What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-03-03 · 116 added, 142 removed, 312 unchanged (45% of the section changed)

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By disrupting the way these items are bought and sold, we are both expanding access to, and growing the market for, luxury design products.

1stDibs began over two decades ago with the vision of bringing the magic of the Paris flea market online by creating a listings site for top vintage and antique furniture sellers.

1stDibs began in 2000 with the vision of bringing the magic of the Paris flea market online by creating a listings site for top vintage and antique furniture sellers.

Soon thereafter, we moved our headquarters to New York City and focused primarily on adding U.S.-based sellers to our site.

The quality of our initial seller base enabled us to build a reputation in the design industry as a trusted source for unique luxury design products.

Since then, we have strengthened our brand and deepened our seller relationships.

In over two decades of operating history, we have strengthened our brand and deepened our seller relationships.

We launched our e-commerce platform in 2013 and transitioned to a full e-commerce marketplace model in 2016.

As of December 31, 2022, we operate an e-commerce marketplace with approximately 7,300 seller accounts, compared to approximately 4,700 as of December 31, 2021.

The increase in sellers reflects our launch of new seller pricing tiers in January 2022, including a subscription-free tier with higher commission rates.

As of December 31, 2023, we operate an e-commerce marketplace with approximately 7,800 unique sellers, compared to approximately 5,600 as of December 31, 2022.

As of December 31, 2023, we had 6.3 million users compared to 5.5 million as of December 31, 2022, and approximately 1.7 million listings, compared to 1.5 million as of December 31, 2022.

Users represent non-seller visitors who register on our website and include both buyers and prospective buyers.

As of December 31, 2022, we had a seller stock value in excess of $16.0 billion compared to a seller stock value in excess of $14.0 billion as of December 31, 2021.

Our seller stock value is the sum of the stock value of all available products listed on our online marketplace.

Users represent non-seller visitors who register on our website, including both buyers and prospective buyers, and are identified by a unique email address.

Our online marketplace seller stock value, the sum of the listed stock value of all available products listed on our online marketplace, was consistent year over year and exceeded $10.0 billion as of both December 31, 2023 and 2022.

An individual listing’s stock value is calculated as the item’s current price multiplied by its quantity available for sale.

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Our net revenue was $84.7 million for the year ended December 31, 2023, compared to $96.8 million for the year ended December 31, 2022, a decrease of 13%.

We believe our GMV and net revenue have been negatively impacted, both directly and indirectly, by macroeconomic factors, including significant capital market volatility, the prolonged COVID-19 pandemic and the changing consumer behaviors as a result, significant housing market volatility, rising interest rates, global economic and geopolitical developments, and inflation;

We believe our GMV and net revenue have been adversely impacted, both directly and indirectly, by macroeconomic factors, including significant capital market volatility, significant housing market volatility, rising interest rates, inflation, global economic and geopolitical developments, and changing consumer behavior in a post-COVID-19 environment;

however, these impacts are difficult to isolate and quantify.

In the year ended December 31, 2023, we generated a net loss of $(22.7) million and Adjusted EBITDA of $(13.3) million, compared to a net loss of $(22.5) million and Adjusted EBITDA of $(20.7) million for the year ended December 31, 2022.

See “Non-GAAP Financial Measures” for more information and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP.

See “Non-GAAP Financial Measures” for more information and for a reconciliation of net loss to Adjusted EBITDA, the most directly comparable financial measure calculated and presented in accordance with GAAP.

Restructuring Charges

In September 2022, we announced and implemented a restructuring plan to reduce operational costs and realign investment priorities involving the reduction of approximately 10% of our workforce.

As a result of the reduction, we incurred approximately $0.7 million in non-recurring restructuring charges in the year ended December 31, 2022, consisting primarily of employee severance and benefits costs.

In June 2023, we announced a workforce reduction designed to reduce operating costs and realign investment priorities involving the reduction of approximately 20% of the Company’s global workforce.

As a result of the reduction, we incurred approximately $2.0 million in restructuring charges during the year ended December 31, 2023, consisting primarily of employee severance and benefits costs.

We do not expect to incur any significant additional charges related to restructuring in the fiscal year ended December 31, 2023.

See Note 2, “Summary of Significant Accounting Policies” for further discussion of our accounting for the restructuring charges.

In September 2022, we announced and implemented a restructuring plan to reduce operational costs and realign investment priorities involving the reduction of approximately 10% of our workforce.

As a result of the reduction, we incurred approximately $0.7 million in restructuring charges in the year ended December 31, 2022, consisting primarily of employee severance and benefits costs.

As of December 31, 2022, the restructuring plan was completed.

Sale of Design Manager

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Seller Marketplace Services

Seller marketplace services consist of marketplace transactions, subscriptions, and listings, and accounted for 97%, 96% and 96% of our net revenue in the years ended December 31, 2022, 2021, and 2020, respectively.

Seller marketplace services consist of marketplace transactions, subscriptions, and listings, and accounted for substantially all of our net revenue in the years ended December 31, 2023, 2022, and 2021, respectively.

