What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-03-01 compared with 2023-02-28 · 328 added, 332 removed, 934 unchanged (41% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2022.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2022, our disclosure controls and procedures were effective at the reasonable assurance level in ensuring that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and (b) such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer (“CEO”) and interim Chief Financial Officer, who acts as our principal financial officer (“Interim CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2023.

Based on this evaluation, our CEO and Interim CFO concluded that, as of December 31, 2023, our disclosure controls and procedures were effective at the reasonable assurance level in ensuring that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and (b) such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Management, including our CEO and Interim CFO, who acts as our principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S.

Under the supervisi on and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Under the supervisi on and with the participation of our management, including our CEO and Interim CFO, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on evaluatio n under these criteria, management determined that our internal control over financial reporting was effective as of December 31, 2023 .

2 unchanged sentences

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the year ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of C ontents

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and our Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level.

Our management, including our Chief Executive Officer and our Interim Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level.

However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud.

8 unchanged sentences

Other Information.

Departure of Directors or Certain Officers;

Election of Directors;

Appointment of Certain Officers;

Compensatory Arrangements of Certain Officers.

On February 27, 2023, the Company entered into letter agreements (“Special Award Letters”) with each of Rati Sahi Levesque, the Company’s President and Chief Operating Officer, and Robert Julian, the Company’s Chief Financial Officer (together, the “Executives”), pursuant to which each Executive is eligible to receive a one-time, special cash bonus in the amount of $250,000.

Under the Special Award Letters, the cash bonuses will be paid within fifteen (15) days following December 31, 2023 (the “Award Date”), subject to the applicable Executive’s continued employment with the Company through the Award Date.

In the event that an Executive’s employment is terminated by the Company without “cause” or by the Executive for “good reason” (each as defined in his or her severance and change in control agreement with the Company), in either case, prior to the Award Date, then, subject to the applicable Executive’s execution and non-revocation of a general release of claims in favor of the Company, the Executive will be entitled to payment of his or her cash award.

The foregoing description of the one-time, special cash bonuses does not purport to be complete and is qualified in its entirety by full text of the Form of Special Award Letter, a copy of which is filed herewith as Exhibit 10.36.

Rule 10b5-1 Trading Plans

On November 27, 2023 , James Miller , a member of the Company’s Board of Directors , adopted a new trading plan for the sale of securities that is intended to satisfy the affirmative defense conditions of Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Miller Plan”).

The Miller Plan provides for the sale of up to a maximum of 74,586 shares of the Company’s common stock that he has received or will receive following the vesting of restricted stock units.

The first possible trade date under the Miller Plan is March 5, 2024, and the end date of the Miller Plan is November 27, 2024, subject to certain conditions.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

Table of C ontents

Directors, Executive Officers and Corporate Governance.

Information required by this Item is incorporated herein by reference to our 2022 proxy statement to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022 (the “Proxy Statement”).

Information required by this Item is incorporated herein by reference to our fiscal year 2024 proxy statement to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023 (the “Proxy Statement”).

Executive Compensation.

7 unchanged sentences

The information required by this Item is incorporated herein by reference to our Proxy Statement.

Table of C ontents

Exhibits, Financial Statement Schedules.

2 unchanged sentences

Form 10-K Summary

Table of C ontents

Exhibit Index

40 unchanged sentences

S-1 333-231891 10.7 May 31, 2019

Table of C ontents

Incorporated by Reference

40 unchanged sentences

S-1 333-231891 10.21 June 17, 2019

Table of C ontents

Incorporated by Reference

10 unchanged sentences

10-K 001-38953 10.25 March 11, 2020

T he RealReal , Inc.

2019 Equity Incentive Plan for Non-Employee Director Deferred Restricted Stock Unit Award Agreement and Deferral Election Form

10-Q 011-38953 10.1 November 7, 2023

10.24 Form of Base Capped Call Confirmation, dated June 10, 2020 between The RealReal, Inc.

15 unchanged sentences

10-Q 001-38953 10.1 May 10, 2021

10.29+ Offer Letter dated September 15, 2021 between the Company and Robert Julian.

10-Q 001-38953 10.1 November 8, 2021

T ransition and Separation Agreement by and between The RealReal, Inc.

and Robert Julian dated September 28, 2 023.

001-38953 10.1 September 29, 2023

10.31+ C onsulting Services Agreement by and between The RealReal, Inc.

and Robert Julian dated September 28, 2023

8-K 001-38953 10.20 September 29, 2023

The RealReal, Inc.

4 unchanged sentences

10-Q 001-38953 10.1 August 9, 2022

10.32+ Transition and Separation Agreement between the Company and Julie Wainwright dated June 7, 2022

8-K 001-38953 10.1 June 7, 2022

10.33+ Form of Special Award Letter

8-K 001-38953 10.2 June 7, 2022

10.34+ Offer Letter dated January 24, 2023 between the Company and John E.

8-K 001-38953 10.1 January 25, 2023

Table of C ontents

Incorporated by Reference

1 unchanged sentence

Exhibit Filing Date Filed

Offer Letter dated January 24, 2023 between the Company and John E.

8-K 001-38953 10.1 January 25, 2023

Form of Indemnification Agreement entered into by and between The RealReal, Inc.

and its directors and executive officers.

10.36+ Form of Special Award Letter

10.35 February 28, 2023

F orm of Stand -Alone Performance -Based Restr icted Stock Unit Award Agreement, by and between the C o mpany and John Koryl.

99.1 March 3, 2023

Form of Stand-Alone Restricted Stock Unit Award Agreement, by and between the Company and John Koryl .

99.2 March 3, 2023

Form of Stand-Alone Restricted Stock Unit Award Agreement, by and between the Company a nd Luke Friang.

