What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-05 compared with 2023-03-07 · 97 added, 125 removed, 191 unchanged (54% of the section changed)

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Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full calendar year or any other period.

This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-over-year comparisons between 2022 and 2021.

Discussions of 2020 items and year-over-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 10-K”).

ThredUp operates one of the world’s largest online resale platforms for apparel, shoes and accessories.

Our mission is to inspire a new generation of consumers to think secondhand first.

Our mission is to inspire the world to think secondhand first.

We believe in a sustainable fashion future and we are proud that our business model creates a positive impact to the benefit of our buyers, sellers, clients, employees, investors and the environment.

Our custom-built operating platform consists of distributed processing infrastructure, proprietary software and systems and data science expertise.

This platform is powering the rapidly emerging resale economy, one of the fastest growing sectors in retail, according to a GlobalData market survey conducted in February 2022.

This platform is powering the rapidly emerging resale economy, one of the fastest growing sectors in retail, according to a GlobalData market survey conducted in January 2023.

ThredUp’s proprietary operating platform is the foundation for our managed marketplace, where we have bridged online and offline technology to make the buying and selling of tens of millions of unique items easy and fun.

The core marketplace we have built in the U.S.

enables buyers to browse and purchase resale items for primarily women’s and kids’ apparel, shoes and accessories across a wide range of price points.

The marketplaces we have built enable buyers in the U.S.

and in Europe to browse and purchase resale items for primarily apparel, shoes and accessories across a wide range of price points.

Buyers love shopping value, premium and luxury brands all in one place, at up to 90% off estimated retail price.

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We take it from there and do the work to make those items available for resale.

In addition to our core marketplace, some of the world’s leading brands and retailers are already taking advantage of our RaaS offering, which allows them to conveniently offer a scalable closet clean out service and/or resale shop to their customers.

Aside from Clean Out Kits, ThredUp also sources inventory from a variety of supply channels, such as wholesale supply in Europe.

In addition to our core marketplace, some of the world’s leading brands and retailers are taking advantage of our RaaS offering, which allows them to conveniently offer a scalable closet clean out service and/or resale shop to their customers.

We believe RaaS will accelerate the growth of this emerging category and form the backbone of the modern resale experience domestically and internationally.

In 2021, we acquired Remix Global EAD (“Remix”), a fashion resale company based in Sofia, Bulgaria.

With this acquisition, we further expanded our reach to European customers, added a complementary operational infrastructure and added an experienced management team to enable our expansion into Europe.

In addition, Remix’s product assortment extended our resale offering to include men’s items and items sourced from a variety of supply channels, such as wholesale supply.

Recent Business Developments

Macroeconomic Factors

Macroeconomic factors, including inflation, increased interest rates, significant capital market volatility, the prolonged COVID-19 pandemic, global supply chain constraints, and global economic and geopolitical developments have direct and indirect impacts on our results of operations that are difficult to isolate and quantify.

These factors contributed to increases in our operating costs during 2022 primarily due to increased transportation costs and wage rates.

In addition, rising fuel, utility, and food costs, rising interest rates, and recessionary fears may impact customer demand and our ability to forecast consumer spending patterns.

We expect some or all of these factors to continue to impact our operations into 2023.

Foreign Currency

During 2022, the U.S.

dollar appreciated against major European currencies, including the Bulgarian lev.

We believe the strengthening U.S.

dollar had a negative impact on our European sales.

We are managing the currency risk related to earnings through natural hedges and have offsetting costs relating to operating our business and a regional source of supply.

Therefore, changes to exchange rates have not had a significant impact to our consolidated financial results.

We continue to monitor our foreign exchange exposure as we grow our business globally.

We have not engaged in hedging of foreign currency transactions to date, although we may choose to do so in the future.

For further details, please refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk , of this Annual Report on Form 10-K.

Restructuring

In the second and third quarters of 2022, we restructured certain corporate and managerial functions to improve efficiencies and to reduce overhead costs.

In addition, we closed our processing centers in Tennessee and Texas and consolidated their operations into our distribution center in Texas.

These activities have, and are expected to, provide future efficiency benefits;

however, the actual results may differ.

Overview of 2023 Results

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Gross margin decreased by 30 basis points to 66.4% from 66.7% year-over-year.