Marketplace Transaction Fees

Our sellers pay us a commission fee and a processing fee for the successful sale of an item listed on our online marketplace.

Our sellers pay us a commission and processing fee for the successful sale of an item listed on our online marketplace.

We have a commission fee structure that is a function of the item’s category and price.

Our commission fees range from 5% to 50% and processing fees are 3%, net of expected refunds.

Our marketplace transaction fees represent the majority of our net revenue and accounted for 71%, 71% and 67% of our net revenue in the years ended December 31, 2022, 2021, and 2020, respectively.

Our commission fees range from 5% to 50% of GMV and processing fees are 3% of the buyer’s total payment, net of expected refunds.

Our marketplace transaction fees represent the majority of our net revenue and accounted for 71% of our net revenue in each of the years ended December 31, 2023, 2022, and 2021.

Subscription & Listing Fees

In January 2022, we 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.

Our subscription revenue grows as we bring new sellers to our online marketplace who choose to pay the subscription fee to access lower commission rates.

Additionally, sellers may choose our no subscription fee and higher commission rate model, which in turn, could decrease our subscription fee revenue.

We offer our sellers various subscription pricing tiers which allows them to choose the plan that best fits their business, with choices of a higher monthly subscription fee and lower commission rates or a lower monthly subscription fee and higher commission rates.

Additionally, some sellers have no monthly subscription fees and higher commission rates, however, we no longer offers this option to new sellers.

Subscription fees accounted for 24%, 24%, and 23% of our net revenue in the years ended December 31, 2023, 2022, and 2021, respectively.

Our ability to maintain the level of our annual subscription fee rates depends on our ability to continue to generate sales for our sellers, which in turn depends on our ability to drive GMV growth, as GMV increases the network effect on our online marketplace.

We earn listing fees from sellers who are subscribed to our online marketplace, on a per item basis, as directed by the seller to promote certain items at the seller’s discretion.

We earn listing fees from sellers, on a per item basis, as directed by the seller to promote certain items at the seller’s discretion.

Sellers do not pay a listing fee for a basic listing on our online marketplace, but can choose to pay for other listing fees, which provide promotional advantages over the basic listing.

Listing fees accounted for 4%, 2%, and 2% of our net revenue in the years ended December 31, 2023, 2022, and 2021, respectively.

Other Services

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Advertising revenue is generated when impression-based ads are displayed on our online marketplace on our sellers’ behalf.

Software services revenue consists of monthly and annual subscriptions previously sold through our Design Manager subsidiary allowing users, typically interior designers, to access our project management and accounting software.

Software services revenue consisted of monthly and annual subscriptions previously sold through our Design Manager subsidiary which allowed users, typically interior designers, to access our project management and accounting software.

On June 29, 2022, we sold Design Manager and no revenue related to software services has been recognized since.

Key Operating and Financial Metrics

We use the following key metrics and non-GAAP measures to measure our performance, identify trends affecting our business, and make strategic decisions:

We use the following key metrics and non-GAAP measures to evaluate our performance, identify trends affecting our business, and make strategic decisions:

• Number of Orders;

• Active Buyers;

• Adjusted EBITDA.

These metrics are based on internal company data, assumptions, and estimates and are used in managing our business.

• Adjusted EBITDA (see “Non-GAAP Financial Measures” for a discussion of Adjusted EBITDA and a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA).

For GMV, Number of Orders, and Active Buyers, these metrics are based on internal company data, assumptions, and estimates and are used in managing our business.

We believe that these figures are reasonable estimates, and we actively take measures to improve their accuracy, such as eliminating known fictitious or duplicate accounts.

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For example, individuals may have multiple email accounts in violation of our terms of service, which would result in an Active Buyer being counted more than once, thus impacting the accuracy of our number of Active Buyers.

In addition, certain metrics, such as the number of Active Buyers and Number of Orders, are measured based on such numbers as reported in a given month, minus cancellations within that month.

In addition, certain metrics, such as the number of Active Buyers, Number of Orders, and GMV are measured based on such numbers as reported in a given month, minus cancellations within that month.

As we do not retroactively adjust such numbers for cancellations occurring after the month, the metrics presented do not reflect subsequent order cancellations.

review and may adjust our processes for calculating these metrics to improve their accuracy.

We regularly review and may adjust our processes for calculating these metrics to

improve their accuracy.

These key operating and financial metrics may vary from period to period and should not be viewed as indicative of other metrics.

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Offline sales consist of sales completed by a small number of sellers outside of our online marketplace and reported to us by these sellers in exchange for increased marketing exposure and/or slightly lower commission rates on both their on-platform and offline sales.

We do not intend to add new sellers to this program.

We do not intend to add new sellers to this program and have not in the current year.

On-platform GMV accounted for $346.6 million, or 96%, $409.4 million, or 96%, and $432.6 million, or 97% of GMV in the years ended December 31, 2023, 2022 and 2021, respectively.

We view GMV as a measure of the total economic activity generated by our online marketplace and as an indicator of the scale, growth, and health of our online marketplace.

Our historical growth rates for GMV may not be indicative of future growth rates in GMV.

