What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-02-28 · 242 added, 152 removed, 307 unchanged (56% of the section changed)

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Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in the section titled “Risk Factors.” Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

We are the world’s largest online marketplace for the resale of authenticated luxury goods.

We are the world’s largest online marketplace for authenticated, resale luxury goods.

We are revolutionizing luxury resale by providing an end-to-end service that unlocks supply from consignors and creates a trusted, curated online marketplace for buyers globally.

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We offer a wide selection of authenticated, primarily pre-owned luxury goods on our online marketplace bearing the brands of thousands of luxury and premium designers.

We offer products across multiple categories including women’s and men’s fashion, fine jewelry and watches, and home and art.

We offer products across multiple categories including women’s and men’s fashion, fine jewelry and watches.

We have built a vibrant online marketplace that we believe expands the overall luxury market, promotes the recirculation of luxury goods and contributes to a more sustainable world.

We have transformed the luxury consignment experience by removing the friction and pain points inherent in the traditional consignment model.

For consignors, we offer concierge at-home consultation and pickup, subject to safety requirements related to the COVID pandemic, and meetings with consignors via online face-to-face platforms, or Virtual Consultations.

For consignors, we offer concierge at-home consultation and pickup, and meetings with consignors via online face-to-face platforms, or virtual consultations.

Consignors may also drop off items at our luxury consignment offices.

Our Flagship and Neighborhood Stores provide an alternative location to drop off consigned items and an opportunity to interact with our experts.

Our Flagship and Neighborhood Stores provide an alternative location to drop off consigned items and an opportunity to interact with our authentication experts.

Consignors may also utilize our complimentary shipping directly to our authentication centers.

We leverage our proprietary transactional database and market insights from approximately 23.0 million item sales since inception to deliver optimal pricing and rapid sell-through.

We leverage our proprietary transactional database and market insights from approximately 30.9 million item sales since our inception to deliver optimal pricing and rapid sell-through.

For buyers, we offer highly coveted and exclusive authenticated pre-owned luxury goods at attractive values, as well as a high-quality experience befitting the products we offer.

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We also generate revenue from other services and direct sales.

• Consignment and service revenue .

• Consignment revenue .

When we sell goods through our online marketplace or retail stores on behalf of our consignors, we retain a percentage of the proceeds, which we refer to as our take rate.

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In 2022 and 2021, our take rate on consigned goods was 36.0% and 34.7% respectively.

The decrease in our take rate was due to the higher sales mix of lower take rate categories such as handbags and jewelry.

Additionally, we earn revenue from shipping fees and from our subscription program, First Look, in which we offer buyers early access to the items we sell in exchange for a monthly fee.

The increase in our take rate was due to the larger sales mix of higher take rate categories such as women's apparel.

Additionally, we earn revenue from our subscription program, First Look, in which we offer buyers early access to the items we sell in exchange for a monthly fee.

• Direct revenue .

In certain cases, such as when we accept out of policy returns from buyers, or when we make direct purchases from businesses and consignors, we take ownership of goods and retain 100% of the proceeds when the goods subsequently sell through our online marketplace or retail stores.

We generate revenue from orders processed through our website, mobile app and 19 retail locations.

When we accept out of policy returns from buyers, or when we make direct purchases from businesses and consignors, we take ownership of goods and retain 100% of the proceeds when the goods subsequently sell through our online marketplace or retail stores.

• Shipping services revenue .

When we deliver purchased items to our buyers, we charge shipping fees to buyers for the outbound shipping and handling services.

We also generate shipping services revenue from the shipping fees for consigned products returned by our buyers to us within policy.

Shipping services revenue excludes the effect of buyer incentives and sales tax.

We generate revenue from orders processed through our website, mobile app and retail stores.

Our omni-channel experience enables buyers to purchase anytime and anywhere.

We have a global base of more than 25

million members as of December 31, 2021.

We have a global base of more than 31.3 million members as of December 31, 2022.

We count as a member any user who has registered an email address on our website or downloaded our mobile app, thereby agreeing to our terms of service.

Through December 31, 2022, we have cumulatively paid approximately $3.2 billion in commissions to our consignors.

Our GMV increased to $1.5 billion in 2021 from $987.0 million in 2020.

Our AOV increased to $497 in 2021 from $442 in 2020.

Our GMV increased to $1.8 billion in 2022 from $1.5 billion in 2021.

Our AOV decreased to $483 in 2022 from $497 in 2021.

In 2022 and 2021, our total revenue was $603.5 million and $467.7 million, respectively, representing an increase of 29% in 2022.

In 2022 and 2021, our gross profit was $348.7 million and $273.5 million, respectively, representing an increase of 28% in 2022.

Impact of COVID-19 on Our Business

In the year ended December 31, 2020, the COVID-19 pandemic adversely impacted our business and results of operations.

During the year ended December 31, 2021, we experienced a return to our previous high growth.

Early in 2020, operations in our authentication centers were limited, in-person concierge consignment appointments were temporarily suspended and our retail stores and luxury consignment offices were temporarily closed due to restrictions related to COVID-19.

As these restrictions began to ease in the second half of 2020, our operations capacity was no longer limited and all of our luxury consignment offices and retail stores re-opened.

GMV decreased in 2020 from 2019 as supply and demand were negatively impacted by COVID-19 related disruptions.

In 2021, many COVID-19 related restrictions continued to ease , allowing the Company to resume in-person concierge consignment appointments.

GMV and net revenues have fully recovered, yielding year over year increases.

D uring 2021, we faced staffing challenges exacerbated by the effects of COVID-19 and we may continue to experience such challenges in 2022.

While supply has continued to come into our authentication centers, hiring challenges in late December 2021 and into early January 2022 negatively impacted the time for processing and launching products on our website.

Additionally, the effects of any new variants of COVID-19 that may arise make it difficult to predict the impact of COVID-19 on our business going forward, including any impacts on our vendors.

Impact of COVID-19 and Macroeconomic Conditions on Our Business

The ongoing impact of the COVID-19 pandemic continues to affect our business and results of operations, although to a lesser extent than the prior years.