Net Loss Attributable to Common Stockholders:

Net loss attributable to common stockholders was $92.3 million, or a negative 32.0% of revenue, for the year ended December 31, 2022 as compared to a net loss attributable to common stockholders of $63.2 million, or a negative 25.1% of revenue, for the same period in 2021.

Net loss was $71.2 million, or a negative 22.1% of revenue, for the year ended December 31, 2023 as compared to a net loss of $92.3 million, or a negative 32.0% of revenue, for the same period in 2022.

Non-GAAP Adjusted EBITDA (1) :

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Active Buyers and Orders:

Active Buyers totaled 1.65 million and Orders totaled 6.51 million in 2022, representing a decline of 2.4% and growth of 22.1%, respectively, compared to the prior year.

Active Buyers totaled 1.8 million and Orders totaled 6.9 million in 2023, representing growth of 8.8% and 6.2%, respectively, compared to the prior year.

Key Financial and Operating Metrics

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Year Ended December 31,

2022 2021 Change 2021 2020 Change

2023 2022 Change

(in thousands, except percentages)

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Gross margin 66.4 % 66.7 %

Net loss attributable to common stockholders $ (92,284) $ (63,176) 46.1 % $ (63,176) $ (47,877) 32.0 %

Net loss attributable to common stockholders margin (32.0) % (25.1) % (25.1) % (25.7) %

Net loss $ (71,248) $ (92,284) (22.8) %

Net loss margin (22.1) % (32.0) %

Non-GAAP Adjusted EBITDA loss (1)

$ (17,380) $ (43,388) (59.9) %

Non-GAAP Adjusted EBITDA loss margin (5.4) % (15.0) %

(1) Adjusted EBITDA is a non-GAAP measure which may not be comparable to similarly-titled measures used by other companies.

See below for a reconciliation of Adjusted EBITDA loss to net loss attributable to common stockholders.

(1) Non-GAAP Adjusted EBITDA loss and Non-GAAP Adjusted EBITDA loss margin are non-GAAP measures which may not be comparable to similarly-titled measures used by other companies.

See below for a reconciliation of Non-GAAP Adjusted EBITDA loss to net loss.

Active Buyers

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Orders means the total number of orders placed by buyers across our marketplaces, including through our RaaS clients, in a given period, net of cancellations.

We expect Orders to increase over time.

Non-GAAP Financial Metrics

Non-GAAP Adjusted EBITDA

Non-GAAP Adjusted EBITDA loss means net loss attributable to common stockholders adjusted to exclude, where applicable in a given period, stock-based compensation expense, depreciation and amortization, impairment of non-marketable equity investment, restructuring charges, interest expense, acquisition-related expenses, provision for income taxes, change in fair value of convertible preferred stock warrant liability.

We use Adjusted EBITDA loss, a non-GAAP metric, to evaluate and assess our operating performance and the operating leverage in our business, and for internal planning and forecasting purposes.

We believe that non-GAAP Adjusted EBITDA loss, when taken collectively with our GAAP results, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results.

The following table provides a reconciliation of GAAP net loss attributable to common stockholders to non-GAAP Adjusted EBITDA loss:

Non-GAAP Financial Measures

Non-GAAP Adjusted EBITDA Loss and Non-GAAP Adjusted EBITDA Loss Margin

Non-GAAP Adjusted EBITDA loss means net loss adjusted to exclude, where applicable in a given period, stock-based compensation expense, depreciation and amortization, interest expense, severance and other charges, provision for income taxes, impairment of non-marketable equity investment, and acquisition-related expenses.

Non-GAAP Adjusted EBITDA loss margin represents Non-GAAP Adjusted EBITDA loss divided by Total revenue.

We use Non-GAAP Adjusted EBITDA loss and Non-GAAP Adjusted EBITDA loss margin, which are non-GAAP measures, to evaluate and assess our operating performance and the operating leverage in our business, and for internal planning and forecasting purposes.

We believe that Non-GAAP Adjusted EBITDA loss and Non-GAAP Adjusted EBITDA loss margin, when taken collectively with our GAAP results, may be helpful to investors because they provide consistency and comparability with past financial performance and assist in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results.

