1stdibs.com, Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Audited Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 59 Consolidated Balance Sheets 60 Consolidated Statements of Operations 61 Consolidated Statements of Comprehensive Loss 62 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) 63 Consolidated Statements of Cash Flows 65 Notes to Consolidated Financial Statements 67 58 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of 1stdibs.com, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of 1stdibs.com, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Adoption of Accounting Standard Update (ASU) No. 2016-02, Leases (Topic 842) As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases effective January 1, 2022 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2013. New York, New York March 3, 2023 59 1STDIBS.COM, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share amounts) December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 153,209 $ 168,226 Restricted cash, current 1,500 — Accounts receivable, net of allowance for doubtful accounts of $ 113 and $ 29 at December 31, 2022 and 2021, respectively 972 701 Prepaid expenses 3,506 3,951 Receivables from payment processors 2,476 2,142 Other current assets 800 867 Total current assets 162,463 175,887 Restricted cash, non-current 3,334 3,333 Property and equipment, net 3,685 4,459 Operating lease right-of-use assets 21,990 — Goodwill 4,075 7,202 Intangible assets, net 3 1,164 Other assets 246 209 Total assets $ 195,796 $ 192,254 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 2,905 $ 4,729 Payables due to sellers 7,185 10,225 Accrued expenses 10,761 13,745 Operating lease liabilities, current 2,770 — Other current liabilities 2,429 3,512 Total current liabilities 26,050 32,211 Operating lease liabilities, non-current 21,678 — Other liabilities 46 2,605 Total liabilities 47,774 34,816 Stockholders’ equity: Preferred stock, $ 0.01 par value; 10,000,000 shares authorized as of December 31, 2022 and 2021; zero shares issued and outstanding as of December 31, 2022 and 2021 — — Common stock, $ 0.01 par value; 400,000,000 shares authorized as of December 31, 2022 and 2021; 39,260,193 and 38,000,086 shares issued as of December 31, 2022 and 2021, respectively; and 39,260,193 and 37,991,529 shares outstanding as of December 31, 2022 and 2021, respectively 393 380 Additional paid-in capital 439,005 425,769 Accumulated deficit ( 291,020 ) ( 268,482 ) Accumulated other comprehensive loss ( 356 ) ( 229 ) Total stockholders’ equity 148,022 157,438 Total liabilities and stockholders’ equity $ 195,796 $ 192,254 See accompanying notes to the consolidated financial statements 60 1STDIBS.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except share and per share amounts) Year Ended December 31, 2022 2021 2020 Net revenue $ 96,849 $ 102,731 $ 81,863 Cost of revenue 29,670 32,167 25,948 Gross profit 67,179 70,564 55,915 Operating expenses: Sales and marketing 44,776 47,414 36,526 Technology development 24,437 19,110 16,510 General and administrative 27,594 21,293 12,565 Provision for transaction losses 5,933 5,191 3,820 Gain on sale of Design Manager ( 9,684 ) — — Total operating expenses 93,056 93,008 69,421 Loss from operations ( 25,877 ) ( 22,444 ) ( 13,506 ) Other income (expense), net: Interest income 1,606 146 194 Interest expense ( 11 ) ( 16 ) ( 14 ) Other, net 1,781 1,372 809 Total other income (expense), net 3,376 1,502 989 Net loss before income taxes ( 22,501 ) ( 20,942 ) ( 12,517 ) Provision for income taxes ( 37 ) ( 21 ) ( 11 ) Net loss ( 22,538 ) ( 20,963 ) ( 12,528 ) Accretion of redeemable convertible preferred stock to redemption value — ( 7,061 ) ( 15,095 ) Net loss attributable to common stockholders $ ( 22,538 ) $ ( 28,024 ) $ ( 27,623 ) Net loss per share attributable to common stockholders—basic and diluted $ ( 0.59 ) $ ( 1.08 ) $ ( 2.50 ) Weighted average common shares outstanding—basic and diluted 38,479,437 26,059,744 11,034,620 See accompanying notes to the consolidated financial statements. 61 1STDIBS.COM, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Amounts in thousands) Year Ended December 31, 2022 2021 2020 Net loss $ ( 22,538 ) $ ( 20,963 ) $ ( 12,528 ) Other comprehensive (loss) income: Foreign currency translation adjustment, net of tax of $ 0 for the years ended December 31, 2022, 2021, and 2020 ( 127 ) ( 27 ) 43 Comprehensive loss $ ( 22,665 ) $ ( 20,990 ) $ ( 12,485 ) See accompanying notes to the consolidated financial statements. 62 1STDIBS.COM, INC. CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (Amounts in thousands, except share amounts) Redeemable Convertible Preferred Stock Common Stock Additional Paid - In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balances as of December 31, 2019 19,243,795 $ 283,430 10,864,622 $ 109 $ — $ ( 219,086 ) $ ( 245 ) $ ( 219,222 ) Accretion of redeemable convertible preferred stock to redemption value — 15,095 — ( 2,851 ) ( 12,244 ) — ( 15,095 ) Exercise of stock options — — 511,426 5 2,005 — — 2,010 Stock-based compensation — — — — 846 — — 846 Foreign currency translation adjustment — — — — — — 43 43 Net loss — — — — ( 12,528 ) — ( 12,528 ) Balances as of December 31, 2020 19,243,795 $ 298,525 11,376,048 $ 114 $ — $ ( 243,858 ) $ ( 202 ) $ ( 243,946 ) Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering ( 19,243,795 ) $ ( 305,586 ) 19,243,795 192 305,394 — — 305,586 Issuance of common stock in connection with initial public offering, net of issuance costs of $ 14,762 — — 6,612,500 66 117,422 — — 117,488 Accretion of redeemable convertible preferred stock to redemption value — 7,061 — — ( 3,400 ) ( 3,661 ) — ( 7,061 ) Issuance of common stock for acquisition of Design Manager — — 45,152 1 766 — — 767 Issuance of common stock for exercise of stock options — — 677,569 7 2,722 — — 2,729 Issuance of common stock for cashless exercise of warrants — — 35,665 — — — — — Vested restricted stock units converted to common shares — — 800 — — — — — Stock-based compensation — — — — 2,865 — — 2,865 Foreign currency translation adjustment — — — — — — ( 27 ) ( 27 ) Net loss — — — — — ( 20,963 ) — ( 20,963 ) Balances as of December 31, 2021 — $ — 37,991,529 $ 380 $ 425,769 $ ( 268,482 ) $ ( 229 ) $ 157,438 See accompanying notes to the consolidated financial statements 63 1STDIBS.COM, INC. CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (Amounts in thousands, except share amounts) Common Stock Additional Paid - In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity Shares Amount Balances as of December 31, 2021 37,991,529 $ 380 $ 425,769 $ ( 268,482 ) $ ( 229 ) $ 157,438 Issuance of common stock for exercise of stock options 509,694 5 2,030 — — 2,035 Vested restricted stock units converted to common shares 758,970 8 ( 8 ) — — — Stock-based compensation — — 11,214 — — 11,214 Foreign currency translation adjustment — — — — ( 127 ) ( 127 ) Net loss — — — ( 22,538 ) — ( 22,538 ) Balances as of December 31, 2022 39,260,193 $ 393 $ 439,005 $ ( 291,020 ) $ ( 356 ) $ 148,022 See accompanying notes to the consolidated financial statements 64 1STDIBS.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended December 31, 2022 2021 2020 Cash flows from operating activities: Net loss $ ( 22,538 ) $ ( 20,963 ) $ ( 12,528 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,710 3,112 6,023 Stock-based compensation expense 11,214 2,839 846 Change in fair value of deferred acquisition consideration — 427 134 Provision for transaction losses, returns and refunds 781 701 810 Amortization of costs to obtain revenue contracts 310 447 487 Amortization of operating lease right-of-use assets 2,541 — — Deferred rent — ( 194 ) ( 2,837 ) Gain on sale of Design Manager ( 9,684 ) — — Other, net 195 21 ( 11 ) Changes in operating assets and liabilities: Accounts receivable ( 497 ) 52 ( 652 ) Prepaid expenses and other current assets 31 ( 1,418 ) 179 Receivables from payment processors ( 323 ) 910 553 Other assets ( 615 ) ( 145 ) ( 163 ) Accounts payable and accrued expenses ( 5,206 ) 5,055 2,219 Payables due to sellers ( 3,041 ) 5,732 1,592 Operating lease liabilities ( 2,735 ) — — Other current liabilities and other liabilities ( 1,057 ) ( 977 ) ( 95 ) Net cash used in operating activities ( 27,914 ) ( 4,401 ) ( 3,443 ) Cash flows from investing activities: Development of internal-use software ( 1,871 ) ( 2,110 ) ( 1,782 ) Proceeds from repayment of notes receivable with related party — — 3,112 Purchases of property and equipment ( 93 ) ( 129 ) ( 44 ) Proceeds from sale of Design Manager 14,611 — — Other, net ( 6 ) ( 30 ) — Net cash provided by (used in) investing activities 12,641 ( 2,269 ) 1,286 Cash flows from financing activities: Proceeds from issuance of common stock in initial public offering, net of underwriting discounts and commissions — 122,993 — Proceeds from exercise of stock options 2,035 2,729 2,010 Payment of deferred acquisition consideration — ( 640 ) — Payment of deferred offering costs — ( 5,032 ) ( 448 ) Net cash provided by financing activities 2,035 120,050 1,562 Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 278 ) ( 16 ) ( 14 ) Net (decrease) increase in cash, cash equivalents, and restricted cash ( 13,516 ) 113,364 ( 609 ) Cash, cash equivalents, and restricted cash at beginning of the period 171,559 58,195 58,804 Cash, cash equivalents, and restricted cash at end of the period $ 158,043 $ 171,559 $ 58,195 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 26 $ 69 $ 11 Cash paid for interest 10 16 14 65 Supplemental disclosure of non-cash activities: Accretion of redeemable convertible preferred stock to redemption value $ — $ 7,061 $ 15,095 Conversion of redeemable convertible preferred stock in connection with initial public offering — 305,586 872 Change in deferred offering costs included in accounts payable and accrued expenses — ( 872 ) — Issuance of common stock for Design Manager acquisition — 767 — See accompanying notes to the consolidated financial statements 66 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of the Business and Basis of Presentation Nature of the Business 1stdibs.com, Inc. (“1stDibs” or the “Company”) is one of the world’s leading online marketplaces for connecting design lovers with many of the best sellers and makers of vintage & antique furniture, contemporary furniture, home décor, jewelry, watches, art, and fashion. The Company’s thoroughly vetted seller base, in-depth marketing content, and custom-built technology platform create trust in the Company’s brand and facilitate high-consideration purchases of luxury design products online. By disrupting the way these items are bought and sold, 1stDibs is both expanding access to, and growing the market for, luxury design products. The Company was incorporated in the state of Delaware on March 10, 2000 and is headquartered in New York, NY. Basis of Presentation The accompanying consolidated financial statements are prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries, 1stdibs.com, Ltd. and 1stdibs Design Manager, Inc. (“Design Manager”). The Company sold its equity interest in Design Manager on June 29, 2022, therefore, the consolidated statements of operations include activity relating to Design Manager through the sale date. The consolidated balance sheet as of December 31, 2022 no longer includes the assets, liabilities, and equity amounts associated with Design Manager. See Note 3 “Acquisitions & Disposals” for further details. All intercompany accounts and transactions have been eliminated in consolidation. Certain immaterial amounts in the financial statements of the prior years have been reclassified to conform to the current year presentation for comparative purposes. 