Throughout the pandemic, our top priority has been to protect the health and safety of our employees and our customers.

We have enforced social distancing in our authentication centers , enabled virtual consignment appointments, implemented curbside pick-up of products from our consignors, and enabled our corporate employees to work remotely.

We have followed internally derived specific health-related criteria with an emphasis on comprehensive safety precautions, including frequent cleaning in our stores and social distancing.

Macroeconomic uncertainty and inflationary pressure have and may in the future drive lower demand for the end customer and increase costs of labor and shipping.

Recent Business Developments

On February 15, 2023, we announced a savings plan intended to reduce operating expenses by (a) terminating approximately 230 employees (the “RIF”), representing approximately 7% of our workforce, and (b) reducing our real estate presence (the "Real Estate Reduction Plan") by (i) closing two flagship stores (San Francisco, California and Chicago, Illinois), two neighborhood stores (Atlanta, Georgia and Austin, Texas), and two luxury consignment offices (Miami, Florida and Washington, D.C.), including any co-located logistics hubs, and (ii) reducing our office spaces in San Francisco, California and New York, New York.

We will continue to evaluate our real estate presence as we deem appropriate to create efficiencies and to address trends in the marketplace and macroeconomic factors.

We may not be able to fully realize the cost savings and benefits initially anticipated from the RIF or Real Estate Reduction Plan, and the expected costs may be greater than expected.

See “Risk Factors—Risks Related to Our Business and Industry— Our reduction in workforce and the associated real estate reduction plan may not result in anticipated savings, could resul t in total costs and expenses that are greater than expected and could disrupt our business.

Other Factors Affecting Our Performance

Other key business and marketplace factors, independent of the health and economic impact of the COVID-19 pandemic, impact our business.

Other key business and marketplace factors, independent of the health and economic impact of the COVID-19 pandemic and macroeconomic conditions, impact our business.

To analyze our business performance, determine financial forecasts and help develop long-term strategic plans, we focus on the factors described below.

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We grow our sales by increasing the supply of luxury goods offered through our consignment online marketplace.

We grow our supply both by attracting new consignors and by creating lasting engagement with existing consignors.

We generate leads for new consignors principally through our advertising activity.

We convert those leads into active consignors through the activities of our sales professionals, who are trained and incentivized to identify and source high-quality, coveted luxury goods from consignors.

Our sales professionals form a consultative relationship with consignors and deliver a high-quality, rapid consigning experience.

Our existing relationships with consignors allow us to unlock valuable supply across multiple categories, including women’s fashion, men’s fashion, and jewelry and watches.

We measure the ratio of demand versus supply in a given period, which we refer to as our online marketplace sell-through ratio.

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In 2022 and 2021, our marketplace sell-through ratios were 91% and 94%, respectively.

Our 2021 sell-through ratio normalized as demand remained strong but we were able to bring in more supply, compared to prior year.

The 2020 sell-through ratio was driven by continued high demand but reflected challenges in securing supply due to the adverse impacts of COVID-19.

Our GMV growth has been driven in significant part by repeat sales by existing consignors concurrent with growth of our consignor base.

Our growth has been driven in significant part by repeat sales by existing consignors concurrent with growth of our consignor base.

In 2022 and 2021, repeat consignors accounted for approximately 83% and 84% of GMV, respectively.

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We attract and retain buyers by offering highly coveted, authenticated, pre-owned luxury goods at attractive values and delivering a high-quality, luxury experience.

We measure our success in attracting and retaining buyers by tracking buyer satisfaction and purchasing activity over time.

We have experienced high buyer satisfaction, as evidenced by our buyer net promoter score of 62 in 2021, and compared to our online shopping industry average of 40 according to NICE Satmetrix U.S.

We measure our success in attracting and retaining buyers by tracking buyer satisfaction and purchasing

activity over time.

We have experienced higher than average buyer satisfaction, as evidenced by our buyer net promoter score of 55 in 2022, and compared to our online shopping industry average of 41 according to NICE Satmetrix U.S.

Consumer 2022 data.

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The first graph below shows trends in purchasing activity for buyer cohorts for each year beginning in 2016.

Each cohort represents all buyers that first purchased across our online marketplace in the designated year and the aggregate GMV purchased by such cohort for the initial year and each year thereafter.

Each coho rt represents all buyers that first purchased across our online marketplace in the designated year and the aggregate GMV purchased by such cohort for the initial year and each year thereafter.

As illustrated in the first graph below, we have seen consistent retention of buyer activity across cohorts through 2022.

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We adjust or re-allocate our advertising in real-time to optimize our spend across channels, buyer demographics and geographies to improve our return on advertising spend.

With the exception of 2020 due to

the adverse impacts of COVID-19 on our business, our BAC has declined over time driven by improving acquisition efficiencies.

With the exception of 2020 due to the adverse impacts of COVID-19 on our business, our BAC has declined over time driven by improving acquisition efficiencies.

Scaling operations and technology.

To support the future growth of our business, we are expanding our capacity through investments in physical infrastructure, talent and technology.

We principally conduct our intake, authentication, merchandising and fulfillment operations in our four leased authentication centers located in Arizona and New Jersey comprising an aggregate of approximately 1.4 million square feet of space.

In October 2020, we secured a lease in Arizona for an additional authentication center and moved operations from our former Brisbane authentication center in June 2021.

We operate flagship retail stores in New York, Los Angeles, San Francisco, and Chicago.

In addition to our neighborhood stores in New York, Palo Alto, and Newport Beach, we opened seven new neighborhood stores in Greenwich, Dallas, Austin, Atlanta, Marin County, Manhasset, and Palm Beach during the year ended December 31, 2021.

In February 2022, we opened a neighborhood store in Brentwood, CA.

To support the future growth of our business, we continue to invest in physical infrastructure, talent and technology.

We principally conduct our intake, authentication, merchandising and fulfillment operations in our leased authentication centers located in Arizona and New Jersey comprising an aggregate of approximately 1.4 million square feet of space.

We also operate retail stores in several geographies.

