ThredUp(TDUP) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements 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) 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 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 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] - 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] - 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] Liquidity and Capital Resources 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] - 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] - 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][129] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - Inflation is identified as a risk that could increase operating costs (wages, freight) and negatively impact consumer spending, potentially harming profitability[142] - 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][144] Item 4. Controls and Procedures 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] - 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][150] - Remediation plans are in progress, including hiring additional personnel and implementing new processes, but the material weakness has not yet been fully remediated[150][151] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] - The company may not realize expected savings or benefits from its restructuring activities, which could disrupt operations[157] - Recent increases in interest rates and capital market volatility may increase borrowing costs and affect the ability to raise additional funds[158] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - There has been no material change in the planned use of proceeds from the IPO or the subsequent August 2021 public offering[160][161] Other Items (Items 3, 4, 5, 6) 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] - Item 4: Mine safety disclosures are not applicable to the company[164] - Item 6: A list of exhibits filed with the 10-Q is provided, including certifications and XBRL data files[167]