Our historical performance for GMV may not be indicative of future performance in GMV.

Number of Orders

We define Number of Orders as the total number of orders placed or reported through the 1stDibs online marketplace in a given month, minus cancellations within that month.

Our historical growth rates for Number of Orders may not be indicative of future growth rates in Number of Orders.

Our historical performance for Number of Orders may not be indicative of future performance in Number of Orders.

Active Buyers

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We believe this metric reflects scale, engagement and brand awareness, and our ability to convert user activity on our online marketplace into transactions.

Our historical growth rates for Active Buyers may not be indicative of future growth rates in new Active Buyers.

Our historical performance for Active Buyers may not be indicative of future performance in new Active Buyers.

Adjusted EBITDA

We define Adjusted EBITDA as net loss excluding depreciation and amortization, stock-based compensation expense, other income (expense), net, provision for income taxes, gain on sale of Design Manager, one-time expenses related to the sale of Design Manager, and non-recurring restructuring charges.

We define Adjusted EBITDA as net loss excluding depreciation and amortization, stock-based compensation expense, other income, net, provision for income taxes, gain on sale of business, and strategic alternative expenses.

Adjusted EBITDA is a key performance measure used by our management and board of directors to assess our operating performance and the operating leverage of our business.

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Our number of Active Buyers was 60,716 as of December 31, 2023 compared to 67,598 as of December 31, 2022.

The total Number of Orders placed or reported through the 1stDibs online marketplace for the year ended December 31, 2022 was 148,399 compared to 158,061 for the year ended December 31, 2021.

The total Number of Orders placed or reported through the 1stDibs online marketplace for the year ended December 31, 2023 was 133,072 compared to 148,399 for the year

ended December 31, 2022.

Similar to GMV and net revenue, we believe these metrics have been negatively impacted, directly and indirectly, by macroeconomic factors.

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Currently, our sellers and buyers are based in over 175 countries.

Our long-term strategy is to localize the user experience by providing technology solutions such as translation and payment capabilities, focus on local marketing efforts through organic search, email, performance-based marketing, and optimized public relations, and customize content and collections to suit regional tastes.

We had over 51% and 47% of seller accounts and 41% and 40% of the supply on our online marketplace come from outside the United States in the years ended December 31, 2022, and 2021, respectively.

Our long-term strategy is to localize the user experience in other countries by providing technology solutions such as translation and payment capabilities, focus on local marketing efforts through organic search, email, performance-based marketing, and optimized public relations, and customize content and collections to suit regional tastes.

We had 55% and 52% of unique sellers and 44% and 41% of the supply on our online marketplace come from outside the United States in the years ended December 31, 2023, and 2022, respectively.

On-platform GMV from buyers in non-U.S.

markets constituted 17% in the year ended December 31, 2022, a slight decrease from 19% in the year ended December 31, 2021.

markets constituted 17% in each of the years ended December 31, 2023, and 2022.

We believe there is an opportunity to grow our GMV from non-U.S.

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Our unique product offerings in this vertical have inspired brand loyalty and increased demand for other luxury design products on the 1stDibs online marketplace allowing us to expand into adjacent verticals, including new and custom furniture, jewelry, and art.

Antique and vintage furniture comprised less than 50% of our on-platform GMV in the years ended December 31, 2022 and 2021, respectively.

We expect antique and vintage furniture to account for less than 50% of on-platform GMV for the foreseeable future as we are investing in our new and custom furniture, jewelry, art, and fashion verticals.

Antique and vintage

furniture comprised less than 50% of our on-platform GMV in the years ended December 31, 2023 and 2022, respectively.

We expect antique and vintage furniture to account for less than 50% of on-platform GMV for the foreseeable future.

We anticipate these verticals will account for an increasing percentage of our on-platform GMV for the foreseeable future.

Our new and custom furniture, jewelry, watches, and art verticals together comprised 48% and 46% of our on-platform GMV in the years ended December 31, 2022 and 2021, respectively.

We believe our brand and operating track record in existing verticals allow us to unlock valuable supply across adjacent and new verticals, increasing the exclusive products available on our online marketplace, thereby increasing the Long Term Value (“ LTV”) of our new and existing buyer cohorts.

Our new and custom furniture, jewelry, watches, art, and fashion verticals together comprised 52% of our on-platform GMV for each of the years ended December 31, 2023 and 2022.

We believe our brand and operating track record in existing verticals allow us to unlock valuable supply across adjacent and new verticals, increasing the exclusive products available on our online marketplace, thereby increasing the Lifetime Value (“LTV”) of our new and existing buyer cohorts.

We aim to continue to diversify into new verticals so that we can grow our future revenue streams.

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Seller marketplace services primarily consist of marketplace transactions, subscriptions, and listing fees.

Marketplace transaction fees are collected when sellers pay us commissions ranging from 5% to 50%, and processing fees of 3%, for successful purchase transactions, net of expected refunds.

Marketplace transaction fees are collected when sellers pay us commissions ranging from 5% to 50% of GMV and processing fees are 3% of the buyer’s total payment, 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.