In addition to scaling our physical infrastructure, growing our single-SKU business operations require that we attract, train and retain highly-skilled personnel for purposes of authentication, copywriting, merchandising, pricing and fulfilling orders.

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As a result of this seasonality, we typically see stronger AOV and more rapid sell-through in the fourth quarter.

We also incur higher operating expenses in the last four months of the year as we increase advertising spend to attract consignors and buyers and increase headcount in sales and operations to handle the higher volumes.

Key Financial and Operating Metrics

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NMV $ 1,335,506 $ 1,092,353 $ 736,872

Consignment and service revenue

Consignment revenue

$ 384,979 $ 302,221 $ 213,312

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$ 158,726 $ 120,844 $ 52,623

Shipping services revenue $ 59,788 $ 44,627 $ 34,014

Number of orders 3,757 2,981 2,233

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While GMV is the primary driver of our revenue, it is not a proxy for revenue or revenue growth.

See Note 2—Summary of Significant Accounting Policies—Revenue Recognition—Consignment and Service Revenue.

See Note 2—Summary of Significant Accounting Policies—Revenue Recognition—Consignment Revenue.

Net merchandise value ("NMV") represents the value of sales from both consigned goods and our inventory net of platform-wide discounts less product returns and order cancellations and excludes the effect of buyer incentives, shipping fees and sales tax.

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Like GMV, NMV is not a proxy for revenue or revenue growth.

Consignment and Service Revenue

Consignment and service revenue is generated from the sale of pre-owned luxury goods through our online marketplace and retail stores on behalf of consignors.

Consignment Revenue

Consignment revenue is generated from the sale of pre-owned luxury goods through our online marketplace and retail stores on behalf of consignors.

We retain a portion of the proceeds received, which we refer to as our take rate.

We recognize consignment revenue, net of allowances for product returns, order cancellations, buyer incentives and adjustments.

Additionally, we generate revenue from shipping fees we charge to buyers.

We also generate service revenue from subscription fees paid by buyers for early access to products.

We also generate revenue from subscription fees paid by buyers for early access to products.

Direct Revenue

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We recognize direct revenue upon shipment of the goods sold, based on the gross purchase price net of allowances for product returns, buyer incentives and adjustments.

Shipping Services Revenue

Shipping services revenue is generated from shipping fees we charge to buyers for outbound shipping and handling activities related to delivering purchased items to our buyers.

We also generate shipping services revenue from the shipping fees for consigned products returned by our buyers to us within policy.

We recognize shipping services revenue over time as the shipping activity occurs.

Shipping services revenue excludes the effect of buyer incentives and sales tax.

Number of Orders

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The numerator used to calculate our take rate is equal to net consignment sales and the denominator is equal to the numerator plus consignor commissions.

Net consignment sales represents the value of sales from consigned goods net of platform-wide discounts less consignor commission, product returns and order cancellations.

Net consignment sales represent the value of sales from consigned goods net of platform-wide discounts less consignor commission, product returns and order cancellations.

We exclude direct revenue from our calculation of take rate because direct revenue represents the sale of inventory owned by us, which costs are included in cost of direct revenue.

Our take rate reflects the high level of service that we provide to our consignors across multiple touch points and the consistently high velocity of sales for their goods.

Our take rate structure is a tiered commission structure for consignors, where the more they sell the higher percent commission they earn.

Consignors start at a 55% commission (which equals a 45% take rate for us) and can earn up to a 70% commission.

This tiered structure applies unless it is overridden by a commission exception.

Commission exceptions from the tiered commission structure optimize supply and drive take rate changes.

Examples of current commission exceptions include a flat 30% commission on all items under $96, and an 85% commission on watches over $2,495.

In November 2022, we updated our take rate structure with the goals of optimizing take rate, limiting consignment of lower value items, and increasing supply of higher value items.

Previously, our take rate was primarily based on a tiered commission structure for consignors, where the more they sell the higher percent commission they earn.

Consignors typically started at a 55% commission (which equals a 45% take rate for us) and could earn up to a 70% commission.

In addition, there were commission exceptions from the tiered commission structure based on category and price point of the items.

Beginning in November 2022, the take rate structure is primarily based on the category and the price point of the sold items.

For example, under the updated take rate structure, consignors can earn 20% commission on all sold items under $100, and up to 90% commission on watches sold for over $7,500.

We launched a pricing tool for our consignors that provides detail on commission rates for specific categories and other aspects of the take rate structure.

Consignors are eligible to receive additional commissions based on total net sales under an added tiered commission structure.

Management assesses changes in take rates by monitoring the volume of GMV and take rate across each discrete commission grouping, encompassing commission tiers and exceptions.

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Average Order Value (“AOV”)

Average order value (“AOV”) means the average value of all orders placed across our online marketplace and retail stores, excluding shipping fees and sales taxes.

Average order value (“AOV”) means the average value of all orders placed across our online marketplace and retail stores, excluding the effect of buyer incentives, shipping fees and sales taxes.

Our focus on luxury goods across multiple categories drives a consistently strong AOV.

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Adjusted EBITDA may not be comparable to similarly titled metrics of other companies.

Adjusted EBITDA means net loss before interest income, interest expense, other (income) expense net, provision for income taxes, and depreciation and amortization, further adjusted to exclude stock-based compensation, payroll taxes on employee stock transactions, and certain one-time expenses.

Adjusted EBITDA provides a basis for comparison of our business operations between current, past and future periods by excluding items that we believe are not indicative of our core operating performance.

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Adjusted EBITDA has certain limitations as the measure excludes the impact of certain expenses that are included in our statements of operations that are necessary to run our business and should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP.

