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. Over our 20-year 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$221.1 million for the six months endedJune 30, 2021 from$149.4 million for the six months endedJune 30, 2020 , a growth rate of 48%. We grew our net revenue to$50.2 million for the six months endedJune 30, 2021 from$37.0 million for the six months endedJune 30, 2020 , a growth rate of 36%. In the six months endedJune 30, 2021 , we generated a net loss of$6.3 million and Adjusted EBITDA of$(4.4) million , compared to a net loss of$9.6 million and Adjusted EBITDA of$(5.3) million for the six months endedJune 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 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. 24 -------------------------------------------------------------------------------- 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 have transitioned to an almost fully remote work environment. More recently, we have adopted plans for re-opening certain offices and expect some employees to begin working in offices as soon asSeptember 2021 . However, this may be on a voluntary basis and we may 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 of these uncertainties and 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 June 30, Six Months Ended June 30, (dollars in thousands) 2021 2020 2021 2020 GMV$ 107,372 $ 80,174 $ 221,066 $ 149,443 Number of Orders 38,375 30,080 80,303 56,536 Active Buyers 68,959 49,437 68,959 49,437 Adjusted EBITDA (unaudited)$ (3,038) $ (2,041) $ (4,386) $ (5,284) 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 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. 25 -------------------------------------------------------------------------------- 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 buyerswho 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 inDecember 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. 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 buyerswho reach a certain 26 -------------------------------------------------------------------------------- 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 June 30, Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Net revenue$ 24,699 $ 19,132 $ 50,225 $ 37,019 Cost of revenue 7,314 6,082 14,346 12,945 Gross profit 17,385 13,050 35,879 24,074 Operating expenses: Sales and marketing 11,244 8,537 22,789 17,493 Technology development 4,541 4,080 8,486 8,320 General and administrative 4,743 2,933 9,150 6,186 Provision for transaction losses 1,463 877 2,516 1,740 Total operating expenses 21,991 16,427 42,941 33,739 Loss from operations (4,606) (3,377) (7,062) (9,665) Other income (expense), net: Interest income 23 22 35 155 Interest expense (4) (10) (9) (10) Other income (expense), net 456 113 747 (45) Total other income (expense), net 475 125 773 100 Net loss before income taxes (4,131) (3,252) (6,289) (9,565) Provision for income taxes - - - (1) Net loss$ (4,131) $ (3,252) $ (6,289) $ (9,566) 27
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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 June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net revenue 100 % 100 % 100 % 100 %
Cost of revenue 30 32 29 35
Gross profit 70 68 71 65
Operating expenses:
Sales and marketing 46 45 45 47
Technology development 18 21 17 22
General and administrative 19 15 18 17
Provision for transaction losses 6 5 5 5
Total operating expenses 89 86 85 91
Loss from operations (19) (18) (14) (26)
Other income (expense), net:
Interest income - - - -
Interest expense - - - -
Other income (expense), net 2 1 1 -
Total other income (expense), net 2 1 1 -
Net loss before income taxes (17) (17) (13) (26)
Income tax benefit (provision) - - - -
Net loss (17) % (17) % (13) % (26) %
Comparison of the Three Months Ended June 30, 2021 and 2020
Net Revenue
Three Months Ended June 30,
(in thousands) 2021 2020 $ Change % Change
Net revenue $ 24,699 $ 19,132 $ 5,567 29 %
Net revenue was $24.7 million for the three months ended June 30, 2021 , as
compared to $19.1 million for the three months ended June 30, 2020 . The increase
of $5.6 million , or 29%, was primarily driven by an increase in seller
marketplace services revenue of $5.3 million . The increase in seller marketplace
services revenue was primarily due to the $4.6 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 66% of our net revenue for the three months ended June 30,
2021 and 2020, respectively. Subscription fees accounted for 24% and 27% of our
net revenue for the three months ended June 30, 2021 and 2020, respectively.
Cost of Revenue
Three Months Ended June 30,
(in thousands) 2021 2020 $ Change % Change
Cost of revenue $ 7,314 $ 6,082 $ 1,232 20 %
Cost of revenue was $7.3 million for the three months ended June 30, 2021 , as
compared to $6.1 million for the three months ended June 30, 2020 . The increase
of $1.2 million , or 20%, was primarily driven by an increase in payment
processing fees of $0.9 million , consistent with our GMV growth.
Gross Profit and Gross Margin
Gross profit was $17.4 million and gross margin was 70.4% for the three months
ended June 30, 2021 , as compared to gross profit of $13.1 million and gross
margin of 68.2% for the three months ended June 30, 2020 . The increases in gross
profit and gross margin for the three months ended June 30, 2021 were primarily
driven by the increase in seller marketplace services revenue and decreases in
depreciation expense for capitalized internal-use software as a percentage of
net revenue due to improved leverage of our technology platform as GMV grows.
28
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Operating Expenses
Sales and Marketing
Three Months Ended June 30,
(in thousands) 2021 2020 $ Change % Change
Sales and marketing $ 11,244 $ 8,537 $ 2,707 32 %
Sales and marketing expense was $11.2 million for the three months ended
June 30, 2021 , as compared to $8.5 million for the three months ended June 30,
2020 . The increase of $2.7 million , or 32%, was primarily driven by an increase
in performance-based marketing of $1.9 million in an effort to continue to drive
our growth and an increase in promotional discounts and incentives of $0.5
million , partially due to the increase in GMV as well as the increased use of
promotional campaigns to grow buyers.
Technology Development
Three Months Ended June 30,
(in thousands) 2021 2020 $ Change % Change
Technology development $ 4,541 $ 4,080 $ 461 11 %
Technology development expense was $4.5 million for the three months ended
June 30, 2021 , as compared to $4.1 million for the three months ended June 30,
2020 . The increase of $0.5 million , or 11%, was primarily driven by increased
consulting fees for technology development.
General and Administrative
Three Months Ended June 30,
(in thousands) 2021 2020 $ Change % Change
General and administrative $ 4,743 $ 2,933 $ 1,810 62 %
General and administrative expense was $4.7 million for the three months ended
June 30, 2021 , as compared to $2.9 million for the three months ended June 30,
2020 . The increase of $1.8 million , or 62%, was primarily driven by an increase
in salaries and benefits of $0.4 million due to higher headcount to support our
operations as a public company and $0.3 million in stock-based compensation
expense due to additional awards granted in March 2021 and the higher valuation
of our common stock. There was also an increase of $0.3 million due to the
mark-to-market adjustment of the common stock issued in the Design Manager
acquisition, see Note 2, "Acquisitions" for further information. In addition,
there was an increase in expenses related to our operations as a public company,
including a $0.3 million increase in liability insurance.
Provision for Transaction Losses
Three Months Ended June 30,
(in thousands) 2021 2020 $ Change % Change
Provision for transaction losses $ 1,463 $ 877 $ 586 67 %
Provision for transaction losses was $1.5 million for the three months ended
June 30, 2021 , as compared to $0.9 million for the three months ended June 30,
2020 . The increase of $0.6 million , or 67%, 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 June 30,
(in thousands) 2021 2020 $ Change % Change
Total other income (expense), net $ 475 $ 125 $ 350 280 %
Other income (expense), net was$0.5 million for the three months endedJune 30, 2021 , as compared to$0.1 million for the three months endedJune 30, 2020 . The increase of$0.4 million was primarily driven by an increase in foreign exchange gains. 29 -------------------------------------------------------------------------------- Comparison of the Six Months EndedJune 30, 2021 and 2020 Net Revenue Six Months Ended June 30, (in thousands) 2021 2020 $ Change % Change Net revenue$ 50,225 $ 37,019 $ 13,206 36 % Net revenue was$50.2 million for the six months endedJune 30, 2021 , as compared to$37.0 million for the six months endedJune 30, 2020 . The increase of$13.2 million , or 36%, was primarily driven by an increase in seller marketplace services revenue of$12.8 million . The increase in seller marketplace services revenue was primarily due to the$11.8 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 64% of our net revenue for the six months endedJune 30, 2021 and 2020, respectively. Subscription fees accounted for 23% and 29% of our net revenue for the six months endedJune 30, 2021 and 2020, respectively. Cost of Revenue Six Months Ended June 30, (in thousands) 2021 2020 $ Change % Change Cost of revenue$ 14,346 $ 12,945 $ 1,401 11 % Cost of revenue was$14.3 million for the six months endedJune 30, 2021 , as compared to$12.9 million for the six months endedJune 30, 2020 . The increase of$1.4 million , or 11%, was primarily driven by an increase in payment processing fees of$2.1 million , consistent with our GMV growth. The increase was partially offset by a decrease in depreciation expense of$1.0 million as internal-use software capitalized projects were more substantial in fiscal years prior to 2020, and many of those assets are now fully depreciated. Gross Profit and Gross Margin Gross profit was$35.9 million and gross margin was 71.4% for the six months endedJune 30, 2021 , as compared to gross profit of$24.1 million and gross margin of 65.0% for the six months endedJune 30, 2020 . The increases in gross profit and gross margin for the six months endedJune 30, 2021 were primarily driven by the increase in seller marketplace services revenue, cost optimization efforts related to our workforce and shipping, enabling us to grow net revenue and GMV at a faster pace than cost of revenue, and decreases in depreciation 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 Six Months Ended June 30, (in thousands) 2021 2020 $ Change % Change Sales and marketing$ 22,789 $ 17,493 $ 5,296 30 % Sales and marketing expense was$22.8 million for the six months endedJune 30, 2021 , as compared to$17.5 million for the six months endedJune 30, 2020 . The increase of$5.3 million , or 30%, was primarily driven by an increase in performance-based marketing of$4.5 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 endedDecember 31, 2020 related to the Surrender Agreement for our gallery space. There was also an increase in promotional discounts and incentives of$0.9 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 six months endedJune 30, 2020 in connection with the Surrender Agreement for our gallery space and a decrease in salaries and benefits of$1.3 million due to workforce optimization in our sales and marketing teams that occurred during the six months endedJune 30, 2020 .Technology Development Six Months Ended June 30, (in thousands) 2021 2020 $ Change % Change Technology development$ 8,486 $ 8,320 $ 166 2 % 30