Revenue from subscriptions consist of access to our online marketplace, allowing sellers, who are our customers, to execute successful purchase transactions with buyers.

In January 2022, we launched new seller pricing tiers which allow new 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

Subscriptions provide access to our online marketplace, allowing sellers, who are our customers, to execute successful purchase transactions with buyers.

We offer our sellers various subscription pricing tiers which allows them to choose the plan that best fits their business, with choices of a higher monthly subscription fee and lower commission rates or lower monthly subscription fee and higher commission rates.

Additionally, some sellers have no monthly subscription fees and higher commission rates, however, we no longer offer this option to new sellers.

Listing fee revenue is collected when sellers pay us for promoting certain products on their behalf and at their discretion through our online marketplace.

Prior to the sale of Design Manager, software services revenue consisted of monthly and annual subscriptions allowing customers to access our Design Manager software, typically used by interior designers.

Due to the sale of Design Manager on June 29, 2022, there was no net revenue related to software services after the sale and we anticipate that net revenue will no longer include software services in future periods.

Advertisements consist of impression-based ads displayed on our online marketplace on the seller’s behalf.

Prior to the sale of Design Manager, software services revenue consisted of monthly and annual subscriptions allowing access to our Design Manager software, typically used by interior designers.

We have not recognized any revenue related to software services since the sale of Design Manager on June 29, 2022, and we do not anticipate that any software services revenue will be included in net revenue in future periods.

Our revenue recognition policies are discussed under “Critical Accounting Policies” and Note 2, “Summary of Significant Accounting Policies,” to our consolidated financial statements.

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Cost of revenue includes payment processor fees and hosting expenses.

Cost of revenue also includes expenses associated with payroll, employee benefits, stock-based compensation, other headcount-related expenses associated with operations personnel supporting revenue-related operations, consulting costs, and amortization expense related to our capitalized internal-use software.

Cost of revenue also includes expenses associated with payroll, employee benefits, stock-based compensation, other headcount-related expenses associated with operations personnel supporting revenue-related operations and logistics, consulting costs, and amortization expense related to our capitalized internal-use software.

In certain transactions where our shipping services are elected by sellers, we enable shipping of items purchased from the seller to the buyer.

The difference between the amount collected for shipping and the amount charged by the shipping carrier is included in cost of revenue in our consolidated statements of operations.

We enable fulfillment and shipping, but do not own or manage inventory.

We enable fulfillment and shipping, but do not take ownership of or manage inventory.

Gross Profit and Gross Margin

Gross profit is net revenue less cost of revenue, and gross margin is gross profit as a percentage of net revenue.

Gross profit has been, and will continue to be, affected by various factors, including leveraging economies of scale, the costs associated with hosting our platform, the level of amortization of our internal-use software, and the extent to which we expand our operations.

We expect that our gross margin will fluctuate from period to period depending on the interplay of these various factors.

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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.

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, net of sublease income, business liability insurance, accounting, professional fees, and depreciation and amortization of property and equipment.

We expense all general and administrative expenses as incurred.

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Loss from operations (31,027) (25,877) (22,444)

Other income (expense), net:

Other income, net:

Interest income 6,639 1,606 146

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Other, net 1,703 1,781 1,372

Total other income (expense), net 3,376 1,502 989

Total other income, net 8,342 3,376 1,502

Net loss before income taxes (22,685) (22,501) (20,942)

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Loss from operations (37) (27) (22)

Other income (expense), net:

Other income, net:

Interest income 8 2 —

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Other, net 2 2 2

Total other income (expense), net 4 2 1

Total other income, net 10 4 2

Net loss before income taxes (27) (23) (20)

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The decrease of $12.2 million, or 13%, was primarily due to a $10.4 million decrease in seller marketplace services revenue, which was primarily due to a decrease in marketplace transaction fees as a result of the decrease in our GMV.

We believe our GMV and net revenue have been impacted negatively, both directly and indirectly, by macroeconomic factors, including significant capital market volatility, the prolonged COVID-19 pandemic and the changing consumer behaviors as a result, significant housing market volatility, raising interest rates, global economic and geopolitical developments, and inflation;

however, these impacts are difficult to isolate and quantify.

Additionally, there was a $0.9 million decrease in software services as a result of the sale of Design Manager in June 2022.

Our marketplace transaction fees represent the majority of our net revenue and accounted for 71% of our net revenue for both years ended December 31, 2022 and 2021, respectively.

Subscription fees accounted for 24% and 23% of our net revenue for the years ended December 31, 2022 and 2021, respectively.

Additionally, there was a $1.4 million decrease in software services revenue as a result of the sale of Design Manager in June 2022.

Our marketplace transaction fees represent the majority of our net revenue and accounted for 71% of our net revenue for each of the years ended December 31, 2023 and 2022.

Subscription fees accounted for 24% of our net revenue for each of the years ended December 31, 2023 and 2022.

Cost of Revenue

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Cost of revenue was $25.1 million for the year ended December 31, 2023, as compared to $29.7 million for the year ended December 31, 2022.

