POSHMARK, INC. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with our consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. This discussion includes both historical information and forward-looking information based upon current expectations that involve risk, uncertainties, and assumptions. Our actual results may differ materially from management's expectations as a result of various factors, including, but not limited to, those discussed in "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
Prior Periods' Financial Statement Revisions
As described in Note 3 to the consolidated financial statements, we have revised previously issued financial statements to correct immaterial misstatements. Accordingly, this Management's Discussion and Analysis of Financial Condition and Results of Operations reflects the effects of the revisions.
Overview
We are a social marketplace that combines the human connection of a physical
shopping experience with the scale, reach, ease, and selection benefits of
eCommerce. In doing so, we bring the power of community to buying and selling
online. We created
We empower people to sell a few items or to become successful entrepreneurs by
providing them with end-to-end seller tools. We refer to this as "making selling
a superpower." Our comprehensive infrastructure makes it easy for sellers to
build their businesses with seamless listing, merchandising, promotion, pricing,
and shipping. Sellers use content, inventory selection, and social interactions
to monetize their listings and drive growth. Our transparent fee structure
aligns our success with the success of our sellers. Our fee is 20% of the final
price for sales
Our social features make the discovery and purchase process simple and enticing for buyers, fostering high engagement and retention. The engagement of our community has fueled strong growth in our business, supported by attractive unit economics and efficient user acquisition. We enable buyers to discover, connect, and curate their network and news feed with that of other users who share similar styles and personal preferences, creating a fun shopping experience. Our marketplace is vast, with sellers listing millions of secondhand and new items across multiple categories. We use data-driven personalization to customize each user's feed to feature the most relevant listings and make it easy to quickly search for and find products of interest. Furthermore, sellers list a variety of items across all price points, with the added benefit of being able to negotiate offers directly with buyers seeking to optimize their budget, allowing sellers to manage their listings to achieve their individual objectives. Because our marketplace features a massive selection of secondhand items, buyers are also able to support their personal style while minimizing their environmental impact.
As of
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and Adjusted EBITDA of
Key Operating and Non-GAAP Financial Metrics
We collect and analyze operating and financial data to evaluate the health of our community, allocate our resources (such as capital, time, and technology investments), and assess the performance of our business. In addition to revenue, net (loss) income, and other results under GAAP, the key operating and financial metrics we use are GMV, Active Buyers, and Adjusted EBITDA.
Gross Merchandise Value. Our gross merchandise value, or GMV, is the total dollar value of transactions on our platform in a given period, prior to returns and cancellations, and excluding shipping and sales taxes. GMV is a measure of the total economic activity generated by our marketplace, and an indicator of the scale and growth of our marketplace and the health of our marketplace ecosystem.
GMV
($ in millions)
[[Image Removed: img221579221_1.jpg]]
Our GMV has grown at a 31% compound annual growth rate, or CAGR, from
Active Buyers. Active Buyers are unique users who have purchased at least one item on our platform in the trailing 12 months preceding the measurement date, regardless of returns and cancellations. An Active Buyer could have more than one account if they were to use a separate unique email address to set up each account. The number of Active Buyers is a key driver of GMV and revenue, as well as a measure of the scale and growth of our buyer community. We believe it is also an important indicator of our ability to convert user activity on our marketplace into transactions. The number of Active Buyers has increased steadily every quarter as we attract and retain users. Active Buyers can be new users to our marketplace who make a purchase, existing users who convert into buyers for the first time as our marketplace strengthens with more sellers and items, or repeat buyers.
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Active Buyers
(in thousands)
[[Image Removed: img221579221_2.jpg]]
5,713 6,032 6,231 5,374 4,952 4,550 4,190 3,734 3,345 2,953 2,657 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 Active Buyers measured as of the last day of the quarter presented
Active Buyers measured as of the last day of the quarter presented
Adjusted EBITDA. We define Adjusted EBITDA as net (loss) income attributable to common stockholders, excluding depreciation and amortization, stock-based compensation expense, interest income, other expense, net, change in accrued sales tax, provision (benefit) for income taxes, and undistributed earnings attributable to participating securities. Adjusted EBITDA is a key performance measure used by our management and board of directors to assess our operating performance and the operating leverage in 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 in 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 its financial and operational decision-making. See "-Reconciliation of Non-GAAP Financial Measures" for more information and for a reconciliation of net (loss) income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA.
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Adjusted EBITDA
($ in millions)
[[Image Removed: img221579221_3.jpg]]
Key Factors Affecting Our Performance
Growth and Retention of Users. We focus on attracting new users and retaining
existing users. New users and the social and transactional activities they
contribute help keep existing users more active, increasing their lifetime value
over time. Users engage in many ways on our social marketplace: they connect,
they browse, they buy, and they sell. The positive relationship between new
users and existing users illustrates the network effects of our marketplace. As
of
User Engagement. The engagement of our community has fueled strong growth in our business, supported by attractive unit economics and efficient user acquisition. We believe that cultivating a robust network of users over the longer-term is crucial to bolstering broader community engagement, growing social interactions, and increasing GMV. Users can engage on our marketplace in a variety of activities that range from shopping and social interactions to buying and selling. The continuous increase in users, social interactions, and listings has led to steady activations of buyers and sellers across cohorts, resulting in increasing GMV for these cohorts.