2. Summary of Significant Accounting Policies Initial Public Offering The Company’s registration statement on Form S-1 (“IPO Registration Statement”) related to its initial public offering (“IPO”) was declared effective by the SEC on June 9, 2021, and the Company’s common stock began trading on the Nasdaq Global Select Market on June 10, 2021. On June 14, 2021, the Company completed its initial public offering of 6,612,500 shares of its common stock at a price to the public of $ 20.00 per share, which includes the exercise in full by the underwriters of their option to purchase from the Company an additional 862,500 shares of the Company’s common stock. The Company received net proceeds of $ 123.0 million after deducting underwriters’ discounts and commissions, before deducting offering costs. Upon the closing of the IPO, all shares of the Company’s outstanding redeemable convertible preferred stock automatically converted into 19,243,795 shares of common stock. Prior to the IPO, deferred offering costs, which consisted of direct incremental legal, accounting, and other third-party fees relating to the IPO, were capitalized in other current assets in the consolidated balance sheets. Upon completion of the IPO, the $ 5.5 million of deferred offering costs were reclassified into additional paid-in capital and accounted for as a reduction of the IPO proceeds in the consolidated balance sheets. Stock Split On May 25, 2021, the Company’s Board of Directors approved an amended and restated certificate of incorporation of the Company effecting a 1-for-3 reverse stock split of the Company’s issued and outstanding shares of redeemable convertible preferred stock and common stock. This was approved by the stockholders on May 28, 2021, and the split was effected on May 28, 2021 without any change in the par value per share. All information related to the Company’s redeemable convertible preferred stock, common stock, common stock warrants, and stock options, as well as the per share amounts, have been retroactively adjusted to give effect to the 1-for-3 reverse stock split for all periods presented. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, revenue recognition, provision for transaction losses, determination of useful lives of property and equipment, valuation and useful lives of 67 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS intangible assets, impairment assessment of goodwill, capitalization of internal-use software and determination of useful lives, stock option valuations, the incremental borrowing rate associated with lease liabilities, income taxes, and the recognition and disclosure of contingent liabilities. The Company evaluates its estimates and assumptions on an ongoing basis. Actual results could differ from those estimates and such differences may be material to the consolidated financial statements. Foreign Currency and Currency Translation The Company has determined that the functional currency for its foreign operation is the currency of the primary cash flow of the operation, which is generally the local currency in which the operation is located. All assets and liabilities are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Income and expenses are translated at the average exchange rate in effect during the period. Unrealized translation gains and losses are recorded as a translation adjustment, which is included in the consolidated statements of redeemable convertible preferred stock and stockholders’ equity (deficit) as a component of accumulated other comprehensive loss. Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in foreign exchange gain (loss) in total other, net in the consolidated statements of operations. Segment Information An operating segment is defined as a component of a business for which separate financial information is available that is evaluated regularly by the chief operating decision maker. The Company operates and manages its business as one reportable and operating segment. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on a consolidated basis for purposes of evaluating financial performance and allocating resources. The Company’s single reportable and operating segment contains one reporting unit, which consists of the Company’s online marketplace that enables commerce between sellers and buyers. Business Combinations The Company accounts for business combinations using the acquisition method of accounting. The Company measures the tangible and intangible identifiable assets acquired, liabilities assumed, any non-controlling interest in the acquiree, and contingent consideration at fair value as of the acquisition date. Any excess purchase price over the fair value of net assets acquired is recorded as goodwill. Measurement period adjustments, if any, to the preliminary estimated fair value of the intangibles assets as of the acquisition date are recorded in goodwill. The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of acquisition. Acquisition-related expenses represent expenses incurred by the Company to effect a business combination, including expenses such as finder’s fees and advisory, legal, accounting, valuation, and other professional or consulting fees, and are not included as a component of consideration transferred, but are accounted for as an expense in the period in which the costs are incurred or the services are rendered. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. Cash and cash equivalents are placed with large financial institutions that management believes are of high credit quality. At times, the Company’s cash balances with individual banking institutions are in excess of federally insured limits. The Company has not experienced any credit losses related to its cash and cash equivalents balance. As of December 31, 2022 and 2021, the Company had no single customer that represented more than 10% of its net revenue. Cash, Cash Equivalents, and Restricted Cash The following represents the Company’s cash, cash equivalents, and restricted cash as of the periods presented: December 31, 2022 2021 2020 Cash and cash equivalents $ 153,209 $ 168,226 $ 54,862 Restricted cash, current 1,500 — — Restricted cash, non-current 3,334 3,333 3,333 Total cash, cash equivalents and restricted cash $ 158,043 $ 171,559 $ 58,195 The Company considers all short-term, highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents. The Company’s restricted cash relates to a $ 3.3 million letter of credit for its 68 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS office lease in New York, New York, as well as $ 1.5 million which is held in a joint escrow account for 12 months from the date of the sale of Design Manager. The carrying value of the restricted cash approximates fair value. Accounts Receivable, net The Company’s accounts receivable are recorded at amounts billed to sellers, generally for subscription revenue, and are presented net of an estimated allowance for doubtful accounts on the Company’s consolidated balance sheets. The Company’s accounts receivable do not bear interest and do not require collateral or other security to support related receivables. The allowance for doubtful accounts are estimated based on a number of factors, including age of the receivable, historical losses, and management’s assessment of the financial condition of sellers. The evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. Losses are charged against the allowance when management believes the un-collectability of a receivable is confirmed and subsequent recoveries, if any, are credited to the allowance. Account balances are written off after all means of collection are exhausted and the potential for non-recovery is determined to be probable. Adjustments to the allowance for doubtful accounts are recorded as a component of provision for transaction losses in the consolidated statements of operations. Receivables from Payment Processors and Payables Due to Sellers Receivables from payment processors represent amounts received from buyers via third-party payment processors which will be deposited by the payment processors to 1stDibs’ bank accounts for payment to sellers and shipping carriers. The Company also collects sales tax from buyers on behalf of sellers in certain jurisdictions as a marketplace facilitator and remits these collected taxes directly to the tax authorities. The portion of the cash and related receivable remaining after deducting the Company’s commission and processing fees represents the total payables due to third parties, which consists of payables due to sellers, payables due to shipping carriers in instances where 1stDibs’ shipping services are elected by sellers, and payables due to tax authorities. The Company establishes an allowance for seller refunds for amounts that sellers owe the Company after a return is processed. The allowance for seller refunds was $ 0.3 million and $ 0.2 million at December 31, 2022 and 2021, respectively and included in other current assets on the Company’s consolidated balance sheets. Property and Equipment, net Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives. The Company capitalizes costs related to internal-use software during the application development stage, including consulting costs and compensation expenses related to employees who devote time to the development projects. The Company records software development costs in property and equipment, net. Costs incurred in the preliminary stages of development activities and post implementation activities are expensed in the period incurred and are included in technology development in the consolidated statements of operations. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Once the project is available for general release, capitalization ceases, and asset amortization begins. Capitalized costs associated with internal-use software are amortized on a straight-line basis over their estimated useful life, which is generally three years , and are included in cost of revenue in the consolidated statements of operations. The general range of useful lives of property and equipment is as follows: Estimated Useful Life Leasehold improvements Lesser of lease term or life of asset Furniture and fixtures 3 years Computer equipment and software 3 years Internal-use software Lesser of contract term or 3 years When assets are sold or retired, the cost and related accumulated depreciation or amortization of assets disposed of are removed from the accounts, with any resulting gain or loss recorded in income from operations in the consolidated statements of operations and consolidated statements of comprehensive loss. Costs of repairs and maintenance are expensed as incurred. When events occur or changes in circumstances require, the Company assesses the likelihood of recovering the cost of tangible long-lived assets based on its expectations of future profitability, undiscounted cash flows, and management’s plans with respect to operations to determine if the asset is impaired and subject to write-off. Measurement of any impairment loss is 69 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS based on the excess of the carrying value of the asset over the fair value. For the years ended December 31, 2022, 2021 and 2020, there were no impairment losses recorded. Goodwill Goodwill represents the excess of cost over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company’s goodwill is evaluated at the entity level as it is determined there is one reporting unit, 1stDibs. Prior to the sale of Design Manager in June 2022, the Company’s goodwill was evaluated at the reporting unit level, based on the Company having two reporting units, 1stDibs and Design Manager. The Company performs its annual goodwill impairment test as of October 1st or more frequently if events or changes in circumstances indicate that the goodwill may be impaired. The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the Company determines it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if the Company concludes otherwise, then it is required to perform a quantitative assessment for impairment. The quantitative assessment involves comparing the estimated fair value of the reporting unit with its respective book value, including goodwill. If the estimated fair value exceeds book value, goodwill is not impaired. If the book value of the reporting unit exceeds the fair value, an impairment loss is recognized in an amount equal to the excess, not to exceed the total amount of goodwill allocated to that reporting unit. Based on the Company’s assessments, there were no impairment losses recorded during the years ended December 31, 2022, 2021 and 2020. Intangible Assets The Company’s intangible assets included customer relationships, trade names and associated trademarks, acquired and developed technology, and other intangibles such as patents and non-compete agreements obtained through business acquisitions. Intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods deemed appropriate for the type of intangible asset acquired, and reported net of accumulated amortization, separately from goodwill. Intangible assets are amortized on a straight-line basis over their estimated useful lives as presented below: Asset Estimated Useful Life Customer relationships 15 years Trade names and associated trademarks 5 - 10 years Acquired and developed technology 3 years Other 3 years When events or changes in circumstances indicate the carrying amount may not be recoverable, the Company reviews the assets for impairment. The Company measures recoverability by comparing the carrying amounts to the future undiscounted cash flows that the assets or asset groups are expected to generate. If the carrying value of the assets are not recoverable, the impairment recognized is measured as the amount by which the carrying value of the asset exceeds its fair value. For the years ended December 31, 2022, 2021 and 2020, there were no impairment losses recorded. During the year ended December 31, 2022, substantially all of the intangible assets, net were included in the sale of Design Manager; therefore, as of December 31, 2022, there are no intangible assets, net subject to amortization on the Company’s consolidated balance sheet. Leases Effective January 1, 2022, the Company adopted ASU 2016-02, utilizing the modified retrospective adoption approach. The Company enters into contracts in the normal course of business and assesses whether any such contracts contain a lease. The Company determines if an arrangement is a lease at inception if it conveys the right to control the identified asset for a period of time in exchange for consideration. The Company classifies leases as operating or financing in nature, and records the associated right-of-use asset and lease liability on its consolidated balance sheet. The lease liability represents the present value 70 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of future lease payments, net of lease incentives, discounted using an incremental borrowing rate, which is a management estimate based on the information available at the commencement date of a lease arrangement. Lease expense is recognized as a single lease cost on a straight-line basis over the lease term. The lease term consists of non-cancelable periods and may include options, including those to extend or terminate, if it is reasonably certain they will be exercised. The Company accounts for lease and non-lease components related to operating leases as a single lease component. The Company has elected that costs associated with leases having an initial term of 12 months or less ("short-term leases") are recognized in the consolidated statement of operations on a straight-line basis over the lease term and are not recorded on the balance sheet. Variable lease expense is recognized as incurred and consists primarily of real estate taxes, utilities, and other office space related expenses. Prior to adoption, during the fiscal years ended December 31, 2021 and prior, the Company accounted for leases under ASC 840, whereby rent expense associated with operating leases was recognized on a straight-line basis over the lease term. Contingencies The Company has certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability on the Company’s consolidated balance sheets. The Company does not accrue for contingent losses that, in its judgment, are considered to be reasonably possible, but not probable. Fair Value of Financial Instruments Certain assets and liabilities are carried at fair value in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: • Level 1—Quoted prices in active markets for identical assets or liabilities. • Level 2—Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies, and similar techniques. The carrying values of cash and cash equivalents, restricted cash, accounts receivable, net, prepaid expenses, receivables from payment processors, accounts payable, payables due to sellers, accrued expenses, and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities. There were no transfers between Level 1, Level 2 or Level 3 during the years ended December 31, 2022 and 2021. Income Taxes Income taxes are computed using the asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements. In estimating future tax consequences, the Company considers all expected future events other than enactment of changes in tax laws or rates. A valuation allowance is recorded, if necessary, to reduce net deferred tax assets to their realizable values if management does not believe it is more likely than not that the net deferred tax assets will be realized. The Company follows the provisions of the authoritative guidance from the Financial Accounting Standards Board (“FASB”) on accounting for uncertainty in income taxes. These provisions provide a comprehensive model for the recognition, measurement, and disclosure in the financial statements of uncertain income tax positions that a company has taken or expects to take on a tax return. Under these provisions, a company can recognize the benefit of an income tax position only if it is more 71 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit can be recognized. Assessing an uncertain tax position begins with the initial determination of the sustainability of the position and is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed. Additionally, the Company must accrue interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in the provision for income taxes. As of December 31, 2022 and 2021, the Company had no accrued interest or penalties related to uncertain tax positions. The Company assesses foreign investment levels periodically to determine if all or a portion of the Company’s investments in its foreign subsidiary are indefinitely invested. Any required adjustment to the income tax provision (benefit) would be reflected in the period that the Company changes this assessment. The Company recognizes the tax on global intangible low-taxed income (“GILTI”) earned by foreign subsidiaries as a period expense in the period the tax is incurred. Net Loss per Share Attributable to Common Stockholders The Company applies the two-class method to compute basic and diluted net loss per share when shares meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period has been distributed. During periods of loss, there is no allocation required under the two-class method. Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period without consideration of potentially dilutive common stock. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares. For periods in which the Company reports net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders because potentially dilutive shares of common stock are not assumed to have been issued since their effect is anti-dilutive. Revenue Recognition The Company’s net revenue consists principally of seller marketplace services, advertisements, and prior to the sale of Design Manager, software services. Seller marketplace services primarily consist of marketplace transactions, subscriptions, and listing fees. Revenue is recognized as the Company transfers control of promised goods or services to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company evaluates whether it is appropriate to recognize revenue on a gross or net basis based upon its evaluation of whether the Company obtains control of the specified goods or services by considering if it is primarily responsible for fulfillment of the promise, has inventory risk, has the latitude in establishing pricing and selecting suppliers, among other factors. The Company does not have any remaining performance obligations associated with contracts with terms greater than one year. Seller Marketplace Services (Marketplace Transactions, Subscriptions, and Listings) The Company charges sellers commission and processing fees for successful purchases through its online marketplace. For the items purchased through the 1stDibs online marketplace, the Company collects the gross merchandise value from the buyer, but the Company recognizes the associated revenue on a net basis, which equates to the commission and processing fees earned in exchange for the seller marketplace services. The commission fees range from 5 % to 50 % and processing fees are 3 %, net of expected refunds. If a seller accepts a return or refund of an on-platform purchase, the related commission and processing fees are refunded to the seller. The Company records discounts provided to the end buyer, to whom the Company has no performance obligation, such as promotional discounts, in sales and marketing expense since the discounts are not related directly to the Company’s revenue source but rather used as a marketing tool, and the seller is not made aware of the discounts provided to the end buyer. The commission and processing fees are recognized net of estimated refunds when the corresponding transaction is confirmed by the buyer and seller. The Company does not take title to inventory sold or assume risk of loss at any point in time during the transaction and is authorized to collect consideration from the buyer and remit net consideration to the seller to facilitate the processing of the confirmed purchase transaction. 72 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In January 2022, the Company launched new seller pricing tiers which allow sellers to choose the plan that best fits their business and includes choices of a higher monthly subscription fee and lower commission rates, as well as a subscription-free tier with higher commission rates. Depending on the tier chosen, sellers may pay annual subscription fees to access our online marketplace. The Company sells subscriptions to access the 1stDibs online marketplace, which allow sellers to promote and list items to be sold to buyers and execute successful purchase transactions with buyers for lower commission rates. Through the subscription, the sellers receive the benefit of marketplace activities for lower commission rates, including listing items for sale, completing sales transactions, and payments processing, which represents a single stand-ready performance obligation. The Company has determined that its customers are sellers on its online marketplace since sellers pay for the use of the platform to sell their inventory. The Company offers sellers annual subscriptions that are payable on a monthly basis and the subscription fee is recognized monthly. If during the annual subscription period a seller ceases to make its monthly payment, the Company is no longer obligated to provide the subscribed services and the seller can be terminated at the Company’s sole discretion. The Company earns listing fees from sellers who are subscribed to its online marketplace on a per item basis as directed by the seller to promote certain items at the seller’s discretion. Listing fees are recognized ratably over time when the listing is publicly posted. Advertisements Advertising revenue is generated by displaying seller ads on the 1stDibs online marketplace. For advertising services, the Company enters into agreements with advertisers, or sellers, in the form of signed insertion orders, which specify the terms of services and fees, prior to advertising campaigns being run. The Company recognizes revenue from the display of impression-based ads in the period in which the impressions are delivered in accordance with the contractual terms of the insertion orders. Impressions are considered delivered when an ad is displayed to users. Software Services Through the Company’s former subsidiary, Design Manager, the Company offered subscriptions to access software typically used by interior designers. Subscriptions did not provide customers with the right to take possession of the software supporting the applications and, as a result, were accounted for as service contracts. The Company offered both monthly and annual subscriptions. For software services, the Company offered subscriptions to customers that were tailored to design firms as an end-to-end business solution for project management and accounting and entered into agreements with the customers through their acceptance of online terms of service, which specified the terms of services and fees, prior to the customers receiving access to the software platform. On June 29, 2022, the Company sold Design Manager and no revenue related to software services has been recognized since the sale date. Contract Costs The Company capitalizes commission costs that are incremental and directly related to the acquisition of seller agreements. Commissions are earned by the Company’s sales force when the seller’s listings are publicly visible and available for purchase on the 1stDibs online marketplace. Commission costs are capitalized when earned and are amortized as expense over an estimated seller relationship period of three years . The Company determined the estimated seller relationship period by taking into consideration the contractual term of the seller agreements, the seller’s lifetime expected value, and the fact that no additional commission is paid for renewed seller agreements. As of December 31, 2022, the Company recorded, $ 0.5 million of costs to obtain revenue contracts of which $ 0.3 million was included in other current assets, and $ 0.2 million was included in other assets. As of December 31, 2021, the Company recorded $ 0.5 million of costs to obtain revenue contracts of which $ 0.3 million was included in other current assets, and $ 0.2 million was included in other assets. Amortization of costs to obtain revenue contracts totaled $ 0.3 million, $ 0.4 million, and $ 0.5 million for the years ended December 31, 2022, 2021, and 2020, respectively, and are included in sales and marketing in the Company’s consolidated statements of operations. The Company periodically reviews the costs to obtain revenue contracts to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these costs to obtain revenue contracts. Contract Balances from Contracts with Customers A contract liability is an obligation to transfer goods or services for which consideration has been received or is due to a customer. Contract liabilities consist of deferred revenue that is unearned related to setup fees charged to new sellers at the inception of service and advertising fees charged to advertisers for which advertisements have not been delivered. Prior to the sale of Design Manager deferred revenue also included software subscription fees. Deferred revenue for setup fees is recognized as revenue over the expected life of the seller relationship, which the Company determined to be three years . 73 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred revenue for software and advertising fees is recognized as revenue in the periods in which services are provided. As of December 31, 2022 and 2021, deferred revenue was $ 0.2 million and $ 0.9 million, respectively. The current portion of deferred revenue was $ 0.1 million and $ 0.8 million as of December 31, 2022 and 2021, respectively, and are included in other current liabilities in the Company’s consolidated balance sheets. The non-current portion of deferred revenue was less than $ 0.1 million and $ 0.1 million as of December 31, 2022 and 2021, and are included in other liabilities in the Company’s consolidated balance sheets, respectively. Cost of Revenue Cost of revenue includes payment processor fees, hosting expenses, and resold software usage and services. No resold software usage and services expense has been recognized after the sale of Design Manager. Cost of revenue also includes expenses associated with payroll, employee benefits, stock-based compensation, other headcount-related expenses associated with personnel supporting revenue-related operations, amortization of internal-use software, and consulting costs. In certain transactions where 1stDibs shipping and logistics services are elected by sellers, the Company enables shipping of items purchased from the seller to the buyer. Any difference between the amount collected for shipping and the amount charged by the shipping carrier is included in cost of revenue in the consolidated statements of operations. Sales and Marketing Sales and marketing expenses include payroll, employee benefits, stock-based compensation, other headcount-related expenses associated with sales and marketing personnel, advertising expense, consulting costs, and promotional discounts offered to new and existing buyers. Advertising expenses consist primarily of costs incurred promoting and marketing the Company’s online marketplace, such as costs associated with acquiring new users through performance-based marketing, social media, email, and events. Promotional discounts and incentives represent incentives solely to end buyers and, therefore, are not considered payments made to the Company’s customers. Buyers are not customers because access to the 1stDibs online marketplace is free for buyers and the Company has no performance