The decrease of $2.5 million, or 8%, was primarily due to a $3.9 million decrease in shipping expense, resulting from increases in buyer paid shipping charges compared to the prior year, a $0.6 million decrease in credit card fees due to the decrease in GMV, and a $0.2 million decrease in costs associated with Design Manager due to the sale in June 2022.

These decreases were partially offset by a $1.1 million increase in hosting and co-location costs due to increased traffic on-platform, and an increase of $1.1 million in salaries and benefits resulting from increases in headcount throughout the prior year and one-time restructuring charges recorded in September 2022 related to reductions in workforce.

The cost savings as a result of the restructuring were not fully realized in the year ended December 31, 2022, as the headcount reductions were not in effect until the end of September 2022.

The decrease of $4.6 million, or 15%, was primarily due to a $1.5 million decrease in credit card processing fees due to the decrease in GMV, and a $1.4 million decrease in salaries and benefits resulting from decreases in headcount, primarily related to our reduction in workforce in June 2023.

There was also a $1.1 million decrease in shipping expense resulting from more efficient pricing and better negotiated rates from our carriers, and a $0.3 million decrease in costs associated with Design Manager due to the sale in June 2022.

Gross Profit and Gross Margin

Gross profit was $59.6 million and gross margin was 70.3% for the year ended December 31, 2023, as compared to gross profit of $67.2 million and gross margin of 69.4% for the year ended December 31, 2022.

The decrease in gross profit was primarily driven by the decrease in net revenue.

The increase in gross margin percentage was primarily driven by a decrease in our cost of revenue, as explained above, decreasing at a faster pace than the decrease in net revenue, due mainly to the decreases in shipping expense.

The decrease in gross profit was primarily driven by net revenue decreasing $7.6 million more than cost of revenue, as outlined above.

The increase in gross margin percentage was primarily driven by a decrease in our cost of revenue, as explained above, decreasing at a faster pace than the decrease in net revenue.

Operating Expenses

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Sales and marketing expense was $36.6 million for the year ended December 31, 2023, as compared to $44.8 million for the year ended December 31, 2022.

The decrease of $2.6 million, or 6%, was primarily due to decreases in discretionary expenses, including a $4.1 million decrease in performance-based marketing and a $1.7 million decrease in promotional marketing campaigns.

These decreases were partially offset by a $2.0 million increase in stock-based compensation expense, and a $1.1 million increase in salaries and benefits resulting from increases in headcount throughout the prior year and one-time restructuring charges recorded in September 2022 related to reductions in workforce.

The cost savings as a result of the restructuring were not fully realized in the year ended December 31, 2022, as the headcount reductions were not in effect until the end of September 2022.

The decrease of $8.1 million, or 18%, was primarily driven by a $6.6 million decrease in discretionary expenses, including performance-based marketing and promotional campaigns.

There was also a $1.1 million decrease in salaries and benefits resulting from decreases in headcount, primarily related to our reduction in workforce in June 2023.

Technology Development

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Technology development expense was $21.6 million for the year ended December 31, 2023, as compared to $24.4 million for the year ended December 31, 2022.

The increase of $5.3 million, or 28%, was primarily due to a $3.5 million increase in stock-based compensation and a $1.6 million increase in salaries and benefits resulting from increases in headcount throughout the prior year and one-time restructuring charges recorded in September 2022 related to reductions in workforce.

The cost savings as a result of the restructuring were not fully realized in the year ended December 31, 2022, as the headcount reductions were not in effect until the end of September 2022.

The decrease of $2.8 million, or 11%, was primarily due to a $2.3 million decrease in salaries and benefits and a $0.5 million decrease in stock-based compensation expense, both resulting from decreases in headcount, primarily related to our reduction in workforce in June 2023.

General and Administrative

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General and administrative expense was $28.6 million for the year ended December 31, 2023, as compared to $27.6 million for the year ended December 31, 2022.

The increase of $6.3 million, or 30%, was primarily due to a $2.5 million increase in stock-based compensation expense, a $1.4 million increase in liability insurance, a $1.4 million increase in salaries and benefits due to a higher average headcount.

These increases were primarily related to our operations as a public company.

There was also a $0.6 million increase in legal and professional fees partially associated with the sale of Design Manager.

The increase of $1.0 million, or 4%, was primarily driven by a $1.5 million increase in stock-based compensation expense, and a $1.1 million increase in salaries and benefits, primarily due to our annual equity grants and compensation increases which occur each March and included additional bonuses awarded during the year ended December 31, 2023.

These increases were partially offset by lower rates negotiated with vendors, including lower liability insurance expense of $1.7 million.

Provision for Transaction Losses

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Provision for transaction losses was $3.7 million for the year ended December 31, 2023, as compared to $5.9 million for the year ended December 31, 2022.

The increase of $0.7 million, or 14%, was primarily driven by a higher volume of transactional and shipping accommodations.

Other Income (Expense), Net

The decrease of $2.2 million, or 37%, was primarily driven by a decrease in damage claims as a result of the decrease in GMV as well as new policies implemented in partnership with our carriers.

