ThredUp Inc. 10-K

Item 8. Financial Statements and Supplementary Data Page Number THREDUP INC. Report of Independent Registered Public Accounting Fir m – Deloitte & Touche LLP (PCAOB ID: 34 ) 59 Report of Independent Registered Public Accounting Firm – KPMG LLP (PCAOB ID: 185 ) 60 Consolidated Balance Sheets 61 Consolidated Statements of Operations 62 Consolidated Statements of Comprehensive Loss 63 Consolidated Statements of Preferred Convertible Stock and Stockholders’ Equity (Deficit) 64 Consolidated Statements of Cash Flows 65 Notes to Consolidated Financial Statements 66 58 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of ThredUp Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of ThredUp Inc. and subsidiaries (the “Company”) as of December 31, 2022, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows, for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ DELOITTE & TOUCHE LLP San Francisco, California March 7, 2023 We have served as the Company’s auditor since 2022. 59 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors ThredUp Inc.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of ThredUp Inc. and subsidiaries (the Company) as of December 31, 2021, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity, and cash flows for each of the years in the two-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 the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. 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 served as the Company’s auditor from 2017 to 2022. San Francisco, California March 21, 2022 60 Table of Contents THREDUP INC. CONSOLIDATED BALANCE SHEETS December 31, 2022 2021 (in thousands, except par value amounts) ASSETS Current assets: Cash and cash equivalents $ 38,029 $ 84,550 Marketable securities 66,902 121,277 Accounts receivable, net 4,669 4,136 Inventory 17,519 9,825 Other current assets 7,076 8,625 Total current assets 134,195 228,413 Operating lease right-of-use assets 46,153 39,340 Property and equipment, net 92,482 55,466 Goodwill 11,592 12,238 Intangible assets 10,499 13,854 Other assets 7,027 11,515 Total assets $ 301,948 $ 360,826 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 7,800 $ 13,336 Accrued and other current liabilities 50,155 45,253 Seller payable 16,166 19,125 Operating lease liabilities, current 6,413 3,931 Current portion of long-term debt 3,879 7,768 Total current liabilities 84,413 89,413 Operating lease liabilities, non-current 48,727 36,997 Long-term debt, net of current portion 25,788 27,559 Other non-current liabilities 3,019 1,123 Total liabilities 161,947 155,092 Commitments and contingencies (Note 12) Stockholders’ equity: Class A and B common stock, $ 0.0001 par value; 1,120,000 shares authorized as of December 31, 2022 and 2021; 101,532 and 98,435 shares issued and outstanding as of December 31, 2022 and 2021, respectively 10 10 Additional paid-in capital 551,852 522,161 Accumulated other comprehensive loss ( 4,234 ) ( 1,094 ) Accumulated deficit ( 407,627 ) ( 315,343 ) Total stockholders’ equity 140,001 205,734 Total liabilities and stockholders’ equity $ 301,948 $ 360,826 The accompanying notes are an integral part of these consolidated financial statements. 61 Table of Contents THREDUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2022 2021 2020 (in thousands, except per share amounts) Revenue: Consignment $ 174,994 $ 186,114 $ 138,096 Product 113,385 65,678 47,919 Total revenue 288,379 251,792 186,015 Cost of revenue: Consignment 37,015 41,856 34,184 Product 59,026 31,804 23,683 Total cost of revenue 96,041 73,660 57,867 Gross profit 192,338 178,132 128,148 Operating expenses: Operations, product and technology 155,642 128,079 101,408 Marketing 64,369 63,625 44,765 Sales, general and administrative 61,814 48,814 28,564 Total operating expenses 281,825 240,518 174,737 Operating loss ( 89,487 ) ( 62,386 ) ( 46,589 ) Interest expense 805 2,275 1,305 Other expense (income), net 1,957 ( 1,565 ) ( 73 ) Loss before provision for income taxes ( 92,249 ) ( 63,096 ) ( 47,821 ) Provision for income taxes 35 80 56 Net loss attributable to common stockholders $ ( 92,284 ) $ ( 63,176 ) $ ( 47,877 ) Loss per share attributable to common stockholders, basic and diluted $ ( 0.92 ) $ ( 0.82 ) $ ( 4.14 ) Weighted-average shares used in computing loss per share attributable to common stockholders, basic and diluted 99,817 77,092 11,565 The accompanying notes are an integral part of these consolidated financial statements. 62 Table of Contents THREDUP INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended December 31, 2022 2021 2020 (in thousands) Net loss attributable to common stockholders $ ( 92,284 ) $ ( 63,176 ) $ ( 47,877 ) Other comprehensive loss, net of tax: Foreign currency translation adjustments ( 2,418 ) ( 729 ) — Unrealized loss on available-for-sale securities ( 722 ) ( 365 ) — Total other comprehensive loss ( 3,140 ) ( 1,094 ) — Total comprehensive loss attributable to common stockholders $ ( 95,424 ) $ ( 64,270 ) $ ( 47,877 ) The accompanying notes are an integral part of these consolidated financial statements. 