 million | +36% | | Orders | 5.3 million | 4.0 million | +34% | [Results of Operations](index=59&type=section&id=Results%20of%20Operations) For the year ended December 31, 2021, total revenue increased 35% to $251.8 million, driven by a 34% increase in orders, and gross margin improved to 71%, but operating expenses grew 38% to $240.5 million, leading to an increased net loss of $63.2 million Consolidated Statements of Operations (in thousands) | | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | **Total revenue** | **$251,792** | **$186,015** | | Gross profit | $178,132 | $128,148 | | Total operating expenses | $240,518 | $174,737 | | Operating loss | $(62,386) | $(46,589) | | **Net loss** | **$(63,176)** | **$(47,877)** | - Revenue growth of **35%** was primarily driven by a **36% increase in Active Buyers** and a **34% increase in Orders**[281](index=281&type=chunk) - Operating expenses increased by **38%**, with significant growth in Marketing (**+42%**) and Sales, General & Administrative (**+71%**) costs, reflecting investments in growth and public company infrastructure[289](index=289&type=chunk) [Liquidity and Capital Resources](index=66&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2021, the company maintained a strong liquidity position with $205.8 million in cash and marketable securities, bolstered by IPO and follow-on offering proceeds, despite historically negative cash flows from operations - As of December 31, 2021, the company had cash, cash equivalents, and short-term marketable securities totaling **$205.8 million**[305](index=305&type=chunk) Summary of Cash Flows (in thousands) | | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(35,019) | $(19,105) | | Net cash used in investing activities | $(169,576) | $(19,424) | | Net cash provided by financing activities | $228,960 | $18,215 | - Financing activities in 2021 were primarily driven by **$175.5 million** in net proceeds from the IPO and **$45.5 million** from a follow-on offering[305](index=305&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=70&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate risk from its cash, marketable securities, and variable-rate debt, and foreign currency exchange rate risk from European operations, neither of which is expected to have a material impact from hypothetical changes - The company is exposed to interest rate risk through its cash equivalents, marketable securities, and its loan agreement tied to the prime rate, with a hypothetical **100 basis point change** in interest rates not expected to have a material impact[332](index=332&type=chunk)[333](index=333&type=chunk)[334](index=334&type=chunk) - Foreign currency exchange rate risk exists due to European operations transacting in multiple currencies, with a hypothetical **10% change** in foreign currency exchange rates estimated to have an impact of under **$1.0 million**[335](index=335&type=chunk)[337](index=337&type=chunk) [Financial Statements and Supplementary Data](index=71&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The consolidated financial statements for the year ended December 31, 2021, report total assets of $360.8 million, total liabilities of $155.1 million, and total stockholders' equity of $205.7 million, with a net loss of $63.2 million on revenues of $251.8 million, and accompanying notes detailing accounting policies and financial components Consolidated Balance Sheet Highlights (as of Dec 31, 2021) | (in thousands) | Amount | | :--- | :--- | | Cash and cash equivalents | $84,550 | | Marketable securities | $121,277 | | Total Assets | $360,826 | | Total Liabilities | $155,092 | | Total Stockholders' Equity | $205,734 | Consolidated Statement of Operations Highlights (FY 2021) | (in thousands) | Amount | | :--- | :--- | | Total Revenue | $251,792 | | Gross Profit | $178,132 | | Operating Loss | $(62,386) | | Net Loss | $(63,176) | [Notes to Consolidated Financial Statements](index=91&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the company's accounting policies and financial components, including the Remix acquisition which added $12.5 million in goodwill and $14.8 million in intangible assets, $36.0 million in outstanding debt, $40.9 million in lease liabilities, and a $75.3 million valuation allowance against deferred tax assets - The acquisition of Remix resulted in the recognition of **$12.5 million** in goodwill and **$14.8 million** in identifiable intangible assets, including customer relationships, developed technology, and trademarks[479](index=479&type=chunk)[481](index=481&type=chunk) - As of December 31, 2021, the company had total operating lease liabilities of **$40.9 million** with a weighted-average remaining lease term of **8.1 years**[489](index=489&type=chunk)[492](index=492&type=chunk) - As of December 31, 2021, the company had **$36.0 million** in principal outstanding under its term loan agreement with Western Alliance Bank[496](index=496&type=chunk)[499](index=499&type=chunk) - Due to a history of operating losses, the company has established a full valuation allowance of **$75.3 million** against its deferred tax assets, as it is more likely than not that these assets will not be realized[536](index=536&type=chunk) [Controls and Procedures](index=73&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2021, due to a material weakness in internal control over financial reporting related to IT systems and accounting processes, for which remediation plans are underway - Management concluded that the company's disclosure controls and procedures were **not effective** as of December 31, 2021[344](index=344&type=chunk) - The ineffectiveness is due to a material weakness related to: (1) ineffective controls over accounting and proprietary data systems, and (2) inadequate controls over the preparation and review of certain account reconciliations and journal entries[346](index=346&type=chunk)[347](index=347&type=chunk) - The company is taking steps to remediate the material weakness, including hiring additional personnel and implementing enhancements and controls within its accounting and IT systems[349](index=349&type=chunk)

ThredUp Inc. (NASDAQ:TDUP) Q4 2021 Earnings Conference Call March 7, 2022 4:30 PM ET Company Participants James Reinhart - Co-Founder, CEO Sean Sobers - CFO Conference Call Participants Ike Boruchow - Wells Fargo Ross Sandler - Barclays Dylan Carden - William Blair Anna Andreeva - Needham & Company Nathan Feather - Morgan Stanley Michael Ng - Goldman Sachs Tom Nikic - Wedbush Securities Dana Telsey - Telsey Advisory Group Matthew Egger - Piper Sandler Brian McNamara - Berenberg Unidentified Company Rep ...