Other Income, Net

Year Ended December 31,

(in thousands) 2023 2022 $ Change % Change

Total other income (expense), net $ 3,376 $ 1,502 $ 1,874 125 %

Other income (expense), net was $3.4 million for the year ended December 31, 2022, as compared to $1.5 million for the year ended December 31, 2021.

The increase of $1.9 million, or 125%, was primarily driven by an increase in interest income due to increased cash and cash equivalents from our IPO in the year ended December 31, 2021, as well as increasing interest rates on our money market accounts, particularly in the second half of the year ended December 31, 2022.

Total other income, net $ 8,342 $ 3,376 $ 4,966 147 %

Other income, net was $8.3 million for the year ended December 31, 2023, as compared to $3.4 million for the year ended December 31, 2022.

The increase of $5.0 million, or 147%, was primarily driven by an increase in interest income due to our shift in investment strategies in cash, cash equivalents and short-term investments providing higher rates of return.

Non-GAAP Financial Measures

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Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to key financial metrics used by our management in their financial and operational decision-making.

We also believe that the presentation of this non-GAAP financial measure provides an additional tool for investors to use in comparing our core

business and results of operations over multiple periods with other companies in our industry, many of which present similar non-GAAP financial measures to investors, and to analyze our cash performance.

We also believe that the presentation of this non-GAAP financial measure provides an additional tool for investors to use in comparing our core business and results of operations over multiple periods with other companies in our industry, many of which present similar non-GAAP financial measures to investors, and to analyze our operating performance.

The non-GAAP financial measures presented may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.

The non-GAAP financial measures presented should not be considered as the sole measure of our performance and should not be considered in isolation from, or as a substitute for, comparable financial measures calculated in accordance with GAAP.

The non-GAAP financial measures presented should not be considered as the sole measure of our performance and should not be considered in isolation from, or as a

substitute for, comparable financial measures calculated in accordance with GAAP.

Further, these non-GAAP financial measures have certain limitations in that they do not include the impact of certain expenses that are reflected in our consolidated statements of operations.

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• The exclusion of stock-based compensation expense, which has been a significant recurring expense and will continue to constitute a significant recurring expense for the foreseeable future, as equity awards are expected to continue to be an important component of our compensation strategy;

• The exclusion of other income (expense), net, which includes interest income related to our cash equivalents, interest expense, and realized and unrealized gains and losses on foreign currency exchange;

• The exclusion of gain on sale of Design Manager, which is a one-time sale of our wholly owned subsidiary, as well as the related one-time expenses to sell the subsidiary which include primarily legal fees;

• The exclusion of restructuring charges, which are expenses from non-recurring employee severance and benefits costs.

• The exclusion of other income, net, which includes interest income related to our cash, cash equivalents and short-term investments, interest expense, and realized and unrealized gains and losses on foreign currency exchange;

• The exclusion of gain on sale of Design Manager, which is a one-time sale of our wholly owned subsidiary;

• The exclusion of strategic alternative expenses in connection with capital return strategies, buy- and sell-side mergers, acquisitions and partnerships, sale of a business or subsidiary, business optimization costs related to revisions of operational objectives and priorities, cost saving initiatives related to restructuring charges and integration costs, in all cases outside the ordinary course.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net loss and our other GAAP results.

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(2) stock-based compensation expense;

(3) other income (expense), net;

(3) other income, net;

(4) provision for income taxes;

(5) gain on sale of Design Manager;

(6) one-time expenses related to the sale of Design Manager;

and (7) restructuring charges.

(5) gain on sale of business;

and (6) strategic alternative expenses.

The following table provides a reconciliation of net loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA:

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Gain on sale of Design Manager — (9,684) —

One-time expenses related to sale of Design Manger 307 — —

Restructuring charges 660 — —

Strategic alternative expenses 3,046 967 —

Adjusted EBITDA (unaudited) $ (13,340) $ (20,670) $ (16,493)

We have historically experienced increased sales during the fourth quarter holiday shopping season compared to the other quarters.

This has generally resulted in increased GMV and net revenue during the fourth quarter of each fiscal year.

We expect this seasonality to continue in future years, unless there are unforeseen factors, for example, in the year ended December 31, 2022, we believe that macroeconomic factors negatively impacted us both directly and indirectly resulting in lower net revenue and GMV in the fourth quarter of 2022 vs the first quarter of 2022.

We have historically experienced increased sales during the fourth quarter holiday shopping season compared to the other quarters which has generally resulted in increased GMV and net revenue during the fourth quarter of each fiscal year.

However, in the years ended December 31, 2023, and 2022 we have not experienced meaningful increases and in some recent periods we have seen decreases in GMV and net revenue in the fourth quarter, as we believe they have been adversely impacted, both directly and indirectly, by macroeconomic factors.

Our cost of revenue and sales and marketing expenses generally follow this trend, with our highest costs being incurred in the fourth quarter;

however, similar to net revenue and GMV, cost of revenue and sales and marketing expenses have not followed this trend for the years ended December 31, 2023 and 2022 due to macroeconomic factors.

As our growth rates fluctuate or other unforeseen factors arise, the impact of these seasonality trends on our results of operations may become more or less pronounced.