The following table provides a reconciliation of net loss to non-GAAP Adjusted EBITDA loss:

Year Ended December 31,

2022 2021 2020

(in thousands)

GAAP net loss attributable to common stockholders, as reported $ (92,284) $ (63,176) $ (47,877)

Net loss $ (71,248) $ (92,284)

Stock-based compensation expense 31,682 26,817

Depreciation and amortization 18,732 14,033

Impairment of non-marketable equity investment 3,750 — —

Restructuring charges 3,182 — —

Interest expense 2,239 805

Acquisition and offering-related expenses 274 1,271 —

Severance and other 1,196 3,182

Provision for income taxes 19 35

Change in fair value of convertible preferred stock warrant liability — 930 201

Impairment of non-marketable equity investment — 3,750

Acquisition and offering-related expenses — 274

Non-GAAP Adjusted EBITDA loss $ (17,380) $ (43,388)

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Consignment revenue

We generate consignment revenue from the sale of secondhand women’s and kids’ apparel, shoes and accessories on behalf of sellers.

We generate consignment revenue from the sale of secondhand apparel, shoes and accessories on behalf of sellers.

We recognize consignment revenue, net of seller payouts, discounts, incentives and returns.

We expect consignment revenue to continue to increase as we increase our Active Buyers and Orders and grow our business.

We expect consignment revenue to continue to increase as we increase our Active Buyers and Orders, and as we recently transitioned our RaaS partners to the consignment model and introduced the consignment model to our European operations.

Product revenue

We also generate product revenue from the sale of items that we own, which we refer to as our inventory.

While we shifted our business to primarily consignment sales in mid-2019, historically, we purchased most of our inventory from our sellers prior to inclusion on our online marketplace.

The sales from our newly acquired European operations are primarily from sale of owned items.

The sales from our European operations are primarily from sale of owned items.

We recognize product revenue, net of discounts, incentives and returns.

We expect product revenue to increase in absolute dollars and as a percentage of total revenue in the near term as we continue to grow our international business.

We expect the percentage share of product revenue to decrease in the long term as we introduce the consignment model to our European operations.

We expect the percentage share of product revenue to decrease in the long term as we recently transitioned our RaaS partners to the consignment model and introduced the consignment model to our European operations.

Cost of Revenue

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Cost of consignment revenue consists of outbound shipping, outbound labor and packaging costs.

We expect cost of consignment revenue to decrease and gross margin to increase as a percentage of total consignment revenue as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

We expect cost of consignment revenue to decrease and gross profit to increase as a percentage of consignment revenue as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

Cost of product revenue

Cost of product revenue mainly consists of inventory cost, inbound shipping related to the sold merchandise, outbound shipping, outbound labor, packaging costs and inventory write-downs.

We expect cost of product revenue to increase in absolute dollars and decrease as a percentage of total revenue, leading to an increase in gross margin.

We expect further gross margin to increase as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

We expect cost of product revenue to decrease and gross profit to increase as a percentage of product revenue as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

Operating Expenses

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We expect operations, product and technology expenses to increase in absolute dollars in future periods to support our growth, especially as costs to increase our supply (inbound costs) are generally incurred prior to the expected revenue growth.

Additionally, we expect to bring on additional distribution centers and continue investing in automation and other technology improvements to support and drive efficiency in our operations.

Additionally, we expect to continue investing in automation and other technology improvements to support and drive efficiency in our operations.

These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments, including business acquisitions.

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While these expenses may vary from period to period as a percentage of revenue, we expect them to increase in absolute dollars and decrease as a percentage of revenue over the longer term.

Other Expense (Income), Net

Other expense (income), net consists of non-operating income and expenses such as impairments of non-marketable equity investments, claim proceeds for lost shipments, and changes in the fair value of convertible preferred stock warrants.

Interest Expense

Interest expense consists of interest and debt issuance costs relating to our term loan facility.

Certain interest costs in conjunction with the build-out of our distribution centers in 2022 were reclassified from interest expense and capitalized.

Other Income (Expense), Net

Other income (expense), net consists of non-operating income and expenses such as interest income earned on our investments in marketable securities, impairments of non-marketable equity investments and claim proceeds for lost shipments.

Financial Results for the Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

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Total revenue increased $33.6 million, or 11.7%, for the year ended December 31, 2023 as compared to the same period in 2022.