63 Table of Contents THREDUP INC. CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) Convertible Preferred Stock Common Stock Shares Amount Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity (Deficit) (in thousands) (in thousands) Balance as of December 31, 2019 65,928 $ 246,905 10,647 $ 1 $ 20,483 $ — $ ( 203,725 ) $ ( 183,241 ) Issuance of common stock from 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 attributable to common stockholders ( 47,877 ) ( 47,877 ) Cumulative effect of accounting change ( 565 ) ( 565 ) Balance as of December 31, 2020 65,971 247,041 12,890 1 29,989 — ( 252,167 ) ( 222,177 ) Issuance of common stock from exercise of stock options, restricted stock units, and employee stock purchase plan 3,646 — 6,249 6,249 Stock-based compensation 13,290 13,290 Shares withheld related to net share settlement ( 1 ) — ( 29 ) ( 29 ) 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 Class A common stock upon closing of follow-on offering 2,000 1 45,524 45,525 Acquisition delayed share issuance 2,744 2,744 Net loss attributable to common stockholders ( 63,176 ) ( 63,176 ) Other comprehensive loss ( 1,094 ) ( 1,094 ) Balance as of December 31, 2021 — — 98,435 10 522,161 ( 1,094 ) ( 315,343 ) 205,734 Issuance of common stock from exercise of stock options, restricted stock units, and employee stock purchase plan 3,180 — 2,180 2,180 Stock-based compensation 27,747 27,747 Shares withheld related to net share settlement ( 83 ) — ( 236 ) ( 236 ) Net loss attributable to common stockholders ( 92,284 ) ( 92,284 ) Other comprehensive loss ( 3,140 ) ( 3,140 ) Balance as of December 31, 2022 — $ — 101,532 $ 10 $ 551,852 $ ( 4,234 ) $ ( 407,627 ) $ 140,001 The accompanying notes are an integral part of these consolidated financial statements. 64 Table of Contents THREDUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2022 2021 2020 (in thousands) Cash flows from operating activities: Net loss attributable to common stockholders $ ( 92,284 ) $ ( 63,176 ) $ ( 47,877 ) Adjustments to reconcile net loss attributable to common stockholders to net cash used in operating activities: Depreciation and amortization 14,033 9,155 5,581 Stock-based compensation expense 26,817 12,959 7,336 Reduction in carrying amount of right-of-use assets 6,473 3,985 4,034 Other 5,593 2,342 561 Changes in operating assets and liabilities: Accounts receivable, net ( 530 ) ( 1,189 ) 229 Inventory ( 7,886 ) ( 2,741 ) 374 Other current and non-current assets 893 ( 6,326 ) 32 Accounts payable ( 3,985 ) 871 3,469 Accrued and other current liabilities 1,752 9,251 5,182 Seller payable ( 2,945 ) 5,072 4,407 Operating lease liabilities 924 ( 3,964 ) ( 3,824 ) Other non-current liabilities ( 960 ) ( 1,258 ) 1,391 Net cash used in operating activities ( 52,105 ) ( 35,019 ) ( 19,105 ) Cash flows from investing activities: Purchases of marketable securities ( 3,475 ) ( 125,217 ) — Maturities of marketable securities 55,650 2,800 — Purchase of non-marketable equity investment — ( 3,750 ) — Acquisition of business, net of cash acquired — ( 23,581 ) — Purchases of property and equipment ( 43,251 ) ( 19,828 ) ( 19,424 ) Net cash provided by (used in) investing activities 8,924 ( 169,576 ) ( 19,424 ) Cash flows from financing activities: Proceeds from debt, net of discount 391 4,625 18,352 Repayment of debt ( 6,333 ) ( 4,000 ) ( 1,190 ) Proceeds from issuance of Class A common stock, net of underwriting discounts and commissions — 226,905 — Payment of costs for the initial public offering and the follow-on offering — ( 4,729 ) ( 1,117 ) Proceeds from exercise of stock options and employee stock purchase plan 4,202 6,506 2,170 Tax withholding related to vesting of restricted stock units ( 2,196 ) ( 347 ) — Net cash provided by (used in) financing activities ( 3,936 ) 228,960 18,215 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 672 ) ( 64 ) — Net change in cash, cash equivalents and restricted cash ( 47,789 ) 24,301 ( 20,314 ) Cash, cash equivalents and restricted cash, beginning of period 91,840 67,539 87,853 Cash, cash equivalents and restricted cash, end of period $ 44,051 $ 91,840 $ 67,539 Supplemental disclosures of cash flow information: Cash paid for interest $ 2,058 $ 2,076 $ 1,450 Supplemental disclosures of noncash investing and financing activities: Purchases of property and equipment included in accounts payable and accrued liabilities $ 5,677 $ 3,739 $ 1,555 Right-of-use assets obtained in exchange for new lease liabilities $ 13,384 $ 19,669 $ 9,142 The accompanying notes are an integral part of these consolidated financial statements. 65 Table of Contents 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 operates a large resale platform that enables consumers to buy and sell primarily secondhand apparel, shoes, and accessories. 2. Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. Reclassifications Certain reclassifications were made to the prior period consolidated statements of cash flows to conform to the current period presentation. Use of Estimates 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, breakage on loyalty points and rewards and gift cards, valuation of inventory, stock-based compensation, right-of-use assets, goodwill and acquired intangibles, and income taxes. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of significant judgment. New Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . This ASU changes the impairment model for most financial assets, requiring the use of an expected loss model which requires entities to estimate the lifetime expected credit loss on financial assets measured at amortized cost. Such credit losses will be recorded as an allowance to offset the amortized cost of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. In addition, credit losses relating to available-for-sale debt securities will now be recorded through an allowance for credit losses rather than as a direct write-down to the security. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements. Foreign Currency Generally, the functional currency of the Company’s subsidiaries is the local currency. 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 loss within the Company’s consolidated balance sheets. 