Our cost of revenue and marketing expenses generally follow this trend, with the highest costs corresponding with the fourth quarter;

however, similar to net revenue and GMV, cost of revenue and marketing were lower during the fourth quarter of 2022 vs other quarters due to macroeconomic factors, as well as our reduction in workforce in September 2022, which decreased salaries and benefits for the fourth quarter of 2022.

We enable fulfillment and shipping, but do not own or manage inventory.

If our growth rates moderate, the impact of these seasonality trends on our results of operations may become more pronounced.

If our growth rates change, the impact of these seasonality trends on our results of operations may become more pronounced.

We anticipate that gross margin may fluctuate from quarter to quarter based on variability in the costs associated with hosting our online marketplace and supporting order processing.

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Liquidity and Capital Resources

As of December 31, 2022, we had cash and cash equivalents of $153.2 million and an accumulated deficit of $291.0 million.

As of December 31, 2023, we had cash, cash equivalents and short-term investments of $139.3 million and an accumulated deficit of $313.7 million.

Net cash used in operating activities was $13.6 million in the year ended December 31, 2023.

We expect operating losses and negative cash flows from operations to continue in the foreseeable future as we continue to strategically invest in growth activities.

Our principal use of cash is to fund our operations and platform development to support our strategic initiatives.

Based on our current plans, we believe our existing cash and cash equivalents will be sufficient to fund our operations and capital expenditure requirements through at least the next 12 months.

Our principal use of cash is to fund our operations including platform development to support our strategic initiatives and potential share repurchases under the Stock Repurchase Program.

Based on our current plans, we believe our existing cash, cash equivalents and short-term investments will be sufficient to fund our operations and capital expenditure requirements through at least the next 12 months.

We expect to continue to incur substantial expenditures in the near term to support our ongoing activities.

While management believes that our current cash and cash equivalents are sufficient to fund our operating expenses and capital expenditure requirements for at least the next 12 months, we may need to borrow funds or raise additional equity to achieve our longer-term business objectives.

While management believes that our current cash, cash equivalents and short-term investments are sufficient to fund our operating expenses, capital expenditure requirements and any potential share repurchases under the Stock Repurchase Program for at least the next 12 months, we may need to borrow funds or raise additional equity to achieve our longer-term business objectives.

Our future capital requirements will depend on many factors, including:

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• the timing and extent of our sales and marketing and technology development expenditures;

• any investments or acquisitions we may choose to pursue in the future.

• any investments, acquisitions or other similar strategic endeavors we may choose to pursue in the future.

A change in the outcome of any of these or other variables could significantly impact our operating plans, and we may need additional funds to meet operational needs and capital requirements associated with such plans.

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If we are unable to raise additional capital when we need it, it could harm our business, results of operations, and financial condition.

Stock Repurchase Program

In August 2023, the Board of Directors authorized a Stock Repurchase Program to repurchase up to an aggregate of $20.0 million of our common stock.

As of December 31, 2023, 823,483 shares have been purchased for a total cost of $3.5 million since the commencement of the program and approximately $16.5 million remains available for future purchases under the program.

The following table summarizes our cash flows for the periods indicated:

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Net cash used in operating activities $ (13,556) $ (27,914)

Net cash provided by (used in) investing activities 12,641 (2,269) 1,286

Net cash provided by financing activities 2,035 120,050 1,562

Net cash (used in) provided by investing activities (100,232) 12,641

Net cash (used in) provided by financing activities (3,629) 2,035

Effect of exchange rate changes on cash, cash equivalents, and restricted cash 349 (278)

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Cash Flows from Operating Activities

Net cash used in operating activities was $27.9 million for the year ended December 31, 2022, as compared to net cash used in operating activities of $4.4 million for the year ended December 31, 2021.

The increase in net cash used of $23.5 million was primarily driven by the decrease in net revenue and increase in operating expenses, including salaries and benefits, public company expenses, and one-time restructuring charges as described in the “Results of Operations” section.

There were also negative changes in our operating assets and liabilities, including an $8.8 million change in payables due to sellers and a $10.3 million change in accounts payable and accrued expenses primarily due to the timing of payments.

Net cash used in operating activities was $13.6 million for the year ended December 31, 2023, and was driven

primarily by net revenue decreasing at a faster pace than operating expenses as described in the “Results of Operations” section.

Our changes in operating assets and liabilities were impacted by a negative change in operating lease liabilities of $2.8 million due to the continued lease payments on our prior NYC headquarters, a $1.5 million negative change in prepaid and other current assets primarily related to timing of prepayments including the current portion of a significant payment in the fourth quarter of 2023 relating to our platform hosting expense, and a $2.1 million negative change in other assets, primarily related to the long-term portion of the prepayment referenced above and the broker fee paid in connection with our subleasing of our prior NYC headquarters, as discussed in Note 10 “Leases.”