The increase was attributable to a 22.1% increase in total Orders mainly due to the inclusion of our European operations beginning October 2021, which increased product revenue by $47.4 million.

This was partially offset by a $11.1 million decrease in consignment revenue primarily in our core marketplace.

We experienced slowing revenue and Order growth beginning in June 2022 and continuing into the second half of the year that was attributable to various factors including, but not limited to, general global economic uncertainty, rising interest rates, increased inflation, and weakening consumer discretionary spending, as well as excess inventory at retailers and brands leading to a highly promotional and competitive environment.

The increase in revenue for the year ended December 31, 2023 as compared to the same period in 2022 was driven by a 22.1% growth in consignment revenue, partially offset by a 4.4% decrease in product revenue.

The increase in total revenue was due primarily to an 8.8% increase in Active Buyers and 6.2% increase in Orders combined with a 5.1% increase in net revenue per Order.

Cost of Revenue

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Gross margin 66.4 % 66.7 %

Gross margin was 66.7% and 70.7% for the years ended December 31, 2022 and 2021, respectively, or an unfavorable change of 400 basis points.

The decrease in gross margin for the year ended December 31, 2022 as compared to the same period in 2021 was due to the inclusion of operating results of our European operations from October 2021 onward.

Revenue from our European operations is derived from product sales with a lower gross margin.

Consignment sales have a higher gross margin than product sales but made up a smaller percentage of total revenue for the year ended December 31, 2022 as compared to the same period in 2021.

Revenue for consignment sales is recognized net of seller payouts and cost of items sold, whereas for product sales, seller payouts and cost of items sold are included as a component of cost of revenue.

Gross margin was 66.4% and 66.7% for the years ended December 31, 2023 and 2022, respectively, representing a decrease of 30 basis points.

Consignment revenue is recognized net of seller payouts.

Seller payouts related to product revenue are included as a component of cost of product revenue.

As such, product revenue has a lower gross margin than consignment revenue.

The decrease in gross margin for the year ended December 31, 2023 as compared to the same period in 2022 was due to a decrease in product gross margin by 1110 basis points, primarily driven by our European operations, which have a lower gross margin.

This lower product gross margin was offset by a 250 basis point increase in consignment gross margin, primarily driven by lower shipping, labor and packaging costs.

The changes in consignment and product gross margins, coupled with the 22.1% increase in consignment revenue and the 4.4% decrease in product revenue, resulted in overall gross margin declining 30 basis points for the year ended December 31, 2023.

Cost of Consignment Revenue

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Consignment gross margin 81.4 % 78.8 %

Consignment gross margin was 78.8% and 77.5% for the years ended December 31, 2022 and 2021, respectively, or a favorable change of 130 basis points.

The increase in consignment gross margin for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a favorable impact of outbound shipping as a result of order consolidation of 240 basis points, partially offset by an unfavorable impact of direct labor of 60 basis points and an unfavorable impact of packaging and other costs of 50 basis points.

Consignment gross margin was 81.4% and 78.8% for the years ended December 31, 2023 and 2022, respectively, representing an increase of 260 basis points.

The increase in consignment gross margin for the year ended December 31, 2023 as compared to the same period in 2022 was primarily due to a 250 basis point decrease in outbound shipping, labor and packaging costs.

Cost of Product Revenue

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Product gross margin 36.8 % 47.9 %

Product gross margin was 47.9% and 51.6% for the years ended December 31, 2022 and 2021, or an unfavorable change of 370 basis points.

The decrease in product gross margin for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a net unfavorable impact of 800 basis points from including our European operations from October 2021 onward, which have a lower product gross margin, and an unfavorable impact of direct labor and packaging of 80 basis points, partially offset by a favorable impact of inventory costs of 280 basis points and a favorable impact of outbound shipping of 230 basis points.

Product gross margin was 36.8% and 47.9% for the years ended December 31, 2023 and 2022, respectively, representing a decrease of 1110 basis points.

The decrease in product gross margin for the year ended December 31, 2023 as compared to the same period in 2022 was primarily due to our European operations, which have a lower product gross margin.

Product gross margin decreased primarily due to higher seller payouts and an impairment of aged inventory in our European operations, which unfavorably impacted product gross margin by 1150 and 280 basis points, respectively.