66 Table of Contents Revenue Recognition Revenue is recognized in accordance with FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“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 seller 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 generally 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 also recognized upon purchase of the consigned good for which the consignment window has already expired and the Company has taken title to the consigned good. Consignment revenue is recognized net of seller payouts, discounts, incentives and returns. Sales tax assessed by governmental authorities is excluded from revenue. 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 within the Company’s consolidated balance sheets. 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. 67 Table of Contents 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, 2022 and 2021, the Company had $ 4.3 million and $ 1.7 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 within the Company’s consolidated balance sheets. The Company has 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, 2022 and 2021, the Company had a liability of $ 3.3 million and $ 4.0 million, respectively, related to the loyalty program which is included in accrued and other current liabilities within the Company’s consolidated balance sheets. The Company recognized $ 9.4 million, $ 13.8 million, and $ 6.6 million of revenue related to loyalty points during the years ended December 31, 2022, 2021, and 2020, 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: Year Ended December 31, 2022 2021 2020 (in thousands) United States $ 240,942 $ 240,677 $ 186,015 Others 47,437 11,115 — Total revenue $ 288,379 $ 251,792 $ 186,015 Segment Reporting 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. 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, 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. Loss Per Share Attributable to Common Stockholders The Company follows the two-class method when computing loss per common share when shares issued meet the definition of participating securities. The two-class method determines 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. 68 Table of Contents The rights of the Class A common stock and Class B common stock are identical, other than voting rights. The undistributed earnings are allocated on a proportionate basis and the resulting 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 loss per share attributable to common stockholders is the same as basic 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 attributable to common stockholders, foreign currency translation adjustments, and unrealized gains and losses on available-for-sale securities. See Note 10, Common Stock and Stockholders’ Equity (Deficit) , for the description and detail of the components of accumulated other comprehensive loss. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are comprised primarily of domestic and foreign bank accounts, 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. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company’s consolidated balance sheets that sum to the total of the same such amounts shown in the Company’s consolidated statements of cash flows: December 31, 2022 2021 (in thousands) Cash and cash equivalents $ 38,029 $ 84,550 Restricted cash included in Other current assets 383 560 Restricted cash included in Other assets 5,639 6,730 Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 44,051 $ 91,840 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 not 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. 69 Table of Contents As of December 31, 2022 and 2021, 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, 2022, 2021, and 2020. 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, 2022 and 2021. Inventory 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 of furniture, fixtures, and equipment (including computer hardware and software) is computed on a straight-line basis over the estimated useful lives of the related assets, which range from one to ten years . Leasehold improvements are amortized on a straight-line basis over the life of the related asset or the term of the lease, whichever is shorter. Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the Company’s consolidated 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 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, 2022, 2021, and 2020. 70 Table of Contents 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 performed a qualitative assessment during the fourth quarter of 2022 and determined that the fair value of its single reporting unit is greater than its carrying value. If it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount or if a qualitative assessment is not performed, then the Company would perform the quantitative goodwill impairment test as required, in which it would use a discounted cash flow approach to estimate the fair value of the reporting unit. If the fair value of the reporting unit is less than the carrying value, then a goodwill impairment amount is recorded for the difference. During the years ended December 31, 2022, 2021, and 2020, there were no additions to or impairment of goodwill. 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 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 In October 2021, the Company made a strategic investment in preferred shares of a privately held online retail company. The Company accounts for its investment in accordance with ASC 321, Investments – Equity Securities (“ASC 321”). Upon acquisition, the investment was measured at cost, which represented the then fair value of $ 3.8 million and was included in other assets within the Company’s consolidated balance sheet as of December 31, 2021. 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 within the Company’s consolidated statements of operations. 