99.3 March 3, 2023

Offer Letter by and between The RealReal, Inc.

and Ajay Gopal dated February 19, 2024 .

10.1 February 21, 2024

Form of Exchange Agreement by and between The RealReal Inc.

and the Noteholder, as defined therein, dated February 29, 2024.

10.42 Indenture by and between The RealReal, Inc., the Guarantors party thereto and Glas Trust Company LLC dated February 29, 2024.

10.43 Warrant Agency Agreement by and between The RealReal, Inc., Computershare, In., and Computershare Trust Company, N.A.

dated February 29, 2024.

23.1 Consent of KPMG LLP, Independent Registered Public Accounting Firm

5 unchanged sentences

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

97 T he RealReal, Inc.

Clawback Policy

Table of C ontents

Incorporated by Reference

Description Form File No.

Exhibit Filing Date Filed

101.INS XBRL Instance Document X

8 unchanged sentences

# Certain information contained in this agreement has been omitted because it both (i) is not material and (ii) would be competitively harmful if publicly disclosed.

* Certain schedules and exhibits omitted pursuant to Item 601(a)(5) of Regulation S-K promulgated by the SEC.

The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

Table of C ontents

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized .

The RealReal, Inc.

February 28, 2023 By:

/s/ Robert Julian

Robert Julian

Chief Financial Officer

March 1, 2024 By:

/s/ Todd Suko

Interim Chief Financial Officer, Chief Legal

Officer and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

1 unchanged sentence

/s/ John Koryl

Chief Executive Officer and Director February 28, 2023

Chief Executive Officer and Director March 1, 2024

John Koryl (Principal Executive Officer)

/s/ Robert Julian

Chief Financial Officer February 28, 2023

Robert Julian (Principal Financial Officer)

Senior Vice President, Chief Accounting Officer February 28, 2023

/s/ Todd Suko

Interim Chief Financial Officer, Chief Legal

Officer and Secretary

March 1, 2024

(Principal Financial Officer)

Senior Vice President, Chief Accounting Officer March 1, 2024

Steve Lo (Principal Accounting Officer)

/s/ Chip Baird

Director February 28, 2023

/s/ Caretha Coleman Director February 28, 2023

Director March 1, 2024

/s/ Caretha Coleman Director March 1, 2024

Caretha Coleman

/s/ Karen Katz Director February 28, 2023

/s/ Rob Krolik Director February 28, 2023

/s/ Niki Leondakis Director February 28, 2023

/s/ Karen Katz Director March 1, 2024

/s/ Rob Krolik Director March 1, 2024

/s/ Niki Leondakis Director March 1, 2024

Niki Leondakis

/s/ Carol Melton

Director February 28, 2023

/s/ James Miller Director February 28, 2023

Director March 1, 2024

/s/ James Miller Director March 1, 2024

Table of C ontents

INDEX TO FINANCIAL STATEMENTS

6 unchanged sentences

Notes to Financial Statements

Table of C ontents

Report of Independent Registered Public Accounting Firm

6 unchanged sentences

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company changed its method of accounting for convertible senior notes effective January 1, 2022, due to the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , using the modified retrospective adoption method.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

20 unchanged sentences

IT professionals with specialized skills and knowledge were required to understand and assess the Company’s internally developed IT systems used in the revenue recognition process.

Table of C ontents

The following are the primary procedures we performed to address this critical audit matter.

9 unchanged sentences

San Francisco, California

February 28, 2023

March 1, 2024

Table of C ontents

Report of Independent Registered Public Accounting Firm

4 unchanged sentences

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of the Company as of December 31, 2022 and 2021, the related statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the financial statements), and our report dated February 28, 2023 expressed an unqualified opinion on those financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of the Company as of December 31, 2023 and 2022, the related statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the financial statements), and our report dated March 1, 2024 expressed an unqualified opinion on those financial statements.

Basis for Opinion

16 unchanged sentences

San Francisco, California

February 28, 2023

March 1, 2024

Table of C ontents

THE REALREAL, INC.

6 unchanged sentences

Accounts receivable

17,226 12,207

Inventory, net

6 unchanged sentences

Operating lease right-of-use assets 86,348 127,955

Restricted cash 14,914 —

Other assets 5,627 2,749

$ 446,923 $ 615,641

Liabilities and Stockholders’ Equity

Liabilities and Stockholders’ Deficit

Current liabilities

15 unchanged sentences

Commitments and contingencies (Note 12)

Stockholders’ equity (deficit):

Stockholders’ deficit:

Common stock, $ 0.00001 par value;

5 unchanged sentences

( 1,119,625 ) ( 951,153 )

Total stockholders’ equity (deficit) ( 170,092 ) 73,128

Total liabilities and stockholders’ equity (deficit) $ 615,641 $ 754,944

Total stockholders’ deficit

( 303,299 ) ( 170,092 )

Total liabilities and stockholders’ deficit

$ 446,923 $ 615,641

The accompanying notes are an integral part of these financial statements.

Table of C ontents

THE REALREAL, INC.

17 unchanged sentences

Selling, general and administrative 182,453 194,886 176,246

Restructuring 43,462 896 2,314

Legal settlements 1,340 456 13,389

3 unchanged sentences

Interest expense ( 10,701 ) ( 10,472 ) ( 21,531 )

Other income (expense), net 171 23 ( 169 )

Other income, net

Loss before provision for income taxes ( 168,189 ) ( 196,273 ) ( 236,051 )

7 unchanged sentences

The accompanying notes are an integral part of these financial statements.

Table of C ontents

THE REALREAL, INC.

4 unchanged sentences

Net loss $ ( 168,472 ) $ ( 196,445 ) $ ( 236,107 )

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on investments — ( 11 ) 4

Other comprehensive loss, net of tax:

Unrealized loss on investments

Comprehensive loss $ ( 168,472 ) $ ( 196,445 ) $ ( 236,118 )

The accompanying notes are an integral part of these financial statements.

