1STDIBS.COM, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and our Prospectus. This discussion contains forward-looking statements based upon current plans, expectations, and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" under Part II, Item 1A in this Quarterly Report on Form 10-Q and in our Prospectus. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Company Overview We are one of the world's leading online marketplaces for connecting design lovers with many of the best sellers and makers of vintage, antique, and contemporary furniture, home décor, jewelry, watches, art, and fashion. Our thoroughly vetted seller base, in-depth editorial content, and custom-built technology platform create trust in our brand and facilitate high-consideration purchases of luxury design products online. By disrupting the way these items are bought and sold, we are both expanding access to, and growing the market for, luxury design products. 1stDibs began in 2000 with the vision of bringing the magic of theParis flea market online by creating a listings site for top vintage and antique furniture sellers. Soon thereafter, we moved our headquarters toNew York City and focused primarily on addingU.S. -based sellers to our site. The quality of our initial seller base enabled us to build a reputation in the design industry as a trusted source for unique luxury design products. In over two decades of operating history, we have strengthened our brand and deepened our seller relationships. We launched our e-commerce platform in 2013 and transitioned to a full e-commerce marketplace model in 2016. We provide our sellers, the vast majority of which are small businesses, access to a global community of buyers and a platform to facilitate e-commerce at scale. Our sellers use our platform to manage their inventory, build their digital marketing presence, and communicate and negotiate orders directly with buyers. We provide our buyers a trusted purchase experience with our user-friendly interface, dedicated specialist support, and 1stDibs Promise, our comprehensive buyer protection program. We operate an asset-light business model which allows us to scale in a capital efficient manner. While we facilitate shipping and fulfillment logistics, we do not take physical possession of the items sold on our online marketplace. We have experienced substantial growth in recent periods. We grew our GMV to$330.3 million for the nine months endedSeptember 30, 2021 from$236.6 million for the nine months endedSeptember 30, 2020 , a growth rate of 40%. We grew our net revenue to$75.8 million for the nine months endedSeptember 30, 2021 from$58.0 million for the nine months endedSeptember 30, 2020 , a growth rate of 31%. In the nine months endedSeptember 30, 2021 , we generated a net loss of$12.9 million and Adjusted EBITDA of$(9.8) million , compared to a net loss of$10.9 million and Adjusted EBITDA of$(5.7) million for the nine months endedSeptember 30, 2020 . See "Non-GAAP Financial Measures" for more information and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP. Initial Public Offering Our registration statement on Form S-1 related to our IPO was declared effective by theSEC onJune 9, 2021 , and our common stock began trading on the Nasdaq Global Select Market onJune 10, 2021 . OnJune 14, 2021 , we completed our initial public offering of 6,612,500 shares of our common stock at a price to the public of$20.00 per share, which includes the exercise in full by the underwriters of their option to purchase from us an additional 862,500 shares of our common stock. We received net proceeds of$123.0 million after deducting underwriters' discounts and commissions, before deducting offering costs. Upon the closing of the IPO, all shares of our outstanding redeemable convertible preferred stock automatically converted into 19,243,795 shares of common stock. Prior to the IPO, deferred offering costs, which consist of direct incremental legal, accounting, and other third-party fees relating to the IPO, were capitalized in other current assets on the condensed consolidated balance sheets. Upon completion of the IPO, the$5.5 million of deferred offering costs were reclassified into additional paid-in capital and accounted for as a reduction of the IPO proceeds in the condensed consolidated balance sheets. Stock Split OnMay 25, 2021 , our Board of Directors approved an amended and restated certificate of incorporation effecting a 1-for-3 reverse stock split of our issued and outstanding shares of redeemable convertible preferred stock and common stock. This was approved by the stockholders onMay 28, 2021 , and the split was effected onMay 28, 2021 without any change in the par value per share. All information related to our redeemable convertible preferred stock, common stock, common stock warrants, and 23 -------------------------------------------------------------------------------- stock options, as well as the per share amounts, have been retroactively adjusted to give effect to the 1-for-3 reverse stock split for all periods presented. Impact of COVID-19 Pandemic OnMarch 11, 2020 , theWorld Health Organization declared the outbreak of a novel coronavirus ("COVID-19") as a global pandemic. The full extent of the impact of the pandemic on our business, key