ThredUp(TDUP) - 2021 Q4 - Annual Report

Part I Business 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][19] - 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][27] - In October 2021, ThredUp acquired Remix Global AD, a European fashion resale company, to facilitate its expansion into the European market[21] 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][33] Risk Factors 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 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][51] 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][85][87] - 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][92] Risks Relating to Information Technology, Intellectual Property, Data Security and Privacy 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][121] - 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][126] - 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][132] Risks Relating to Legal, Regulatory, Accounting and Tax Matters 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][149] - 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][153] - 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] - 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] Risks Relating to Our Indebtedness and Liquidity 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] - 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][186] Risks Relating to Ownership of Our Class A Common Stock 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][193] - 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] - 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] Properties 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] - 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] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, retaining funds for business development[235] - 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][242] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 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] - 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] Liquidity and Capital Resources 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] 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] Quantitative and Qualitative Disclosures About Market Risk 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][333][334] - 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][337] Financial Statements and Supplementary Data 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 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][481] - 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][492] - As of December 31, 2021, the company had $36.0 million in principal outstanding under its term loan agreement with Western Alliance Bank[496][499] - 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] Controls and Procedures 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] - 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][347] - 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]