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 and 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 within the Company’s consolidated statements of operations. During the year ended December 31, 2022, the Company recorded an impairment loss of $ 3.8 million related to its non-marketable equity investment in other expense, net within its consolidated statement of operations. 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, net within the machinery and equipment line item and other non-current liabilities, respectively, within the Company’s 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 term. Accretion expense is recorded in operations, product and technology expense in the consolidated statements of operations using accretion rates based on credit adjusted risk-free interest rates. 71 Table of Contents Leases 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. As of December 31, 2022 and 2021, there was $ 16.2 million and $ 19.1 million, respectively, of seller payable within the Company’s consolidated balance sheets. Gift Cards and Site Credits The Company sells thredUP gift cards on its e-commerce website. 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, 2022 and 2021, $ 10.9 million and $ 7.3 million of gift card liability, respectively, was included in accrued and other current liabilities within the Company’s consolidated balance sheets. Revenue from gift cards is generally recognized when the gift cards are redeemed by the customer and amounted to $ 1.0 million, $ 0.9 million and $ 0.6 million during the years ended December 31, 2022, 2021, and 2020, respectively. The Company issues site credits for order refunds. Site credits can be applied towards future charges but may not be converted into cash. Site 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. As of December 31, 2022 and 2021, $ 7.2 million and $ 5.9 million, respectively, of such customer site credits were included in accrued and other current liabilities within the Company’s consolidated balance sheets. Revenue recognized from the redemption of site credits was $ 48.4 million, $ 33.2 million, and $ 21.1 million for the years ended December 31, 2022, 2021, and 2020, respectively. We recognize breakage revenue when we determine that the redemption of gift cards and site credits is remote. Breakage on gift cards and site credits was $ 2.2 million for the year ended December 31, 2022 and was not material for the years ended December 31, 2021 and 2020. 72 Table of Contents 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. The classification of expenses varies across the retail industry. Accordingly, our cost of revenue may not be comparable to those of other companies in the retail industry. 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 $ 37.6 million, $ 28.7 million and $ 20.7 million, during the years ended December 31, 2022, 2021, and 2020, 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 marketing within the Company’s consolidated statements of operations are expensed as incurred and were approximately $ 49.2 million, $ 54.1 million and $ 38.4 million for the years ended December 31, 2022, 2021, and 2020, respectively. 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; and customer service. 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 unit awards and stock options and on the date of enrollment for the employee stock purchase plan (“ESPP”). The fair values of stock unit awards 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. 73 Table of Contents 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 recognized on a graded-vesting basis once the Company has determined that it is probable that performance conditions will be satisfied. 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. The Company accounts for forfeitures as they occur. 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, 2022 and 2021, 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 variable-rate 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. 3. Financial Instruments and Fair Value Measurements The following tables provide information about the Company’s financial instruments that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such values as of December 31, 2022 and 2021: December 31, 2022 Level 1 Level 2 Level 3 Total (in thousands) Assets: Cash equivalents: Money market funds $ 1,110 $ — $ — $ 1,110 Commercial paper — 14,460 — 14,460 Total cash equivalents 1,110 14,460 — 15,570 Marketable securities: Corporate debt securities 25,488 — — 25,488 U.S. treasury securities 19,176 — — 19,176 U.S. government agency bonds 22,238 — — 22,238 Total marketable securities 66,902 — — 66,902 Total assets at fair value $ 68,012 $ 14,460 $ — $ 82,472 74 Table of Contents December 31, 2021 Level 1 Level 2 Level 3 Total (in thousands) Assets: Cash equivalents: Money market funds $ 41,376 $ — $ — $ 41,376 Commercial paper — 12,098 — 12,098 Total cash equivalents 41,376 12,098 — 53,474 Marketable securities: Corporate debt securities 55,921 — — 55,921 U.S. treasury securities 37,190 — — 37,190 U.S. government agency bonds 28,166 — — 28,166 Total marketable securities 121,277 — — 121,277 Total assets at fair value $ 162,653 $ 12,098 $ — $ 174,751 The following tables summarize the cost, gross unrealized gains, gross unrealized losses and fair value of the marketable securities as of December 31, 2022 and 2021: December 31, 2022 Cost or Amortized Cost Unrealized Fair Value Gains Losses (in thousands) Corporate debt securities $ 25,774 $ — $ ( 286 ) $ 25,488 U.S. treasury securities 19,531 — ( 355 ) 19,176 U.S. government agency bonds 22,679 — ( 441 ) 22,238 Total $ 67,984 $ — $ ( 1,082 ) $ 66,902 December 31, 2021 Cost or Amortized Cost Unrealized Fair Value Gains Losses (in thousands) Corporate debt securities $ 56,098 $ — $ ( 177 ) $ 55,921 U.S. treasury securities 37,286 — ( 96 ) 37,190 U.S. government agency bonds 28,258 — ( 92 ) 28,166 Total $ 121,642 $ — $ ( 365 ) $ 121,277 As of December 31, 2022 and 2021, the Company’s cash equivalents approximated their estimated fair value. As such, there are no unrealized gains or losses related to the Company’s cash equivalents. For the Company’s marketable securities, which were all classified as available-for-sale, 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 Company’s money market funds, U.S. treasury securities, corporate debt securities and U.S. government agency bonds were valued using Level 1 inputs because they are valued using quoted prices in active markets. The Company’s commercial paper is valued using Level 2 inputs because it is 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. There were no transfers between levels during the year ended December 31, 2022. As of December 31, 2022, of the $ 66.9 million carrying amount of marketable securities, all had a contractual maturity date of less than one year. 75 Table of Contents 4. Property and Equipment, Net Property and equipment, net consisted of the following: December 31, 2022 2021 (in thousands) Property and equipment, at cost: Machinery and equipment $ 55,292 $ 48,874 Internal-use software 6,917 5,517 Computers and software 7,817 5,336 Leasehold improvements 15,724 4,705 Furniture and fixtures 2,180 856 Construction in progress 36,482 10,740 Total property and equipment, at cost 124,412 76,028 Less: accumulated depreciation and amortization ( 31,930 ) ( 20,562 ) Property and equipment, net $ 92,482 $ 55,466 Depreciation and amortization expense of property and equipment was $ 11.5 million, $ 8.5 million, and $ 5.6 million for the years ended December 31, 2022, 2021, and 2020, respectively. During the years ended December 31, 2022, 2021, and 2020, the Company capitalized costs associated with internal-use software of $ 1.7 million, $ 2.1 million, and $ 1.4 million, respectively. 5. Acquisitions 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 attributable to common stockholders 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. 76 Table of Contents The assets acquired and liabilities assumed were recognized at fair value as of the date of the acquisition. During 2022, the Company finalized the analysis of the purchase price and no adjustments were made to the assessed fair values. The following table summarizes the final fair values assigned to the assets acquired and liabilities assumed: October 7, 2021 (in thousands) Purchase price: Cash consideration $ 25,550 Delayed share issuance 2,744 Total purchase price $ 28,294 Assets: Cash and cash equivalents $ 1,860 Accounts receivable 1,150 Inventory 3,657 Intangible assets 14,800 Other assets 786 Total assets 22,253 Liabilities: Accounts payable ( 3,102 ) Accrued and other liabilities ( 3,356 ) Total liabilities ( 6,458 ) Net assets acquired 15,795 Goodwill 12,499 Total purchase price $ 28,294 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. 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. October 7, 2021 (in thousands) Identifiable intangible assets acquired: Customer relationships $ 5,200 Developed technology 4,900 Trademarks 4,700 Total identifiable intangible assets acquired $ 14,800 The Company did not present pro forma and other financial information for the acquisition of Remix, as this was not considered to be a material business combination. 77 Table of Contents 6. Goodwill and Other Intangible Assets Goodwill is primarily attributable to the planned growth in the combined business after the acquisition of Remix Global EAD (“Remix”). Goodwill was $ 11.6 million and $ 12.2 million as of December 31, 2022 and 2021, respectively. The decrease in goodwill during the year ended December 31, 2022 was due to foreign currency translation adjustments. The gross carrying amounts and accumulated amortization of the Company’s intangible assets with determinable lives as of December 31, 2022 and 2021 were as follows: December 31, 2022 Amortization Period Gross Carrying Amount Accumulated Amortization Net Carrying Amount (in years) (in thousands) Customer relationships 8 $ 4,814 $ ( 742 ) $ 4,072 Developed technology 3 4,536 ( 1,864 ) 2,672 Trademarks 9 4,351 ( 596 ) 3,755 Total $ 13,701 $ ( 3,202 ) $ 10,499 December 31, 2021 Amortization Period Gross Carrying Amount Accumulated Amortization Net Carrying Amount (in years) (in thousands) 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 The changes in the gross carrying amounts were due to foreign currency translation adjustments. Amortization expense related to developed technology, customer relationships, and trademarks is recorded within operations, product and technology; sales, general and administrative; and marketing expense, respectively, within the Company’s consolidated statements of operations. Amortization expense of intangible assets with determinable lives was $ 2.6 million, $ 0.6 million, and zero for the years ended December 31, 2022, 2021, and 2020, respectively. As of December 31, 2022, the estimated future amortization expense of intangible assets with determinable lives was as follows: Amount (in thousands) 2023 $ 2,597 2024 2,245 2025 1,085 2026 1,085 2027 1,085 Thereafter 2,402 Total $ 10,499 78 Table of Contents 7. Balance Sheet Components Inventories consisted of the following: December 31, 2022 2021 (in thousands) Work in process $ 2,639 $ 1,578 Finished goods 14,880 8,247 Total $ 17,519 $ 9,825 Work in process inventory relates to items that are currently undergoing preparation for sale, including itemization, cleaning, and repair. Accrued and other current liabilities consisted of the following: December 31, 2022 2021 (in thousands) Gift card and site credit liabilities $ 18,101 $ 13,223 Accrued vendor liabilities 9,116 6,031 Deferred revenue 7,582 5,878 Accrued compensation 4,993 6,438 Allowance for returns 4,907 6,209 Accrued taxes 4,326 5,728 Accrued other 1,130 1,746 Total $ 50,155 $ 45,253 8. Leases The Company leases certain office space and distribution centers with lease terms ranging from one to ten years . 