ThredUp(TDUP) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents ThredUp Inc's unaudited condensed consolidated financial statements for the quarter ended March 31, 2021, detailing the company's financial position, performance, and cash flows Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Financials | March 31, 2021 | December 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $246,514 | $64,485 | +$182,029 | | Total assets | $323,770 | $142,911 | +$180,859 | | Liabilities & Equity | | | | | Total liabilities | $132,343 | $118,047 | +$14,296 | | Convertible preferred stock | $— | $247,041 | -$247,041 | | Total stockholders' equity (deficit) | $191,427 | $(222,177) | +$413,604 | | Total liabilities, convertible preferred stock and stockholders' equity | $323,770 | $142,911 | +$180,859 | - Total Assets increased significantly from $142.9 million at December 31, 2020, to $323.8 million at March 31, 2021, primarily driven by a substantial increase in cash and cash equivalents[16] - Stockholders' Equity (Deficit) shifted from a deficit of $(222.2) million to a positive equity of $191.4 million, largely due to the IPO proceeds and conversion of preferred stock[16] Condensed Consolidated Statements of Operations and Comprehensive Loss Revenue Performance (Three months ended March 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :---------------- | :------------------- | :------------------- | :------------ | | Consignment Revenue | $44,688 | $35,314 | +26.5% | | Product Revenue | $10,992 | $13,001 | -15.5% | | Total Revenue | $55,680 | $48,315 | +15.2% | - Gross Profit increased from $32.6 million in Q1 2020 to $39.7 million in Q1 2021, a 21.7% increase[17] - Net Loss increased from $(13.2) million in Q1 2020 to $(16.2) million in Q1 2021[17] - Net Loss Per Share (Basic and Diluted) decreased from $(1.23) in Q1 2020 to $(0.86) in Q1 2021, despite a higher net loss, due to an increase in weighted-average shares outstanding[17] Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity - All 65,970,938 shares of convertible preferred stock were converted to Class B common stock immediately prior to the IPO, eliminating the preferred stock balance[18][29] - The initial public offering resulted in the sale of 13,800,000 Class A common stock shares, adding $175.5 million to additional paid-in capital[18][27] - Additional Paid-in Capital increased significantly from $29.9 million at December 31, 2020, to $459.8 million at March 31, 2021, primarily due to the IPO and preferred stock conversion[18] Condensed Consolidated Statement of Cash Flows Cash Flow Summary (Three months ended March 31) | Activity | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :------------------------------------------------ | :------------------- | :------------------- | :------------ | | Net cash provided by (used in) operating activities | $1,077 | $(9,102) | +$10,179 | | Net cash used in investing activities | $(4,099) | $(4,673) | +$574 | | Net cash provided by (used in) financing activities | $185,051 | $(785) | +$185,836 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $182,029 | $(14,560) | +$196,589 | - Operating Activities shifted from $(9.1) million used in Q1 2020 to $1.1 million provided in Q1 2021, primarily due to a $9.3 million net change in operating assets and liabilities, partially offset by a net loss of $16.2 million[123] - Financing Activities provided $185.1 million in Q1 2021, mainly from $180.3 million in IPO proceeds (net of underwriting discounts) and $4.6 million in debt financing[129] Notes to Unaudited Condensed Consolidated Financial Statements - ThredUp's IPO was declared effective on March 25, 2021, with Class A common stock trading on Nasdaq from March 26, 2021; the company sold 13.8 million shares at $14.00 per share, generating $175.5 million in net proceeds[27][75] - Immediately prior to the IPO, 65,970,938 shares of convertible preferred stock and 164,973 convertible preferred stock warrants were converted into Class B common stock and Class B common stock warrants, respectively[29][55][57] - Total stock-based compensation expense was $3.5 million for Q1 2021, up from $1.4 million in Q1 2020, with $20.1 million of unrecognized expense remaining[66] - The company previously identified material weaknesses in internal control over financial reporting related to accounting and proprietary data systems and the preparation/review of account reconciliations and journal entries; remediation efforts are ongoing[143][144][145][148] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes ThredUp's business, recent developments including its IPO and COVID-19 impact, and financial results for the three months ended March 31, 2021 Overview - ThredUp is one of the world's largest online resale platforms for women's and kids' apparel, shoes, and accessories, leveraging a custom-built operating platform[73] - Since 2009, the company has processed over 100 million unique secondhand items from 35,000 brands, saving buyers an estimated $3.3 billion[73] - The platform offers a managed marketplace for buyers and provides a convenient "Clean Out Kit" service for sellers[74] - ThredUp also offers a "Resale-as-a-Service" (RaaS) offering, enabling brands and retailers to participate in the resale economy[74] Recent Business Developments - ThredUp completed its IPO on March 25, 2021, selling 13.8 million Class A common stock shares at $14.00 per share, generating $175.5 million in net proceeds[75] - The COVID-19 pandemic led to operational modifications, temporary reductions in marketing spend, and cost-saving measures like retail store closures[79][80][81][82] - In Q1 2021, the company experienced increased demand partly due to COVID-19 recovery efforts but also faced increased operating expenses to support demand[83][85] - The number of unprocessed Clean Out Kits declined in Q1 2021 compared to Q4 2020 due to increased processing, leading to a higher volume of new listings[86] Current Period Highlights - Total revenue reached a record $55.7 million, an increase of 15% year-over-year[88] - Gross profit totaled $39.7 million, representing growth of 22% year-over-year, with gross margin expanding from 68% to 71%[88] - GAAP net loss was $16.2 million for Q1 2021, compared to a GAAP net loss of $13.2 million for Q1 2020[88] - Active Buyers grew 14% to 1.29 million, and Orders grew 18% to 1.13 million year-over-year[89][91] Key Financial and Operating Metrics Key Metrics (Three months ended March 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | YoY Change | | :---------------- | :------------------- | :------------------- | :------------ | | Active Buyers | 1,290 | 1,135 | +13.7% | | Orders | 1,128 | 956 | +18.0% | | Net loss | $(16,171) | $(13,215) | -22.4% | | Adjusted EBITDA | $(9,119) | $(10,427) | +12.6% | - Active Buyers are defined as a ThredUp buyer who has made at least one purchase in the last twelve months, serving as a key driver of revenue[92] - Adjusted EBITDA is a non-GAAP measure used to evaluate operating performance, excluding items like depreciation, stock-based compensation, and interest expense[94] Results of Operations Revenue (Q1 2021 vs. Q1 2020) | Revenue Type | 2021 (in thousands) | 2020 (in thousands) | Change Amount | Change % | | :------------------- | :------------------- | :------------------- | :-------------- | :------- | | Consignment revenue | $44,688 | $35,314 | $9,374 | 27% | | Product revenue | $10,992 | $13,001 | $(2,009) | (15)% | | Total revenue | $55,680 | $48,315 | $7,365 | 15% | - Total revenue increase was primarily due to an 18% increase in Orders and 14% growth in Active Buyers, partially offset by a 2% decrease in revenue per Order[97] Cost of Revenue & Gross Profit (Q1 2021 vs. Q1 2020) | Cost/Profit Metric | 2021 (in thousands) | 2020 (in thousands) | Change Amount | Change % | | :-------------------------------- | :------------------- | :------------------- | :-------------- | :------- | | Cost of consignment revenue | $10,832 | $8,816 | $2,016 | 23% | | Cost of product revenue | $5,130 | $6,873 | $(1,743) | (25)% | | Total cost of revenue | $15,962 | $15,689 | $273 | 2% | | Gross profit | $39,718 | $32,626 | $7,092 | 22% | | Gross profit margin | 71% | 68% | 3% | | - Total cost of revenue as a percentage of total revenue decreased by 300 basis points (from 32% to 29%) due to the mix shift towards higher-margin consignment sales[101] Operating Expenses (Q1 2021 vs. Q1 2020) | Operating Expense | 2021 (in thousands) | 2020 (in thousands) | Change Amount | Change % | | :-------------------------------- | :------------------- | :------------------- | :-------------- | :------- | | Operations, product and technology | $28,312 | $25,475 | $2,837 | 11% | | Marketing | $15,446 | $13,001 | $2,445 | 19% | | Sales, general and administrative | $10,638 | $7,433 | $3,205 | 43% | | Total operating expenses | $54,396 | $45,909 | $8,487 | 18% | - Sales, general and administrative expenses increased 43%, primarily due to investments in scaling the business and public company readiness[113][114][115] Liquidity and Capital Resources - As of March 31, 2021, the company had $246.5 million in cash and cash equivalents and an accumulated deficit of $268.3 million[117] - Historically, operations were financed through private equity sales and debt; the recent IPO generated $175.5 million in net proceeds[117] - The company expects continued operating losses and negative cash flows from operations due to investments in growth and infrastructure[118] - Existing cash and cash equivalents are believed to be sufficient to fund operations for at least the next twelve months[118] - Future capital requirements depend on distribution center expansion, marketing, new offerings, and economic conditions, potentially requiring additional financing[120] Contractual Obligations and Commitments - There have been no material changes to contractual obligations since December 31, 2020, other than an additional $5.0 million term loan borrowed in February 2021[131] Off-Balance Sheet Arrangements - The company did not have any off-balance sheet financing arrangements or relationships with unconsolidated entities for the periods presented[132] Critical Accounting Policies and Estimates - There have been no significant changes to critical accounting policies since December 31, 2020[134] - The preparation of financial statements requires management to make judgments and estimates that affect reported amounts[133] Recent Accounting Pronouncements - For information on recently issued accounting pronouncements, refer to Note 2 titled "Significant Accounting Policies" in Part 1, Item 1 of this report[135] JOBS Act Accounting Election - As an "emerging growth company," ThredUp has elected to use the extended transition period for complying with new accounting standards[136][276] - This election allows the company to delay adopting new accounting standards, which may affect comparability with other public companies[136][275] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses ThredUp's exposure to market risks, primarily focusing on interest rate risk and inflation risk Interest Rate Risk - As of March 31, 2021, the company held $246.5 million in cash and cash equivalents, primarily in money market funds, with no material risk from interest rate fluctuations to date[137] - The company's $40.0 million term loan has an interest rate tied to the prime rate with a 5.75% floor; a hypothetical 100 basis point change would not materially impact financials[138][139] Inflation Risk - Management does not believe inflation has had a material effect on the business, but an inability to offset future inflationary pressures could be harmful[140] Item 4. Controls and Procedures This section addresses the effectiveness of disclosure controls, acknowledging a material weakness in internal control but affirming the fair presentation of financial statements Evaluation of Disclosure Controls and Procedures - As of March 31, 2021, the CEO and CFO concluded that disclosure controls and procedures were not effective due to a previously reported material weakness in internal control[142] - Despite the material weakness, management concluded that the financial statements fairly present the company's financial position in conformity with GAAP[142] Previously Reported Material Weaknesses in Internal Control Over Financial Reporting - Identified control deficiencies in the design and implementation of internal control for fiscal years 2018-2020, specifically related to accounting and proprietary data systems[143][144] - Also identified inadequate controls over the preparation and review of account reconciliations and journal entries, including insufficient segregation of duties[145] Remediation Plans - The company is actively addressing the material weaknesses by hiring additional personnel, implementing new financial processes, and enhancing system controls[148] Changes in Internal Control over Financial Reporting - No material impact to internal controls over financial reporting despite employees working remotely due to the COVID-19 pandemic[149] PART II. OTHER INFORMATION Item 1. Legal Proceedings ThredUp Inc is not currently a party to any material pending legal proceedings, though it may face litigation in the ordinary course of business - The company is not a party to any material pending legal proceedings[152] - From time to time, the company may be subject to legal proceedings and claims arising in the ordinary course of business[152] Item 1A. Risk Factors This section outlines the significant risks and uncertainties that could adversely affect ThredUp's business, operations, financial condition, and stock price Risk Factor Summary - Business & Industry Risks include dependence on attracting buyers/sellers, managing growth, history of losses, distribution center operations, and the impact of COVID-19[156][157][158] - IT, IP, Data Security & Privacy Risks cover compromises of data security, compliance with privacy laws (e.g, CCPA), and reliance on third-party data centers[158][217][221][226][230][232][237] - Legal, Regulatory, Accounting & Tax Risks involve material weaknesses in internal control, non-compliance with laws, payment fraud, and limitations on NOLs[158][242][246][252][255][259][262][266][269][270][272] - Risks Relating to Ownership of Class A Common Stock include volatile market price, dual-class structure concentrating voting control, and potential stock price decline[158][281][285][289][290][292] Risks Relating to Our Business and Industry - Continued growth relies on attracting and retaining buyers and sellers and generating a sufficient supply of high-quality secondhand items[157][159] - The business is subject to risks in sourcing, itemizing, warehousing, and shipping, including fluctuations in item quality and potential damage or contamination[160][161] - Rapid growth places significant demands on management and resources; failure to manage growth effectively could harm the business[164][165][167] - The COVID-19 pandemic continues to have an adverse impact, including operational limitations, increased costs, and shifts in consumer demand[189][190][191][192][195] Risks Relating to Information Technology, Intellectual Property, Data Security and Privacy - Risk of hacking or other attacks leading to data breaches of personal information, which could disrupt operations and harm reputation[217][218] - Subject to evolving state, federal, and international privacy laws (e,g, CCPA, CPRA); non-compliance could result in fines and enforcement actions[221][223][224][225] - Reliance on third-party data centers (AWS), internet providers, and payment processors; service interruptions could disrupt operations[226][228][229] - Inability to successfully protect its own intellectual property (patents, trademarks) could harm its competitive position and brand recognition[233][234][235][236] Risks Relating to Legal, Regulatory, Accounting and Tax Matters - Previously identified material weaknesses in internal control over financial reporting could lead to inaccurate reporting or sanctions if not remediated[242][243][245] - Failure to comply with evolving laws and regulations (e,g, e-commerce, consumer protection) could result in fines or penalties[246][248][249][250][251] - Risks from fraudulent transactions could lead to losses, lawsuits, and damage to reputation[252][253][254] - Ability to use net operating loss (NOL) carryforwards to offset future taxable income may be limited by Section 382 of the Internal Revenue Code[272] Risks Relating to Our Indebtedness and Liquidity - The company may require additional financing for business growth, which may not be available on favorable terms or could dilute stockholders[277] - The loan agreement with Western Alliance Bank imposes restrictive covenants that limit the company's ability to incur debt, dispose of property, or pay dividends[278][279] - Past non-compliance with debt covenants required waivers; future failure to comply could lead to an event of default and acceleration of debt[280] Risks Relating to Ownership of Our Class A Common Stock - The market price of Class A common stock may be highly volatile and decline regardless of operating performance[281][282][283][284] - The dual-class structure concentrates 98.3% of voting power with pre-IPO stockholders, limiting other stockholders' influence on corporate matters[285][286][287] - The dual-class structure may make the company ineligible for inclusion in certain stock indices (e,g, S&P 500), potentially affecting the stock price[289] - Sales of large amounts of Class A common stock, especially after lock-up restrictions expire, could cause the market price to decline[292][293] General Risks - Success relies heavily on executive officers and key employees; loss of these individuals could harm the business[307][308] - Past and future cost-cutting measures may disrupt business and affect employee retention[309] - Use of social media for marketing carries risks of adverse impact on reputation or fines if laws are not complied with[310] - The management team has limited experience managing a public company, which may strain resources and divert attention[311][312][314] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details unregistered sales of equity securities and confirms the use of IPO proceeds aligns with previously disclosed plans - On March 30, 2021, a warrant was net exercised for 24,837 shares of Class B common stock[316] - From January 1 to March 26, 2021, 923,291 Class B common stock options were granted to directors, employees, and consultants[316] - During the same period, 1,458,159 Class B common stock shares were issued through option exercises[317] - The IPO closed on March 30, 2021, generating net proceeds of $175.5 million from the sale of 13.8 million Class A common stock shares[319] - There has been no material change in the planned use of proceeds from the IPO[320] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, agreements, and certifications - Includes Amended and Restated Certificate of Incorporation and Bylaws as organizational documents[322] - Features the Tenth Amended and Restated Investors' Rights Agreement and the Amended and Restated Loan and Security Agreement[322] - Details the 2021 Stock Option and Incentive Plan, 2021 Employee Stock Purchase Plan, and various executive compensation plans[322] - Contains certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Act Sections 302 and 906[322][325] Signatures This section contains the official signatures of ThredUp Inc's CEO and CFO, certifying the filing of the Quarterly Report on Form 10-Q - The report is signed by James Reinhart, Chief Executive Officer, and Sean Sobers, Chief Financial Officer[329] - The signing date for both officers is May 12, 2021[329]