The following table presents a reconciliation of net loss to Adjusted EBITDA for 2021, 2020, and 2019:

The following table provides a reconciliation of net loss to Adjusted EBITDA (in thousands):

Year Ended December 31,

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27,669 23,531 18,845

Interest income (3,191) (365) (2,518)

Interest expense 10,472 21,531 5,264

Provision for income taxes 172 56 101

EBITDA (161,323) (191,354) (154,140)

Stock-based compensation (1)

46,138 48,802 24,322

CEO separation benefits (2)

CEO transition costs (3)

Payroll taxes on employee stock transactions 451 1,168 —

Legal fees reimbursement benefit (4)

Compensation expense related to stock sales by current and former employees

(1,400) (1,204) —

Legal settlements (5)

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Restructuring charges (6)

Abandoned offering costs

Donation to TRR Foundation

Interest income

896 2,314 514

Interest expense

21,531 5,264 616

Other (income) expense, net

(171) (23) 169

Provision for income taxes

Adjusted EBITDA (112,454) (126,908) (128,025)

(1) We exclude employer payroll tax expense related to employee stock-based transactions because we believe that excluding this item provides meaningful supplemental information regarding our operating results.

In particular, this expense is dependent on the price of our common stock at the time of vesting or exercise, which may vary from period to period, and other factors that are beyond our control and do not correlate to the operation of the business.

When evaluating the performance of our business and making operating plans, we do not consider these items.

Similar charges were not adjusted in prior periods as they were not material.

(2) During the year ended December 31, 2021, we received insurance reimbur sement of $4.3 million related to legal fees for a certain matter, of which $3.1 million have been applied to the current year's legal expenses.

(3) Includes the financial terms of the stipulation of settlement of the putative shareholder class action and the final settlement of the derivative case.

On November 5, 2021, a stipulation of settlement was filed with the federal court to settle the putative shareholder class action filed against us, our officers and directors, and the underwriters for the Company’s initial public offering.

The stipulation of settlement is subject to preliminary and final approval by the court.

The financial terms of the settlement stipulation provide that the Company will pay $11.0 million within thirty (30) days of the later of preliminary approval of the settlement or plaintiff’s counsel providing payment instructions.

Also on November 5, 2021, a stipulation of settlement was filed in the derivative case filed against us as a nominal defendant and our officers and directors as defendants.

The stipulation of settlement for the derivative case was finally approved by the court on February 11, 2022.

The stipulation of settlement for the derivative case was preliminarily approved on December 8, 2021, and the $0.5 million was paid within 30 days of preliminary approval, or on January 7, 2022.

(4) The restructuring charges for the year ended December 31, 2021 comprise of the costs to transition operations from the Brisbane warehouse to our new Phoenix warehouse.

The restructuring charges for the year ended December 31, 2020 consist of COVID-19 related costs including employee severance.

(1) The stock-based compensation expense for the year ended December 31, 2022 includes a one-time charge of $1.0 million related to the modification of certain equity awards pursuant to the terms of the transition and separation agreement entered into with our founder, Julie Wainwright, in connection with her resignation as Chief Executive Officer ("CEO") on June 6, 2022 (the "Separation Agreement").

(2) The separation benefit charges for the year ended December 31, 2022 consists of base salary, bonus and benefits for the 2022 fiscal year, as well as an additional twelve months of base salary and benefits payable to Julie Wainwright pursuant to the Separation Agreement.

In addition, see footnote 1 for disclosure regarding the incremental stock-based compensation expense incurred in connection with the Separation Agreement.

(3) The CEO transition charges for the year ended December 31, 2022 consist of general and administrative fees, including legal and recruiting expenses, as well as retention bonuses for certain executives incurred in connection with our founder's resignation on June 6, 2022.

(4) During the year ended December 31, 2022, we received insurance reimbursement of $1.4 million related to a legal settlement expense.

During the year ended December 31, 2021, we received insurance reimbursement of $4.3 million related to legal fees for a certain matter, of which $3.1 million were applied to legal expenses for the year ended December 31, 2021.

(5) The legal settlement charges for the year ended December 31, 2021 reflects legal settlement expenses arising from the settlement of a putative shareholder class action and derivative case.

(6) The restructuring charges for the year ended December 31, 2022 consists of employee severance payments and benefits.

The restructuring charges for the year ended December 31, 2021 consist of the costs to transition operations from the Brisbane warehouse to our new Phoenix warehouse.

Components of our Operating Results

Our revenue is comprised of consignment and service revenue and direct revenue.

• Consignment and service revenue .

Our revenue is comprised of consignment revenue, direct revenue, and shipping services revenue.

• Consignment revenue .

We generate the substantial majority of our revenue from the sale of pre-owned luxury goods through our online marketplace and retail stores on behalf of consignors.

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We recognize consignment revenue, net of allowances for product returns, order cancellations, buyer incentives and adjustments.

Additionally, we generate revenue from shipping fees we charge to buyers.

We also generate service revenue from subscription fees paid by buyers for early access to products, but to date our subscription revenue has not been material.

Additionally, we generate revenue from subscription fees paid by buyers for early access to products, but to date our subscription revenue has not been material.

• Direct revenue .

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We recognize direct revenue upon shipment based on the gross purchase price paid by buyers for goods, net of allowances for product returns, buyer incentives and adjustments.

• Shipping services revenue.

We generate shipping services revenue from the outbound shipping and handling fees we charge when delivering purchased items to our buyers.

We also generate shipping services revenue from the shipping fees for consigned products returned by our buyers to us within policy .

We recognize shipping services revenue over time as the shipping activit y occurs.

Shipping services revenue excludes the effect of buyer incentives and sales tax.

During the three months ended June 30, 2022, the Company changed its method of accounting for shipping and handling activities.

Changes to reclassify amounts in the prior periods have been made to conform to the current period presentation, as described in Note 2 " Change in Accounting Principle" to the financial statements included herein.

Cost of Revenue

Cost of consignment and services revenue consists of shipping costs, credit card fees, packaging, customer service personnel-related costs, website hosting services, and consignor inventory adjustments related to lost or damaged products.

Cost of direct revenue consists of the cost of goods sold, credit card fees, packaging, customer service personnel-related costs, website hosting services, and inventory adjustments.

Cost of consignment revenue consists of credit card fees, packaging, customer service personnel-related costs, website hosting services, and consignor inventory adjustments related to lost or damaged products.

Cost of direct revenue consists of the cost of goods sold, credit card fees, packaging, customer service personnel-related costs, website hosting services, and inventory adjustments for lower of cost or net realizable value provisions and for lost or damaged products.