obligations with respect to buyers. The Company expenses all advertising expenses as incurred. During the years ended December 31, 2022, 2021, and 2020, the Company incurred advertising expenses of approximately $ 16.3 million, $ 21.2 million, and $ 15.1 million, respectively. Technology Development Technology development expenses include payroll, employee benefits, stock-based compensation, and other headcount-related expenses associated with engineering and product development personnel and consulting costs related to technology development. The Company expenses all technology development expenses as incurred. Expenses that meet the criteria for capitalization as internal-use software are capitalized to property and equipment, net on the consolidated balance sheets and amortized over their useful life. This amortization expense related to internal-use software is included in cost of revenue in the consolidated statements of operations. General and Administrative General and administrative expenses include payroll, employee benefits, stock-based compensation, other headcount-related expenses associated with finance, legal, facility and human resources related personnel, lease expense, business liability insurance, accounting, professional fees, and depreciation and amortization of property and equipment. The Company expenses all general and administrative expenses as incurred. Provision for Transaction Losses Provision for transaction losses consists primarily of losses resulting from the Company’s buyer protection program, including damages to products caused by shipping and transit, items that were not received or not as represented by the seller, and reimbursements to buyers at the Company’s discretion if they are dissatisfied with their experience. The provision for transaction losses also includes bad debt expense associated with the Company’s accounts receivable. Restructuring Charges In September 2022, the Company announced and implemented a restructuring plan to reduce operational costs and realign investment priorities involving the reduction of approximately 10 % of the Company’s workforce. As a result of the reduction, the Company incurred approximately $ 0.7 million in non-recurring restructuring charges, consisting primarily of employee severance and benefits costs. As of December 31, 2022, the restructuring plan was completed and no additional significant 74 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS amounts are expected to be recognized. The following table displays a rollforward of the charges to the accrued balance as of December 31, 2022. (in thousands) Restructuring Charges Balance, December 31, 2021 $ — Restructuring charges 660 Cash payments ( 596 ) Balance, December 31, 2022 $ 64 The expense is included within the respective financial statement line items on the consolidated statement of operations as shown in the table below for the year ended December 31, 2022. (in thousands) Year Ended December 31, 2022 Cost of revenue $ 58 Sales and marketing 333 Technology development 201 General and administrative 68 Total $ 660 Stock-Based Compensation The Company measures all stock-based awards granted to employees, directors, and non-employees based on the fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the fair value of the Company’s common stock, expected stock price volatility, the expected term of the award, the risk-free interest rate for a period that approximates the expected term of the option, and the Company’s expected dividend yield. Expected volatility was calculated based on the implied volatilities from market comparisons of certain publicly traded companies and other factors. The expected option term was calculated based on the simplified method, which uses the midpoint between the vesting date and the contractual term, as the Company does not have sufficient historical data to develop an estimate based on participant behavior. The risk-free interest rate was based on the U.S. Treasury bond yield with an equivalent term. The Company has not paid dividends and has no foreseeable plans to pay dividends. The fair value of restricted stock units are estimated on the date of grant based on the fair value of the Company’s common stock. The Company classifies stock-based compensation expense in its consolidated statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the FASB under its ASC or other standard setting bodies. The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. Recently Adopted Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . The guidance in ASU 2016-02 supersedes the leasing guidance in Topic 840, Leases . Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statements of operations. An entity 75 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS may adopt the guidance either (1) retrospectively to each prior reporting period presented in the financial statements with a cumulative-effect adjustment recognized at the beginning of the earliest comparative period presented or (2) retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The guidance is effective for fiscal years and interim periods beginning after December 15, 2018 for public business entities, and for fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, for all other entities. The Company adopted this standard on January 1, 2022, which resulted in the Company recording $ 24.5 million of operating lease right-of-use assets, and $ 2.7 million and $ 24.4 million of operating lease liabilities, classified as current and non-current, respectively, on its balance sheet. The adoption did not have a material effect on the statement of operations. The Company utilized the modified retrospective adoption approach, whereby all prior periods continue to be reported under previous lease accounting guidance. The Company elected the package of practical expedients to not reassess prior conclusions related to lease identification, classification and initial direct costs, and did not elect the hindsight practical expedient which would have permitted the use of hindsight in determining the lease term and assessing impairment. See Note 9, "Leases" for further discussion on the Company's accounting for leases under ASC 842. In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions with ASC 740, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. This guidance is effective for fiscal years and interim periods beginning after December 15, 2020 for public business entities and for fiscal years beginning after December 15, 2021 for all other entities. The Company adopted this standard on January 1, 2022, which did not have a material impact on the Company's consolidated financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU 2016-13 , Financial Instruments-Credit Losses (Topic 326). The amendments in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13, as subsequently amended for various technical issues, is effective for emerging growth companies for fiscal years beginning after December 15, 2022 and for interim periods within those fiscal years. The Company plans to adopt this standard on January 1, 2023 and, based on the Company’s current mix of financial assets, does not expect the adoption to have a material impact on the Company's consolidated financial statements. 3. Acquisitions & Disposals Design Manager On May 2, 2019, the Company acquired 100 % of the outstanding equity of Franklin Potter Associates, Inc. and its subsidiary, doing business as Design Manager, for a total purchase consideration of $ 4.2 million. As a result, Design Manager became a wholly-owned subsidiary of the Company. On June 29, 2022, the Company sold 100 % of its equity interest in Design Manager for a purchase price of $ 14.8 million. The Company received net cash proceeds of $ 14.6 million, of which $ 1.5 million will be held in a joint escrow account for 12 months from the date of the sale and is recorded as restricted cash, current in the Company’s consolidated balance sheet. Additionally, a net gain on the sale of $ 9.7 million was recognized during the year ended December 31, 2022, and is included in loss from operations on the consolidated statement of operations. 4. Revenue Recognition The following table summarizes the Company’s net revenue by type of service for the periods presented: Year Ended December 31, (in thousands) 2022 2021 2020 Seller marketplace services $ 94,333 $ 98,984 $ 78,811 Other services 2,516 3,747 3,052 Total net revenue $ 96,849 $ 102,731 $ 81,863 The Company generates revenue from seller marketplace services and other services. Seller marketplace services primarily consist of marketplace transaction, subscription, and listing fees. Other services primarily consist of advertising revenues generated from displaying ads on the Company’s online marketplace and software services revenue related to Design Manager, typically used by interior designers. Design Manager was sold on June 29, 2022; therefore, no related net revenue for software services was recognized after the sale date. 76 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Contract Balances from Contracts with Customers The following table provides a rollforward of the deferred revenue amounts as follows (in thousands): Balance as of December 31, 2020 $ 616 Billings 2,668 Revenue recognized ( 2,340 ) Balance as of December 31, 2021 $ 944 Billings 1,502 Net revenue recognized ( 1,661 ) Reduction resulting from the sale of Design Manager ( 602 ) Balance as of December 31, 2022 $ 183 The amount of revenue recognized during the year ended December 31, 2022 that was included in the deferred revenue balance at January 1, 2022 was $ 0.6 million. 