Table of C ontents

THE REALREAL, INC.

16 unchanged sentences

Stock-based compensation expense — — 50,246 — — 50,246

Other comprehensive income — — — 4 — 4

Other comprehensive loss — — — ( 11 ) — ( 11 )

Net loss — — — — ( 236,107 ) ( 236,107 )

Balance as of December 31, 2021 92,960,066 $ 1 $ 841,255 $ — $ ( 768,128 ) $ 73,128

Purchase of capped calls — — ( 33,666 ) — — ( 33,666 )

Equity component of convertible senior notes, net of issuance costs of $ 3,131

Cumulative effect adjustment due to adoption of ASU 2020-06

— — ( 112,052 ) — 13,420 ( 98,632 )

3 unchanged sentences

Stock-based compensation expense — — 47,767 — — 47,767

Other comprehensive loss — — — ( 11 ) — ( 11 )

Net loss — — — — ( 196,445 ) ( 196,445 )

Balance as of December 31, 2022 99,088,172 $ 1 $ 781,060 $ — $ ( 951,153 ) $ ( 170,092 )

Cumulative effect adjustment due to adoption of ASU 2020-06 (Note 2) — — ( 112,052 ) — 13,420 ( 98,632 )

Issuance of common stock upon exercise of options 8,511 — 19 — — 19

5 unchanged sentences

The accompanying notes are an integral part of these financial statements.

Table of C ontents

THE REALREAL, INC.

13 unchanged sentences

Accretion of debt discounts and issuance costs 2,573 2,368 13,989

Property, plant, equipment, and right-of-use asset impairments

Provision for inventory write-downs and shrinkage

9,783 4,077 510

Gain on lease termination ( 738 ) — —

Other adjustments — — 10

11 unchanged sentences

Cash flow from investing activities:

Purchases of short-term investments — — ( 73,280 )

Proceeds from maturities of short-term investments — — 4,000

1 unchanged sentence

Purchases of property and equipment ( 29,177 ) ( 22,861 ) ( 37,470 )

Net cash provided by (used in) investing activities ( 36,922 ) ( 43,437 ) 178,004

Net cash used in investing activities

( 42,128 ) ( 36,922 ) ( 43,437 )

Cash flow from financing activities:

1 unchanged sentence

Purchase of capped calls in conjunction with the issuance of the 2028 convertible senior notes — — ( 33,666 )

Proceeds from issuance of 2028 convertible notes, net of issuance costs — 278,234 —

Purchase of capped calls in conjunction with the issuance of the 2028 convertible senior notes — ( 33,666 ) —

Proceeds from exercise of stock options and common stock warrants 2,906 6,009 8,859

Proceeds from exercise of stock options

19 2,906 6,009

Proceeds from issuance of stock in connection with the Employee Stock Purchase Program 886 1,400 2,341

1 unchanged sentence

Net cash provided by financing activities 226 4,101 252,913

Net increase (decrease) in cash and cash equivalents ( 124,378 ) 67,325 196,400

Cash and cash equivalents

Net increase (decrease) in cash, cash equivalents, and restricted cash

( 103,170 ) ( 124,378 ) 67,325

Cash, cash equivalents, and restricted cash

Beginning of period 293,793 418,171 350,846

6 unchanged sentences

Purchases of capitalized proprietary software development costs included in accounts payable and other accrued and current liabilities 1,122 1,590 1,647

Issuance costs associated with issuance of convertible senior notes included in other accrued and current liabilities — — 469

Stock-based compensation capitalized to proprietary software development costs 777 1,629 1,444

1 unchanged sentence

The accompanying notes are an integral part of these financial statements.

Table of C ontents

THE REALREAL, INC.

9 unchanged sentences

The Company’s functional and reporting currency is the U.S.

The Company adopted ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity as of January 1, 2022 using the modified retrospective adoption method with a cumulative effect adjustment.

Refer to Note 2 "Recently Adopted Accounting Pronouncements" for further details on the adoption of ASU 2020-6.

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.

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" below.

The Company has made a presentation change to reclassify provision for inventory write-downs and shrinkage from inventory, net within operating cash flows in the statements of cash flows.

Additionally, the Company has made a presentation change to the Company's statements of operations to reclassify its restructuring expenses from marketing, operations and technology, and sales, general and administrative operating expenses.

Changes to reclassify amounts in the prior periods have been made to conform to the current period presentation.

Summary of Significant Accounting Policies

1 unchanged sentence

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period.

Significant items subject to such estimates and assumptions include those related to revenue recognition, including the returns reserve, standalone selling price related to consignment transactions, valuation of inventory, software development costs, stock-based compensation, incremental borrowing rates related to lease liability, valuation of deferred taxes, and other contingencies.

Significant items subject to such estimates and assumptions include those related to revenue recognition, including the returns reserve, standalone selling price related to consignment revenue transactions, valuation of inventory, software development costs, stock-based compensation, incremental borrowing rates related to lease liability, valuation of deferred taxes, and other contingencies.

The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate.

7 unchanged sentences

For periods in which the Company reports net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, because potentially dilutive common shares and assumed conversion of the convertible senior notes are not assumed to have been issued within the calculation, if their effect is anti-dilutive.

Table of C ontents

The Company has one operating segment and one reportable segment as its chief operating decision maker, who is its Chief Executive Officer, reviews financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance.

36 unchanged sentences

The Company charges a fee to buyers

Table of C ontents

for this service and has elected to treat shipping and handling activities performed as a separate performance obligation.

11 unchanged sentences

Contract Liabilities

The Company’s contractual liabilities primarily consist of deferred revenue for material rights primarily related to the tiered consignor commission plan, which are recognized as revenue using a portfolio approach based on the pattern of exercise, and certain buyer incentives, which were immaterial as of December 31, 2022 and December 31, 2021.

Contract liabilities are recorded in other accrued and current liabilities on the balance sheets and are generally expected to be recognized within one year.

16 unchanged sentences

Selling, general and

Table of C ontents

administrative expense also includes allocated facility and overhead costs and professional services, including accounting and legal advisors.

Stock-based Compensation

The Company incurs stock-based compensation expense from stock options, restricted stock units (“RSUs”), performance based restricted stock units (“PSUs”), and employee stock purchase plan (“ESPP”) purchase rights.

The Company incurs stock-based compensation expense from stock options, restricted stock units (“RSUs”), performance based restricted stock units (“PSUs”) subject to performance or market conditions, and employee stock purchase plan (“ESPP”) purchase rights.

Stock-based compensation expense related to employees and nonemployees is measured based on the grant-date fair value of the awards.

Compensation expense is recognized in the statements of operations over the period during which the employee is required to perform services in exchange for the award (the vesting period of the applicable award) using the straight-line method for awards with only a service condition and on a tranche by tranche basis for PSUs.

The Company estimates the fair value of stock options granted and the purchase rights issued under the ESPP using the Black-Scholes option pricing model.

The fair value of RSUs is estimated based on the fair market value of the Company’s common stock on the date of grant, which is determined based on the closing price of the Company’s common stock.

The PSUs are measured using the fair market value of the Company’s common stock on the date of grant.

The stock-based compensation expense for PSUs is recognized based on the estimated number of shares that the Company expects will vest and is adjusted on a quarterly basis using the estimated achievement of financial performance targets.

The Company accounts for forfeitures as they occur.

Cash and Cash Equivalents

To determine the grant-date fair value of the Company's stock-based payment awards for PSUs subject to performance conditions, the quoted stock price on the date of grant is used.

The stock-based compensation expense for PSUs with performance conditions is recognized based on the estimated number of shares that the Company expects will vest and is adjusted on a quarterly basis using the estimated achievement of financial performance targets.

For PSUs subject to market conditions, the grant-date fair value is determined using the Monte Carlo simulation model which utilizes multiple input variables to estimate the probability that market conditions will be achieved.

These variables include the Company's expected stock price volatility over the expected term of the award, the risk-free interest rate for the expected term of the award, and expected dividends.

For PSUs with market conditions, the stock-based compensation expense is recognized on a tranche by tranche basis over the requisite service period using the fair value derived from the Monte Carlo simulation model.

The compensation expense will be recognized regardless of whether the market condition is ever satisfied, provided the requisite service period is satisfied.

For all awards, the Company accounts for forfeitures as they occur.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents.

Cash equivalents primarily consist of investments in short-term money market funds.

Restricted cash consists of cash deposited with a financial institution as collateral for the Company’s letters of credit for its facility leases and the Company’s credit cards.

The Company had $ 14.9 million and $ 0 in restricted cash as of December 31, 2023 and 2022, respectively.

The following table provides a reconciliation of cash, cash equivalents and restricted cash for the year ended December 31, 2023 that sum to the total of the same amounts shown in the statements of cash flows (in thousands):

December 31, 2023 December 31, 2022 December 31, 2021

Cash and cash equivalents $ 175,709 $ 293,793 $ 418,171

Restricted cash 14,914 — —

Total cash, cash equivalents and restricted cash $ 190,623 $ 293,793 $ 418,171

Accounts Receivable

4 unchanged sentences

The cost of inventory is an amount equal to that paid to the consignor or vendors.

Inventory is valued at the lower of cost or net realizable value using the specific identification method and the Company records provisions, as appropriate, to write down obsolete and excess inventory to estimated net realizable value.

Inventory is valued at the lower of cost and net realizable value using the specific identification method and the Company records provisions, as appropriate, to write down obsolete and excess inventory to estimated net realizable value.

After the inventory value is reduced, adjustments are not made to increase it from the estimated net realizable value.

Our provisions to write down obsolete and excess inventory to net realizable value were $ 3.7 million and $ 0.2 million as of December 31, 2022 and 2021, respectively.

Additionally, inventory is recorded net of an allowance for shrinkage which represents the risk of physical loss of inventory.

Provisions for inventory shrinkage are estimated based on historical

Table of C ontents

experience and are adjusted based upon physical inventory counts.

Provisions to write down inventory to net realizable value and provisions for inventory shrinkage were $ 9.8 million and $ 4.1 million during the year end December 31, 2023 and 2022, respectively.

Return reserves, which reduce revenue and cost of sales, are estimated using historical experience.

Liabilities for return allowances are included in other accrued and current liabilities on the balance sheets and were $ 22.2 million and $ 23.6 million as of December 31, 2022 and 2021.

Liabilities for return allowances are included in other accrued and current liabilities on the balance sheets and were $ 22.2 million as of December 31, 2023 and 2022.

Included in inventory on the Company’s balance sheets are assets totaling $ 5.2 million and $ 6.1 million as of December 31, 2023 and 2022, respectively, for the rights to recover products from customers associated with its liabilities for return reserves.

17 unchanged sentences

Impairment of Long-lived Assets

The carrying amounts of long-lived assets, including property and equipment, net and capitalized proprietary software, are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated.

The carrying amounts of long-lived assets, including right-of-use assets, property and equipment, net and capitalized proprietary software, are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated.

Recoverability of assets to be held and used is measured by comparing the carrying amount of assets to future undiscounted net cash flows the assets are expected to generate over their remaining life.

5 unchanged sentences

The corresponding right-of-use asset is recorded based on the corresponding lease liability at lease inception, adjusted for payments made to the lessor at or before the commencement date, initial direct costs incurred and any tenant incentives allowed for under the lease.

The Company does not include optional renewal terms or early termination provisions unless the Company is reasonably certain such options would be exercised at the inception of the lease.

The Company does not include optional renewal terms or early termination provisions unless the Company is reasonably certain such options would be

Table of C ontents

exercised at the inception of the lease.

Operating lease right-of-use assets, current portion of operating lease liabilities, and operating lease liabilities, net of current portion are included on the Company’s balance sheet.

8 unchanged sentences

The Company uses the effective interest method to amortize the debt discount to interest expense over the amortization period which is the expected life of the debt.

Following the adoption of ASU 2020-06, there is no bifurcation of the liability and equity components of the Notes, and the entire principal of the Notes are accounted for as long-term debt.

Following the adoption of ASU 2020-06, there is no bifurcation of the liability and equity components of the 3.00 % Convertible Senior Notes due 2025 (the “2025 Notes”) and the 1.00 % Convertible Senior Notes due 2028 (the “2028 Notes” and, together with the 2025 Notes, the “Notes”), and the entire principal of the Notes are accounted for as long-term debt.

Capped Call Transactions

In June 2020 and March 2021, in connection with the issuance of its convertible senior notes, the Company entered into Capped Call Transactions (see Note 7).

The Capped Call Transactions are expected generally to reduce the potential dilution to the holders of the Company’s common stock upon any conversion of the convertible senior notes and/

or offset any cash payments the Company is required to make in excess of the principal amount of converted convertible senior notes, with such reduction and/or offset subject to a cap based on the cap price.

The Capped Call Transactions are expected generally to reduce the potential dilution to the holders of the Company’s common stock upon any conversion of the convertible senior notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted convertible senior notes, with such reduction and/or offset subject to a cap based on the cap price.

The capped calls are classified in stockholders’ equity as a reduction to additional paid-in capital and are not subsequently remeasured as long as the conditions for equity classification continue to be met.

The Company monitors the conditions for equity classification, which continue to be met as of December 31, 2023.

Debt Issuance Costs

Debt issuance costs, which consist of direct incremental legal, consulting, banking and accounting fees relating to the anticipated debt offering, are amortized to interest expense over the estimated life of the related debt based on the effective interest method.

Debt issuance costs, which consist of direct incremental legal, consulting, banking and accounting fees related to the anticipated debt offering, are amortized to interest expense over the estimated life of the related debt based on the effective interest method.

The Company presents debt issuance costs on the balance sheets as a direct deduction from the associated debt.

1 unchanged sentence

Prior to the adoption of ASU 2020-06 on January 1, 2022, a portion of debt issuance costs incurred in connection with the convertible senior notes issued in June 2020 and March 2021 was allocated to the equity component and was recorded as a reduction to additional paid in capital and was not amortized to interest expense over the estimated life of the related debt.

Following the adoption of ASU 2020-06, the debt issuance costs previously allocated to the equity component of both the 2025 and 2028 Notes were reclassified to debt.

Following the adoption of ASU 2020-06, the debt issuance costs previously allocated to the equity component of both series of Notes were reclassified to debt.

As such, all of the debt issuance costs are recorded as a direct deduction from the related principal debt amounts on the balance sheet, and are all amortized to interest expense over the estimated remaining life of the related debt.

6 unchanged sentences

Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Table of C ontents

Concentrations of Credit Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable.

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, restricted cash and accounts receivable.

At times, such amount may exceed federally-insured limits.

The Company reduces credit risk by placing its cash and cash equivalents and investments with major financial institutions within the United States.

The Company is monitoring ongoing events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally.

The Company reduces credit risk by placing its cash, cash equivalents, restricted cash and investments with major financial institutions with high credit ratings within the United States.

The Company has not experienced any realized losses on cash, cash equivalents and restricted cash to date;

however, no assurances can be provided.

As of December 31, 2023 and December 31, 2022, there were no customers that represented 10% or more of the Company’s accounts receivable balance and there were no customers that individually exceeded 10% of the Company’s total revenue for each of the years ended December 31, 2023, 2022, and 2021.

Change in Accounting Principle

During the three months ended June 30, 2022, the Company changed its method of accounting for shipping and handling activities from applying the policy election to account for shipping services as fulfillment activities to recognizing shipping services as a promised service to customers which the Company determined to be a separate performance obligation.

The Company believes that this change in accounting method is preferable, as it results in a disaggregation of revenue and related costs that provides more transparency to the users of its financial statements and is more consistent with the nature of the Company's promises made in arrangements with its customers.

The effects of this change to the disaggregation and presentation of revenue and costs of revenue have been retroactively applied to all periods presented.

This change had an immaterial impact to the Company's loss from operations and as such the Company did not retroactively adjust prior periods for these immaterial effects.

Certain financial statement line items included in the Statement of Operations for the years ended December 31, 2022, December 31, 2021, and December 31, 2020, respectively were adjusted as follows (in thousands):

Year Ended December 31, 2022

As Computed Under Previous Method Effect of Change As Reported Under Preferable Method

Consignment revenue $ 444,767 $ ( 59,788 ) $ 384,979

Shipping services revenue — 59,788 59,788

Cost of revenue:

Cost of consignment revenue 113,141 ( 56,178 ) 56,963

Cost of shipping services revenue — 56,178 56,178

Year Ended December 31, 2021

As Previously Reported Effect of Change As Reported Under Preferable Method

Consignment revenue $ 346,848 $ ( 44,627 ) $ 302,221

Shipping services revenue — 44,627 44,627

Cost of revenue:

Cost of consignment revenue 92,788 ( 47,803 ) 44,985

Cost of shipping services revenue — 47,803 47,803

Year Ended December 31, 2020

As Previously Reported Effect of Change As Reported Under Preferable Method

Consignment revenue $ 247,326 ( 34,014 ) 213,312

Shipping services revenue — 34,014 34,014

Cost of revenue:

Cost of consignment revenue 66,976 ( 36,587 ) 30,389

Cost of shipping services revenue — 36,587 36,587

Recently Adopted Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board ("FASB") issued ASU 2021-10, Government Assistance (Topic 832):

Disclosure by Business Entities about Government Assistance , which improves the transparency of government assistance received by requiring the disclosure of the nature of the transactions, the accounting for the transactions, and the effect of the transactions on the financial statements.

The Company adopted this standard during the year ended December 31, 2022.

The adoption of this standard did not have a material impact on the Company's financial statements.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies accounting for convertible instruments.

The Company adopted this guidance as of January 1, 2022 using the modified retrospective method.

As a result of the adoption, the Convertible Senior Notes due 2025 (the "2025 Notes") and the Convertible Senior Notes due 2028 (the "2028 Notes" and together with the 2025 Notes, the "Notes") are no longer bifurcated into separate liability and equity components, but rather are classified as a single liability in the balance sheets.

Upon adoption, the Company recorded a cumulative effect of $ 13.4 million as a reduction to accumulated deficit and a reduction to additional paid in capital of $ 112.1 million related to amounts attributable to the value of the conversion options that had previously been recorded in equity.

Additionally, the Company recorded an increase to its convertible

notes balance by an aggregate amount of $ 98.6 million as a result of the reversal of the separation of the convertible debt between debt and equity.

As a result of the adoption, there was a net increase in deferred tax assets of $ 27.7 million and a corresponding increase of $ 27.7 million in the offsetting valuation allowance.

The Company also reclassified the issuance costs previously allocated to the conversion feature to debt, so that all issuance costs are now presented as a direct deduction of the long-term debt line on the balance sheet.

The adoption of this standard also significantly decreased the amount of non-cash interest expense to be recognized in future periods as a result of eliminating the discount on debt associated with the conversion feature.

The adoption did not affect the Company's statements of cash flows.

When calculating net loss per share attributable to common stockholders, the Company uses the if-converted method as required under ASU 2020-06 to determine the dilutive effect of the Notes;

however there was no impact because including the assumed conversion of the convertible debt would have been anti-dilutive.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures.

This new guidance is designed to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker.

Additionally, public entities with a single reportable segment must provide all the disclosures required by ASU 2023-07, as well as all existing segment disclosures in accordance with Accounting Standards Codification 280.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis.

Early adoption is permitted.

The Company expects the adoption of the standard to result in additional segment footnote disclosures.

The Company does not expect the adoption of this guidance to have a material impact on our financial statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures.

This new guidance is designed to enhance the transparency and decision usefulness of income tax disclosures.

The amendments of this update are related to the rate reconciliation and income taxes paid, requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently assessing the impact that adopting this new accounting standard will have on its financial statements.

Cash and Cash Equivalents

The following tables summarize the estimated value of the Company’s cash and cash equivalents (in thousands):

The following tables summarize the estimated value of the Company’s cash and cash equivalents (in thousands) and do not include restricted cash.

There are no unrealized gains or losses related to the restricted cash balance.

December 31, 2023

10 unchanged sentences

Total cash and cash equivalents $ 293,793 $ — $ — $ 293,793

Table of C ontents

Fair Value Measurement

9 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of December 31, 2022, the Company’s cash equivalents solely consisted of money market funds, which amounted to $ 18.1 million.

As of December 31, 2023 and December 31, 2022, the Company’s cash equivalents solely consisted of money market funds, which amounted to $ 124.8 million and $ 18.1 million, respectively.

Money market funds are measured at net asset value per share.

6 unchanged sentences

The principal amounts of the 2025 Notes and the 2028 Notes are $ 172.5 million and $ 287.5 million, respectively.

The difference between the principal amounts of the convertible senior notes and their respective net carrying amounts are the unamortized debt issuance costs and the unamortized debt discount.

Upon adoption of ASU 2020-06 as of January 1, 2022, the unamortized debt discount balance was derecognized (See Note 7).

As of December 31, 2022, the fair value of the 2025 Notes and 2028 Notes, which differs from their carrying value is determined by prices for the convertible senior notes observed in market trading.

The market for trading of the convertible senior notes is not considered to be an active market and therefore the estimate of fair value is based on Level 2 inputs, such as interest rates based on the market price on the last trading day for the period.

The difference between the principal amounts of the convertible senior notes and their respective net carrying amounts are the unamortized debt issuance costs.

As of December 31, 2023, the fair value of the 2025 Notes and 2028 Notes, which differs from their carrying value is determined based on the quoted bid prices of the Notes in an over-the counter market using the latest trading information of the reporting period.

Table of C ontents

Balance Sheet Components

14 unchanged sentences

Depreciation and amortization expense on property and equipment was $ 31.0 million, $ 26.9 million, and $ 23.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

During the year ended December 31, 2023, the Company recorded $ 8.6 million of impairment of leasehold improvements and disposal of fixed assets related to the closures of several of its office and retail locations as part of the savings plan the Company implemented.

The impairment charges are included in restructuring in the statements of operations.

Other Accrued and Current Liabilities

5 unchanged sentences

Accrued sales tax and other taxes 8,118 8,531

Site credit liability 11,813 8,738

Site credit and gift card liability

14,058 13,223

Accrued marketing and outside services 5,012 8,729

2 unchanged sentences

Deferred revenue 2,214 3,549

Accrued inventory — 3,513

Accrued property and equipment 1,066 11,417

4 unchanged sentences

Advances on the line of credit bear interest payable monthly at a variable annual rate equal to the greater of the prime rate plus 0.50 % or 4.25 %.

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.

The credit facility was set to expire in April 2023.

In April 2023 the Company signed an amendment with the lender to extend the credit facility through June 2023.

As of June 30, 2023, $ 0 had been drawn on the Revolving Credit Agreement, and the credit facility has expired and was not renewed.

Table of C ontents

Convertible Senior Notes, Net

2025 Convertible Senior Notes

In June 2020, the Company issued an aggregate principal of $ 172.5 million of its 3.00 % Convertible Senior Notes due 2025, pursuant to an indenture between the Company and U.S.

In June 2020, the Company issued an aggregate principal of $ 172.5 million of its 2025 Notes, pursuant to an indenture between the Company and U.S.

Bank National Association, as trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).

4 unchanged sentences

The Company intends to use the remainder of the net proceeds for general corporate purposes.

In March 2021, the Company issued an aggregate principal of $ 287.5 million of its 2028 Notes, pursuant to an indenture between the Company and U.S.

Bank National Association, as trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

The 2028 Notes include $ 37.5 million in aggregate principal amount of the 2028 Notes sold to the initial purchasers resulting from the exercise in full of their option to purchase additional Notes.

The 2028 Notes will mature on March 1, 2028, unless earlier redeemed or repurchased by the Company or converted.

The Company received net proceeds from the 2028 Notes offering of approximately $ 278.1 million, after deducting the initial purchasers’ discount and commission and offering expenses.

The Company used approximately $ 33.7 million of the net proceeds from the 2028 Notes offering to fund the net cost of entering into the capped call transactions described below.

The Company intends to use the remainder of the net proceeds for general corporate purposes.

The 2025 Notes accrue interest at a rate of 3.00 % per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020.

The initial conversion rate applicable to the 2025 Notes is 56.2635 shares of common stock per $1,000 principal amount of 2025 Notes (which is equivalent to an initial conversion price of approximately $ 17.77 per share of the Company’s common stock).

The 2028 Notes accrue interest at a rate of 1.00 % per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2021.

The initial conversion rate applicable to the 2028 Notes is 31.4465 shares of common stock per $1,000 principal amount of 2028 Notes (which is equivalent to an initial conversion price of approximately $ 31.80 per share of the Company’s common stock).

The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest.

In addition, upon

the occurrence of a corporate event, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its 2025 Notes in connection with such corporate event.

The 2025 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 20, 2023 if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately before the date the Company sends the related redemption notice.

In addition, upon the occurrence of a corporate event, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such corporate event.

The 2025 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 20, 2023, and the 2028 Notes will be redeemable, in whole or in part, at the Company's option at any time, and from time to time, on or after March 5, 2025, in each case if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately before the date the Company sends the related redemption notice.

In addition, calling any Note for redemption will constitute a make-whole fundamental change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.

Prior to March 15, 2025, the 2025 Notes will be convertible only under the following circumstances:

• During any calendar quarter (and only during such calendar quarter) beginning after September 30, 2020, if, the last reported sale price per share of the Company’s common stock exceeds 130 % of the applicable conversion price on each applicable trading day for at least 20 trading days (whether or not consecutive) in the period of the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter.

• During the five business day period after any five consecutive trading day period in which, for each day of that period, the trading price per $1,000 principal amount of Notes for such trading day was less than 98 % of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on such trading day;

Prior to March 15, 2025, in the case of the 2025 Notes, and December 1, 2027, in the case of the 2028 Notes, the applicable Notes will be convertible only under the following circumstances:

• During any calendar quarter (and only during such calendar quarter), if, the last reported sale price per share of the Company’s common stock exceeds 130 % of the applicable conversion price on each applicable trading day for at least 20 trading days (whether or not consecutive) in the period of the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter;

Table of C ontents

than 98 % of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on such trading day;

• Upon the occurrence of specified corporate transactions;

• If the Company calls any notes for redemption.

On and after March 15, 2025, until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their 2025 Notes, in multiples of $1,000 principal amount, at any time, regardless of the foregoing circumstances.

On and after March 15, 2025, in the case of the 2025 Notes, and December 1, 2027, in the case of the 2028 Notes, until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their Notes, in multiples of $1,000 principal amount, at any time, regardless of the foregoing circumstances.

Upon conversion, the Notes will be settled, at the Company’s election, in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock.

It is the Company’s current intent to settle conversions of the 2025 Notes through combination settlement, which involves repayment of the principal portion in cash and any excess of the conversion value over the principal amount in shares of its common stock.

The conditions allowing holders of the 2025 Notes to convert were not met as of December 31, 2022 .

It is the Company’s current intent to settle conversions of the 2025 Notes and the 2028 Notes through combination settlement, which involves repayment of the principal portion in cash and any excess of the conversion value over the principal amount in shares of its common stock.

The conditions allowing holders of either the 2025 Notes or the 2028 Notes to convert were not met as of December 31, 2023 .

The Notes are unsecured and unsubordinated obligations of the Company and will rank senior in right of payment to any of future indebtedness of the Company that is expressly subordinated in right of payment to the Notes;

3 unchanged sentences

If bankruptcy, insolvency, or reorganization occurs with respect to the Company (and not solely with respect to a significant subsidiary of the Company), then the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding will immediately become due and payable without any further action or notice by any person.

If an event of default (other than bankruptcy, insolvency, or reorganization with respect to the Company and not solely with respect to a significant subsidiary of the Company) occurs and is continuing, then, with the exception of certain reporting events of default, the trustee, by notice to the Company, or noteholders of at least 25 % of the aggregate principal amount of notes then outstanding, by notice to us and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2025 Notes then outstanding to become due and payable immediately.

Prior to the adoption of ASU 2020-06 on January 1, 2022 and in accounting for the issuance of the 2025 Notes, the Company separately accounted for the liability and equity components of the 2025 Notes by allocating the proceeds between the liability component and the embedded conversion options, or equity component, due to Company’s ability to settle the 2025 Notes in cash, its common stock, or a combination of cash and common stock at Company’s option.

The allocation was done by first estimating the fair value of the liability component and the residual value was assigned to the equity component.

The value of the liability component was calculated by measuring the fair value of a similar liability that

does not have an associated convertible feature.

The allocation was performed in a manner that reflected the Company’s non-convertible debt borrowing rate for similar debt.

The interest rate of 5.67 % was used to compute the initial fair value of the liability component of $ 152.7 million, with a corresponding amount recorded as a discount on the initial issuance of the 2025 Notes of approximately $ 19.8 million.

If an event of default (other than bankruptcy, insolvency, or reorganization with respect to the Company and not solely with respect to a significant subsidiary of the Company) occurs and is continuing, then, with the exception of certain reporting events of default, the trustee, by notice to the Company, or noteholders of at least 25 % of the aggregate principal amount of 2025 Notes or 2028 Notes, as applicable, then outstanding, by notice to us and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2025 Notes or 2028 Notes, as applicable, the outstanding to become due and payable immediately.

Prior to the adoption of ASU 2020-06 on January 1, 2022 and in accounting for the issuance of the 2025 Notes and the 2028 Notes, the Company separately accounted for the liability and equity components of the Notes.

The debt discount was recorded to equity and was amortized to the debt liability over the life of the Notes using the effective interest method.

The equity component was not remeasured as long as it continued to meet the conditions for equity classification.

In connection with the issuance of the 2025 Notes, the Company incurred approximately $ 6.7 million of debt issuance costs, which primarily consisted of initial purchasers’ discounts and legal and other professional fees.

In connection with the issuance of the 2025 and 2028 Notes, the Company incurred approximately $ 6.7 million and $ 9.4 million of debt issuance costs, respectively, which primarily consisted of initial purchasers’ discounts and legal and other professional fees.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company allocated these costs to the liability and equity components based on the allocation of the proceeds.

The portion of these costs allocated to the equity component totaling approximately $ 0.8 million was recorded as a reduction to additional paid-in capital.

The portion of these costs initially allocated to the liability component totaling approximately $ 5.9 million was recorded as a reduction in the carrying value of the debt on the balance sheets and was amortized to interest expense using the effective interest method over the expected life of the 2025 Notes or approximately its five-year term.

The effective interest rate on the liability component of the 2025 Notes for the period from the date of issuance through December 31, 2021 was 6.4 %.

The portion of these costs allocated to the equity component was recorded as a reduction to additional paid-in capital.

The portion of these costs initially allocated to the liability component was recorded as a reduction in the carrying value of the debt on the balance sheets and was amortized to interest expense using the effective interest method over the expected life of the Notes.

On January 1, 2022, the Company adopted ASU 2020-06 based on a modified retrospective transition method.

Under such transition, prior period information for both the 2025 and 2028 Notes has not been retrospectively adjusted.

2 unchanged sentences

The issuance costs related to the 2025 Notes are being amortized to interest expense over the expected life of the 2025 Notes or approximately its five-year term at an effective interest rate of 3.74 %.

The net carrying amount of the liability component of the 2025 Notes was as follows (in thousands):

2022 December 31,

In accounting for the 2028 Notes after the adoption of ASU 2020-06, the 2028 Notes are accounted for as a single liability, and the carrying amount of the Notes is $ 281.9 million as of December 31, 2023, with principal of $ 287.5 million, net of unamortized issuance costs of

Table of C ontents

$ 5.6 million.

The 2028 Notes were classified as long term liabilities as of December 31, 2023.

The issuance costs related to the 2028 Notes are being amortized to interest expense over the expected life of the 2028 Notes or approximately its seven-year term at an effective interest rate of 1.45 %.

The following tables present the outstanding principal amount, unamortized debt issuance costs, and net carrying amount of the 2025 Notes and the 2028 Notes as of the dates indicated (in thousands):

December 31, 2023 December 31, 2022

Principal $ 172,500 $ 172,500

Unamortized debt discount (1)

Unamortized debt issuance costs ( 1,936 ) ( 3,204 )

Net carrying amount $ 170,564 $ 169,296

(1) Upon adoption of ASU 2020-06 as of January 1, 2022, the unamortized debt discount balance was derecognized, as described in "Note 2— Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements."

As discussed above, upon the adoption of ASU 2020-06, the Company reversed the separation of the debt and equity components of the Notes, and accounted for the Notes wholly as debt.

Additionally, the issuance costs of the Notes were accounted for as debt issuance costs in its entirety.

The net carrying amount of the equity component of the 2025 Notes as of December 31, 2021 was as follows (in thousands):

Proceeds allocated to the conversion options (debt discount) $ 19,787

Issuance costs ( 767 )

December 31, 2023 December 31, 2022

$ 287,500 $ 287,500

Unamortized debt issuance costs

( 5,643 ) ( 6,948 )

Net carrying amount

The following table sets forth the amounts recorded in interest expense related to the 2025 Notes (in thousands):

$ 281,857 $ 280,552

The following tables set forth the amounts recorded in interest expense related to the 2025 Notes as of the dates indicated (in thousands):

Year Ended December 31,

5 unchanged sentences

$ 6,443 $ 6,255 $ 9,851

Future minimum payments under the 2025 Notes as of December 31, 2022, are as follows (in thousands):

Fiscal Year Amount

Total future payments

Less amounts representing interest

Total principal amount

2028 Convertible Senior Notes

In March 2021, the Company issued an aggregate principal of $ 287.5 million of its 1.00 % Convertible Senior Notes due 2028, pursuant to an indenture between the Company and U.S.