This decrease was partially offset by a 170 basis point decrease in inventory costs in the U.S.

and a 140 basis point decrease in shipping and labor costs.

Operations, Product and Technology

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Operations, product, and technology as a percentage of total revenue 48.7 % 54.0 %

The $27.6 million increase in operations, product and technology expenses for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a $14.3 million increase in personnel-related costs resulting from the inclusion of our European operations from October 2021 onward, increases in employee salaries, wages and stock-based compensation, expenses associated with our distribution network, and restructuring charges;

an $8.6 million increase in facilities, technology and other allocated costs resulting from the expansion of our distribution network, the inclusion of our European operations and higher technology and other costs;

a $3.5 million increase in inbound shipping;

and $1.1 million in amortization of acquired developed technology.

Operations, product, and technology expenses increased $1.1 million or 0.7% for the year ended December 31, 2023 as compared to the same period in 2022.

The increase was primarily due to a $4.4 million increase in facilities, technology, and other costs, of which $2.9 million relates to recognizing incremental rent and depreciation expense on assets related to our Texas distribution center and a $0.3 million increase in inbound shipping.

This increase was partially offset by a $2.6 million decrease in personnel-related costs and a $1.0 million decrease in professional services.

Year Ended December 31, Change

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Marketing as a percentage of total revenue 20.6 % 22.3 %

The $0.7 million increase in marketing expenses for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a $4.0 million increase in personnel-related costs related to salaries, stock-based compensation and other expenses resulting from the inclusion of our European operations from October 2021 onward;

a $1.3 million increase in facilities, technology and allocated costs;

and a $0.3 million increase in professional services;

partially offset by a $4.8 million decrease in costs of lead generation, affiliates and partnerships, and advertising.

Marketing expenses increased $1.9 million or 3.0% for the year ended December 31, 2023 as compared to the same period in 2022.

The increase was primarily due to a $0.8 million increase in advertising costs and a $1.1 million increase in personnel-related costs, of which $0.6 million was related to stock-based compensation expense.

Sales, General and Administrative

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Sales, general and administrative as a percentage of total revenue 19.5 % 21.4 %

The $13.0 million increase in sales, general, and administrative expenses for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a $13.8 million increase in personnel-related costs related to salaries, stock-based compensation, restructuring, our European operations and other personnel costs;

and a $1.0 million increase in facilities, technology and allocated costs;

partially offset by a $1.1 million decrease in professional services and $0.7 million of other corporate expenses.

Sales, general, and administrative expenses increased $0.8 million or 1.4% for the year ended December 31, 2023 as compared to the same period in 2022.

The increase was primarily due to a $2.6 million increase in personnel-related costs, of which $2.2 million was related to stock-based compensation expense, and a $1.2 million increase in facilities, technology, and other costs, offset by a $3.0 million decrease in professional services.

Interest Expense

The $1.5 million decrease in interest expense for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to an increase in amounts capitalized as part of an asset and reclassified from interest expense.

Other Expense (Income), Net

The $1.9 million of other expense, net for the year ended December 31, 2022 was primarily due to an impairment charge related to our non-marketable equity investment, partially offset by claim proceeds for lost shipments.

The $1.6 million of other income, net for the year ended December 31, 2021 was primarily comprised of claim proceeds for lost shipments, offset by change in preferred stock warrants.

Year Ended December 31, Change

2023 2022 Amount %

(in thousands, except percentages)

Interest expense $ (2,239) $ (805) $ (1,434) 178.1 %

Interest expense increased $1.4 million for the year ended December 31, 2023 as compared to the same period in 2022.

This increase was primarily due to a $0.6 million increase in interest costs due to higher interest rates and a $1.0 million decrease in capitalized interest expense in conjunction with the build-out of our distribution centers in 2022, partially offset by a $0.1 million decrease in amortization of debt issuance costs.

Other Income (Expense), Net

Year Ended December 31, Change

2023 2022 Amount %

(in thousands, except percentages)

Other income (expense), net

$ 2,847 $ (1,957) $ 4,804 (245.5) %

Other income (expense), net increased $4.8 million for the year ended December 31, 2023 as compared to the same period in 2022.