metrics, and results of operations depends on future developments that are uncertain and unpredictable, including the duration, severity, and spread of the pandemic, its impact on capital and financial markets and on theU.S. and global economies, and any new information that may emerge concerning the virus or vaccines or other efforts to control the virus. As a result of the COVID-19 pandemic, we transitioned to an almost fully remote work environment. More recently, we have adopted plans for re-opening certain offices, on a voluntary basis untilJanuary 2022 , and have implemented a flexible work model that we anticipate may have us continue to operate on a significantly remote and geographically dispersed basis for the foreseeable future. Although we believe our business has been positively impacted to some extent by several trends related to the COVID-19 pandemic, including the increased willingness of sellers and buyers to engage in online transactions for luxury purchases, we cannot predict whether these trends will continue if and when the pandemic begins to subside, restrictions ease, and the risk and barriers associated with in-person transactions dissipate. Any actions we take to mitigate the effects of the COVID-19 pandemic and uncertainties related to the COVID-19 pandemic could harm our business, financial condition, and results of operations. While we have not yet seen a material adverse impact on our operating results as a result of the pandemic, we cannot predict the duration, magnitude, or full impact that COVID-19 may have on our financial condition, operations, and workforce. See "Risk Factors-The COVID-19 pandemic has impacted, and may continue to impact, our business, key metrics, and results of operations in volatile and unpredictable ways" for further discussion of the possible impact of the COVID-19 pandemic on our business. Key Operating and Financial Metrics We use the following key metrics and non-GAAP measures to measure our performance, identify trends affecting our business, and make strategic decisions: •Gross Merchandise Value ("GMV"); •Number of Orders; •Active Buyers; and •Adjusted EBITDA. These metrics are based on internal company data, assumptions, and estimates and are used in managing our business. We believe that these figures are reasonable estimates, and we actively take measures to improve their accuracy, such as eliminating known fictitious or duplicate accounts. There are, however, inherent challenges in gathering accurate data across large online and mobile populations. For example, individuals may have multiple email accounts in violation of our terms of service, which would result in an Active Buyer being counted more than once, thus impacting the accuracy of our number of Active Buyers. In addition, certain metrics, such as the number of Active Buyers and Number of Orders, are measured based on such numbers as reported in a given month, minus cancellations within that month. As we do not retroactively adjust such numbers for cancellations occurring after the month, the metrics presented do not reflect subsequent order cancellations. We regularly review and may adjust our processes for calculating these metrics to improve their accuracy. These key operating and financial metrics may vary from period to period and should not be viewed as indicative of other metrics. Three Months Ended
September
30, Nine Months Ended September 30,
(dollars in thousands) 2021 2020 2021 2020
GMV $ 109,211 $ 87,156 $ 330,276 $ 236,599
Number of Orders 37,355 32,257 117,658 88,793
Active Buyers 71,783 53,057 71,783 53,057
Adjusted EBITDA (unaudited) $ (5,372) $ (462) $ (9,758) $ (5,746)
Gross Merchandise Value
We define GMV as the total dollar value from items sold by our sellers through
1stDibs in a given month, minus cancellations within that month, and excluding
shipping and sales taxes. GMV includes all sales reported to us by our sellers,
whether transacted through the 1stDibs marketplace or reported as an offline
sale. We view GMV as a measure of the total
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economic activity generated by our online marketplace and as an indicator of the
scale and growth of our online marketplace and the health of our ecosystem. Our
historical growth rates for GMV may not be indicative of future growth rates in
GMV.
Number of Orders
We define Number of Orders as the total number of orders placed or reported
through the 1stDibs marketplace in a given month, minus cancellations within
that month. Our historical growth rates for Number of Orders may not be
indicative of future growth rates in Number of Orders.
Active Buyers
We define Active Buyers as buyers who have made at least one purchase through
our online marketplace during the 12 months ended on the last day of the period
presented, net of cancellations. A buyer is identified by a unique email
address; thus an Active Buyer could have more than one account if they were to
use a separate unique email address to set up each account. We believe this
metric reflects scale, engagement and brand awareness, and our ability to
convert user activity on our online marketplace into transactions. Our
historical growth rates for Active Buyers may not be indicative of future growth
rates in new Active Buyers.