Cost of shipping services revenue consists of the outbound shipping and handling costs to deliver purchased items to our buyers, the shipping costs for consigned products returned by our buyers to us within policy, and an allocation of the credit card fees associated with the shipping fee charged.

Marketing expense comprises the cost of acquiring and retaining consignors and buyers, including the cost of television, digital and direct mail advertising.

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Operations and technology expense principally includes personnel-related costs for employees involved with the authentication, merchandising and fulfillment of goods sold through our online marketplace and retail stores, as well as our general information technology expense.

Operations and technology expense also includes allocated facility and overhead costs, costs related to our retail stores, facility supplies and depreciation of hardware and equipment, as well as research and development expense for technology associated with managing and improving our operations.

Operations and technology expense also includes allocated facility and overhead costs, costs related to our retail stores, facility supplies, inbound consignment shipping costs, and depreciation of hardware and equipment, as well as research and development expense for technology associated with managing and improving our operations.

We capitalize a portion of our proprietary software and technology development costs.

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Our provision for income taxes consists primarily of state minimum taxes in the United States.

We have a full valuation allowance for our net deferred tax assets primarily consisting of net operating loss carryforwards, accruals and reserves.

We have a full valuation allowance for our net deferred tax assets primarily consisting of net operating loss carryforwards, accruals and reserves, stock-based compensation, fixed assets, and other book-to-tax timing differences.

We expect to maintain this full valuation allowance for the foreseeable future.

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The results of operations presented below should be reviewed in conjunction with the financial statements and notes included elsewhere in the Annual Report.

Prior year comparisons are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

The following tables set forth our results of operations and such data as a percentage of revenue for the periods presented:

Except as described below, prior year comparisons for 2021 and 2020 are included in “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

However, during the three months ended June 30, 2022, the Company changed its accounting policy from those disclosed in the audited financial statements and related notes for the year ended December 31, 2021 related to shipping services revenue.

Changes to reclassify amounts in the prior periods have been made to conform to the current period presentation, as described in Note 2 "Change in Accounting Principle" to the financial statements included herein.

Year-over-year discussion and analysis of consignment revenue, shipping services revenue, cost of consignment revenue and cost of shipping services revenue are included below for 2021 and 2020 on a reclassified basis.

The following tables set forth our results of operations (in thousands) and such data as a percentage of revenue for the periods presented:

Year Ended December 31,

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(In thousands)

Consignment and service revenue $ 346,848 $ 247,326 $ 265,729

Consignment revenue $ 384,979 $ 302,221 $ 213,312

Direct revenue

158,726 120,844 52,623

Shipping services revenue 59,788 44,627 34,014

Total revenue

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Cost of revenue:

Cost of consignment and service revenue

92,788 66,976 73,579

Cost of consignment revenue 56,963 44,985 30,389

Cost of direct revenue

141,661 101,427 45,406

Cost of shipping services revenue 56,178 47,803 36,587

Total cost of revenue

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2022 2021 2020

Consignment and service revenue

74 % 82 % 84 %

Consignment revenue 64 % 65 % 71 %

Direct revenue

Shipping services revenue 10 9 11

Total revenue

Cost of revenue:

Cost of consignment and service revenue

Cost of consignment revenue 9 10 10

Cost of direct revenue

Cost of shipping services revenue 9 10 12

Total cost of revenue

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Selling, general and administrative

Legal and administrative 3 — —

Legal settlement — 3 —

Total operating expenses

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Comparison of 2022 and 2021

Consignment and Service Revenue

Consignment Revenue

Year Ended December 31, Change

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(In thousands, except percentage)

Consignment and service revenue, net $ 346,848 $ 247,326 $ 99,522 40 %

Consignment and service revenue increased by $99.5 million, or 40%, in 2021 compared to 2020.

The increase in revenue was driven primarily by a 50% increase in GMV, partially offset by an increase in returns and cancellations year over year.

GMV growth during the year ended December 31, 2021 was driven by a 33% increase in orders and a 12% increase in AOV, due to an increased market demand for online luxury goods.

We believe this growth is driven by heightened interest in luxury resale due to increasing consumer desire for more affordable, accessible luxury goods in a sustainable circular economy.

Consignment revenue, net $ 384,979 $ 302,221 $ 82,758 27 %

Consignment revenue increased by $82.8 million, or 27%, in 2022 compared to 2021.

The increase in revenue was driven primarily by a 23% increase in GMV, and improvement in our take rate during the year ended December 31, 2022.

GMV growth during the year ended December 31, 2022 was driven by a 26% increase in orders, due to strong market demand for online luxury goods, partially offset by a 3% decrease in AOV.

We believe GMV growth is driven by interest in luxury resale due to increasing consumer desire for more affordable, accessible luxury goods in a sustainable circular economy.

Returns and cancellations as a percentage of GMV for the year ended December 31, 2022 was 26.5%, compared to 26.3% for the year ended December 31, 2021.

This increase was primarily due to a normalization of customer return patterns during the year ended December 31, 2021.

Our take rate decreased to 34.7% from 35.7% during the year ended December 31, 2021 compared to last year due to the higher sales mix of high-value items which typically have a lower take rate, such as watches and fine jewelry.

Our take rate increased to 36.0% from 34.7% during the year ended December 31, 2022 compared to last year due to increased contribution from higher take rate products such as women's apparel.

Direct Revenue

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Direct revenue increased by $37.9 million, or 31%, in 2022 compared to 2021.

The increase was primarily driven by the higher sales mix of company-owned inventory due to direct purchases from businesses and consignors, along with higher sales of aged inventory primarily resulting from out of policy returns.

The increase was primarily driven by the sell-through of company owned inventory from previous direct purchases from businesses.

We recognize direct revenue on a gross basis upon shipment of the purchased good to the buyer.

Direct revenue has been increasing as a percentage of total revenue in recent quarters as a result of a higher sales mix of company-owned inventory due to direct purchases from businesses and consignors.

Direct revenue as a percentage of total revenue may vary from period to period primarily based on the growth of consignment and service revenue, as well as the amount of company-owned inventory we purchase.