The net increase was primarily due to a $3.8 million decrease related to an impairment charge related to our non-marketable equity investment in 2022, a $1.7 million increase in interest income on our marketable securities due to a higher interest rate environment, and a $0.1 million foreign currency transaction gain.

This increase was partially offset by a $0.8 million decrease in claim proceeds for lost shipments.

Liquidity and Capital Resources

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As of December 31, 2023, we had cash, cash equivalents and short-term marketable securities of $64.2 million.

Additionally, we have a term loan facility (“Term Loan”) under which $38.0 million remained available to be drawn as of December 31, 2022, and we were in full compliance with our debt covenants under the Term Loan as of that date.

Additionally, we have a term loan facility (“Term Loan”) under which $22.5 million remained available to be drawn as of December 31, 2023 for the purchase of certain equipment, and we were in full compliance with our debt covenants under the Term Loan as of that date.

See Note 8, Long-Term Debt , to the Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K for a further discussion on our Term Loan.

We expect operating losses and negative cash flows from operations to continue in the near term as we continue to invest in growing our business and expanding our infrastructure.

We expect operating losses to continue in 2024 as we continue to invest in growing our business and our infrastructure.

Our primary sources of liquidity are cash flows generated from operations, cash on hand and borrowings available under the Term Loan.

Our primary use of cash includes operating costs such as distribution network spend, product and technology expenses, marketing expenses, personnel expenses and other expenditures necessary to support our operations and our growth.

Additionally, our primary capital expenditures are related to the set-up, expansion and/or automation of our distribution network and may be accelerated or delayed based on our operating position and business needs.

Based upon our current operating plans, we believe that our existing cash, cash equivalents and short-term marketable securities will be sufficient to meet our short- and long-term capital requirements and we do not anticipate expanding our distribution network to include additional locations in the near term.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

Additionally, our primary capital expenditures are related to the set-up, expansion and/or automation of our distribution network.

Based upon our current operating plans, we believe that our existing cash, cash equivalents and short-term marketable securities will be sufficient for at least the next 12 months to meet our short- and long-term capital requirements, and we do not anticipate expanding our distribution network to include additional locations in the near term.

Our cash flow forecast is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

Our future capital requirements will depend on many factors, including but not limited to, the timing of our increased distribution center automation and expansion plans to support planned revenue growth, the expansion of sales and marketing activities, the potential introduction of new offerings and new RaaS clients, the continuing growth of our marketplaces and overall economic conditions.

However, we expect that our capital expenditures will decline significantly in 2023 as we completed the first phase of our new distribution center in Texas.

We may seek additional equity or debt financing.

However, we expect that our capital expenditures will be limited in 2024 as we have completed the first phase of our new distribution center in Texas.

See the section titled “Risk Factors—Risks Relating to Our Indebtedness and Liquidity—We may require additional capital to support business growth, and this capital might not be available or may be available only by diluting existing stockholders.”

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Changes in Cash Flows from Operating Activities

Net cash used in operating activities increased $17.1 million, or 48.8%, for the year ended December 31, 2022 as compared to the same period in 2021.

The increase in net cash used in operating activities for the year ended December 31, 2022 was due to $12.5 million of unfavorable changes in operating assets and liabilities and a $4.6 million increase in net loss attributable to common stockholders excluding non-cash and reconciling items disclosed within our consolidated statement of cash flows.

The $12.5 million change in operating assets and liabilities was primarily the result of unfavorable changes in seller payable, inventory, accrued and other current liabilities, and accounts payable, partially offset by favorable changes in other current and non-current assets and operating lease liabilities.

The $4.6 million increase in net loss attributable to common stockholders excluding non-cash and reconciling items was primarily driven by lower gross margin and higher operating expenses.

Net cash used in operating activities was $22.6 million for the year ended December 31, 2023 compared to the net cash used of $52.1 million same period in 2022.

The decrease in cash outflows was primarily due to a $25.7 million decrease in our net loss excluding non-cash expenses.

Additionally, changes in operating assets and liabilities were favorable year over year by $3.8 million.

This change in operating assets and liabilities was due to a $13.9 million favorable change in accounts and seller payables, consistent with the growth in our consignment business and a $10.1 million reduction in inventory mainly driven by decreased upfront inventory purchases as we transitioned our RaaS partners to the consignment model.