Adjusted EBITDA
We define Adjusted EBITDA as net loss excluding depreciation and amortization,
stock-based compensation expense, other income (expense), net, and provision for
income taxes. Adjusted EBITDA is a key performance measure used by our
management and board of directors to assess our operating performance and the
operating leverage of our business. We believe that Adjusted EBITDA helps
identify underlying trends in our business that could otherwise be masked by the
effect of the income and expenses that we exclude from Adjusted EBITDA.
Accordingly, we believe that Adjusted EBITDA provides useful information to
investors and others in understanding and evaluating our operating results,
enhances the overall understanding of our past performance and future prospects,
and allows for greater transparency with respect to key financial metrics used
by our management in their financial and operational decision-making. See
"Non-GAAP Financial Measures" for more information and for a reconciliation of
net loss, the most directly comparable financial measure calculated and
presented in accordance with GAAP, to Adjusted EBITDA.
Components of Results of Operations
Net Revenue
Our net revenue consists principally of seller marketplace services, software
services, and advertisements. Seller marketplace services consist of
subscriptions, listings, and marketplace transactions. Revenue from
subscriptions consist of access to our online marketplace, allowing sellers, who
are our customers, to execute successful purchase transactions with buyers.
Sellers pay us for promoting certain products on their behalf and at their
discretion through our online marketplace. For successful purchase transactions,
sellers also pay us commissions ranging from 5% to 50%, and processing fees of
3%, net of expected refunds. If a seller accepts a return or refund of an
on-platform purchase, the related commission and processing fees are refunded to
the seller. Software services revenue consists of monthly and annual
subscriptions allowing customers to access our Design Manager software,
typically used by interior designers. Advertisements consist of impression-based
ads displayed on our online marketplace on the seller's behalf.
Cost of Revenue
Cost of revenue includes payment processor fees and hosting expenses. Cost of
revenue also includes expenses associated with payroll, employee benefits,
stock-based compensation, consulting costs, amortization expense related to our
capitalized internal-use software, and other headcount-related expenses
associated with operations personnel supporting revenue-related operations. A
portion of rent, related facilities and maintenance costs, and depreciation of
property and equipment related to a gallery space used by us is also allocated
to cost of revenue. A Surrender Agreement for the gallery lease was entered into
in December 2019 .
In certain transactions where our shipping services are elected by sellers, we
facilitate shipping of items purchased from the seller to the buyer. The
difference between the amount collected for shipping and the amount charged by
the shipping carrier is included in cost of revenue. We do not own or manage
inventory or directly manage fulfillment and shipping.
Operating Expenses
Operating expenses consist of sales and marketing, technology development,
general and administrative, and provision for transaction loss expenses. We
include stock-based compensation expense in connection with the grant of the
stock options in the applicable operating expense category based on the
respective equity award recipient's function.
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Sales and Marketing
Sales and marketing expenses include advertising expense, payroll, employee
benefits, stock-based compensation, rent and related facilities and maintenance
costs related to our gallery space, depreciation of property and equipment
related to the gallery, promotional discounts offered to new and existing
buyers, incentives offered to select buyers who reach a certain purchase amount
threshold, and other headcount-related expenses associated with the sales and
marketing personnel. Advertising expenses consist primarily of costs incurred
promoting and marketing our services, such as costs associated with acquiring
new users through performance-based marketing, print advertising, email, and
events. Promotional discounts and incentives represent incentives solely to end
buyers and, therefore, are not considered payments made to our customers. Buyers
are not our customers because access to the 1stDibs marketplace is free for
buyers and we have no performance obligations with respect to buyers.
Technology Development
Technology development expenses include payroll, employee benefits, stock-based
compensation, and other headcount-related expenses associated with the
engineering and product development personnel and consulting costs related to
technology development. We expense all technology development expenses as
incurred, except for those expenses that meet the criteria for capitalization as
internal-use software.
General and Administrative
General and administrative expenses include payroll, employee benefits,
stock-based compensation, and other headcount-related expenses associated with
finance, facility, and human resources related personnel, as well as general
overhead costs of the business, including rent and related facilities and
maintenance costs, depreciation and amortization of property and equipment, and
legal, accounting, and professional fees. We expense all general and
administrative expenses as incurred.