We anticipate direct revenue to decrease as a percentage of total revenue over the longer term.

Cost of Consignment and Service Revenue

Direct revenue was flat as a percentage of total revenue year over year.

We anticipate direct revenue to decrease as a percentage of total revenue as we have acted to limit the amount of direct purchases from businesses and plan to continue to do so in the future.

Shipping Services Revenue

Year Ended December 31, Change

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(In thousands, except percentage)

Cost of consignment and service revenue $ 92,788 $ 66,976 $ 25,812 39 %

As a percent of consignment and service revenue 27 % 27 %

Cost of consignment and service revenue increased by $25.8 million, or 39%, in 2021 compared to 2020.

The increase was primarily attributable to increases in shipping costs driven by fulfillment of a larger number of orders and credit card fees driven by growth in our business.

Consignment and service revenue gross margin remained flat in the year ended December 31, 2021 compared to the year ended December 31, 2020.

Shipping services revenue $ 59,788 $ 44,627 $ 15,161 34 %

Shipping services revenue increased by $15.2 million, or 34%, in 2022 compared to 2021 primarily due to increased shipping rates charged to buyers for outbound and return shipments and the fulfillment of a larger number of orders, which increased 26% in the year ended December 31, 2022 compared to the year ended December 31, 2021.

Cost of Consignment Revenue

Year Ended December 31, Change

2022 2021 Amount %

(In thousands, except percentage)

Cost of consignment revenue $ 56,963 $ 44,985 $ 11,978 27 %

As a percent of consignment revenue 15 % 15 %

Cost of consignment revenue increased by $12.0 million, or 27%, in 2022 compared to 2021.

The increase was primarily attributable to the 27% increase in consignment revenue compared to the prior year, as well as higher credit card fees and overhead costs driven by growth in our business.

Consignment revenue gross margin remained flat in the year ended December 31, 2022 compared to the year ended December 31, 2021.

Cost of Direct Revenue

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Cost of direct revenue increased by $40.2 million, or 40%, in 2022 compared to 2021.

Direct revenue gross margin increased by 2 percentage points in 2021 compared to 2020, primarily driven by favorable product margins.

The margin profile of our direct revenue is lower than consignment and service revenue.

Our total gross margin decreased by 5% in 2021 compared to 2020 due to the increase in direct revenue as a percentage of total revenue.

As we continue to make direct purchases from vendors, gross margin may vary from period to period.

The increase was primarily attributable to the 31% increase in direct revenue compared to the prior year.

Direct revenue gross margin decreased by 5 percentage points in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by strategic liquidation of company owned inventory sold at discounted prices.

The margin profile of our direct revenue is lower than the margin profile of our consignment revenue.

Cost of Shipping Services Revenue

Year Ended December 31, Change

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(In thousands, except percentage)

Cost of shipping services revenue $ 56,178 $ 47,803 $ 8,375 18 %

As a percent of shipping services revenue 94 % 107 %

Cost of shipping services revenue increased by $8.4 million, or 18%, in the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase is primarily due to the fulfillment of a larger number of orders as well as higher shipping fees.

Shipping service revenue gross margin increased by 13 percentage points in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to increased shipping rates charged to buyers for outbound and return shipments beginning in Q4 2021.

Our total gross margin decreased by 1 percentage point in the year ended December 31, 2022 compared to the year ended December 31, 2021 driven by the decrease in direct revenue gross margin as discussed above.

Gross margin may vary from period to period.

Year Ended December 31, Change

2022 2021 Amount %

(In thousands, except percentage)

Marketing $ 63,128 $ 62,749 $ 379 1 %

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Operations and technology expense increased by $43.3 million, or 18%, in 2022 compared to 2021.

The increase was primarily due to higher employee compensation related expenses, including stock-based compensation expense, due to increased headcount to support our growth, and higher occupancy costs due to our additional retail stores and the transition of operations to our authentication center in Arizona.

The increase was also driven by an increase in travel expense, software fees, as well as restructuring costs associated with the transition of operations from our Brisbane authentication center to our Arizona authentication center during the year ended December 31, 2021.

Stock-based compensation increased due to increased headcount, as well as an increase in long-term equity incentive awards.

The increase was primarily due to higher employee compensation related expenses due to increased headcount to support our growth, and higher inbound consignment shipping costs.

The increase was also attributed to higher amortization associated with capitalized proprietary software.

As a percentage of revenue, operations and technology expense decreased to 46% in 2022 from 50% in 2021.

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Selling, general and administrative expense increased by $18.7 million, or 11%, in 2022 compared to 2021.

The increase was due to higher employee compensation expenses, including stock-based compensation expense, an increase in software fees, partially offset by an insurance reimbursement for legal expenses.

Stock-based compensation increased due to increased headcount, as well as an increase in long-term equity incentive awards.

The increase was due to higher employee compensation expenses due to increased headcount, in addition to an increase in cloud and software service fees.

The increase was also driven by costs associated with the resignation of the Company's founder during the year ended December 31, 2022.

As a percentage of revenue, selling, general and administrative expense decreased to 33% in 2022 from 38% in 2021.

These expenses may vary from period to period as a percentage of revenue.

We expect these expenses to decrease as a percentage of revenue over the long term.

Interest Income

Year Ended December 31, Change

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(In thousands, except percentage)

Interest income $ 3,191 $ 365 $ 2,826 774 %

Interest income increased by $2.8 million, or over 100%, in the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase was primarily driven by higher average interest rates.

Interest Expense

Year Ended December 31, Change

2022 2021 Amount %

(In thousands, except percentage)

Interest expense $ (10,472) $ (21,531) $ 11,059 -51 %

Interest expense decreased by $11.1 million, or 51%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The decrease was primarily due to the adoption of ASU 2020-06 on January 1, 2022, which eliminated the debt discount related to both the 3.00% convertible senior notes issued in June 2020 and the 1.00% convertible senior notes issued in March 2021.

Other Income, Net

Year Ended December 31, Change

2022 2021 Amount %

(In thousands, except percentage)

Other income, net $ 171 $ 23 $ 148 643 %

Other income increased by $0.1 million, or over 100%, in the year ended December 31, 2022 compared to the year ended December 31, 2021.