-------------------------------------------------------------------------------- Technology development expense was$8.5 million for the six months endedJune 30, 2021 , as compared to$8.3 million for the six months endedJune 30, 2020 . The increase of$0.2 million , or 2%, was primarily driven by increased consulting fees for technology development, partially offset by a decrease in salaries and benefits due to workforce optimization in our technology development teams that occurred during the six months endedJune 30, 2020 . General and Administrative Six Months Ended June 30, (in thousands) 2021 2020 $ Change % Change General and administrative$ 9,150 $ 6,186 $ 2,964 48 % General and administrative expense was$9.2 million for the six months endedJune 30, 2021 , as compared to$6.2 million for the six months endedJune 30, 2020 . The increase of$3.0 million , or 48%, was primarily driven by increases in expenses related to becoming a public company, including a$0.9 million increase in professional services fees related to audit, technical accounting, and financial reporting services and a$0.3 million increase in liability insurance. There were also increases in salaries and benefits of$0.6 million due to higher headcount to support our operations as a public company and$0.4 million in stock-based compensation expense due to additional awards granted inMarch 2021 and the higher valuation of our common stock. There was also an increase of$0.4 million due to the mark-to-market adjustment of the common stock issued in the Design Manager acquisition, see Note 2, "Acquisitions" for further information. Provision for Transaction Losses Six Months Ended June
30,
(in thousands) 2021 2020 $ Change % Change Provision for transaction losses$ 2,516 $ 1,740 $ 776 45 % Provision for transaction losses was$2.5 million for the six months endedJune 30, 2021 , as compared to$1.7 million for the six months endedJune 30, 2020 . The increase of$0.8 million , or 45%, was primarily driven by the growth in our GMV. Other Income (Expense), Net Six Months Ended June 30, (in thousands) 2021 2020 $ Change % Change Total other income (expense), net$ 773 $ 100 $
673 673 %
Other income (expense), net was$0.8 million for the six months endedJune 30, 2021 , as compared to$0.1 million for the six months endedJune 30, 2020 . The increase of$0.7 million was primarily driven by an increase in foreign exchange gains of$0.9 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 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: 31 -------------------------------------------------------------------------------- •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 inDecember 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 June 30, Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Net loss$ (4,131) $ (3,252) $ (6,289) $ (9,566) Depreciation and amortization 799 1,109 1,634 3,966 Stock-based compensation expense 769 227 1,042 415 Other income (expense), net (475) (125) (773) (100) Provision for income taxes - - - 1 Adjusted EBITDA$ (3,038) $ (2,041) $ (4,386) $ (5,284) Liquidity and Capital Resources As ofJune 30, 2021 , we had cash and cash equivalents of$176.1 million and an accumulated deficit of$253.8 million . Although we generated$1.6 million of cash flows from operations in the six months endedJune 30, 2021 , we have had negative cash flows from operations in prior periods. 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. 32 -------------------------------------------------------------------------------- Cash Flows The following table summarizes our cash flows for the periods indicated: Six Months Ended June 30, (in thousands) 2021 2020 Net cash provided by (used in) operating activities$ 1,621 $ (8,113) Net cash used in investing activities (1,086) (1,004) Net cash provided by financing activities 120,683 685
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
7 (254)
Net increase (decrease) in cash, cash equivalents, and restricted cash
$
121,225
Cash Flows from Operating Activities Net cash provided by operating activities was$1.6 million for the six months endedJune 30, 2021 , as compared to net cash used in operating activities of$8.1 million for the six months endedJune 30, 2020 . The increase of$9.7 million was primarily driven by (i) a$3.9 million increase from the change 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, (ii) the decrease in net loss of$3.3 million , and (iii) a$1.3 million increase from increases in accounts payable related to increased spending for the initial public offering and higher accruals for shipping expenses due to increases in shipping volume. Cash Flows from Investing Activities Net cash used in investing activities was$1.1 million for the six months endedJune 30, 2021 , as compared to$1.0 million for the six months endedJune 30, 2020 . The increase in cash used of$0.1 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$120.7 million for the six months endedJune 30, 2021 , as compared to$0.7 million for the six months endedJune 30, 2020 . The increase of$120.0 million primarily consisted 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$3.6 million . Additionally, proceeds from the exercise of stock options increased by$1.3 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 ofJune 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 33 -------------------------------------------------------------------------------- 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$176.1 million as ofJune 30, 2021 . We generally hold our cash in non-interest-bearing checking accounts. Cash equivalents consist of amounts invested 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 ofJune 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 six months endedJune 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. 34 -------------------------------------------------------------------------------- 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. 35
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