Provision for Transaction Losses
Provision for transaction losses primarily consists of transaction loss expense
associated with our buyer protection program, including damages to products
caused by shipping and transit, items that were not received or not as
represented by the seller, and reimbursements to buyers at our discretion if
they are dissatisfied with their experience. The provision for transaction
losses also includes bad debt expense associated with our accounts receivable
balance.
Results of Operations
The following table summarizes our results of operations for the periods
indicated:
Three Months Ended September
30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Net revenue $ 25,576 $ 20,970 $ 75,801 $ 57,989
Cost of revenue 7,515 6,318 21,861 19,263
Gross profit 18,061 14,652 53,940 38,726
Operating expenses:
Sales and marketing 12,863 8,544 35,652 26,037
Technology development 4,775 4,064 13,261 12,384
General and administrative 6,079 2,923 15,229 9,109
Provision for transaction losses 1,270 916 3,786 2,656
Total operating expenses 24,987 16,447 67,928 50,186
Loss from operations (6,926) (1,795) (13,988) (11,460)
Other income (expense), net:
Interest income 57 23 92 178
Interest expense (3) - (12) (10)
Other, net 285 402 1,032 357
Total other income (expense), net 339 425 1,112 525
Net loss before income taxes (6,587) (1,370) (12,876) (10,935)
Provision for income taxes - (2) - (3)
Net loss $ (6,587) $ (1,372) $ (12,876) $ (10,938)
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The following table summarizes our results of operations as a percentage of net revenue for the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net revenue 100 % 100 % 100 % 100 %
Cost of revenue 29 30 29 33
Gross profit 71 70 71 67
Operating expenses:
Sales and marketing 50 41 47 45
Technology development 19 19 17 21
General and administrative 24 14 20 16
Provision for transaction losses 5 5 5 5
Total operating expenses 98 79 89 87
Loss from operations (27) (9) (18) (20)
Other income (expense), net:
Interest income - - - -
Interest expense - - - -
Other, net 1 2 1 1
Total other income (expense), net 1 2 1 1
Net loss before income taxes (26) (7) (17) (19)
Income tax benefit (provision) - - - -
Net loss (26) % (7) % (17) % (19) %
Comparison of the Three Months Ended September 30, 2021 and 2020
Net Revenue
Three Months Ended September 30,
(in thousands) 2021 2020 $ Change % Change
Net revenue $ 25,576 $ 20,970 $ 4,606 22 %
Net revenue was $25.6 million for the three months ended September 30, 2021 , as
compared to $21.0 million for the three months ended September 30, 2020 . The
increase of $4.6 million , or 22%, was primarily driven by an increase in seller
marketplace services revenue of $4.4 million . The increase in seller marketplace
services revenue was primarily due to the $3.9 million increase in marketplace
transaction fees as a result of the growth in our GMV. The growth in GMV is
mainly due to an increase in order volume driven by growth in Active Buyers.
Our marketplace transaction fees represent the majority of our net revenue and
accounted for 70% and 67% of our net revenue for the three months ended
September 30, 2021 and 2020, respectively. Subscription fees accounted for 23%
and 26% of our net revenue for the three months ended September 30, 2021 and
2020, respectively.
Cost of Revenue
Three Months Ended September 30,
(in thousands) 2021 2020 $ Change % Change
Cost of revenue $ 7,515 $ 6,318 $ 1,197 19 %
Cost of revenue was $7.5 million for the three months ended September 30, 2021 ,
as compared to $6.3 million for the three months ended September 30, 2020 . The
increase of $1.2 million , or 19%, was primarily driven by an increase in payment
processing fees of $0.7 million consistent with our GMV growth.
Gross Profit and Gross Margin
Gross profit was $18.1 million and gross margin was 70.6% for the three months
ended September 30, 2021 , as compared to gross profit of $14.7 million and gross
margin of 69.9% for the three months ended September 30, 2020 . The increases in
gross profit and gross margin for the three months ended September 30, 2021 were
primarily driven by the increase in seller marketplace services revenue and
decreases in amortization expense for capitalized internal-use software as a
percentage of net revenue due to improved leverage of our technology platform as
GMV grows.