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 one to ten years . For certain leases, these 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 Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. 79 Table of Contents As of December 31, 2022, maturities of operating lease liabilities were as follows: Amount(1) (in thousands) 2023 $ 9,566 2024 9,103 2025 7,424 2026 7,506 2027 7,173 Thereafter 30,810 Total lease payments 71,582 Less: imputed interest ( 16,404 ) Less: tenant improvement allowance yet to be received ( 38 ) Present value of lease liabilities 55,140 Less: current lease liabilities ( 6,413 ) Non-current lease liabilities $ 48,727 (1) Excludes $ 4.3 million of legally binding minimum lease payments for leases signed but not yet commenced. Security deposits and letters of credits used to secure the leases were $ 1.0 million and $ 6.0 million, respectively, as of December 31, 2022 and $ 0.8 million and $ 6.3 million, respectively, as of December 31, 2021. The components of lease cost are as follows: Year Ended December 31, 2022 2021 2020 (in thousands) Lease cost: Fixed operating lease cost $ 8,905 $ 5,591 $ 5,568 Short-term lease cost 1,355 7 58 Variable cost (1) 1,467 1,381 1,197 Total lease cost $ 11,727 $ 6,979 $ 6,823 (1) Variable lease costs, which include items such as real estate taxes, common area maintenance, and changes based on an index or rate, are not included in the calculation of the right-of-use assets and are recognized as incurred. The weighted-average remaining lease term and weighted-average discount rate used to calculate the present value of lease liabilities are as follows: December 31, 2022 2021 Weighted-average remaining lease term 8.5 years 8.1 years Weighted-average discount rate 6.2 % 5.9 % Supplemental cash flow information related to leases is as follows: Year Ended December 31, 2022 2021 2020 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 1,559 $ 5,401 $ 5,365 80 Table of Contents 9. Long-Term Debt In February 2019, the Company entered into a loan and security agreement (“Term Loan”) with Western Alliance Bank for an aggregate amount of up to $ 40.0 million to refinance its prior loan and security agreement with Silicon Valley Bank. The Company incurred an immaterial amount of debt issuance costs in connection with the Term Loan. The debt issuance costs are recorded on the Company’s consolidated balance sheets and are being amortized over the life of the Term Loan using the effective-interest method. The Term Loan was subsequently amended several times, with the most recent amendment taking place in July 2022. As amended, the Term Loan matures on July 14, 2027 and provides for an aggregate borrowing amount of up to $ 70.0 million, which bears interest at the prime rate published in the Wall Street Journal plus a margin of 1.25 %, with a floor of 6.00 %. The Company incurred an immaterial amount of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to FASB ASC Topic 470, Debt , this transaction was accounted for as a modification of the Term Loan. The debt issuance costs were recognized in interest expense within the Company’s consolidated statement of operations during the third quarter of 2022. The Term Loan requires the Company to comply with certain financial covenants, including, among other things, liquidity requirements, performance metrics, and a debt service coverage ratio. The Term Loan also contains affirmative and negative covenants customary for financings of this type, including, among other things, limitations or prohibitions on repurchasing common shares, declaring and paying dividends and other distributions, redeeming and repurchasing certain other indebtedness, loans and investments, additional indebtedness, liens, mergers, asset sales and transactions with affiliates. In addition, the Term Loan contains customary events of default. As of December 31, 2022 and 2021, the Company was in compliance with its debt covenants under the Term Loan. The Term Loan is payable in consecutive monthly installments. Interest is due monthly on amounts outstanding under the Term Loan. The Company is also permitted to make voluntary prepayments without penalty or premium at any time. As of December 31, 2022 and 2021, the effective interest rate for borrowings under the Term Loan was 9.70 % and 6.65 %, respectively. During the year ended December 31, 2022, the Company borrowed an aggregate amount of $ 0.7 million under the Term Loan and repaid a total of $ 6.3 million on amounts outstanding under the Term Loan. During the year ended December 31, 2021, the Company borrowed an aggregate amount of $ 5.0 million under the Term Loan and repaid a total of $ 4.0 million on amounts outstanding under the Term Loan. During the year ended December 31, 2020, the Company borrowed an aggregate amount of $ 18.6 million under the Term Loan and repaid a total of $ 1.2 million on amounts outstanding under the Term Loan. As of December 31, 2022 and 2021, the amount outstanding under the Term Loan was $ 30.3 million and $ 36.0 million, respectively. During the years ended December 31, 2022, 2021, and 2020, the Company