5. Accounts Receivable, net Accounts receivable, net was $ 1.0 million and $ 0.7 million at December 31, 2022 and 2021, respectively. The Company recorded an allowance for doubtful accounts of $ 0.1 million and less than $ 0.1 million as of December 31, 2022 and 2021, respectively. Changes in the allowance for doubtful accounts for the periods presented were as follows (in thousands): Balance as of January 1, 2021 $ 51 Provisions charged to operating results 124 Account write-offs ( 146 ) Balance as of December 31, 2021 $ 29 Provisions charged to operating results 206 Account write-offs ( 122 ) Balance as of December 31, 2022 $ 113 6. Property and Equipment, net As of December 31, 2022 and 2021, property and equipment, net consisted of the following: December 31, (in thousands) 2022 2021 Internal-use software $ 18,418 $ 16,346 Leasehold improvements 3,594 3,591 Furniture and fixtures 1,114 1,107 Computer equipment and software 851 882 Construction in progress 562 1,047 Total property and equipment, gross 24,539 22,973 Less: accumulated depreciation and amortization ( 20,854 ) ( 18,514 ) Total property and equipment, net $ 3,685 $ 4,459 As of December 31, 2022 and 2021, the net book value of internal-use software was $ 3.0 million and $ 3.2 million, respectively. Depreciation and amortization expense related to the Company’s property and equipment totaled $ 2.6 million, $ 2.9 million, and $ 5.8 million, for the years ended December 31, 2022, 2021, and 2020, respectively, which included amortization expense for internal-use software of $ 2.5 million, $ 2.8 million, and $ 4.3 million, respectively. 77 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Goodwill and Intangible Assets Goodwill The changes in the carrying balance of goodwill for the periods presented were as follows (in thousands): Balance as of January 1, 2021 $ 7,212 Foreign currency translation adjustment ( 10 ) Balance as of December 31, 2021 $ 7,202 Reduction resulting from the sale of Design Manager ( 3,036 ) Foreign currency translation adjustment ( 91 ) Balance as of December 31, 2022 $ 4,075 Intangible Assets, net On June 29, 2022, the Company sold 100 % of its equity interest in Design Manager, including the majority of the Company’s intangible assets. See Note 3, “Acquisitions & Disposals” for further discussion of the sale. As a result of the sale, the Company's had a remaining gross carrying amount of $ 6.7 million and accumulated amortization of $ 6.7 million relating to intangible assets subject to amortization as of December 31, 2022, as well as an immaterial amount of intangible assets classified as indefinite-lived that were not subject to amortization. Intangible assets consisted of the following as of December 31, 2021: December 31, 2021 (in thousands) Weighted Average Remaining Amortization Period (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships 12.3 $ 1,230 $ 219 $ 1,011 Acquired and developed technology 0.1 6,400 6,366 34 Trade names and associated trademarks 1.6 705 595 110 Other intangible assets subject to amortization — 64 64 — Other intangible assets not subject to amortization — 9 — 9 Total intangible assets 2.4 $ 8,408 $ 7,244 $ 1,164 Total amortization expense for intangible assets was $ 0.1 million, $ 0.2 million, and $ 0.2 million for the years ended December 31, 2022, 2021, and 2020, respectively. 8. Accrued Expenses As of December 31, 2022 and 2021, accrued expenses consisted of the following: December 31, (in thousands) 2022 2021 Shipping $ 3,597 $ 6,669 Salaries & benefits 1,862 2,174 Sales & use tax payable 1,378 1,721 Allowance for transaction losses 1,327 1,127 Payment processor fees 970 1,052 Allowance for e-commerce returns 438 415 Other 1,189 587 Total accrued expenses $ 10,761 $ 13,745 78 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Leases The Company’s operating lease arrangements are principally for office space in its New York City headquarters. As of December 31, 2022, the Company had $ 22.0 million of operating lease right-of-use assets, $ 2.8 million and $ 21.7 million of current and non-current operating lease liabilities, respectively, and no finance leases on its consolidated balance sheet. These operating lease arrangements included in the measurement of lease liabilities had a weighted-average remaining lease term of 7.0 years, a weighted-average discount rate of 5.9 %, and do not reflect options to extend or terminate, as management does not consider the exercise of these options to be reasonably certain. During the year ended December 31, 2022, the Company paid $ 4.2 million, for amounts included in the measurement of lease liabilities. The Company did not enter into any new lease arrangements during the year ended December 31, 2022. During the year ended December 31, 2022, the Company recognized $ 5.2 million of lease expense. During the year ended December 31, 2021, rent expense, including associated common area maintenance charges, was $ 4.1 million. December 31, (in thousands) 2022 Operating lease expense $ 3,988 Short-term lease expense 111 Variable lease expense 1,058 Total lease expense $ 5,157 As of December 31, 2022, the total remaining operating lease payments included in the measurement of lease liabilities was as follows (in thousands): Fiscal Year Ending December 31, Operating Lease Payments 2023 $ 4,079 2024 4,114 2025 4,292 2026 4,292 2027 4,292 Thereafter 8,583 Total operating lease payments 29,652 Less: imputed interest ( 5,204 ) Total lease liabilities $ 24,448 10. Other Current Liabilities As of December 31, 2022 and 2021, other current liabilities consisted of the following: December 31, (in thousands) 2022 2021 Sales and use tax contingencies 1,863 1,922 Buyer deposits 318 595 Deferred revenue 140 801 Other 108 $ 194 Total other current liabilities $ 2,429 $ 3,512 79 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Other Liabilities As of December 31, 2022 and 2021, other liabilities consisted of the following: December 31, (in thousands) 2022 2021 Deferred rent $ — $ 2,458 Deferred revenue 43 143 Other 3 4 Total other liabilities $ 46 $ 2,605 12. Equity As of December 31, 2022 and 2021, the Company had reserved shares of common stock for issuance in connection with the following: December 31, 2022 2021 Options to purchase common stock 4,034,287 3,949,943 Restricted stock units 2,807,981 309,530 Shares available for future grant under the 2021 Plan 3,151,824 5,103,772 Shares available for future grant under the ESPP 1,179,902 800,000 Total 11,173,994 10,163,245 Preferred Stock Effective June 14, 2021, in connection with the closing of the Company’s IPO, the Company’s Board of Directors is authorized to issue up to 10,000,000 shares of preferred stock, $ 0.01 par value per share, in one or more series. The Company's Board of Directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. As of December 31, 2022 and 2021, no shares of preferred stock were issued or outstanding. Common Stock As of December 31, 2022 and 2021, the Company had authorized 400,000,000 shares of voting common stock, $ 0.01 par value per share. Each holder of the Company's common stock is entitled to one vote for each share on all matters to be voted upon by the stockholders and there are no cumulative rights. Subject to any preferential rights of any outstanding preferred stock, holders of the Company's common stock are entitled to receive ratably the dividends, if any, as may be declared from time to time by the Board of Directors out of legally available funds. If there is a liquidation, dissolution, or winding up of the Company, holders of the Company's common stock would be entitled to share in the Company's assets remaining after the payment of liabilities and any preferential rights of any outstanding preferred stock. The rights, preferences, and privileges of the holders of the Company's common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which the Company may designate and issue in the future. 13. Stock-based compensation 2011 Option Plan The Company adopted the 2011 Stock Option and Grant Plan (the “2011 Plan”) on September 2, 2011 and amended and restated the plan on December 14, 2011. The 2011 Plan provided for the Company to grant incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”), restricted stock awards, and other stock-based awards to its employees, directors, officers, outside advisors, and non-employee consultants. At the time of grant, the options issued to new employees pursuant to the 2011 Plan expire ten years from the date of grant and generally vest over four years , with 25 % vesting on the first anniversary and the balance vesting ratably over the remaining 36 months. Additional options issued to current employees, current outside advisors, and non-employee consultants pursuant to the 2011 Plan expire ten years from the date of grant and generally vest ratably over 48 months. The 2011 Plan is administered by the Company’s board of directors or, at the discretion of the Company’s board of directors, by a committee thereof. The exercise prices, vesting, and other restrictions are determined at the discretion of the 80 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Company’s board of directors, or its committee if so delegated. In February 2021, the Company’s board of directors approved an increase of 2,333,333 shares of common stock to be available for future issuance under the 2011 Option Plan, which was approved by the stockholders in March 2021. Following the completion of the Company’s IPO, no additional awards and no shares of the Company’s common stock remain available for future issuance under the 2011 Plan. However, the 2011 Plan will continue to govern the terms and conditions of the outstanding awards previously granted thereunder. 2021 Stock Incentive Plan In May 2021, the Company's board of directors adopted, and its stockholders approved, the 2021 Stock Incentive Plan (the “2021 Plan”), which became effective upon the SEC declaring the Company’s IPO registration statement effective. The 2021 Plan provides for the grant of ISOs, NSOs, restricted share awards, stock unit awards (“RSUs”), stock appreciation rights, cash-based awards, and performance-based stock awards, or collectively, stock awards. ISOs may be granted only to the Company’s employees, including officers, and the employees of its parent or subsidiaries. All other stock awards may be granted to the Company’s employees, officers, non-employee directors, and consultants and the employees and consultants of its parent, subsidiaries, and affiliates. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Restricted Share Award Agreement. The requisite service period for RSUs to vest is generally over four years from the grant date, with 25 % vesting on the first anniversary and the balance vesting ratably on a quarterly basis over the remaining vesting period. Additional RSUs, generally granted to current employees, vest ratably on a quarterly basis over the four years beginning on the three month anniversary from the grant date. The aggregate number of shares of the Company’s common stock that may be issued pursuant to stock awards under the 2021 Plan will not exceed the sum of (x) 4,333,333 shares (as adjusted for stock splits, stock dividends, combinations, and the like), plus (y) the sum of (1) the number of reserved shares not issued or subject to outstanding awards under the 2011 Plan on the effective date of the 2021 Plan and (2) the number of shares subject to outstanding stock awards granted under the 2011 Plan and that, following the effective date of the 2021 Plan, (A) are subsequently forfeited or terminated for any reason before being exercised or settled, (B) are not issued because such stock award is settled in cash, (C) are subject to vesting restrictions and are subsequently forfeited, (D) are withheld or reacquired to satisfy the applicable exercise, strike, or purchase price, or (E) are withheld or reacquired to satisfy a tax withholding obligation, plus (z) an annual increase on the first day of each fiscal year, for a period of not more than 10 years, beginning on January 1, 2022 and ending on, and including, January 1, 2031, in an amount equal to the lesser of (i) 5 % of the outstanding shares on the last day of the immediately preceding fiscal year or (ii) such lesser amount that the Compensation Committee determines for purposes of the annual increase for that fiscal year. As of December 31, 2022, 3,151,824 shares were available for future grants of the Company’s common stock. Stock Option Valuation The following table presents, on a weighted-average basis, the assumptions used in the Black Scholes option-pricing model to determine the grant-date fair value: Year Ended December 31, 2022 2021 2020 Expected term in years 6.0 6.0 6.1 Expected stock price volatility 64.6 % 67.5 % 46.7 % Risk-free interest rate 2.3 % 1.1 % 0.5 % Expected dividend yield — — — 81 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock Options The following table summarizes the Company’s stock option activity since December 31, 2021: Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands) Outstanding as of December 31, 2021 3,949,943 $ 6.46 6.9 $ 24,543 Granted 1,040,000 7.39 Exercised ( 509,694 ) 3.98 Cancelled/Forfeited ( 445,962 ) 7.54 Outstanding as of December 31, 2022 4,034,287 $ 6.90 6.9 $ 1,625 Options exercisable as of December 31, 2022 2,350,049 $ 5.72 5.5 $ 1,577 Options vested and expected to vest as of December 31, 2022 4,034,287 $ 6.90 6.9 $ 1,625 The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for all stock options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised was $ 1.3 million, $ 4.8 million, and $ 1.8 million during the years ended December 31, 2022, 2021, and 2020 respectively. The weighted-average grant-date fair value per share of stock options granted was $ 4.43 , $ 6.20 , and $ 2.10 during the years ended December 31, 2022, 2021, and 2020, respectively. The total fair value of stock options vested was $ 3.5 million, $ 1.5 million, and $ 1.0 million during the years ended December 31, 2022, 2021, and 2020, respectively. The stock options granted during the year ended December 31, 2021 included 615,997 stock options granted to executive officers that include a performance condition related to a sale event or initial public offering occurring before December 31, 2021 in addition to the standard service condition. These options will vest over four years , with approximately 21 % vesting on January 1, 2022, and the balance vesting ratably over the remaining 38 months. During each of the years ended December 31, 2022 and 2021, $ 0.7 million of stock-based compensation expense was recognized for options having a performance condition. Restricted Stock Units The following table summarizes the activity related to the Company's restricted stock units: Outstanding Restricted Stock Units Weighted- Average Grant Date Fair Value Outstanding as of December 31, 2021 309,530 $ 15.30 Granted 3,729,585 7.51 Vested ( 758,970 ) 8.79 Cancelled/Forfeited ( 472,164 ) 8.55 Outstanding as of December 31, 2022 2,807,981 $ 7.85 The estimated weighted-average grant date fair value of restricted stock units granted was $ 7.51 and $ 15.32 per share for the years ended December 31, 2022 and 2021, respectively. The total grant date fair value of restricted stock units vested was $ 6.7 million and less than $ 0.1 million for the years ended December 31, 2022 and 2021, respectively. Employee Stock Purchase Plan In May 2021, the Company's board of directors adopted, and its stockholders approved, the Company's 2021 Employee Stock Purchase Plan (the "ESPP"). A total of 1,179,902 shares of the Company's authorized but unissued or reacquired shares of its common stock (as adjusted for stock splits, stock dividends, combinations, and the like) are available for issuance under the ESPP. The number of shares of the Company's common stock that will be available for issuance under the ESPP also includes an annual increase on the first day of each fiscal year, for a period of not more than 10 years, beginning on January 1, 2022, equal to the least of: (i) 1 % of the outstanding shares of the Company’s common stock on such date, (ii) 400,000 shares 82 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (as adjusted for stock splits, stock dividends, combinations, and the like) or (iii) a lesser amount determined by the Compensation Committee or the Company’s board of directors. During regularly scheduled “offerings” under the ESPP, participants may purchase the Company’s common stock through payroll deductions, up to a maximum of 15 % of their eligible compensation, or such lower limit as may be determined by the Compensation Committee from time to time. Participants will be able to withdraw their accumulated payroll deductions prior to the end of the offering period in accordance with the terms of the offering. Participation in the ESPP will end automatically on termination of employment. The purchase price will be specified pursuant to the offering, but cannot, under the terms of the ESPP, be less than 85 % of the fair market value per share of the Company’s common stock on either the offering date or on the purchase date, whichever is less. The fair market value of the Company’s common stock for this purpose will generally be the closing price on Nasdaq (or such other exchange as the Company’s common stock may be traded at the relevant time) for the date in question, or if such date is not a trading day, for the last trading day before the date in question. As of December 31, 2022, an initial offering period has not commenced, and for the year ended December 31, 2022, no shares of common stock were purchased under the ESPP. Stock-Based Compensation The following table below summarizes the classification of the Company’s stock-based compensation in the consolidated statements of operations: Year Ended December 31, 2022 2021 2020 Cost of revenue $ 574 $ 81 $ 23 Sales and marketing 2,522 559 303 Technology development 4,118 707 230 General and administrative 4,000 1,492 290 Total stock-based compensation $ 11,214 $ 2,839 $ 846 As of December 31, 2022, total unrecognized compensation expense related to unvested stock-based awards was $ 28.6 million, which is expected to be recognized over a weighted-average period of 2.9 years. 14. Income Taxes Net (loss) income before income taxes for the years ended December 31, 2022, 2021, and 2020 was as follows: Year Ended December 31, (in thousands) 2022 2021 2020 United States $ ( 22,651 ) $ ( 20,986 ) $ ( 12,468 ) Foreign 150 44 ( 49 ) Total $ ( 22,501 ) $ ( 20,942 ) $ ( 12,517 ) 83 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2022, 2021, and 2020, the provision for income taxes consisted of the following: Year Ended December 31, (in thousands) 2022 2021 2020 Current U.S. Federal $ — $ — $ 1 State 37 21 10 Foreign — — — Total current expense 37 21 11 Deferred U.S. Federal — — — State — — — Foreign — — — Total deferred expense — — — Total provision for income taxes $ 37 $ 21 $ 11 The reconciliation of the U.S. federal statutory rate to the Company’s effective rate is as follows: Year Ended December 31, 2022 2021 2020 Income tax benefit using U.S. federal statutory rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 5.0 4.7 9.0 Nondeductible expenses ( 0.3 ) ( 0.1 ) ( 1.1 ) Tax law change — 0.2 0.5 Research credits 0.1 1.0 1.1 Sale of Design Manager ( 2.2 ) — — Stock-based compensation ( 0.3 ) 0.4 ( 0.9 ) Change in the valuation allowance ( 23.5 ) ( 27.2 ) ( 30.2 ) Other — ( 0.1 ) 0.5 Income tax benefit (provision), net ( 0.2 )% ( 0.1 )% ( 0.1 )% 84 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. The significant components of the Company’s deferred income tax assets and liabilities at December 31, 2022 and 2021 were comprised of the following: Year Ended December 31, (in thousands) 2022 2021 Deferred tax assets Net operating losses $ 32,508 $ 32,734 Research credits 3,065 3,047 Property and equipment 422 488 Intangible assets and goodwill 1,293 1,496 Capitalized research and development expense 4,750 — Operating lease liabilities 6,204 — Other 3,180 3,297 Total deferred tax assets 51,422 41,062 Valuation allowance ( 44,951 ) ( 39,725 ) Net deferred tax assets $ 6,471 $ 1,337 Deferred tax liabilities Intangible assets and goodwill — ( 291 ) Capitalized internal-use software ( 754 ) ( 815 ) Right-of-use assets ( 5,580 ) — Other ( 137 ) ( 231 ) Total deferred tax liabilities ( 6,471 ) ( 1,337 ) Net deferred tax liabilities $ — $ — A valuation allowance is required to be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company considered the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company believes it is more likely than not that the benefits of these deductible differences will not be fully realizable at December 31, 2022 and 2021. Accordingly, the Company has applied a valuation allowance against its net deferred tax assets. The net change in the total valuation allowance for the years ended December 31, 2022 and 2021 was an increase of approximately $ 5.2 million and $ 5.7 million, respectively. The activity in the Company’s deferred tax asset valuation allowance for the years ended December 31, 2022 and 2021, was as follows: Year Ended December 31, (in thousands) 2022 2021 Valuation allowance at beginning of year $ 39,725 $ 34,039 Increases recorded to income tax provision 5,226 5,686 Valuation allowance at end of year $ 44,951 $ 39,725 At December 31, 2022, the Company had approximately $ 116.2 million and $ 118.8 million of federal and state net operating loss (“NOL”) carryforwards, respectively. Approximately $ 56.1 million of the federal NOL and $ 81.2 million of the state NOL was generated prior to the 2018 tax year. As a result, these net operating loss carryforwards will expire, if not utilized, between 2031 and 2037 for federal and state income tax purposes. In response to the market volatility and instability resulting from the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020. The CARES Act lifts certain deduction limitations originally imposed by the TCJA that was enacted in the U.S. in December 2017. The CARES Act allows for a five-year carryback of federal NOLs generated in 2018 through 2020 and eliminates the 80% taxable income limitation by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018 through 2020. Furthermore, the post 2017 NOLs are subject to an indefinite carryforward period; therefore, $ 60.1 million of federal NOLs generated after 2017 may be carried forward indefinitely. As it pertains to the 85 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS approximately $ 37.6 million of state NOLs generated after 2017, not all states have conformed to the Act; therefore, the NOL expiration will vary based on the state. The Company also has federal and state tax credits of $ 4.1 million and less than $ 0.1 million, which begin to expire in 2031. The utilization of NOLs and tax credit carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that have occurred previously or may occur in the future. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (“IRC”), a corporation that undergoes an ownership change may be subject to limitations on its ability to utilize its pre-change NOLs and other tax attributes otherwise available to offset future taxable income and/or tax liability. An ownership change is defined as a cumulative change of 50% or more in the ownership positions of certain stockholders during a rolling three-year period. The Company is in the process of completing a formal study to determine if any ownership changes within the meaning of IRC Section 382 and 383 have occurred. Based on the analysis to date, any limitation from any ownership change will not result in any of the NOLs or tax credits expiring unutilized. The Tax Cuts and Jobs Act of 2017 (“TCJA”) requires taxpayers to capitalize and amortize research and development costs pursuant to IRC Section 174. This requirement was effective for the Company beginning on January 1, 2022. The Company assesses foreign investment levels periodically to determine if all or a portion of the Company’s investments in its foreign subsidiary are indefinitely invested. The Company is permanently reinvested in its foreign subsidiary. Any required adjustment to the income tax provision would be reflected in the period that the Company changes this assessment. The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which it operates or does business in. A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. The Company records uncertain tax positions as liabilities in accordance with ASC 740-10 and adjusts these liabilities when the Company’s judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company’s current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of each December 31, 2022 and 2021, the Company had liabilities for uncertain tax positions of $ 1.0 million, which, if recognized, would not impact the Company’s tax provision and effective income tax rate due to a full valuation allowance. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. As of December 31, 2022 and 2021, the Company had not accrued interest or penalties related to uncertain tax positions. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: Year Ended December 31, (in thousands) 2022 2021 Gross tax contingencies as of beginning of year $ 1,016 $ 1,007 Increases in gross tax contingencies 6 9 Gross tax contingencies as of end of year $ 1,022 $ 1,016 The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, foreign jurisdictions, and various state and local jurisdictions. The Company’s federal and state tax returns for the tax years ended December 31, 2013 and forward generally remain subject to examination from the Internal Revenue Service and state tax authorities. However, the federal and state tax authorities can generally reduce a net operating loss (but not create taxable income) for a period outside the statutes of limitations in order to determine the correct amount of net operating loss which may be allowed as a deduction against income for a period within the statutes of limitations. Therefore, the Company’s tax years generally remain open to examination for all federal and state income tax matters until its net operating loss carryforwards are utilized and the respective statutes of limitations have lapsed. The returns in U.S. and state jurisdictions have varying statutes of limitations. The Company’s income tax returns for December 31, 2015 through December 31, 2022 for their foreign subsidiary remain subject to examination by tax authorities in the United Kingdom. During the year ended December 31, 2021, the Finance Act 2021 (the “Act”) was enacted in the United Kingdom. The Act increases the corporate income tax rate from 19% to 25% effective April 1, 2023 and enhances the first-year capital allowance on qualifying new plant and machinery assets effective April 1, 2021. The effects on the Company’s existing deferred tax 86 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS balances have been recorded and is offset by the valuation allowance maintained against the Company’s U.K. net deferred tax assets. 15. Net Loss Per Share The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders for the years ended December 31, 2022, 2021, and 2020: Year Ended December 31, (in thousands, except share and per share amounts) 2022 2021 2020 Numerator: Net loss $ ( 22,538 ) $ ( 20,963 ) $ ( 12,528 ) Accretion of redeemable convertible preferred stock to redemption value — ( 7,061 ) ( 15,095 ) Net loss attributable to common stockholders $ ( 22,538 ) $ ( 28,024 ) $ ( 27,623 ) Denominator: Weighted average common shares outstanding—basic and diluted 38,479,437 26,059,744 11,034,620 Net loss per share attributable to common stockholders—basic and diluted $ ( 0.59 ) $ ( 1.08 ) $ ( 2.50 ) The Company’s potentially dilutive securities, which include outstanding stock options and restricted stock units, and in prior years redeemable convertible preferred stock, and warrants to purchase shares of common stock, have been excluded from the computation of diluted net loss per share from each period as including them would have had an anti-dilutive effect. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares for each period presented: Year Ended December 31, 2022 2021 2020 Options to purchase common stock 4,034,287 3,949,943 3,170,321 Restricted stock units 2,807,981 309,530 — Common stock warrants to purchase common stock — — 44,222 Redeemable convertible preferred stock (as converted to common stock) — — 19,243,795 Total 6,842,268 4,259,473 22,458,338 16. Commitments and Contingencies Contractual Obligations The Company has $ 32.9 million of non-cancelable contractual commitments as of December 31, 2022, primarily related to it operating lease agreement for its corporate headquarters in New York, NY, as well as other software and support services. For those agreements with variable terms, the Company does not estimate what the total obligation may be beyond any minimum obligations. The following table represents the Company’s commitments under its purchase obligations as of December 31, 2022 (in thousands): Fiscal Year Ending December 31, Lease Obligations Other Obligations Total Obligations 2023 $ 4,079 $ 1,437 $ 5,516 2024 4,114 1,291 5,405 2025 4,292 506 4,798 2026 4,292 33 4,325 2027 4,292 — 4,292 Thereafter 8,583 — 8,583 Total $ 29,652 $ 3,267 $ 32,919 87 Table of Contents 1STDIBS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Legal Proceedings The Company is subject to various claims and contingencies which are in the scope of ordinary and routine litigation incidental to its business, including those related to regulation, litigation, business transactions, employee-related matters, and taxes, among others. When the Company becomes aware of a claim or potential claim, the likelihood of any loss or exposure is assessed. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company records a liability for the loss. The liability recorded includes probable and estimable legal costs incurred to date and future legal costs to the point in the legal matter where the Company believes a conclusion to the matter will be reached. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the claim if the likelihood of a potential loss is reasonably possible. The Company does not believe that it is a party to any pending legal proceedings that are likely to have a material adverse effect on its business, financial condition or results of operations for the years ended December 31, 2022 and 2021. Indemnification In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. Sales and Use Taxes On June 21, 2018, the U.S. Supreme Court issued an opinion in South Dakota v. Wayfair . The State of South Dakota alleged that U.S. constitutional law should be revised to permit South Dakota to require remote marketplace sellers to collect and remit sales tax in South Dakota in accordance with South Dakota’s sales tax statute. Under the U.S. Supreme Court’s ruling, the longstanding Quill Corp v. North Dakota sales tax case was overruled, and states may now require remote marketplace sellers to collect sales tax under certain circumstances. Additionally, certain states have extended these requirements to marketplace facilitators like 1stDibs. The Company began collecting sales tax in relevant jurisdictions in 2019. The Company recognized liabilities for contingencies related to state sales and use tax deemed probable and estimable totaling $ 1.9 million as of each December 31, 2022 and 2021, which are included in other current liabilities in the Company’s consolidated balance sheets. 17. 401(K) Savings Plans The Company established defined contribution savings plans under Section 401(k) of the Internal Revenue Code. These plans cover substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Company contributions to the plan may be made at the discretion of the Company’s board of directors. These contributions to date have been immaterial. 88 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.