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Operating Expenses
Sales and Marketing
Three Months Ended September 30,
(in thousands) 2021 2020 $ Change % Change
Sales and marketing $ 12,863 $ 8,544 $ 4,319 51 %
Sales and marketing expense was $12.9 million for the three months ended
September 30, 2021 , as compared to $8.5 million for the three months ended
September 30, 2020 . The increase of $4.3 million , or 51%, was primarily driven
by an increase in promotional discounts and incentives of $1.6 million ,
partially due to the increase in GMV as well as the increased use of promotional
campaigns to grow buyers, and an increase in performance-based marketing of $1.5
million in an effort to continue to drive our growth. Salaries and benefits also
increased $0.6 million due to higher headcount to support the growth in GMV.
Technology Development
Three Months Ended September 30,
(in thousands) 2021 2020 $ Change % Change
Technology development $ 4,775 $ 4,064 $ 711 17 %
Technology development expense was $4.8 million for the three months ended
September 30, 2021 , as compared to $4.1 million for the three months ended
September 30, 2020 . The increase of $0.7 million , or 17%, was primarily driven
by increases of $0.4 million in salaries and benefits due to higher headcount to
support technology development.
General and Administrative
Three Months Ended September 30,
(in thousands) 2021 2020 $ Change % Change
General and administrative $ 6,079 $ 2,923 $ 3,156 108 %
General and administrative expense was $6.1 million for the three months ended
September 30, 2021 , as compared to $2.9 million for the three months ended
September 30, 2020 . The increase of $3.2 million , or 108%, was primarily driven
by a $1.2 million increase in liability insurance, a $0.6 million increase in
salaries and benefits due to higher headcount, a $0.4 million increase in
stock-based compensation expense due to additional awards granted in March 2021
and the higher valuation of our common stock, and a $0.4 million increase in
legal, audit, and accounting professional services. These expense increases were
primarily related to our operations as a public company.
Provision for Transaction Losses
Three Months Ended September 30,
(in thousands) 2021 2020 $ Change % Change
Provision for transaction losses $ 1,270 $ 916 $ 354 39 %
Provision for transaction losses was $1.3 million for the three months ended
September 30, 2021 , as compared to $0.9 million for the three months ended
September 30, 2020 . The increase of $0.4 million , or 39%, was primarily driven
by the growth in our GMV, as well as increased chargeback losses due to a
greater number of chargeback claims.
Other Income (Expense), Net
Three Months Ended September 30,
(in thousands) 2021 2020 $ Change % Change
Total other income (expense), net $ 339 $ 425 $ (86) (20) %
Other income (expense), net was
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Comparison of the Nine Months Ended September 30, 2021 and 2020
Net Revenue
Nine Months Ended September 30,
(in thousands) 2021 2020 $ Change % Change
Net revenue $ 75,801 $ 57,989 $ 17,812 31 %
Net revenue was $75.8 million for the nine months ended September 30, 2021 , as
compared to $58.0 million for the nine months ended September 30, 2020 . The
increase of $17.8 million , or 31%, was primarily driven by an increase in seller
marketplace services revenue of $17.2 million . The increase in seller
marketplace services revenue was primarily due to the $15.7 million increase in
marketplace transaction fees as a result of the growth in our GMV. The growth in
GMV is mainly due to an increase in order volume driven by growth in Active
Buyers.
Our marketplace transaction fees represent the majority of our net revenue and
accounted for 71% and 65% of our net revenue for the nine months ended
September 30, 2021 and 2020, respectively. Subscription fees accounted for 23%
and 28% of our net revenue for the nine months ended September 30, 2021 and
2020, respectively.
Cost of Revenue
Nine Months Ended September 30,
(in thousands) 2021 2020 $ Change % Change
Cost of revenue $ 21,861 $ 19,263 $ 2,598 13 %
Cost of revenue was $21.9 million for the nine months ended September 30, 2021 ,
as compared to $19.3 million for the nine months ended September 30, 2020 . The
increase of $2.6 million , or 13%, was primarily driven by increases in payment
processing fees of $2.8 million and hosting fees of $0.5 million , consistent
with our GMV growth. There was also an increase of $0.5 million in salaries and
benefits due to higher headcount to support increased order volume. These
increases were partially offset by a decrease in depreciation expense of $1.3
million as internal-use software capitalized projects were more substantial in
fiscal years prior to 2020, and many of those assets are now fully amortized.
Gross Profit and Gross Margin
Gross profit was $53.9 million and gross margin was 71.2% for the nine months
ended September 30, 2021 , as compared to gross profit of $38.7 million and gross
margin of 66.8% for the nine months ended September 30, 2020 . The increases in
gross profit and gross margin for the nine months ended September 30, 2021 were
primarily driven by the increase in seller marketplace services revenue, cost
optimization efforts related to our workforce, enabling us to grow net revenue
and GMV at a faster pace than cost of revenue, and decreases in amortization
expense for capitalized internal-use software as a percentage of net revenue due
to improved leverage of our technology platform as GMV grows.
Operating Expenses
Sales and Marketing
Nine Months Ended September 30,
(in thousands) 2021 2020 $ Change % Change
Sales and marketing $ 35,652 $ 26,037 $ 9,615 37 %
Sales and marketing expense was $35.7 million for the nine months ended
September 30, 2021 , as compared to $26.0 million for the nine months ended
September 30, 2020 . The increase of $9.6 million , or 37%, was primarily driven
by an increase in performance-based marketing of $6.0 million in an effort to
continue to drive our growth and an increase in facility rent due to negative
rent of $2.6 million recognized in the first quarter of the fiscal year ended
December 31, 2020 related to the Surrender Agreement for our gallery space.
There was also an increase in promotional discounts and incentives of $2.5
million , partially due to the increase in GMV as well as the increased use of
promotional campaigns to grow buyers. The increases were partially offset by a
decrease in depreciation expense of $1.3 million due to accelerated depreciation
of our gallery leasehold improvements recognized in the first quarter of the
fiscal year ended December 31, 2020 in connection with the Surrender Agreement
for our gallery space and a decrease in salaries and benefits of $0.7 million
due to workforce optimization in our sales and marketing teams that occurred
during the nine months ended September 30, 2020 .
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--------------------------------------------------------------------------------Technology Development Nine Months Ended September 30, (in thousands) 2021 2020 $ Change % Change Technology development$ 13,261 $ 12,384 $ 877 7 %
Technology development expense was
Nine Months Ended September 30,
(in thousands) 2021 2020 $ Change % Change
General and administrative $ 15,229 $ 9,109 $ 6,120 67 %
General and administrative expense was $15.2 million for the nine months ended
September 30, 2021 , as compared to $9.1 million for the nine months ended
September 30, 2020 . The increase of $6.1 million , or 67%, was primarily driven
by a $1.5 million increase in professional services fees related to legal,
audit, and accounting services and a $1.4 million increase in liability
insurance. There were also increases in salaries and benefits of $1.2 million
due to higher headcount and $0.8 million in stock-based compensation expense due
to additional awards granted in March 2021 and the higher valuation of our
common stock. These expense increases were primarily related to our operations
as a public company.
Provision for Transaction Losses
Nine Months Ended September 30,
(in thousands) 2021 2020 $ Change % Change
Provision for transaction losses $ 3,786 $ 2,656 $ 1,130 43 %
Provision for transaction losses was $3.8 million for the nine months ended
September 30, 2021 , as compared to $2.7 million for the nine months ended
September 30, 2020 . The increase of $1.1 million , or 43%, was primarily driven
by the growth in our GMV.
Other Income (Expense), Net
Nine Months Ended September 30,
(in thousands) 2021 2020 $ Change % Change
Total other income (expense), net $ 1,112 $ 525 $ 587 112 %
Other income (expense), net was $1.1 million for the nine months ended
September 30, 2021 , as compared to $0.5 million for the nine months ended
September 30, 2020 . The increase of $0.6 million was primarily driven by an
increase in foreign exchange gains of $0.7 million , partially offset by a
decrease in interest income of $0.1 million due to lower interest rates on our
cash equivalents accounts.
Non-GAAP Financial Measures
We have included Adjusted EBITDA, which is a non-GAAP financial measure, because
it is a key measure used by our management team to help us to assess our
operating performance and the operating leverage in our business. We also use
this measure to analyze our financial results, establish budgets and operational
goals for managing our business, and make strategic decisions. We believe that
Adjusted EBITDA helps identify underlying trends in our business that could
otherwise be masked by the effect of the income and expenses that we exclude
from Adjusted EBITDA. Accordingly, we believe that Adjusted EBITDA provides
useful information to investors and others in understanding and evaluating our
results of operations, enhances the overall understanding of our past
performance and future prospects, and allows for greater transparency with
respect to key financial metrics used by our management in their financial and
operational decision-making. We also believe that the presentation of this
non-GAAP financial measure provides an additional tool for investors to use in
comparing our core business and results of operations over multiple periods with
other companies in our industry, many of which present similar non-GAAP
financial measures to investors, and to analyze our cash performance.
The non-GAAP financial measures presented may not be comparable to similarly
titled measures reported by other companies due to differences in the way that
these measures are calculated. The non-GAAP financial measures presented should
not be considered as the sole measure of our performance and should not be
considered in isolation from, or as a substitute for, comparable financial
measures calculated in accordance with GAAP. Further, these non-GAAP financial
measures have certain limitations in that they do not include the impact of
certain expenses that are reflected in our condensed
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consolidated statements of operations. Accordingly, these non-GAAP financial
measures should be considered as supplemental in nature, and are not intended,
and should not be construed, as a substitute for the related financial
information calculated in accordance with GAAP. These limitations of Adjusted
EBITDA include the following:
•The exclusion of certain recurring, non-cash charges, such as depreciation of
property and equipment and amortization of intangible assets. While these are
non-cash charges, we may need to replace the assets being depreciated and
amortized in the future and Adjusted EBITDA does not reflect cash requirements
for these replacements or new capital expenditure requirements;
•The exclusion of other income (expense), net, which includes interest income
related to our cash equivalents and our notes receivable from related party,
which were paid in full in December 2020 , interest expense, and realized and
unrealized gains and losses on foreign currency exchange; and
•The exclusion of stock-based compensation expense, which has been a significant
recurring expense and will continue to constitute a significant recurring
expense for the foreseeable future, as equity awards are expected to continue to
be an important component of our compensation strategy.
Because of these limitations, you should consider Adjusted EBITDA alongside
other financial performance measures, including net loss and our other GAAP
results.
We define Adjusted EBITDA as our net loss, excluding: (1) depreciation and
amortization; (2) stock-based compensation expense; (3) other income (expense),
net; and (4) provision for income taxes. The following table provides a
reconciliation of net loss, the most directly comparable GAAP financial measure,
to Adjusted EBITDA:
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Net loss $ (6,587) $ (1,372) $ (12,876) $ (10,938)
Depreciation and amortization 765 1,116 2,399 5,082
Stock-based compensation expense 789 217 1,831 632
Other income (expense), net (339) (425) (1,112) (525)
Provision for income taxes - 2 - 3
Adjusted EBITDA $ (5,372) $ (462) $ (9,758) $ (5,746)
Liquidity and Capital Resources
As of September 30, 2021 , we had cash and cash equivalents of $167.1 million and
an accumulated deficit of $260.4 million . Net cash used in operating activities
was $5.5 million in the nine months ended September 30, 2021 . We expect that
operating losses and negative cash flows from operations could continue in the
foreseeable future as we continue to invest in expansion activities. Our
principal use of cash is to fund our operations and platform development to
support our growth.
Based on our current plans, we believe our existing cash and cash equivalents
will be sufficient to fund our operations and capital expenditure requirements
through at least the next 12 months. We expect to incur substantial additional
expenditures in the near term to support our ongoing activities. Additionally,
we expect to incur additional costs as a result of operating as a public
company. While management believes that our current cash and cash equivalents
are sufficient to fund our operating expenses and capital expenditure
requirements for at least the next 12 months, we may need to borrow funds or
raise additional equity to achieve our longer-term business objectives.
Our future capital requirements will depend on many factors, including:
•the emergence of competing online marketplaces and other adverse marketing
developments;
•the timing and extent of our sales and marketing and technology development
expenditures; and
•any investments or acquisitions we may choose to pursue in the future.
A change in the outcome of any of these or other variables could significantly
impact our operating plans, and we may need additional funds to meet operational
needs and capital requirements associated with such plans. In addition, any
future borrowings may result in additional restrictions on our business and any
issuance of additional equity would result in dilution to investors. If we are
unable to raise additional capital when we need it, it could harm our business,
results of operations, and financial condition.