incurred $ 2.4 million, $ 2.5 million, and $ 1.7 million, respectively, of interest cost relating to the Term Loan, of which $ 1.6 million, $ 0.3 million, and $ 0.4 million, respectively, was capitalized as part of an asset. As of December 31, 2022, annual scheduled principal payments of the Term Loan were as follows: Amount (in thousands) 2023 $ 4,000 2024 4,000 2025 4,000 2026 4,000 2027 14,333 Total principal payments 30,333 Less: unamortized debt discount ( 666 ) Less: current portion of long-term debt ( 3,879 ) Non-current portion of long-term debt $ 25,788 81 Table of Contents 10. Common Stock and Stockholders’ Equity (Deficit) 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 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. The table below summarizes the Class A common stock and Class B common stock authorized, issued and outstanding as of December 31, 2022 and 2021: December 31, 2022 Authorized Issued and Outstanding (in thousands) Class A common stock 1,000,000 70,723 Class B common stock 120,000 30,809 Total 1,120,000 101,532 December 31, 2021 Authorized Issued and Outstanding (in thousands) Class A common stock 1,000,000 57,779 Class B common stock 120,000 40,656 Total 1,120,000 98,435 82 Table of Contents Accumulated Other Comprehensive Loss The following table summarizes changes in accumulated other comprehensive loss by component during the years ended December 31, 2022 and 2021: Change in Accumulated Other Comprehensive Loss by Component Foreign Currency Translation Adjustments Unrealized Loss on Available-For-Sale Securities Total (in thousands) Balance as of December 31, 2020 $ — $ — $ — Other comprehensive loss before reclassifications ( 729 ) ( 365 ) ( 1,094 ) Amounts reclassified from accumulated other comprehensive loss to income — — — Total other comprehensive loss, net of reclassifications ( 729 ) ( 365 ) ( 1,094 ) Balance as of December 31, 2021 ( 729 ) ( 365 ) ( 1,094 ) Other comprehensive loss before reclassifications ( 2,418 ) ( 722 ) ( 3,140 ) Amounts reclassified from accumulated other comprehensive loss to income — — — Total other comprehensive loss, net of reclassifications ( 2,418 ) ( 722 ) $ ( 3,140 ) Balance as of December 31, 2022 $ ( 3,147 ) $ ( 1,087 ) $ ( 4,234 ) 11. Stock-Based Compensation 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 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, is being recognized as compensation expense over the requisite service period using the accelerated attribution method. During the years ended December 31, 2022 and 2021, compensation expense related to stock options subject to these performance conditions was $ 1.2 million and $ 3.2 million, respectively. 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. 83 Table of Contents Stock option activity under the 2010 Plan, as amended is as follows: Number of Options Outstanding Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Life Aggregate Intrinsic Value (in thousands) (in thousands) Outstanding as of December 31, 2021 19,440 $ 2.06 6.29 years $ 208,042 Granted — $ — Exercised ( 635 ) $ 2.18 Forfeited or expired ( 933 ) $ 3.48 Outstanding as of December 31, 2022 17,872 $ 1.97 5.20 years $ 1,442 Exercisable as of December 31, 2022 14,280 $ 1.90 4.66 years $ 1,442 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 $ 2.5 million, $ 53.8 million and $ 2.9 million during the years ended December 31, 2022, 2021, and 2020, respectively. The weighted average grant date fair value of options granted was zero , $ 6.66 and $ 1.72 during the years ended December 31, 2022, 2021, and 2020, 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: Year Ended December 31, 2021 2020 Expected term (in years) 5.00 - 10.00 5.00 - 10.00 Expected volatility 59.4 % - 61.8 % 46.9 % - 54.9 % Average risk-free rate 0.44 % - 1.10 % 0.28 % - 1.55 % Dividend yield — — 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 determined 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 . 84 Table of Contents 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 stockholders in March 2021. The ESPP became effective on March 24, 2021, and the first offering period began on March 25, 2021. Under the terms of the ESPP, rights to purchase common shares may be granted to eligible qualified employees subject to certain restrictions. The ESPP enables the Company’s eligible employees, through payroll withholdings, to purchase a limited number of common shares at 85 % of the fair market value of a common share either at the beginning of that offering period or on the applicable exercise date, whichever is less. Purchases are made on a semi-annual basis. During the years ended December 31, 2022 and 2021, compensation expense related to ESPP was not material. Restricted Stock Units The Company issues service-based and performance-based RSUs to employees. The RSUs automatically convert to shares of the Company’s Class A common stock on a one -for-one basis as the awards vest. RSUs granted to newly hired employees typically vest in equal quarterly installments over 3 or 4 years, provided that the initial vest occurs after a 1 -year cliff. Such grants commence vesting as of the nearest scheduled quarterly vesting date from the date of grant. Generally, performance conditions include targets for revenue, gross profit, and EBITDA. 