Net cash used in operating activities of $27.9 million for the year ended December 31, 2022, was driven primarily by the cash impact of net loss and negative changes in our operating assets and liabilities, including a $5.2 million change in accounts payable and accrued expenses due to timing of invoices and payments, $0.6 million of which relating to our September 2022 reduction in workforce, as well as a $3.0 million change in payables due to sellers primarily due to the timing of payments, and a $2.7 million change in operating lease liabilities due to the continued lease payments on our prior NYC headquarters.

Cash Flows from Investing Activities

Net cash provided by investing activities was $12.6 million for the year ended December 31, 2022, as compared to net cash used in investing activities of $2.3 million for the year ended December 31, 2021.

The increase in cash provided by investing activities of $14.9 million was primarily due to the $14.6 million of proceeds from the sale of Design Manager.

Net cash used in investing activities was $100.2 million for the year ended December 31, 2023, and was primarily due to $191.1 million of purchases of short-term investments, offset by $92.7 million of maturities of short-term investments.

Net cash provided by investing activities was $12.6 million for the year ended December 31, 2022 and was driven primarily by the $14.6 million of proceeds from the sale of Design Manager, partially offset by $1.9 million of development of internal use software.

Cash Flows from Financing Activities

Net cash provided by financing activities was $2.0 million for the year ended December 31, 2022, as compared to $120.1 million for the year ended December 31, 2021.

The decrease in cash flows of $118.0 million is primarily due to the proceeds from issuance of common stock in our IPO in the year ended December 31, 2021, as well as a $0.7 million decrease in proceeds from the exercise of stock options.

Net cash used in financing activities was $3.6 million for the year ended December 31, 2023, due mainly to the purchase of $3.4 million of our common stock as part of our Stock Repurchase Program.

Net Cash provided by financing activities was $2.0 million for the year ended December 31, 2022 related to the proceeds from the exercise of stock options.

Off-Balance Sheet Arrangements

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Seller marketplace services primarily consist of marketplace transactions, subscriptions, and listing fees.

Other services primarily consist of advertising revenues generated from displaying ads on our 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.

Other services primarily consist of advertising revenues generated from displaying ads on our online marketplace.

Revenue is recognized as we transfer control of promised goods or services transfers to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

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Depreciation and amortization are computed using the straight-line method over the estimated useful lives.

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

We capitalize 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.

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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.

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.

Stock-Based Compensation

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The fair value of restricted stock units are estimated on the date of grant based on the fair value of our common stock.

Qualitative and Quantitative Disclosures About Market Risk

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes and foreign currency fluctuations.

Information relating to quantitative and qualitative disclosures about these market risks are described below.

Interest Rate Sensitivity

Interest rate risk relates to the loss we could incur in our cash portfolios due to a change in interest rates.

We held cash and cash equivalents of $153.2 million as of December 31, 2022.

We generally hold our cash for immediate operating needs in non-interest bearing checking accounts and the majority of the remaining cash and cash equivalents are held in interest bearing money market accounts.

Due to the nature of our cash and cash equivalents, we would expect a hypothetical 100 basis point change in interest rates may result in an approximate $1.5 million change in our cash and cash equivalents.

While these are our best estimates of the impact of the specified interest rate scenario, actual results could differ from those projected.

The sensitivity analysis presented assumes interest rate changes are instantaneous, parallel shifts in the yield curve.

In reality, interest rate changes of this magnitude are rarely instantaneous or parallel.

Our principal use of cash and cash equivalents is to fund our operations and platform development to support our strategic initiatives and the remainder are held for working capital purposes.

We do not enter into investments for trading or speculative purposes.

Foreign Currency Risk

Our net revenue is primarily denominated in U.S.

dollars, Euros, and British pounds, depending on the currency selection of the seller.

Our cost of revenue and operating expenses are primarily denominated in U.S.

As our online marketplace continues to grow globally, our results of operations and cash flows may be subject to fluctuations due to the change in foreign exchange rates.

To date, fluctuations due to changes in the Euro and British pound have not been significant, but we may experience material foreign exchange gains and losses in our statement of operations in the future.

As of December 31, 2022, we would expect that a 10% increase or decrease in current exchange rates would not result in more than a $3.5 million change in revenue, a $1.5 million change in operating expenses, and a $0.5 million change in assets and liabilities.

We are exposed to credit risk on accounts receivable balances.

This risk is mitigated by requiring upfront payment for many of our services and due to our diverse customer base, dispersed over various geographic regions and industrial sectors.

For the years ended December 31, 2022 and 2021, no single customer accounted for more than 10% of our net revenue.

We maintain provisions for potential credit losses and such losses to date have been within our expectations.

We evaluate the solvency of our customers on an ongoing basis to determine if additional allowances for doubtful accounts need to be recorded.

Inflation Risk

Our results of operations and financial condition are presented based on historical cost.

While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe certain metrics, including our GMV and net revenue, have been negatively impacted, both directly and indirectly, by macroeconomic factors, including inflation and as a result significant capital market and housing market volatility.

Additionally, if our costs were to become subject to inflationary pressures, we might not be able to fully offset such higher costs through net revenue and GMV increases.

Our inability or failure to do so could harm our business, financial condition, and results of operations.

We cannot assure you our business will not be affected in the future by inflation.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis