ThredUp Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of the end of the period covered by this report. The term “disclosure controls and procedures,” as defined under the Exchange Act, means controls and procedures that are designed to ensure that information required to be disclosed in the reports 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 that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the material weakness in our internal control over financial reporting discussed below, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, our disclosure controls and procedures were not effective. In light of this fact, our management, including our Chief Executive Officer and Chief Financial Officer, has performed additional reconciliations and other post-closing procedures and has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the consolidated financial statements for the periods covered by and included in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP. Material Weaknesses in Internal Control Over Financial Reporting In connection with the audit of our consolidated financial statements for the fiscal year ended December 31, 2021, and as previously disclosed in the Prospectus, in connection with the audit of our consolidated financial statements for the fiscal years ended December 31 2020, 2019 and 2018, we and our independent registered public accounting firm identified certain control deficiencies in the design and implementation of our internal control over financial reporting that, in the aggregate, constituted a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. Our material weakness related to the following control deficiencies: We did not design and maintain effective control over our accounting and proprietary data systems used in our financial reporting process. These systems lacked controls over user access, program change management, computer operation and data validation to ensure that IT program and data changes affecting financial accounting applications and underlying accounting records are identified, tested, authorized and implemented appropriately. We did not design and maintain adequate controls over the preparation and review of certain account reconciliations and journal entries. Specifically, we did not design and maintain controls and we did not maintain a sufficient complement of accounting personnel to ensure (i) the appropriate segregation of duties in the preparation and review of account reconciliations and journal entries and (ii) account reconciliations were prepared and reviewed at the appropriate level of precision on a consistent and timely basis. The deficiencies described above, if not remediated, could result in a misstatement of one or more account balances or disclosures in our annual or interim consolidated financial statements that would not be prevented or detected, and, accordingly, we determined that these control deficiencies constitute a material weakness. 71 Table of Contents Remediation Plans To address our material weakness, we have added accounting, finance and information technology personnel and implemented new financial accounting processes. We are continuing to take steps to remediate the material weakness described above through implementing enhancements and controls within our accounting and proprietary systems, hiring additional qualified accounting, finance and information technology resources and further evolving our accounting and annual close processes. We will not be able to fully remediate these control deficiencies until these steps have been completed and the controls have been operating effectively for a sufficient period of time. Changes in Internal Control over Financial Reporting We are taking actions to remediate the material weaknesses relating to our internal control over financial reporting, as described above. Except as described above, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite our employees working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness. Inherent Limitations on Effectiveness of Controls Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designated and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Management’s Annual Report on Internal Control over Financial Reporting This Annual Report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. Item 9B. Other Information. Not Applicable. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not Applicable. 72 T ab le of Content s PART III Item 10. Directors, Executive Officers and Corporate Governance. Our board of directors has adopted a code of conduct that applies to all of our employees, officers and directors. The full text of our code of conduct is available on our investor relations website at ir.thredup.com under the “Corporate Governance” section. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments to, or waiver from, a provision of our code of conduct by posting such information on the website address and location specified above. The remaining information required by this item is incorporated by reference to the definitive proxy statement for our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2021 (the “Proxy Statement”). Item 11. Executive Compensation. The information required by this item is incorporated by reference to the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item is incorporated by reference to the Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item is incorporated by reference to the Proxy Statement. Item 14. Principal Accountant Fees and Services. The information required by this item is incorporated by reference to the Proxy Statement. 73 T ab le of Content s Part IV Item 15. Exhibit and Financial Statement Schedules. (a) The following documents are filed as a part of this Annual Report on Form 10-K: 1. Financial Statements. • Our consolidated financial statements are listed in the “Index to Consolidated Financial Statements” on page F- 1 of this Annual Report on Form 10-K. 2. Financial Statement Schedules. • All financial statement schedules not listed above have been omitted because the information required by the schedule is not applicable, not required, or the information required is included in the consolidated financial statements or the notes thereto. 3. Exhibits. • The documents listed in the Exhibit Index of this Annual Report on Form 10-K are incorporated by reference or filed with this Form 10-K, as indicated therein. 74 T ab le of Content s (b) Exhibits Exhibit Number Exhibit Title Incorporation by Reference Form File No. Exhibit Filing Date 3.1 Amended and Restated Certificate of Incorporation of the Registrant . S-1 333-253834 3.2 3/3/2021 3.2 Amended and Restated Bylaws of the Registrant. S-1 333-253834 3.4 3/3/2021 4.1 Form of Class A common stock certificate of the Registrant. S-1 333-253834 4.1 3/3/2021 4.2 Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. Filed herewith 4.3 Tenth Amended and Restated Investors’ Rights Agreement, dated February 16, 2021, by and among the Registrant and certain of its stockholders. S-1 333-253834 4.2 3/3/2021 10.1 Form of Indemnification Agreement between the Registrant and each of its directors and executive officers. S-1 333-253834 10.1 3/3/2021 10.2# Second Amended and Restated 2010 Stock Incentive Plan, as amended, and forms of agreements thereunder. S-1 333-253834 10.2 3/3/2021 10.3# 2021 Stock Option and Incentive Plan and forms of agreements thereunder. S-1/A 333-253834 10.3 3/17/2021 10.4# 2021 Employee Stock Purchase Plan. S-1/A 333-253834 10.4 3/17/2021 10.5# Senior Executive Cash Incentive Bonus Plan. S-1 333-253834 10.5 3/3/2021 10.6# Executive Severance Plan. S-1 333-253834 10.6 3/3/2021 10.7# Non-Employee Director Compensation Policy. S-1 333-253834 10.7 3/3/2021 10.8# Terms and Conditions of the Registrant’s Fiscal Year 2021 Incentive Compensation Targets. S-1 333-253834 10.8 3/3/2021 10.9# Offer Letter between the Registrant and Anthony Marino, dated August 5, 2013. S-1 333-253834 10.9 3/3/2021 10.10# Offer Letter between the Registrant and Sean Sobers, dated September 30, 2019. S-1 333-253834 10.10 3/3/2021 10.11# Offer Letter between the Registrant and Chris Homer, dated July 1, 2010. Filed herewith 10.12# Board Member Agreement between the Registrant and Mandy Ginsberg, dated December 3, 2020. S-1 333-253834 10.12 3/3/2021 75 T ab le of Content s 10.13# Board Member Agreement between the Registrant and Marcie Vu, dated February 11, 2021. S-1 333-253834 10.13 3/3/2021 10.14† Amended and Restated Loan and Security Agreement, dated February 3, 2021, by and between the Registrant and Western Alliance Bank. S-1/A 333-253834 10.14 3/17/2021 10.15 First Amendment to Amended and Restated Loan and Security Agreement, dated as of May 14, 2021, by and among ThredUp Inc., ThredUp CF LLC, ThredUp Intermediary Holdings LLC, Knitwit GC LLC, and Western Alliance Bank. 8-K 001-40249 10.1 5/18/2021 10.16 Second Amendment to Amended and Restated Loan and Security Agreement, dated as of December 3, 2021, by and among ThredUp Inc., ThredUp CF LLC, ThredUp Intermediary Holdings LLC, Knitwit GC LLC, and Western Alliance Bank. Filed herewith 21.1 Subsidiaries of ThredUp Inc. Filed herewith 23.1 Consent of KPMG LLP, an independent registered public accounting firm. Filed herewith 24.1 Power of Attorney (included on signature page). Filed herewith 31.1 Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith 31.2 Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith 32.1* Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith 32.2* Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith 101.INS XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. Filed herewith 101.SCH Inline XBRL Taxonomy Extension Schema Document. Filed herewith 76 T ab le of Content s 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. Filed herewith 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. Filed herewith 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. Filed herewith 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. Filed herewith 104 Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). Filed herewith ________________ # Indicates management contract or compensatory plan, contract or agreement. † Certain confidential information contained in this exhibit has been omitted because it is both (i) not material and (ii) is the type that the Registrant treats as private or confidential. * The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and are not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, irrespective of any general incorporation language contained in such filing. 77 T ab le of Content s Item 16. Form 10-K Summary Not Applicable. SIGNATURES 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. THREDUP INC. Date: March 21, 2022 By: /s/ James Reinhart James Reinhart Chief Executive Officer (Principal Executive Officer) Date: March 21, 2022 By: /s/ Sean Sobers Sean Sobers Chief Financial Officer (Principal Financial and Accounting Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James Reinhart, Sean Sobers and Alon Rotem, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their, his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ James Reinhart Chief Executive Officer and Director (Principal Executive Officer) March 21, 2022 James Reinhart /s/ Sean Sobers Chief Financial Officer (Principal Financial and Accounting Officer) March 21, 2022 Sean Sobers /s/ Greg Bettinelli Director March 21, 2022 Greg Bettinelli /s/ Ian Friedman Director March 21, 2022 Ian Friedman /s/ Mandy Ginsberg Director March 21, 2022 Mandy Ginsberg /s/ Timothy Haley Director March 21, 2022 Timothy Haley /s/ Jack Lazar Director March 21, 2022 Jack Lazar /s/ Norman Matthews Director March 21, 2022 Norman Matthews /s/ Patricia Nakache Director March 21, 2022 Patricia Nakache /s/ Dan Nova Director March 21, 2022 Dan Nova /s/ Coretha Rushing Director March 21, 2022 Coretha Rushing /s/ Paula Sutter Director March 21, 2022 Paula Sutter /s/ Marcie Vu Director March 21, 2022 Marcie Vu 78 T ab le of Content s ThredUp Inc. Index to Consolidated Financial Statements Page Report of I ndependent R egistered P ublic A ccounting F irm (PCAOB ID No. 185 ) F- 2 Consolidated Balance Sheets F- 3 Consolidated Statements of Operations F- 4 Consolidated Statements of Comprehensive Loss F- 5 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity F- 6 Consolidated Statements of Cash Flow s F- 8 Notes to Consolidated Financial Statements F- 10 F-1 T ab le of Content s Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors ThredUp Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of ThredUp Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2020 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification 842, Leases . Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2017. San Francisco, California March 21, 2022 F-2 T ab le of Content s ThredUp Inc. Consolidated Balance Sheets (in thousands, except per share data) December 31, December 31, 2021 2020 Assets Current assets Cash and cash equivalents $ 84,550 $ 64,485 Marketable securities 121,277 — Accounts receivable, net 4,136 1,823 Inventory, net 9,825 3,519 Other current assets 8,625 5,332 Total current assets 228,413 75,159 Operating lease right-of-use assets 39,340 23,656 Property and equipment, net 55,466 41,131 Goodwill 12,238 — Intangible assets 13,854 — Other assets 11,515 2,965 Total assets $ 360,826 $ 142,911 Liabilities, Convertible Preferred Stock and Stockholders’ Equity Current liabilities Accounts payable $ 13,336 $ 9,386 Accrued and other current liabilities 45,253 32,541 Seller payable 19,125 13,724 Operating lease liabilities, current 3,931 3,643 Current portion of long-term debt 7,768 3,270 Total current liabilities 89,413 62,564 Operating lease liabilities, non-current 36,997 21,574 Long-term debt 27,559 31,190 Other non-current liabilities 1,123 2,719 Total liabilities 155,092 118,047 Commitments and contingencies (Note 12) Convertible preferred stock: $ 0.0001 par value; 100,000 and 68,140 shares authorized as of December 31, 2021 and December 31, 2020, respectively; 0 and 65,971 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively, liquidation preference of $ 0 and $ 251,239 as of December 31, 2021 and 2020, respectively — 247,041 Stockholders’ equity: Class A and B common stock, $ 0.0001 par value; 1,120,000 and 110,000 shares authorized as of December 31, 2021 and December 31, 2020, respectively; 98,435 and 12,890 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively 10 1 Additional paid-in capital 522,161 29,989 Accumulated other comprehensive loss ( 1,094 ) — Accumulated deficit ( 315,343 ) ( 252,167 ) Total stockholders’ equity (deficit) 205,734 ( 222,177 ) Total liabilities, convertible preferred stock and stockholders’ equity $ 360,826 $ 142,911 The accompanying notes are an integral part of these consolidated financial statements. F-3 T ab le of Content s ThredUp Inc. Consolidated Statements of Operations (in thousands, except per share data) Year Ended December 31, 2021 2020 2019 Revenue: Consignment $ 186,114 $ 138,096 $ 97,763 Product 65,678 47,919 66,049 Total revenue 251,792 186,015 163,812 Cost of revenue: Consignment 41,856 34,184 22,764 Product 31,804 23,683 28,544 Total cost of revenue 73,660 57,867 51,308 Gross profit 178,132 128,148 112,504 Operating expenses: Operations, product and technology 128,079 101,408 82,078 Marketing 63,625 44,765 44,980 Sales, general and administrative 48,814 28,564 22,253 Total operating expenses 240,518 174,737 149,311 Operating loss ( 62,386 ) ( 46,589 ) ( 36,807 ) Interest expense ( 2,275 ) ( 1,305 ) ( 1,428 ) Other income, net 1,565 73 74 Loss before provision for income taxes ( 63,096 ) ( 47,821 ) ( 38,161 ) Provision for income taxes 80 56 36 Net loss $ ( 63,176 ) $ ( 47,877 ) $ ( 38,197 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.82 ) $ ( 4.14 ) $ ( 3.72 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 77,092 11,565 10,265 The accompanying notes are an integral part of these consolidated financial statements. F-4 T ab le of Content s ThredUp Inc. Consolidated Statements of Comprehensive Loss (in thousands) Year Ended December 31, 2021 2020 2019 Net loss $ ( 63,176 ) $ ( 47,877 ) $ ( 38,197 ) Other comprehensive loss, net of tax: Foreign currency translation adjustments ( 729 ) — — Unrealized gain (loss) on available-for-sale debt securities ( 365 ) — 2 Total comprehensive loss $ ( 64,270 ) $ ( 47,877 ) $ ( 38,195 ) The accompanying notes are an integral part of these consolidated financial statements. F-5 T ab le of Content s ThredUp Inc. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (in thousands) Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance as of December 31, 2018 53,378 $ 164,394 10,145 $ 1 $ 12,083 $ ( 2 ) $ ( 165,528 ) $ ( 153,446 ) Exercise of stock options — — 502 — 722 — — 722 Stock-based compensation — — — — 7,678 — — 7,678 Series F preferred stock issued, net of issuance costs of $ 3,881 12,550 82,511 — — — — — — Unrealized gain on debt securities — — — — — 2 — 2 Net loss — — — — — — ( 38,197 ) ( 38,197 ) Balance as of December 31, 2019 65,928 246,905 10,647 1 20,483 — ( 203,725 ) ( 183,241 ) ASC842 Adoption (eff. January 1, 2020) — — — — — — ( 565 ) ( 565 ) Exercise of stock options — — 2,243 — 2,170 — — 2,170 Stock-based compensation — — — — 7,336 — — 7,336 Series C preferred stock - warrant exercise 43 136 — — — — — — Net loss — — — — — — ( 47,877 ) ( 47,877 ) Balance as of December 31, 2020 65,971 247,041 12,890 1 29,989 — ( 252,167 ) ( 222,177 ) Exercise of stock options — — 3,480 — 5,267 — — 5,267 Stock-based compensation — — — — 13,290 — — 13,290 Conversion of preferred stock warrants to Class B common stock warrants — — — — 1,827 — — 1,827 Preferred stock conversion to Class B common stock ( 65,971 ) ( 247,041 ) 65,971 7 247,034 — — 247,041 Sale of Class A common stock upon initial public offering, net of issuance costs — — 13,800 1 175,533 — — 175,534 Cashless exercise of common stock warrant — — 129 — — — — — Issuance of common stock to settle restricted stock units — — 84 — — — — — F-6 T ab le of Content s Issuance of Class A common stock upon closing of follow-on offering — — 2,000 1 45,524 — — 45,525 Withholding taxes for the net share settlement of restricted stock units — — ( 1 ) — ( 29 ) — — ( 29 ) ESPP purchase — — 82 — 982 — — 982 Acquisition delayed share issuance — — — — 2,744 — — 2,744 Other comprehensive loss — — — — — ( 1,094 ) — ( 1,094 ) Net loss — — — — — — ( 63,176 ) ( 63,176 ) Balance as of December 31, 2021 — $ — 98,435 $ 10 $ 522,161 $ ( 1,094 ) $ ( 315,343 ) $ 205,734 The accompanying notes are an integral part of these Consolidated Financial Statements. F-7 T ab le of Content s ThredUp Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2021 2020 2019 Cash flows from operating activities Net loss $ ( 63,176 ) $ ( 47,877 ) $ ( 38,197 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 9,155 5,581 4,274 Stock-based compensation expense 12,959 7,336 7,678 Reduction in the carrying amount of right-of-use assets 3,985 4,034 — Changes in fair value of convertible preferred stock warrants and others 2,342 561 1,077 Changes in operating assets and liabilities: Accounts receivable, net ( 1,189 ) 229 ( 638 ) Inventory, net ( 2,741 ) 374 2,290 Other current and non-current assets ( 6,326 ) 32 ( 239 ) Accounts payable 871 3,469 ( 741 ) Accrued and other current liabilities 9,251 5,182 14,205 Seller payable 5,072 4,407 315 Operating lease liabilities ( 3,964 ) ( 3,824 ) — Other non-current liabilities ( 1,258 ) 1,391 ( 114 ) Net cash used in operating activities ( 35,019 ) ( 19,105 ) ( 10,090 ) Cash flows from investing activities Purchases of marketable securities ( 125,217 ) — — Maturities of marketable securities 2,800 — 8,250 Purchases of non-marketable equity investment ( 3,750 ) — — Acquisition of business, net of cash acquired ( 23,581 ) — — Purchase of property and equipment ( 19,828 ) ( 19,424 ) ( 9,504 ) Net cash used in investing activities ( 169,576 ) ( 19,424 ) ( 1,254 ) Cash flows from financing activities Proceeds from debt issuance 4,625 18,352 19,750 Repayment of debt ( 4,000 ) ( 1,190 ) ( 11,801 ) Proceeds from offerings of issuance of Class A common stock, net of underwriting discounts and commissions 226,905 — — Proceeds from exercise of common stock options and withholding taxes for the net share settlement of restricted stock units 5,177 2,170 722 Payment of costs for the initial public offering and the follow-on offering ( 4,729 ) ( 1,117 ) — Proceeds from issuance of convertible preferred stock, net of issuance costs — — 82,511 Proceeds from ESPP purchase 982 — — Net cash provided by financing activities 228,960 18,215 91,182 Effect of exchange rate changes on cash and cash equivalents ( 64 ) — — Net increase (decrease) in cash, cash equivalents and restricted cash 24,301 ( 20,314 ) 79,838 Cash, cash equivalents and restricted cash Beginning of period 67,539 87,853 8,015 End of period $ 91,840 $ 67,539 $ 87,853 F-8 T ab le of Content s Supplemental disclosures of cash flow information Cash paid for income taxes, net of refunds $ 64 $ 45 $ 27 Cash paid for interest $ 2,076 $ 1,450 $ 1,207 Supplemental disclosures of non-cash investing and financing activities Purchases of property and equipment included in accounts payable and accrued liabilities $ 3,739 $ 1,555 $ 587 Right-of-use assets obtained in exchange for operating lease liabilities with lease modification $ 19,669 $ 9,142 $ — The accompanying notes are an integral part of these Consolidated Financial Statements. F-9 T ab le of Content s ThredUp Inc. Notes to Consolidated Financial Statements 1. Organization and Description of Business ThredUp Inc. (“ThredUp” or the “Company”) was formed as a corporation in the State of Delaware in January 2009. ThredUp is a large resale platform that enables consumers to buy and sell primarily secondhand women’s and kid’s apparel, shoes and accessories. The Company conducts its marketing and administrative functions from Oakland, California and Scottsdale, Arizona and operates its fulfillment centers in Pennsylvania, Georgia and Arizona. Another distribution center in Texas is under construction. The Company expanded its operations to Europe through its acquisition of Remix, which closed in October 2021. Initial Public Offering The Company’s registration statement on Form S-1 related to its initial public offering (the “IPO”) was declared effective on March 25, 2021 by the Securities and Exchange Commission (“SEC”), and the Company’s Class A common stock began trading on the Nasdaq Global Select Market on March 26, 2021. Upon the closing of the IPO, the Company sold 13,800,000 shares of Class A common stock to the public at a price of $ 14.00 per share. The aggregate net proceeds were $ 175.5 million after deducting offering costs, underwriting discounts and commissions of $ 17.7 million. Immediately prior to the completion of the IPO, the Company filed its Amended and Restated Certificate of Incorporation, which authorized a total of 1,000,000,000 shares of Class A common stock, 120,000,000 shares of Class B common stock and 100,000,000 shares of undesignated preferred stock. Immediately prior to the completion of the IPO, 65,970,938 shares of the convertible preferr ed stock then outstanding were converted into an equivalent number of shares of Class B common stock. The Company reclassified the convertible preferred stock to Class B common stock and additional paid-in capital upon the conversion in the three months ended March 31, 2021. 12,889,760 shares of the outstanding historical common stock were reclassified into an equivalent number of shares of Class B common stock. 164,973 shares of the convertible preferred stock warrants were converted to an equivalent number of shares of Class B common stock warrants. Follow-on Public Offering On August 2, 2021, the Company issued and sold 2,000,000 shares of Class A common stock at a price of $ 24.25 per share in a registered public offering. The aggregate net proceeds were $ 45.5 million, after deducting $ 3.3 million of underwriting discounts and commissions and offering costs. Refer to Note 10, Common Stock and Common Stock Warrants for more details. 2. Significant Accounting Policies Basis of Presentation and Use of Estimates The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany account balances and transactions have been eliminated upon consolidation. The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and the related disclosures. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include, but are not limited to, the useful lives of property and equipment and intangibles, allowance for sales returns, allowance for bad debts, breakage on loyalty points and rewards, valuation of inventory, warrants, stock-based compensation, valuation of right-of-use assets, valuation of goodwill and acquired intangibles and income taxes. F-10 T ab le of Content s The COVID-19 pandemic has adversely impacted businesses worldwide and has impacted various aspects of the Company’s business and operations. The Company’s revenue growth and operating spend has been and may continue to be affected by COVID-19 and related restrictions on business, labor cost increases and supply chain issues. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of significant judgment. Foreign Currency The Company’s functional currency is the United States (“U.S.”) dollar for its operations except for Remix whose functional currency is the Bulgarian lev. In accordance with authoritative guidance, assets and liabilities of the Company’s foreign operations are translated from the respective functional currencies into U.S. dollars at period-end rates, while income and expenses are translated using the average exchange rate during the period in which the transactions occurred. The related translation adjustments are reflected as a foreign currency translation adjustment in accumulated other comprehensive income (loss). Revenue Recognition Revenue is recognized in accordance with Accounting Standards Topic 606 (“ASC 606”). Under ASC 606, revenue is recognized upon transfer of control of promised goods and services to customers in an amount that reflects the consideration the Company expects to receive for those goods and services. The Company generates the majority of its revenue from its marketplace, which allows its buyers to browse and purchase resale items for women’s and kids’ apparel, shoes and accessories on behalf of sellers. The Company recognizes revenue through the following steps: (1) identification of the contract, or contracts, with the customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, it satisfies a performance obligation. Both buyers and sellers may be customers in the Company’s revenue arrangements. Sellers are the primary customer in a consignment arrangement while the buyer is the primary customer in sale of Company-owned inventory, referred to as product sales. A contract with a customer exists in both cases when the end-customer purchases the goods obligating the Company to deliver the identified performance obligation(s). Generally, the Company requires authorization from a credit card or other payment method (such as PayPal), or verification of receipt of payment, before the products are shipped to buyers. The Company generally receives payments from buyers before payments to the sellers are due. Consignment Revenue The Company generates consignment revenue from the sale of secondhand women’s and kids’ apparel, shoes and accessories on behalf of sellers. The Company retains a percentage of the proceeds received as payment for its consignment service. The Company reports consignment revenue on a net basis as an agent and not the gross amount collected from the buyer. Title to the consigned goods remain with the consignor until transferred to the buyer, which occurs subsequent to purchase of the consigned goods and upon expiration of the allotted return period. The Company does not take title of consigned goods at any time except in certain cases where the consignment window expires or returned goods become Company-owned inventory. Consignment revenue is recognized upon purchase of the consigned good by the buyer as its performance obligation of providing consignment services to the consignor is satisfied at that point. Consignment revenue is recognized net of seller payouts, discounts, incentives and returns. Sales tax assessed by governmental authorities is excluded from revenue. F-11 T ab le of Content s Product Revenue The Company recognizes product revenue on a gross basis as the Company acts as the principal in the transaction. Online sales and sales to third-party retail partners are generally recognized upon shipment of the purchased good to the buyer. Product revenue is recognized net of discounts, incentives and returns. Sales tax assessed by governmental authorities is excluded from revenue. Shipping Fees The Company charges shipping fees to buyers, which are included in revenue. All outbound shipping costs are accounted for in cost of revenue at the time revenue is recognized. Returns The Company generally has a 14 -day return period which may change from time to time and recognizes a returns reserve, based on historical experience, which is recorded in accrued and other current liabilities on the consolidated balance sheet. Incentives Incentives include website discounts, customer credits and loyalty program rewards issued to sellers and buyers. Incentives are treated as a reduction of product revenue and consignment revenue. Revenue treatment for our loyalty program is discussed further below under Deferred Revenue. Deferred Revenue Deferred revenue consists primarily of cash collections for product items purchased, but not shipped, and revenue allocated to unredeemed loyalty points. Cash collections for items purchased, but not shipped, are generally recognized as revenue upon shipment. As of December 31, 2021 and 2020, the Company had $ 1.7 million and $ 0.9 million, respectively, in deferred revenue for such items, which were recognized shortly after the period end, and are included in accrued and other current liabilities on the consolidated balance sheets. In August 2019, the Company launched a customer loyalty program that provides customers with rewards that can be applied to future purchases or other incentives. Loyalty points and rewards are accounted for as separate performance obligations and accrued as deferred revenue in the amount of the transaction price allocated to the points and rewards. The allocated transaction price is based on the estimated fair value per point, net of breakage. Breakage is estimated based on the Company’s historical redemption rates. Revenue is recognized when the loyalty rewards are redeemed or expire. As of December 31, 2021 and 2020, the Company had a liability of $ 4.0 million and $ 4.1 million, respectively, related to the loyalty program which is included in accrued and other current liabilities in the consolidated balance sheets. The Company recognized $ 13.8 million, $ 6.6 million and $ 0.1 million of revenue related to loyalty points in the 2021, 2020 and 2019 periods, respectively. Revenue allocated to loyalty points is expected to be recognized within one year as loyalty points expire 12 months after issuance. Revenue by Geographic Area Revenue is attributed to a geographic area based on the shipped-from location. The following summarizes the Company’s revenue by geographic area (in thousands): Year Ended December 31, 2021 December 31, 2020 December 31, 2019 North America $ 240,677 $ 186,015 $ 163,812 Europe 11,115 — — Total $ 251,792 $ 186,015 $ 163,812 F-12 T ab le of Content s Europe net sales in the year ended December 31, 2021 is primarily coming from the Company’s Remix operations acquired in 2021. Segments The Company operates under one operating segment and one reportable segment as its chief operating decision maker, who is its Chief Executive Officer, reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources and evaluating financial performance. The long-lived assets, excluding goodwill and intangible assets, outside of the United States are immaterial. Business Combinations The Company accounts for business combinations using the acquisition method of accounting, which requires, among other things, allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at estimated fair values on the acquisition date. The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, the management makes significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth and margins, future changes in technology, brand awareness and discount rates. Fair value estimates are based on the assumptions that management believes to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. After the purchase accounting is finalized, any subsequent adjustments are reflected in the consolidated statements of operations. Acquisition costs, such as legal and consulting fees, are expensed as incurred. Net Loss Per Share Attributable to Common Stockholders The Company follows the two-class method when computing net loss per common share when shares issued meet the definition of participating securities. The two-class method determines net loss per share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The Company’s convertible preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in the Company’s losses. The rights, including the liquidation and dividend rights and sharing of losses, of the Class A common stock and Class B common stock are identical, other than voting rights. As the liquidation and dividend rights and sharing of losses are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share attributed to common stockholders will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis. For periods in which the Company reports net losses, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. Comprehensive Loss Comprehensive loss is comprised of net loss and other charges or credits to equity that are not the result of transactions with owners. There was $ 0.7 million foreign currency translation loss included in the other comprehensive loss for the year ended December 31, 2021. There were $ 0.4 million other comprehensive losses related to unrealized gains or losses on debt securities classified as available-for-sale for the year ended December 31, 2021. There were no material unrealized gains or losses for the years ended December 31, 2020 and 2019. F-13 T ab le of Content s Cash, Cash Equivalents and Restricted Cash The Company classifies all highly liquid instruments with an original maturity of three months or less at the time of purchase as cash equivalents. Cash and cash equivalents are comprised of bank deposits and commercial paper, and money market funds. Restricted cash primarily represents letters of credit with financial institutions held as collateral for its facility leases. Restricted cash is classified non-current if the Company expects that the cash will remain restricted for a period greater than one-year. Current restricted cash is included in other current assets on the consolidated balance sheet. The following table provides a reconciliation of cash and cash equivalents as well as restricted cash reported within the consolidated balance sheets to the amounts shown in the consolidated statements of cash flows (in thousands): December 31, 2021 2020 Cash and cash equivalents $ 84,550 $ 64,485 Restricted cash, current 560 364 Restricted cash, non-current 6,730 2,690 Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows $ 91,840 $ 67,539 Restricted cash, non-current of $ 6.7 million and $ 2.7 million is included in other assets in the consolidated balance sheets as of December 31, 2021 and 2020, respectively. Marketable Securities The Company invests its excess cash in investment grade, short to intermediate-term, fixed income securities and recognizes the transaction on the trade-date. The Company’s marketable securities are classified as available-for-sale in current assets because they represent investments of cash available for current operations. Marketable securities are reported at fair value with unrealized gains and losses reported, net of tax, as a separate component of accumulated other comprehensive gain (loss) until realized. The marketable securities are reviewed periodically to identify possible other-than-temporary impairments. Realized gains or losses and other-than-temporary impairments, if any, on available-for sale securities are reported in other income, net as incurred. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, marketable securities and accounts receivable. The Company deposits cash at major financial institutions, and at times, such cash may exceed federally insured limits. The credit risk is believed to be minimal due to the financial position of the depository institutions in which those deposits are held. The Company has never experienced any losses on deposits since inception. The Company’s investment policy restricts cash investments to highly liquid, short to intermediate-term, high grade fixed income securities, and as a result, the Company believes its cash equivalents and marketable securities represent minimal credit risk. As of December 31, 2021 and 2020, there were no customers that represented 10% or more of the Company’s accounts receivable balance. There were no customers that individually exceeded 10% of the Company’s revenue for the years ended December 31, 2021, 2020 and 2019. F-14 T ab le of Content s Accounts Receivable, Net Accounts receivable consists of amounts due from payment processors and trade customers that do not bear interest. The Company records an allowance for doubtful accounts for estimated losses inherent in its trade accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted for current market conditions, the financial condition of the customer, the amount of receivables in dispute, and the current receivables aging and payment patterns. The Company does not have any off-balance sheet credit exposure related to its customers. The allowance for doubtful accounts was immaterial as of December 31, 2021 and 2020. Inventory, Net Inventories, consisting of merchandise that the Company has purchased and holds title, are accounted for using the specific identification method, and are valued at the lower of cost and net realizable value. The cost of inventory is equal to the cost of the merchandise paid to the seller and related inbound shipping costs. Inventory valuation requires the Company to make judgments based on currently available information about the likely method of disposition, such as through sales to individual customers or liquidations, and expected recoverable values of each disposition category. The Company records an inventory write-down based on the age of the inventory and historical experience of expected sell-through. Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives of the Company’s property and equipment are as follows: Machinery and equipment 3 - 10 years Internal-use software 1 - 3 years Leasehold improvements Shorter of lease term or estimated useful life Computers and software 2 - 3 years Furniture and fixtures 5 - 7 years Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the balance sheet and any resulting gain or loss is reflected in the consolidated statement of operations in the period realized. Internal-Use Software The Company capitalizes qualifying proprietary software development costs that are incurred during the application development stage. Capitalization of costs begins when two criteria are met: (i) the preliminary project stage is completed, and (ii) it is probable that the software will be completed and placed in service for its intended use. Capitalization ceases when the software is substantially complete and ready for its intended use including the completion of all significant testing. Costs related to preliminary project activities and post implementation operating activities are expensed as incurred. Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset group may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset to the future F-15 T ab le of Content s undiscounted cash flows expected to be generated from the use of the asset and its eventual disposition. If such assets are considered to be impaired, the impairment to be recognized is equal to the excess of the fair value over the carrying amount of the impaired assets. There were no impairments of long-lived assets for the years ended December 31, 2021 and 2020. Goodwill Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not subject to amortization, but is reviewed for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. The Company tests goodwill for impairment annually as of the first day of its fourth fiscal quarter and in interim periods if events occur that would indicate that the carrying value of goodwill may be impaired. The Company assesses goodwill for impairment by comparing the fair value of the reporting unit to its carrying amount. Acquired Intangible Assets When a business is acquired, a portion of the purchase price is typically allocated to identifiable intangible assets, such as trademark, acquired technology and customer relationships. Fair value of these assets is determined primarily using the income approach, which requires the management to project future cash flows and apply an appropriate discount rate. Intangible assets with finite lives are amortized on a straight-line basis over their economic lives ranging from 3 years to 9 years. Estimates are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur. Incorrect estimates could result in future impairment charges, and those charges could be material to the Company’s results of operations. Other Investment The Company made a strategic investment in preferred shares of a privately held online retail company in October 2021. The Company accounts for its investment in accordance with ASC 321 , Investments – Equity Securities (“ASC 321”). Upon acquisition, the investment is measured at cost, which represents the then fair value. Under ASC 321, the Company can elect to subsequently measure the investments at initial cost, minus impairment and any changes, plus or minus, resulting from observable price in orderly transactions for the identical or a similar investment of the same issuer. This election must be made for each investment separately. Changes in the carrying value of other investment are recognized through net loss. Each reporting period, the Company performs a qualitative assessment to evaluate whether the investment is impaired. The Company’s assessment includes a review of recent operating results and trends, recent sales/acquisitions of the investee securities and other factors that raise concerns about the investee’s ability to continue as a going concern. If the investment is impaired, an impairment charge is recognized in the amount by which the carrying amount of the investment exceeds the estimated fair value of the investment, with the impairment charge recognized through net loss. The Company’s non-marketable equity investment of $ 3.8 million was included in the other assets in the consolidated balance sheet as of December 31, 2021 and there was no impairment recognized on the investment. Asset Retirement Obligations The Company records asset retirement obligations (“AROs”) for the estimated cost of restoring its automated warehouse facilities to the specific condition required per the terms of its lease agreement, upon termination of the lease. AROs represent the present value of the expected costs and timing of the related obligations incurred. The ARO assets and liabilities are recorded in property and equipment within the machinery and equipment line item and other non-current liabilities in the consolidated balance sheets. The Company records accretion expense, which represents the increase in the ARO, over the remaining estimated duration of the lease including renewal periods that are included in the lease life. F-16 T ab le of Content s Accretion expense is recorded in operations, product and technology expense in the consolidated statement of operations using accretion rates based on credit adjusted risk-free interest rates. Leases Effective January 1, 2020, the Company adopted ASC 842, Leases (“ASC 842”), using the optional transition method and applied the standard only to leases that existed at that date. Under ASC 842, the Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Lessees are required to classify leases as either finance or operating leases and to record a right-of-use (“ROU”) asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight-line basis over the term of the lease. The Company determines the initial classification and measurement of its ROU assets and lease liabilities at the lease commencement date and thereafter if modified. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial direct costs incurred, as applicable. As the implicit rate in the Company's leases is generally unknown, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The Company gives consideration to its existing credit arrangements, term of the lease, total lease payments and adjust for the impacts of collateral, as necessary, when calculating its incremental borrowing rates. The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise any such options. Lease costs for the Company's operating leases are recognized on a straight-line basis within operating expenses over the lease term. The Company has elected to not separate lease and non-lease components for real estate leases and, as a result, accounts for lease and non-lease components as one component. The Company has also elected to not apply the recognition requirement to any leases within its existing classes of assets with a term of 12 months or less. For these leases, lease payments are recognized on a straight-line basis over the lease term and variable payments in the period in which the obligation is incurred. Seller Payable Seller payable includes amounts owed to sellers upon the purchase of sellers’ goods by the Company or by buyers. Amounts are initially provided as a credit to sellers. These credits may be applied towards purchases from the Company, converted to third-party retailer or thredUP gift cards or redeemed for cash. Gift Cards and Site and Seller Credits The Company sells thredUP gift cards on its e-commerce website. Seller credits and site credits can be converted to thredUP gift cards. thredUP gift cards do not expire or lose value over periods of inactivity. The Company accounts for gift cards by recognizing a gift card liability at the time a gift card is delivered to the customer. As of December 31, 2021 and 2020, $ 7.3 million and $ 6.2 million of gift card liability, respectively, was included in accrued and other current liabilities on the consolidated balance sheets. Revenue from gift cards is generally recognized when the gift cards are redeemed by the customer and amounted to $ 0.9 million, $ 0.6 million and $ 0.1 million in the years ended December 31, 2021, 2020, and 2019 respectively. F-17 T ab le of Content s The Company issues both site credits and seller credits. The Company issues site credits for various reasons such as for promotions or for refunds. The Company issues seller credits to sellers in exchange for consignment items sold. Site credits can be applied towards future charges but cannot be converted into cash. Site credits and seller credits may also be converted to thredUP gift cards after one year at the discretion of the Company. These credits are recognized as revenue when used, converted, or expired. As of December 31, 2021 and 2020, $ 5.9 million and $ 3.2 million, respectively, of such customer site credits were included in accrued and other current liabilities on the consolidated balance sheets. Breakage on gift cards and site credits is immaterial for the years ended December 31, 2021, 2020 and 2019. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income on the years in which those temporary differences are expected to be recovered and settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense. Cost of Revenue Cost of consignment revenue consists of outbound shipping, outbound labor and packaging costs. Cost of product revenue mainly consists of the inventory cost, inbound shipping related to the sold merchandise, outbound shipping, outbound labor, packaging costs and inventory write-downs. Operations, Product and Technology Operations, product and technology expenses consist primarily of distribution center operating costs and product and technology expenses. Distribution center operating costs include personnel costs, distribution center rent, maintenance and equipment depreciation as well as inbound shipping costs, other than those capitalized in inventory. Product and technology costs include personnel costs for the design and development of product and the related technology that is used to operate the distribution centers, merchandise science, website development and related expenses for these departments. Operations, product and technology expenses also include an allocation of corporate facilities and information technology costs including equipment, depreciation and rent. Research and development costs related to our technology were approximately $ 28.7 million, $ 20.7 million and $ 19.0 million, during the years ended December 31, 2021, 2020 and 2019, respectively. Marketing Marketing costs consist primarily of advertising, public relations expenditures and personnel costs for employees engaged in marketing. Marketing costs also include an allocation of corporate facilities and information technology costs including equipment, depreciation and rent. Advertising and other promotional costs included in the marketing line item on the consolidated statement of operations are expensed as incurred and were approximately $ 54.1 million, $ 38.4 million and $ 39.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. F-18 T ab le of Content s Sales, General and Administrative Sales, general and administrative expenses consist of personnel costs for employees involved in general corporate functions, including accounting, finance, tax, legal and people services; customer service; and retail stores. Sales, general and administrative also includes payment processing fees, professional fees and allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. Stock-Based Compensation Stock-based compensation costs are based on the fair values on the date of grant for stock awards and stock options and on the date of enrollment for the employee stock purchase plan (“ESPP”). The fair values of Restricted Stock Units (“RSUs”) are based on ThredUp’s stock price on the date of grant. The fair values of stock options and ESPP are estimated using the Black-Scholes option-pricing model. The fair values of equity awards are recognized as compensation expense over the requisite service period or over the period in which the related services are received (generally the vesting period), using the straight-line method. The estimated fair value of equity awards that contain performance conditions is expensed over the term of the award once the Company has determined that it is probable that performance conditions will be satisfied. The Company accounts for forfeitures as they occur. The determination of fair value for share-based awards on the date of grant using an option pricing model requires management to make certain assumptions regarding subjective variables. Prior Period Reclassifications Within the consolidated balance sheets, the Company included restricted cash, non-current within non-current other assets for the prior period to conform with current period presentation. Fair Value Measurements Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). As of December 31, 2021 and 2020, the carrying amount of accounts receivable, other current assets, other assets, accounts payable, seller payable and accrued and other current liabilities approximated their estimated fair value due to their relatively short maturities. Management believes the terms of its long-term debt reflect current market conditions for an instrument with similar terms and maturity, therefore the carrying value of the Company’s debt approximated its fair value. Assets and liabilities recorded at fair value on a recurring basis on the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows: Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2—Inputs (other than quoted prices in active markets included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. F-19 T ab le of Content s New Accounting Pronouncements Recently Issued But Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, ASU 2020-02 and ASU 2020-03, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements. 3. Financial Instruments and Fair Value Measurements For all of the marketable securities, the Company utilizes third-party pricing services to obtain fair value. Third-party pricing methodologies incorporate bond terms and conditions, current performance data, proprietary pricing models, real-time quotes from contributing dealers, trade prices and other market data. The following table provides the financial instruments measured at fair value for each of the respective periods (in thousands): F-20 T ab le of Content s Fair Value as of December 31, 2021 Level 1 Level 2 Level 3 Total Assets Money market fund $ 41,376 $ — $ — $ 41,376 U.S. treasury securities 37,190 — — 37,190 Commercial paper — 12,098 — 12,098 Corporate debt securities 55,921 — — 55,921 U.S. government agency bonds 28,166 — — 28,166 Total $ 162,653 $ 12,098 $ — $ 174,751 Classified as: Cash equivalents $ 53,474 Marketable securities 121,277 $ 174,751 December 31, 2020 Level 1 Level 2 Level 3 Total Assets Cash equivalents: Money market fund $ 43,460 $ — $ — $ 43,460 Total cash equivalents $ 43,460 $ — $ — $ 43,460 Liabilities Convertible preferred stock warrant liability $ — $ — $ 805 $ 805 Total liabilities $ — $ — $ 805 $ 805 The Company’s money market funds and commercial paper were included within cash equivalents. U.S. treasury securities, U.S. government agency bonds and corporate debt securities were included within the marketable securities. The Company’s money market funds, U.S. treasury securities, corporate debt securities, U.S. government agency bonds were valued using Level 1 inputs because they are valued using quoted market prices. The Company’s commercial papers were valued using Level 2 inputs because they are valued using quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. As of December 31, 2021 and 2020 the amortized cost of the Company’s financial assets and liabilities approximate their estimated fair values. As of December 31, 2021, out of the $ 121.3 million carrying amount of marketable securities, $ 49.0 million had a contractual maturity date of less than one year and $ 72.2 million had a contractual maturity date between one and two years. The convertible preferred stock warrant liability was included in other non-current liabilities and was valued using Level 3 inputs, before the convertible preferred stock warrants were converted to Class B common stock warrants upon IPO. During the years ended December 31, 2021 and 2020, there were no transfers between Level 1, Level 2, or Level 3 assets reported at fair value on a recurring basis. F-21 T ab le of Content s 4. Property and Equipment, Net Property and equipment, net consists of the following (in thousands): December 31, 2021 2020 Machinery and equipment $ 48,874 $ 35,254 Internal-use software 5,517 4,764 Computers and software 5,336 3,677 Leasehold improvements 4,705 4,459 Furniture and fixtures 856 519 Construction in progress 10,740 6,548 76,028 55,221 Less: accumulated depreciation and amortization ( 20,562 ) ( 14,090 ) Property and equipment, net $ 55,466 $ 41,131 For the years ended December 31, 2021 and 2020, the Company capitalized $ 2.1 million and $ 1.4 million of costs associated with internal-use software, respectively. For the years ended December 31, 2021 and 2020 the Company capitalized $ 0.3 million and $ 0.4 million, respectively, out of $ 2.5 million and $ 1.7 million total interest costs incurred for each respective period. Depreciation and amortization expense of property and equipment was $ 8.5 million and $ 5.6 million for the year ended December 31, 2021 and 2020, respectively. 5. Acquisition of Remix On July 24, 2021, the Company entered into Share Purchase Agreements with the shareholders of Remix, a fashion resale company headquartered in Sofia, Bulgaria, to purchase 100 % of the outstanding equity interests of Remix and its subsidiary. The acquisition of Remix closed on October 7, 2021. With this acquisition, the Company added a complementary operational infrastructure and an experienced management team to enable its expansion into Europe. The Company acquired the business for total cash consideration of $ 25.6 million and future issuance of 130,597 Class A common shares in 2023 with a fair value of $ 2.7 million as of the closing date. Revenue of $ 11.1 million and net loss of $ 1.2 million from this acquisition have been included in the consolidated statements of operations from the acquisition date through December 31, 2021. The Company incurred $ 1.1 million in transaction-related costs during the year ended December 31, 2021, which are included within sales, general and administrative expenses. The allocation of the purchase price is based on the estimated fair values of the assets acquired and liabilities assumed by major class related to the acquisition of Remix and are reflected, as of the acquisition date, in the accompanying financial statements as follows (in thousands): F-22 T ab le of Content s Purchase Price Cash consideration $ 25,550 Delayed share issuance 2,744 Total purchase consideration $ 28,294 Cash and cash equivalents 1,860 Accounts receivable 1,150 Inventory 3,657 Intangible assets 14,800 Other assets 786 Accounts payable ( 3,102 ) Accrued and other liabilities ( 3,356 ) Total net assets acquired 15,795 Goodwill as of October 7, 2021 $ 12,499 Foreign currency translation adjustments ( 261 ) Goodwill as of December 31, 2021 $ 12,238 Goodwill was calculated as the excess of the consideration transferred over the net assets acquired and represents the estimated future economic benefits arising from other assets acquired, the assembled workforce and planned growth in strategic markets that could not be individually identified and separately recognized. Goodwill recognized as a result of this acquisition is no t deductible for tax purposes. Intangible assets with determinable lives Customer relationships $ 5,200 Developed technology 4,900 Trademarks 4,700 Total identified intangible assets as of October 7, 2021 $ 14,800 Foreign currency translation adjustments ( 308 ) Gross carrying amount as of December 31, 2021 $ 14,492 Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers of Remix business. Customer relationships were valued using the multi-period excess earning method of the income approach. Developed technology primarily consists of a client facing platform (i.e., website and mobile app) and supporting functions, all of which were internally developed. Trademarks relates to the “Remix” trade name. Developed technology and trademarks were valued using the relief-from-royalty method under the income approach. This method involves forecasting avoided royalties, reducing them by taxes and discounting the resulting net cash flows to a present value using an appropriate discount rate that requires judgement by management. The Company did not present pro forma and other financial information for the acquisition of Remix, as this is not considered to be a material business combination. 6. Goodwill and Other Intangible Assets The goodwill is primarily attributable to the planned growth in the combined business after the acquisition of Remix. Goodwill is not amortized to earnings, but instead is reviewed for impairment at least F-23 T ab le of Content s annually, absent any interim indicators of impairment. The carrying amount of goodwill was $ 12.2 million as of December 31, 2021. The gross carrying amounts and accumulated amortization of the intangible assets with determinable lives are as follows (in thousands): As of December 31, 2021 Intangible assets with determinable lives Amortization Period (years) Gross carrying amount Accumulated amortization Carrying amount, net Customer relationships 8 $ 5,092 $ ( 150 ) $ 4,942 Developed technology 3 4,798 ( 373 ) 4,425 Trademarks 9 4,602 ( 115 ) 4,487 Total $ 14,492 $ ( 638 ) $ 13,854 Developed technology, customer relationships, and trademarks intangibles amortization is recorded within operations, product and technology, sales general and administrative, and marketing expense lines, respectively, within the Consolidated Statements of Operations. The estimated future amortization of intangible assets with determinable lives as of December 31, 2021 are $ 2.7 million for 2022, $ 2.7 million for 2023, $ 2.4 million for 2024, $ 1.2 million for 2025, $ 1.2 million for 2026 and $ 3.7 million for thereafter. 7. Balance Sheet Components Inventories consist of the following (in thousands): December 31, 2021 2020 Raw materials $ 908 $ — Work in progress 670 — Finished goods 8,247 3,519 $ 9,825 $ 3,519 Accrued and other current liabilities consist of the following (in thousands): December 31, 2021 2020 Gift card and site credit liabilities $ 13,223 $ 9,362 Accrued compensation 6,438 3,443 Accrued vendor liabilities 6,031 3,407 Deferred revenue 5,878 5,094 Accrued taxes 5,728 4,594 Allowance for returns 6,209 3,389 Accrued other 1,746 3,252 $ 45,253 $ 32,541 8. Lease Agreements The Company leases certain office space and distribution centers with lease terms ranging from 20 to 146 months. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for an additional 12 to 120 months. For certain leases, these F-24 T ab le of Content s optional periods have been considered in the determination of the right-of-use assets and lease liabilities associated with these leases as the Company has determined it is reasonably certain it will exercise the renewal options. The majority of the Company’s existing office space and distribution center in Europe are short-term leases as of December 31, 2021. In December 2021, the Company entered into an agreement to lease a new headquarter office and distribution center in Sophia, Bulgaria (the “Bulgaria Lease”). The Bulgaria Lease is expected to commence in March 2022 with an original term of 10 years from the commencement date. The base rent is approximately € 14.1 million or $ 15.9 million, estimated at December 31, 2021 Euro to USD spot rate, in aggregate over the original term. The following table summarizes maturities of the Company’s operating lease liabilities as of December 31, 2021 (in thousands): December 31, 2022 $ 7,931 2023 7,808 2024 6,930 2025 6,061 2026 5,706 Thereafter 26,437 Total lease payments 60,873 Less: imputed interest ( 13,843 ) Less: tenant improvement allowance yet to be received ( 6,102 ) Total lease liabilities 40,928 Less: current lease liabilities ( 3,931 ) Total non-current lease liabilities $ 36,997 Security deposits and letters of credits used to secure the leases were $ 0.8 million and $ 6.3 million, respectively, as of December 31, 2021 and $ 0.3 million and $ 3.1 million, respectively, as of December 31, 2020. Operating lease cost was $ 7.0 million and $ 6.8 million for the years ended December 31, 2021 and 2020, respectively. Rent expense for operating leases under ASC 840 was $ 4.4 million for the year ended December 31, 2019. The following table summarizes the cost components of the Company’s operating leases (in thousands): Year Ended December 31, 2021 2020 Operating Lease Cost Fixed Cost $ 5,591 $ 5,568 Short-Term Lease Cost 7 58 Variable Lease Cost (1) 1,381 1,197 Total Operating Lease Cost (2) $ 6,979 $ 6,823 ________________ (1) Under the terms of the lease agreements, the Company is also responsible for certain variable lease payments that are not included in the measurement of the lease liability. Variable lease payments include non-lease components such as common area maintenance fees. (2) The majority of lease costs are reflected in the Consolidated Statement of Operations within Operations, product and technology and Sales, general and administrative expense. F-25 T ab le of Content s Other information related to leases was as follows (in thousands): Year Ended December 31, 2021 2020 Supplemental Cash Flows Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 5,401 $ 5,365 The following table discloses the weighted-average remaining lease term and discount rate for the period: December 31, 2021 December 31, 2020 Operating Leases Weighted average remaining lease term (years) 8.1 7.8 Weighted average discount rate 5.9 % 6.7 % 9. Long-term Debt and Convertible Preferred Stock Warrants The Company entered into a loan and security agreement (“Term Loan”) with Western Alliance Bank (“Bank”) for an aggregate amount up to $ 40.0 million to refinance its Loan and Security Agreement with Silicon Valley Bank (“SVB”) in February 2019. The Term Loan was amended three times before December 31, 2020. In February 2021, the Company amended and restated the loan and security agreement with the Bank to reflect all waivers and amendments to date. Subsequently, the Company borrowed an additional $ 5.0 million for an aggregate principal amount of $ 40.0 million. In connection with the additional $ 5.0 million draw, the Company issued additional warrant shares for Series E-1 preferred stock in the amount of 15,979 . On May 14, 2021, the Company entered into the first amendment to the amended and restated loan and security Agreement (the “First Amendment”) with the Bank. The First Amendment amended the agreement dated February 3, 2021, with the most notable change being a decrease in interest rate. In accordance with the First Amendment, the interest rate on the Term Loan is the prime rate published in The Wall Street Journal plus 1.5 % with a floor of 5.5 % per annum. The Term Loan can be prepaid without penalty or premium at any time. The Term Loan contains certain covenants, which, if not met, allows the Bank to call all outstanding borrowings plus accrued interest. The covenants include minimum cash and liquidity thresholds, quarterly minimum net revenue and revenue growth thresholds, and a debt service requirement specified by the Term Loan. The Bank has secured the loan through its first ranking lien on all corporate assets, with a negative pledge on intellectual property. The Company was in compliance with all debt covenants as of December 31, 2021. As of December 31, 2021, the nominal interest rate was 5.50 % and the effective interest rate was 6.65 %. The maturities of the loan agreement as of December 31, 2021 are as follows (in thousands): F-26 T ab le of Content s Amount 2022 $ 8,000 2023 8,000 2024 20,000 Thereafter — Total future principal 36,000 Less: unamortized debt discount ( 673 ) Less: current portion of long-term debt ( 7,768 ) Non-current portion of long-term debt $ 27,559 Warrants Issued with Loan and Security Agreement The Company issued various preferred stock warrants under its loan and security agreements with SVB and the Bank. Immediately prior to the conversion upon IPO and as of December 31, 2020, the following preferred stock warrant liabilities were outstanding. Description Issuance Date Expiration Date Balance Sheet Classification Exercise Price Per Share Immediately Prior to the Completion of IPO December 31, 2020 Series D 1/22/2015 1/22/2025 Liability $ 2.2600 13,382 13,382 Series D 4/20/2015 1/22/2025 Liability $ 2.2600 13,382 13,382 Series E-1 2/7/2019 5/29/2030 Liability $ 6.2581 63,917 63,917 Series F 5/29/2020 5/29/2030 Liability $ 6.8839 10,376 10,376 Series E-1 8/14/2020 5/29/2030 Liability $ 6.2581 31,958 31,958 Series E-1 11/25/2020 5/29/2030 Liability $ 6.2581 15,979 15,979 Series E-1 2/8/2021 5/29/2030 Liability $ 6.2581 15,979 — 164,973 148,994 The convertible preferred stock warrant liability of $ 0.8 million was included in other non-current liabilities in the consolidated balance sheet as of December 31, 2020. Immediately prior to the completion of IPO in March 2021, all 164,973 shares of the convertible preferred stock warrant were remeasured to fair value and converted to equivalent number of Class B common stock warrants. The Company reclassified the convertible preferred stock warrant liability to additional paid-in capital upon the conversion. Refer to Note 10, Common Stock and Common Stock Warrants for more details on common stock warrants. 10. Common Stock and Common Stock Warrants Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible at any time into one share of Class A common stock. Immediately prior to the completion of the IPO, 65,970,938 shares of the convertible preferred stock converted to an equivalent number of shares of Class B common stock and 164,973 shares of the convertible preferred stock warrants were converted to an equivalent number of Class B common stock warrants. On August 2, 2021, the Company completed a follow‑on public offering of Class A common stock at a price of $ 24.25 per share. The Company issued and sold 2,000,000 shares of Class A common stock. The aggregate net proceeds were $ 45.5 million after deducting $ 3.3 million of underwriting discounts and F-27 T ab le of Content s commissions and offering costs. The selling stockholders sold 5,388,024 shares of Class A common stock (including 963,655 shares that were offered and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares), which were converted from Class B common stock. The Company did not receive any of the proceeds from the sale of the Class A common stock by the selling stockholders. During the year ended December 31, 2021, the Company issued 128,643 shares of Class B common stock through cashless net exercises of the entire 164,973 shares underlying Class B common stock warrants. No Class B common stock warrants were outstanding as of December 31, 2021. The table below summarizes the Class A common stock and Class B common stock issued and outstanding: As of December 31, 2021 Authorized Issued and Outstanding (in thousands) Common stock Class A 1,000,000 57,779 Common stock Class B 120,000 40,656 Total common stock 1,120,000 98,435 The Company had reserved shares of common stock for issuance, on an as-converted basis, as follows: As of December 31, 2021 2020 (in thousands) Outstanding stock options 19,440 22,775 Shares available for future grants 10,668 202 Employee stock plan purchases 2,917 — Restricted stock units outstanding 1,271 — Delayed share issuance related to acquisition 131 — Convertible preferred stock — 65,971 Outstanding convertible preferred stock warrants — 149 Total 34,427 89,097 11. Stock-Based Compensation Plans 2010 Stock Incentive Plan In 2010, the Company adopted the Second Amended and Restated 2010 Stock Plan (“2010 Plan”), and amended the 2010 Plan in 2011. The 2010 Plan provides for the grant of stock awards to employees, consultants and directors of the Company. Options granted under the 2010 Plan may either be Incentive Stock Options (“ISOs”) or Nonstatutory Stock Options (“NSOs”). ISOs may be granted to Company employees only, while stock awards other than ISOs may be granted to employees, directors and consultants. In 2020, the board of directors authorized an additional 6.5 million shares for the 2010 Plan. In 2021, the board of directors authorized an additional 1.0 million shares for the 2010 Plan. Stock awards under the 2010 Plan may be granted with terms of up to 10 years and at prices determined by the board of directors, provided, however, that (i) the exercise price of an ISO or NSO shall not be less than 100 % of the estimated fair value of the shares on the date of the grant, and (ii) the exercise price of an ISO granted to a 10% or more stockholder shall not be less than 110 % of the F-28 T ab le of Content s estimated fair value of the shares on the grant date. The options generally vest over a four-year period. For certain options, vesting accelerates upon the occurrence of specified events, such as a change of control. IPO Options Under the 2010 Plan In August 2020, the Company’s board of directors approved stock options for 3,588,535 common shares to be granted to certain officers and employees with an exercise price of $ 2.05 per share. 50 % of the options granted vest over a four -year period commencing on the effective date of the IPO. The remaining 50 % of the options granted vest over a four -year period commencing on the one -year anniversary of the IPO. As these stock options vest upon the satisfaction of both a time-based condition and a performance condition, the fair value of these stock options of $ 6.7 million, in aggregate, will be recognized as compensation expense over the requisite service period using the accelerated attribution method . In the year ended on December 31, 2021, $ 3.2 million was recognized as compensation expense from stock options subject to these performance conditions. 2021 Stock Option and Incentive Plan In February 2021, in connection with the IPO, the Company’s board of directors adopted the 2021 Stock Option and Incentive Plan (“2021 Plan”) to replace the 2010 Plan, which was subsequently approved by the Company’s stockholders in March 2021. The 2021 Plan became effective on March 24, 2021 . As of December 31, 2021, no stock options were granted under the 2021 Plan. As of December 31, 2021, 1,436,451 restricted stock units were granted under the 2021 Plan. Stock option activity under the 2010 Plan, as amended is as follows: Options Available for Grant (in thousands) Number of Options Outstanding (in thousands) Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in thousands) Balances at December 31, 2020 202 22,775 $ 1.81 7.36 $ 107,696 Options authorized 1,000 — Options granted ( 924 ) 924 $ 6.54 Options exercised — ( 3,480 ) $ 1.51 Options forfeited and expired 172 ( 779 ) $ 2.57 Transferred to 2021 Plan ( 450 ) — Balances at December 31, 2021 — 19,440 $ 2.06 6.29 $ 208,042 Options outstanding and exercisable – December 31, 2021 11,434 $ 1.81 5.27 $ 125,242 The aggregated intrinsic value represents the difference between the exercise price and the fair value of common stock. The aggregate intrinsic value of all options exercised was $ 53.8 million, $ 2.9 million and $ 0.9 million during the years ended December 31, 2021, 2020 and 2019, respectively. The weighted average grant date fair value of options granted was $ 6.66 , $ 1.72 and $ 1.38 during the years ended December 31, 2021, 2020 and 2019, respectively. The Company records stock-based awards at fair value as of the grant date, using the Black Scholes option pricing model. The fair value of stock options granted were estimated using the following range of assumptions: F-29 T ab le of Content s Year Ended December 31, 2021 (1) 2020 (1) 2019 Expected term (in years) 5.00 - 10.00 5.00 - 10.00 5.55 – 6.25 Expected volatility 59.4 %- 61.8 % 46.9 %- 54.9 % 45.5 % – 47.8 % Average risk-free rate 0.44 %- 1.10 % 0.28 %- 1.55 % 1.52 % – 2.44 % Dividend yield — — — ________________ (1) Assumptions include non-employee options after adoption of ASU 2018-07 as of January 1, 2020. Each of these inputs is subjective and generally requires significant judgment. Fair Value of Common Stock —Historically, for all periods prior to the IPO in March 2021, the fair value of the shares of common stock has historically been determined by the Company’s board of directors as there was no public market for the common stock. The board of directors determines the fair value of our common stock by considering a number of objective and subjective factors, including: the valuation of comparable companies, sales of preferred stock to unrelated third parties, our operating and financial performance, the lack of liquidity of common stock and general and industry specific economic outlook, amongst other factors. After the completion of the IPO in March 2021, the fair value of each share of underlying common stock is based on the closing price of the Company’s common stock as reported on the date of grant on the Nasdaq Global Select Market. Expected Term —The expected term represents the period that the Company’s stock options are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term. Volatility — Because the Company does not have sufficient trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly-traded companies, over a period equal to the expected term of the stock option grants. Risk-free Rate —The risk-free rate assumption is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option. Dividends —The Company has never paid dividends on its common stock and does not anticipate paying dividends on common stock. Therefore, the Company uses an expected dividend yield of zero . 2021 Employee Stock Purchase Plan In February 2021, the Company’s board of directors adopted the Employee Stock Purchase Plan (“ESPP”), which was subsequently approved by the stockholders in March 2021. The ESPP became effective on March 24, 2021. The first offering period began on March 25, 2021, and there was $ 0.5 million in stock-based compensation related to the ESPP for the year ended December 31, 2021. The Company used the following assumptions to estimate the fair value of stock offered under the ESPP for the years ended December 31, 2021: F-30 T ab le of Content s Year Ended December 31, 2021 Expected term (in years) 0.50 - 0.68 Expected volatility 60.65 % - 71.25 % Average risk-free rate 0.05 % - 0.10 % Dividend yield — Weighted average fair value of purchase rights $ 5.28 Restricted Stock Units The Company issues service-based and performance-based RSUs to employees. The RSUs automatically convert to shares of the Company’s common stock on a one -for-one basis as the awards vest. RSUs granted to newly hired employees typically vest 25 % annually over 4 years commencing on the date of grant. The RSUs are measured at grant date fair value, at the market price of the Company’s common stock on the grant date. The Company records stock-based compensation expense related to the RSUs ratably over the employee respective requisite service period. The following table summarizes RSUs excluding RSUs with performance-based vesting conditions (“PSUs”) activity under the 2021 Plan: Shares (in thousands) Weighted-Average Grant-Date Fair Value Weighted-Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2020 — $ — Granted 1,405 $ 18.92 Vested ( 84 ) $ 20.21 Forfeited and cancelled ( 81 ) $ 19.83 Outstanding at December 31, 2021 1,240 1.77 $ 15,813 Stock-based Compensation Total stock-based compensation expense by department is as follows (in thousands): Year Ended December 31, 2021 2020 2019 Operations, product and technology $ 4,241 $ 3,739 $ 3,877 Marketing 1,405 1,067 1,018 Sales, general and administrative 7,313 2,530 2,783 Total stock-based compensation expense $ 12,959 $ 7,336 $ 7,678 Stock-based compensation costs capitalized as part of internal-use software was $ 0.3 million during the year ended December 31, 2021. No such costs were capitalized during the years ended December 31, 2020 and 2019. As of December 31, 2021, there was $ 11.9 million of total unrecognized stock-based compensation related to outstanding stock options, which will be recognized over a weighted average period of 1.85 years. As of December 31, 2021, the Company had $ 21.3 million unrecognized stock-based compensation related to RSUs excluding PSUs, which will be recognized over the weighted average remaining requisite F-31 T ab le of Content s service period of 3.37 years. The total fair value of RSUs excluding PSUs that vested for the years ended 2021 and 2020 was $ 1.7 million and zero , respectively. As of December 31, 2021, there was $ 0.3 million of total unrecognized stock-based compensation on ESPP, which will be recognized over a weighted average period of 0.4 years. 12. Commitments and Contingencies Noncancellable Purchase Commitments As of December 31, 2021, the Company has non-cancelable contractual commitments of $ 17.0 million for software, construction and other services in the ordinary course of business with varying expiration terms through 2025. As of December 31, 2021, the future minimum payments under these arrangements were as follows (in thousands): Purchase Commitments 2022 $ 11,902 2023 3,134 2024 1,026 2025 939 2026 — Thereafter — Total future minimum payments $ 17,001 Legal Contingencies The Company is subject to litigation claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. Indemnifications In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but that have not yet been made. 13. Retirement Plan In 2010, the Company sponsored a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers all United States employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis. For the years ended December 31, 2021, 2020 and 2019, no employer contributions were made to the 401(k) Plan. 14. Income Taxes The Company had no federal or foreign provision for income taxes as the Company has incurred operating losses since inception. The Company has U.S. pre-tax book loss of $ 61.9 million and foreign pre-tax book loss of $ 1.2 million for the year ended December 31, 2021. The Company’s state tax F-32 T ab le of Content s provision, which was current, was $ 80,000 and $ 56,000 for the years ended December 31, 2021 and 2020, respectively. The Company’s effective tax rate, as a percentage of pretax income, differs from the statutory federal rate primarily due to the valuation allowance that the Company records on its deferred tax assets as management believes it is more likely than not that the deferred tax assets will not be fully realized. The reconciliation of the federal statutory income tax provision for the Company’s effective income tax provision (in thousands): Year Ended December 31, 2021 2020 Tax at federal statutory rate $ ( 13,250 ) $ ( 10,042 ) State taxes, net of federal effect 63 42 Non-deductible expenses 156 67 Foreign tax rate differential 259 — Stock based compensation ( 3,086 ) 1,077 Change in valuation allowance 15,712 8,814 Other 226 98 Provision for income taxes $ 80 $ 56 The significant components of the Company’s deferred tax assets and liabilities consisted of (in thousands): December 31, 2021 2020 Deferred tax assets: Accruals and reserves $ 2,043 $ 2,472 Inventory and deferred revenue 770 690 Stock compensation 2,128 1,151 Other 1,417 670 Net operating loss carryforwards 75,804 53,550 Gross deferred tax assets 82,162 58,533 Less: valuation allowance ( 75,348 ) ( 56,581 ) Total deferred tax assets 6,814 1,952 Deferred tax liabilities: Fixed assets ( 4,876 ) ( 1,952 ) Intangibles ( 1,938 ) — Gross deferred tax liabilities ( 6,814 ) ( 1,952 ) Net deferred tax assets $ — $ — Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards. Net deferred tax assets consist primarily of net operating losses of approximately $ 75.8 million as of December 31, 2021 and $ 53.6 million as of 2020 related to U.S. federal and state taxes. A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The Company has established a valuation allowance to offset deferred tax assets as of December 31, 2021 and 2020 due to the uncertainty of realizing future benefits from its net operating loss carryforwards and other deferred tax assets. The valuation allowance F-33 T ab le of Content s increased by approximately $ 18.8 million and $ 10.5 million in the years ended December 31, 2021 and 2020, respectively. Federal and state, and foreign net operating loss carryforwards of approximately $ 297.7 million, $ 203.2 million and $ 12.0 million, respectively, for income tax purposes are available to offset future taxable income as of December 31, 2021. $ 189.4 million of the U.S. federal net operating losses can be carried forward indefinitely and are available to offset 80% of future taxable income. If not used, these carryforwards will begin to expire in varying amounts beginning in 2030. The Tax Reform Act of 1986 and similar California legislation impose substantial restrictions on the utilization of net operating losses and tax credit carryforwards in the event that there is a change in ownership as provided by Section 382 and Section 383 of the Internal Revenue Code and similar state provisions. Such a limitation could result in the limitation and/or expiration of the net operating loss carryforwards and tax credits before utilization, which could result in increased future tax liabilities when the Company becomes taxable for federal or state purposes. While the Company has experienced an ownership change since its inception, an immaterial amount of net operating losses or tax credits has been limited as of December 31, 2021. The Company has no uncertain tax positions, and the Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. There was no accrued interest and penalties associated with uncertain tax positions as of December 31, 2021 and 2020. The Company’s tax years 2010 through current will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss credits. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. 15. Net Loss Per Share Attributable to Common Stockholders The following participating securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive (on an as-converted basis): As of December 31, 2021 2020 2019 (in thousands) Outstanding stock options 19,440 22,775 17,985 Restricted stock units 1,271 — — Delayed share issuance related to acquisition 130 — — Employee stock purchase plan 17 — — Convertible preferred stock — 65,971 65,928 Outstanding convertible preferred stock warrants — 149 171 Total 20,858 88,895 84,084 F-34