This change was partially offset by a $9.9 million unfavorable change in accrued and other liabilities due to timing of vendor payments, an $8.0 million increase in operating lease costs and a $2.6 million unfavorable change in accounts receivable due to timing of cash receipts from payment processors.

Changes in Cash Flows from Investing Activities

Net cash provided by investing activities was $8.9 million for the year ended December 31, 2022 compared to net cash used in investing activities of $169.6 million for the same period in 2021.

The decrease in net cash used in investing activities for the year ended December 31, 2022 was primarily due a $174.6 million decrease in net cash used to purchase marketable securities and a $23.6 million decrease in acquisitions, partially offset by a $23.4 million net increase in purchases of property and equipment.

Net cash provided by investing activities for the year ended December 31, 2023 increased $34.8 million as compared to the same period in 2022.

The favorable change was primarily due to a $21.9 million increase in maturities in marketable securities and a $27.3 million decrease in purchases of property and equipment as we completed the first phase of our Texas distribution center, offset by a $14.4 million increase in purchases of marketable securities.

Changes in Cash Flows from Financing Activities

Net cash used in financing activities increased $232.9 million, or 101.7%, for the year ended December 31, 2022 as compared to the same period in 2021.

The increase in net cash used in financing activities for the year ended December 31, 2022 was primarily due to a $222.2 million decrease in net proceeds from the IPO and secondary offerings in 2021, a $6.6 million increase in net repayments of debt, and a $4.2 million decrease in net proceeds from the exercise of employee stock awards.

Net cash used in financing activities for the year ended December 31, 2023 decreased $0.3 million as compared to the same period in 2022, which was primarily due to decreased net debt repayments of $1.9 million, increased proceeds from issuance of stock-based awards of $1.0 million, partially offset by a $2.6 million of increased taxes paid related to stock-based award activity.

Contractual Obligations

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Revenue Recognition

We generate revenue primarily from the sale of secondhand women’s and kids’ apparel, shoes and accessories on behalf of sellers.

We generate revenue primarily from the sale of secondhand apparel, shoes and accessories on behalf of sellers and partners.

We retain a percentage of the proceeds received as payment for our consignment service.

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We also generate revenue from the sale of our purchased inventory which we refer to as product revenue.

We sell our purchased inventory mainly through our online marketplace.

We sell our purchased inventory mainly through our online marketplaces.

We recognize product revenue on a gross basis.

Online sales and sales to our retail partners are recognized upon shipment of the purchased secondhand items to the buyer.

Sales at retail stores are recognized upon checkout and sales of accepted items from goody boxes are recognized upon acceptance, which generally occurs at the same time as payment.

Both consignment and product revenue are recognized net of discounts, incentives and returns.

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Revenue is recognized when the loyalty rewards are redeemed or expire.

For gift cards and site credits, we recognize breakage revenue when we determine that the redemption of gift cards and site credits is remote.

We recognize revenue from gift cards when the gift cards are redeemed by the customer, and we recognize breakage revenue when we determine that the redemption of gift cards is remote, which is two years after issuance.

Stock-Based Compensation

We estimate the fair value of stock options and the ESPP at the grant date using the Black-Scholes option-pricing model (the “Black-Scholes Model”).

The fair values of Restricted Stock Units (“RSU”) are determined based on our stock price on the date of grant.

The fair values of RSUs are determined based on our stock price on the date of grant.

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.

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The risk-free interest rate is based on the yield available on United States Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award.

Business Combinations

We account for our 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 their 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, we make significant estimates and assumptions, especially with respect to intangible assets.

Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Once 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.

Acquired Intangible Assets

When we acquire a business, a portion of the purchase price is typically allocated to identifiable intangible assets, such as trademarks, acquired technology and customer relationships.

Fair value of these assets is determined primarily using the income approach, which requires us to project future cash flows and apply an appropriate discount rate.

We amortize intangible assets with finite lives over their expected useful lives.

Our 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 our results of operations.

Goodwill and Acquired Intangible Assets

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 will be 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.

Acquired intangible assets with determinable lives are generally amortized over their estimated useful lives using the straight-line method.

We review intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate.

JOBS Act Accounting Election

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

What changed 10-K

Item 7. Management’s Discussion and Analysis