Legal Settlement

Legal settlement expense increased by $12.3 million, or over 100%, in 2021 compared to 2020.

This increase was primarily due to the $11.0 million legal settlement for the shareholder class action filed against us and $0.5 million of attorney's fees to be paid as part of the settlement for the related derivative case filed against us.

Year Ended December 31, Change

2022 2021 Amount %

(In thousands, except percentage)

Legal settlement $ 456 $ 13,389 $ (12,933) (97) %

Legal settlement expense decreased by $12.9 million, or 97%, in 2022 compared to 2021.

This decrease was primarily due to the $11.0 million legal settlement accrued for during the year ended December 31, 2021 in connection with the settlement of the shareholder class action filed against us and $0.5 million of attorney's fees as part of the settlement for the related derivative case filed against us.

Comparison of 2021 and 2020

As described above, prior year comparisons for 2021 and 2020 are included in “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

However, during the three months ended June 30, 2022, the Company had a change in accounting policy from those disclosed in the audited financial statements and related notes for the year ended December 31, 2021 related to shipping services revenue.

Consignment Revenue

Year Ended December 31, Change

2021 2020 Amount %

(In thousands, except percentage)

Consignment revenue, net $ 302,221 $ 213,312 $ 88,909 42 %

Consignment and service revenue increased by $88.9 million, or 42%, in 2021 compared to 2020.

The increase in revenue was driven primarily by a 50% increase in GMV, partially offset by an increase in returns and cancellations year over year.

Shipping Services Revenue

Year Ended December 31, Change

2021 2020 Amount %

(In thousands, except percentage)

Shipping services revenue $ 44,627 $ 34,014 $ 10,613 31 %

Shipping services revenue increased by $10.6 million, or 31%, in 2021 compared to 2020 primarily due to the fulfillment of a larger number of orders, which increased 33% in the year ended December 31, 2021 compared to the year ended December 31, 2020, as well as increased shipping fee introduced in Q4 of 2021.

Cost of Consignment Revenue

Year Ended December 31, Change

2021 2020 Amount %

(In thousands, except percentage)

Cost of consignment revenue $ 44,985 $ 30,389 $ 14,596 48 %

As a percent of consignment revenue 15 % 14 %

Cost of consignment revenue increased by $14.6 million, or 48%, in 2021 compared to 2020.

The increase was primarily attributable to the 42% increase in consignment revenue compared to the prior year, as well as higher credit card fees driven by growth in our business.

Consignment revenue gross margin decreased by 1 percentage point in the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by higher overhead costs due to growth in our business.

Cost of Shipping Services Revenue

Year Ended December 31, Change

2021 2020 Amount %

(In thousands, except percentage)

Cost of shipping services revenue $ 47,803 $ 36,587 $ 11,216 31 %

As a percent of shipping services revenue 107 % 108 %

Cost of shipping services revenue increased by $11.2 million, or 31%, in the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase is primarily due to the fulfillment of a larger number of orders, as well as an increase in shipping costs from rising prices of fulfillment services during the pandemic.

Shipping service revenue gross margin improved in the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to the increase in shipping fees implemented during the three months ended December 31, 2021.

Liquidity and Capital Resources

As of December 31, 2022, we had cash and cash equivalents of $293.8 million and an accumulated deficit of $951.2 million.

Since inception, we have generated negative cash flows from operations and have primarily financed our operations through equity and convertible debt financings.

Since our inception, we have generated negative cash flows from operations and have primarily financed our operations through equity and convertible debt financings.

In July 2019, we received net proceeds of $315.5 million upon completion of our IPO on July 2, 2019.

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We expect that operating losses and negative cash flows from operations could continue in the foreseeable future.

We believe our existing cash and cash equivalents as of December 31, 2021 will be sufficient to meet our requirements and plans for cash for at least the next 12 months.

Our future capital requirements will depend on many factors, including, but not limited to, our ability to grow our revenues and the timing of investments to support growth in our business, such as the build-out of our authentication centers and, to a lesser extent, the opening of new retail stores.

Our primary capital requirements include contractual obligations related to our operating leases, payments on our debt, certain non-cancellable contracts, and compensation and benefits payments to support our strategic plans.

Our future capital requirements and the adequacy of available funds will depend on many factors, including, but not limited to, those set forth under the heading “Risk Factors” in this Annual Report, and our ability to grow our revenue and the timing of investments to support growth in our business, such as the build-out of our authentication centers.

We believe that our existing cash and cash equivalents as of December 31, 2022 will be sufficient to meet our working capital, capital expenditures and contractual obligation requirements for at least the next 12 months.

We may seek additional equity or debt financing.

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If we are unable to raise additional capital when desired, our business, financial condition and results of operations could be adversely affected.

In April 2021, the Company entered into a loan and security agreement ("Revolving Credit Agreement") with a lender, to provide a revolving line of credit of up to $50 million.

The credit facility expires in April 2023.

The Revolving Credit Agreement contains affirmative, negative and financial covenants, including covenants that require maintaining minimum cash and investment balances over specified periods of time and covenants that restrict, among other things, the Company’s ability to change its name, business, management, ownership or business locations, enter into mergers or acquisitions or incur additional indebtedness.

As of December 31, 2022, the Company was in compliance with all covenants.

As of December 31, 2022, $0 had been drawn on the Revolving Credit Agreement.

For more information on the Revolving Credit Agreement, please see Note 6 of our Notes to Financial Statements included elsewhere in this Annual Report.

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

Prior year comparisons are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Prior year comparisons are included in "Park II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Year Ended December 31,

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4,101 252,913 152,815

Net increase in cash, cash equivalents and restricted cash

Net (decrease) increase in cash and cash equivalents

$ (124,378) $ 67,325 $ 196,400

Net Cash Used in Operating Activities

During 2021, net cash used in operating activities was $142.2 million, which consisted of a net loss of $236.1 million, adjusted by non-cash charges of $108.3 million and cash outflows due to a net change of $14.3 million in our operating assets and liabilities.

The net change in our operating assets and liabilities was primarily the result of cash outflows due to increases of $28.7 million in inventory driven by an increase in direct purchases of inventory from vendors, a decrease of $15.3 million in operating lease liability, and a decrease of $10.0 million in accounts payable, partially offset by cash inflows due to increases of $30.9 million in other accrued and current liabilities and $14.0 million in accrued consignor payable.

During 2022, net cash used in operating activities was $91.6 million, which consisted of a net loss of $196.4 million, adjusted by non-cash charges of $98.2 million and cash inflows due to a net change of $6.7 million in our operating assets and liabilities.

The net change in our operating assets and liabilities was primarily the result of cash inflows due to a decrease in 2022 of $28.0 million in inventory driven by a decrease in direct purchases of inventory from vendors, an increase of $10.5 million in accrued consignor payables, and by a $4.9 million increase in accounts payable, partially offset by a decrease of $17.8 million in operating lease liability and a decrease of $9.8 million in other accrued and current liabilities.

Our primary uses of cash in operating activities include operating costs such as operating lease obligations, compensation and benefits, marketing, and other expenditures necessary to support our business growth.

Net Cash Used in Investing Activities

During 2021, net cash used in investing activities was $43.4 million, which consisted of $37.5 million for purchases of property and equipment, net, including leasehold improvements, and $10.0 million for capitalized proprietary software costs, partially offset by $4.0 million of proceeds from maturities on short-term investments.

During 2022, net cash used in investing activities was $36.9 million, which consisted of $22.9 million for purchases of property and equipment, net, including leasehold improvements, and $14.1 million for capitalized proprietary software costs.

Net Cash Provided by Financing Activities

During 2021, net cash provided by financing activities was $252.9 million, which primarily consisted of proceeds of $278.2 million from the issuance of the 2028 Notes, net of issuance costs, $6.0 million from the exercise of stock options, and $2.3 million from the issuance of common stock related to the Company's employee stock purchase plan (the "ESPP"), partially offset by $33.7 million for the purchase of capped calls related to the 2028 Notes issuance.

Contractual Obligations and Commitments

The following table summarize s our material cash requirements from our known contractual obligations and other commitments as of December 31, 2021:

Payment Due by Period

Total Less Than

(In thousands)

During 2022, net cash provided by financing activities was $4.1 million, which primarily consisted of $2.9 million from the exercise of stock options, and $1.4 million from the issuance of common stock related to the Company's employee stock purchase plan (the "ESPP").

Material Contractual and Other Obligations

O ur material contractual and other obligations as of December 31, 2022 consist of:

• Operating Leases.

Convertible Senior Notes, including interest 496,800 8,050 16,100 180,838 291,812

Other commitments (1)

13,008 7,446 5,562 — —

Total $ 709,165 $ 42,932 $ 77,928 $ 237,687 $ 350,618

(1) Consists of non-cancelable purchase commitments to third-party vendors with terms of greater than one year and purchase commitments on inventory, as well as a non-cancelable purchase obligation for marketing activities.

As of December 31, 2022, our cash requirements related to our operating leases on our authentication centers, retail stores, and corporate offices that are included in our balance sheet were $175.1 million, of which $29.0 million is expected to be paid within the next 12 months.

• Convertible Senior Notes.

As of December 31, 2022, our cash requirements related to our Convertible Senior Notes that are included on our balance sheet and the related periodic interest payments were $488.8 million, of which $8.1 million is expected to be paid within the next 12 months.

• Non-cancellable purchase commitments.

Our cash requirements related to certain other non-cancellable purchase commitments associated primarily with software services and hosting arrangements, were approximately $24.4 million, of which approximately $11.2 million is expected to be paid within the next 12 months.

Critical Accounting Estimates

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While our significant accounting policies are more fully described in Note 2—Summary of Significant Accounting Policies, we believe that the accounting estimates discussed below relate to the more significant areas involving management’s judgments and estimates.

For our operating leases, we record a lease liability based on the present value of the lease payments at lease inception, using the applicable incremental borrowing rate.

We estimate the incremental borrowing rate based on our own estimated synthetic credit rating, corresponding yield curve, and the terms of each lease at the lease commencement date.

Given the lack of a directly observable Company specific credit rating, there is significant judgment in the methodology used to develop the incremental borrowing rates, including the development of the synthetic credit rating.

Management also typically utilizes third party valuation specialists to provide market yield curves associated with our estimated synthetic credit rating.

The incremental borrowing rates we used ranged from

2.3% to 9.3% depending on the lease terms.

The sensitivity of the estimate is mainly due to the judgement used in the development of the synthetic credit rating and yield curves at lease inception.

Convertible Senior Notes

In recording our convertible debt instruments, we separately account for the liability and equity components by allocating proceeds between the liability component and the embedded conversion options, or equity components.

In recording our convertible debt instruments for the years ended December 31, 2021 and December 31, 2020, we separately account for the liability and equity components by allocating proceeds between the liability component and the embedded conversion options, or equity components.

We allocate the debt components of the instruments on the basis of the estimated fair value of a similar liability that does not have an associated convertible feature and the remaining proceeds are allocated to the equity component.

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For the 2028 Notes with a principal amount of $287.5 million, an interest rate of 7.18% was used to compute the initial fair value of the liability component of $191.3 million.

As disclosed in Note 2—Summary of Significant Accounting Policies, this critical accounting estimate was not necessary for the fiscal year ended December 31, 2022 as a result of the adoption of ASU 2020-06.

For the year ended December 31, 2022, we have not identified critical accounting estimates that involve a significant level of estimation uncertainty and would have a material impact on our results.

Refer to our significant accounting policies are more fully described in Note 2—Summary of Significant Accounting Policies.

Recent Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies” to our financial statements included elsewhere in this Annual Report on Form 10-K for recently issued accounting pronouncements not yet adopted as of the date of this Annual Report on Form 10-K.

Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise requested under this item.

Financial Statements and Supplementary Data.

Please refer to the Financial Statements and Notes to Financial Statements in this Form 10-K which is incorporated herein by reference.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

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