ThredUp(TDUP) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (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 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 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 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 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 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 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 - 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] 2. Significant Accounting Policies - 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][33] - 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] - Revenue from loyalty reward redemption or expiration was $2.7 million for Q1 2022, a decrease from $3.3 million in Q1 2021[39] 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] 3. Financial Instruments and Fair Value Measurements 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] - 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] 4. Property and Equipment, Net 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 - 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] 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] 6. Balance Sheet Components 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 - Operating lease expense increased to $2.4 million for Q1 2022 from $2.1 million for Q1 2021[64] - 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][65] 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 - 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][67] - 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][67] 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 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] 10. Stock-Based Compensation Plans - The 2021 Stock Option and Incentive Plan and the 2021 Employee Stock Purchase Plan (ESPP) became effective on March 24, 2021[73][74] - The Company granted 749,842 shares of RSUs with a weighted average grant date fair value of $8.81 during Q1 2022[77] 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 - 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] - The Company enters into contracts with indemnification provisions, with unknown exposure for future claims[80] 12. Income Taxes - The provision for income tax expense was $13 thousand for Q1 2022, compared to $27 thousand for Q1 2021[81] - 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] 13. Net Loss Per Share Attributable to Common Stockholders 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 - 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] - 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][88] - 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] Recent Business Developments 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 - 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][90] COVID-19 Update - 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][93] - 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] - The COVID-19 pandemic is expected to continue to adversely impact the business, results of operations, and financial condition in the short term[94] Overview of First Quarter Results 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 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 - 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][100] Orders - Total Orders, net of cancellations, increased by 45% to 1.640 million for Q1 2022, from 1.128 million for Q1 2021[99][101] Adjusted EBITDA - Adjusted EBITDA loss increased by 42% to $(12.963) million for Q1 2022, from $(9.119) million for Q1 2021[99][103] - Adjusted EBITDA margin was (18)% for Q1 2022, compared to (16)% for Q1 2021[99] - Adjusted EBITDA is a Non-GAAP metric used to evaluate operating performance, excluding items like depreciation, stock-based compensation, and acquisition-related expenses[102] Results of Operations 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 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][106] - 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] Cost of Revenue 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] - 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][111] - 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][113][114] Operating Expenses 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][118] - 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][120] - 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][125][126] - 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] Liquidity and Capital Resources - 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] - 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] - 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] - Future capital requirements depend on expansion plans, marketing, new offerings, and economic conditions, and the Company may seek additional equity or debt financing[131] Cash Flows 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 - Net cash used in operating activities was $6.7 million for Q1 2022, a shift from $1.1 million provided in Q1 2021[133][134] - 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] Changes in Cash Flow from Investing Activities - Net cash used in investing activities was $7.9 million for Q1 2022, an increase from $4.1 million used in Q1 2021[133][137] - 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] Changes in Cash Flow from Financing Activities - 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][139] - Q1 2022 usage was mainly from $2.0 million in debt repayment, partially offset by $0.8 million from common stock option exercises[139] - 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] Critical Accounting Policies and Estimates - There have been no significant changes to the Company's critical accounting policies since December 31, 2021[142] - The preparation of consolidated financial statements requires management to make judgments and estimates that affect reported amounts[141] Recent Accounting Pronouncements - Information on recently issued accounting pronouncements is provided in Note 2 to the unaudited condensed consolidated financial statements[143] JOBS Act Accounting Election - 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] - This election means the Company's financial statements may not be comparable to those of companies complying with public company effective dates[144] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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 - 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][146] - 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] Inflation Risk - 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] - 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] Foreign Currency Exchange Rate Risk - The Company transacts business in Europe through Remix in multiple currencies, primarily Bulgarian lev (BGN), exposing it to foreign currency exchange rate fluctuations[149] - 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][150] - 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] Item 4. Controls and Procedures 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 - 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] - 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] Previously Reported Material Weaknesses in Internal Control Over Financial Reporting - A material weakness in internal control over financial reporting was previously disclosed for fiscal years ended December 31, 2021, 2020, 2019, and 2018[155] - 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][157] Remediation Plans - 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] - Full remediation will require completion of these steps and effective operation of controls for a sufficient period[160] Changes in Internal Control over Financial Reporting - 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] - The Company is continually monitoring and assessing the COVID-19 situation's impact on internal controls[161] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - The IPO in March 2021 generated net proceeds of $175.5 million from the sale of 13,800,000 Class A common shares[170] - 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] - There has been no material change in the planned use of proceeds from either public offering[170][171] Item 6. Exhibits 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] - XBRL Instance Document and related taxonomy extension documents are also filed as exhibits[172][173] 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]