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 RSU activity under the 2021 Plan: Number of Shares Weighted-Average Grant Date Fair Value Per Share (in thousands) Outstanding and nonvested as of December 31, 2021 1,271 $ 18.81 Granted 10,317 $ 7.03 Vested ( 2,226 ) $ 9.08 Forfeited ( 1,507 ) $ 8.81 Outstanding and nonvested as of December 31, 2022 7,855 $ 8.01 Stock-based Compensation The following table provides information about stock-based compensation expense by financial statement line item: Year Ended December 31, 2022 2021 2020 (in thousands) Operations, product and technology $ 10,035 $ 4,241 $ 3,739 Marketing 3,144 1,405 1,067 Sales, general and administrative 13,638 7,313 2,530 Total stock-based compensation expense $ 26,817 $ 12,959 $ 7,336 As of December 31, 2022, there was $ 4.9 million of total unrecognized stock-based compensation related to outstanding stock options, which will be recognized over a weighted average period of 1.27 years. As of December 31, 2022, the Company had $ 58.7 million unrecognized stock-based compensation related to RSUs, which will be recognized over the weighted average remaining requisite service period of 3.07 years. The total fair value of RSUs that vested during the years ended December 31, 2022 and 2021 was $ 20.2 million and $ 1.7 million, respectively. 85 Table of Contents 12. Commitments and Contingencies Noncancellable Purchase Commitments As of December 31, 2022, the Company has non-cancelable contractual commitments of $ 5.7 million for software and other services in the ordinary course of business with varying expiration terms through 2025. The future minimum payments under these arrangements were as follows: Amount (in thousands) 2023 $ 2,379 2024 2,161 2025 1,184 2026 — 2027 — Thereafter — Total future minimum payments 5,724 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 limited and customary indemnification obligations. 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 the United States, the Company maintains a defined-contribution savings plan pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended. The plan is available to substantially all employees who meet the minimum age and length of service requirements. The Company did not make any contributions to this plan during the years ended December 31, 2022, 2021, and 2020. 14. Income Taxes The components of loss before provision for income taxes were as follows: Year Ended December 31, 2022 2021 2020 (in thousands) Domestic $ ( 80,648 ) $ ( 61,862 ) $ ( 47,821 ) Foreign ( 11,601 ) ( 1,234 ) — Total $ ( 92,249 ) $ ( 63,096 ) $ ( 47,821 ) The Company had no federal or foreign provision for income taxes as the Company has incurred operating losses since inception. The Company’s state tax provision, which was current, was $ 35,000 , $ 80,000 and $ 56,000 for the years ended December 31, 2022, 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. 86 Table of Contents The reconciliation between the provision for income taxes at the statutory rate and the provision for income taxes at the effective tax rate is as follows: Year Ended December 31, 2022 2021 2020 (in thousands) Tax expense at United States statutory rate $ ( 19,372 ) $ ( 13,250 ) $ ( 10,042 ) Increase (decrease) in tax resulting from: State taxes, net of federal effect 27 63 42 Non-deductible and other expenses 120 382 165 Foreign tax rate differential 2,436 259 — Stock-based compensation 2,930 ( 3,086 ) 1,077 Change in valuation allowance 13,894 15,712 8,814 Total $ 35 $ 80 $ 56 The significant categories of temporary differences that gave rise to deferred tax assets and liabilities were as follows: December 31, 2022 2021 (in thousands) Deferred tax assets: Accruals and reserves $ 3,250 $ 2,043 Inventory and deferred revenue 1,324 770 Capitalized research and development costs 6,247 — Stock compensation 2,939 2,128 Other 2,348 1,417 Net operating loss carryforwards 83,646 75,804 Gross deferred tax assets 99,754 82,162 Less: valuation allowance ( 92,810 ) ( 75,348 ) Total deferred tax assets 6,944 6,814 Deferred tax liabilities: Fixed assets 5,575 4,876 Intangibles 1,369 1,938 Total deferred tax liabilities 6,944 6,814 Total 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 loss carryforwards of approximately $ 83.6 million and $ 75.8 million as of December 31, 2022 and 2021, respectively, related to U.S. federal, state, and foreign taxes. A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. As of December 31, 2022 and 2021, the Company held valuation allowances against its deferred tax assets due to the uncertainty of realizing future benefits from its net operating loss carryforwards and other deferred tax assets. The valuation allowance increased by approximately $ 17.5 million, $ 18.8 million, and $ 10.5 million during the years ended December 31, 2022, 2021, and 2020, respectively. U.S. federal, state, and foreign net operating loss carryforwards of approximately $ 327.4 million, $ 231.3 million and $ 12.9 million, respectively, for income tax purposes are available to offset future taxable income as of December 31, 2022. $ 219.1 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 federal carryforwards will begin to expire in varying amounts beginning in 2030. Foreign net operating losses can be carried forward for a period of 5 years. 87 Table of Contents 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, 2022. The Company had no uncertain tax positions as of December 31, 2022 and 2021. 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. Loss Per Share Attributable to Common Stockholders The following participating securities have been excluded from the computation of diluted loss per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive: December 31, 2022 2021 2020 (in thousands) Outstanding stock options 17,872 19,440 22,775 Convertible preferred stock — — 65,971 Outstanding convertible preferred stock warrants — — 149 Restricted stock units 7,855 1,271 — Employee stock purchase plan 77 17 — Delayed share issuance related to acquisition 130 130 — Total 25,934 20,858 88,895 88 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.