31
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Cash Flows
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended September 30,
(in thousands) 2021 2020
Net cash used in operating activities $ (5,518) $ (5,604)
Net cash used in investing activities (1,711) (1,461)
Net cash provided by financing activities 119,550 690
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(89) (99)
Net increase (decrease) in cash, cash equivalents, and restricted cash
$
112,232
Cash Flows from Operating Activities Net cash used in operating activities was$5.5 million for the nine months endedSeptember 30, 2021 , as compared to$5.6 million for the nine months endedSeptember 30, 2020 . The decrease in net cashed used of$0.1 million was primarily driven by a$3.2 million decrease from the increase in payables due to sellers due to a change in our seller payment policies inMarch 2021 that more closely aligns seller payments to the timing of the seller's shipment of a confirmed order, offset by a$3.4 million increase from the change in prepaid expenses primarily due to the significant increase in the premium associated with the Company's directors and officers insurance related to our IPO. Cash Flows from Investing Activities Net cash used in investing activities was$1.7 million for the nine months endedSeptember 30, 2021 , as compared to$1.5 million for the nine months endedSeptember 30, 2020 . The increase in cash used of$0.2 million was primarily due to minor increases in development of internal-use software and purchases of property and equipment. Cash Flows from Financing Activities Net cash provided by financing activities was$119.6 million for the nine months endedSeptember 30, 2021 , as compared to$0.7 million for the nine months endedSeptember 30, 2020 . The increase of$118.9 million primarily consists of the$123.0 million proceeds, net of underwriting discounts and commissions, from our initial public offering, offset by payments of deferred offering costs of$5.0 million . Additionally, proceeds from the exercise of stock options increased by$1.5 million . Off-Balance Sheet Arrangements For the periods presented, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. Contractual Obligations As ofSeptember 30, 2021 , there were no material changes in commitments under contractual obligations compared to the contractual obligations disclosed in our Prospectus. Recent Accounting Pronouncements See Note 1 "Basis of Presentation and Summary of Significant Accounting Policies" to our condensed consolidated financial statements for a description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations, or cash flows. Emerging Growth Company We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies. Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles inthe United States , or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our 32 -------------------------------------------------------------------------------- estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected. There have been no significant changes to our critical accounting policies and estimates included in our Prospectus. Item 3. Quantitative and Qualitative Disclosures about Market Risk We have operations both withinthe United States and internationally, and we are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes and foreign currency fluctuations. Information relating to quantitative and qualitative disclosures about these market risks are described below. Interest Rate Sensitivity Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level ofU.S. interest rates. We held cash and cash equivalents of$167.1 million as ofSeptember 30, 2021 . We generally hold our cash in non-interest-bearing checking accounts. Cash equivalents consist of amounts held in money market accounts. Due to the nature of our cash and cash equivalents, a hypothetical 100 basis point change in interest rates would not have a material effect on the fair value of our cash and cash equivalents. Our cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. Foreign Currency Risk Our net revenue is primarily denominated inU.S. dollars, Euros, and British pounds, depending on the currency selection of the seller. Our cost of revenue and operating expenses are primarily denominated inU.S. dollars, except for ourU.K. operations, which are denominated in British pounds. As our online marketplace continues to grow globally, our results of operations and cash flows may be subject to fluctuations due to the change in foreign exchange rates. To date, fluctuations due to changes in the Euro and British pound have not been significant, but we may experience material foreign exchange gains and losses in our statement of operations in the future. As ofSeptember 30, 2021 , a 10% increase or decrease in current exchange rates would not have a material impact on our consolidated financial statements. Credit Risk We are exposed to credit risk on accounts receivable balances. This risk is mitigated by requiring upfront payment for many of our services and due to our diverse customer base, dispersed over various geographic regions and industrial sectors. For the three and nine months endedSeptember 30, 2021 and 2020, no single customer accounted for more than 10% of our net revenue. We maintain provisions for potential credit losses and such losses to date have been within our expectations. We evaluate the solvency of our customers on an ongoing basis to determine if additional allowances for doubtful accounts need to be recorded. Inflation Risk Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial. We cannot assure you our business will not be affected in the future by inflation. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain "disclosure controls and procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, that are designed to ensure information required to be disclosed in our reports that we file or furnish pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in theSEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), as appropriate to allow for timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act"), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level. 33 -------------------------------------------------------------------------------- Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations on Effectiveness of Controls Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 34
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