Cumulative % Sellers Activated as Buyers from Year 1 to Year 5 31% of First-Time Sellers Also Became Buyers in Year 1 40% 42% 44% 37% 31% Year of Seller's Year 2
Year 3 Year 4 Year 5 First Sale
Investments in Growing Our
Investments in Platform Innovation. We invest in both the people and technology behind our platform. We also intend to continue to make significant investments in the technology and infrastructure of our platform to attract and retain buyers and sellers, expand the capabilities and scope of our platform, and enhance the user experience. We expect to continue to make significant investments to attract and retain employees, particularly engineers, data scientists, designers, product management, and operations personnel. All functions are important, and we intend to invest in our people to help us drive additional efficiencies across our marketplace. In addition, we may invest in new
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and existing businesses that may lower our margins temporarily but may enhance our platform capabilities, deliver revenue growth, and enable us to achieve and maintain long-term profitability.
International Expansion. We began operations in
Impact of the COVID-19 Pandemic. The COVID-19 pandemic has had a variety of
impacts on our business to date and will continue to impact our business in ways
that remain unpredictable. In the initial weeks of the pandemic in
As a result of the COVID-19 pandemic, the lives of our users, buyers, and
sellers have been disrupted as many people have been required to stay home and
many have experienced significant economic and employment disruption. As many
people have shifted to a work-from-home environment, there has been less of a
need for some to purchase apparel. In some cases, buyers also have a decreased
ability to spend on our marketplace due to economic concerns and pressures. In
other cases, physical stores have been viewed as potentially dangerous, driving
demand to online alternatives such as
Our headquarters and offices remained temporarily closed as of
Seasonality. Our business is seasonal in nature as it is affected by the cyclicality of the consumer as well as broader market conditions. Historically, we have often seen both stronger growth in the number of Active Users and Active Buyers and in engagement during the first quarter of the year. In addition, we have seen higher GMV in the fourth quarter of the year, followed by the third quarter, which we believe is due in part to the higher price points of seasonal apparel and footwear and the holiday season. We believe the recent growth in our business, as well as the recent effects of sales taxes and the COVID-19 pandemic, have partially masked these trends to date, and we expect the impact of seasonality to be more pronounced in our future quarterly results as our business matures.
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GAAP and Non-GAAP Financial Measures
We also review the following GAAP and non-GAAP financial measures to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
Year Ended December 31,
2021 2020 2019
(in thousands)
Net (Loss) Income $ (98,329 ) $ 18,846 $ (47,724 )
Net (Loss) Income Margin(1) (30 )% 7 % (23 )%
Adjusted EBITDA $ 7,283 $ 36,044 $ (36,092 )
Adjusted EBITDA Margin(2) 2 % 14 % (18 )%
(1)Net (Loss) Income Margin is calculated by dividing Net (Loss) Income for a period by revenue for the same period.
(2)
Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA for a period by revenue for the same period.
Adjusted EBITDA
Adjusted EBITDA is a key performance measure that we use to assess our operating performance and the operating leverage in our business. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes.
We calculate Adjusted EBITDA as net (loss) income attributable to common stockholders, adjusted to exclude:
•
depreciation and amortization;
•
stock-based compensation expense;
• interest income; • other expense, net; • change in accrued sales tax; •
(benefit) provision for income taxes; and
•
undistributed earnings attributable to participating securities.
Adjusted EBITDA decreased
Adjusted EBITDA increased
Reconciliation of Non-GAAP Financial Measures
We use Adjusted EBITDA and Adjusted EBITDA Margin in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, and to evaluate the effectiveness of our business strategies. Our definition may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish similar metrics. Furthermore, this metric has certain limitations in that it does not include the impact of certain expenses that are reflected in our consolidated statements of operations that are necessary to run our business. Thus, our Adjusted EBITDA and Adjusted EBITDA Margin should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.
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We compensate for these limitations by providing a reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin to the related GAAP financial measure, net (loss) income attributable to common stockholders. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure, and to view Adjusted EBITDA and Adjusted EBITDA Margin in conjunction with their respective related GAAP financial measures.
The following table provides a reconciliation of net (loss) income to Adjusted
EBITDA (in thousands):
Year Ended December 31,
2021 2020 2019
(in thousands)Net (loss) income attributable to
common stockholders$ (98,329 ) $ 6,070 $ (47,724 ) Adjusted to exclude the following: Depreciation and amortization 3,469 2,894 2,056 Stock-based compensation 48,239 7,959 9,687 Interest income (224 ) (569 ) (1,677 ) Other expense, net 54,262 6,467 366 Change in accrued sales taxes(1) - - 1,026 (Benefit) provision for income taxes (134 ) 447 174 Undistributed earnings attributable to participating securities - 12,776 - Adjusted EBITDA$ 7,283 $ 36,044 $ (36,092 ) (1)
Reflects our estimated liability for the non-collection and non-remittance of
sales taxes which became required beginning in 2018. We began collecting and
remitting sales tax in
Components of Results of Operations
Net Revenue
We generate revenue from sellers for fees earned when they sell items they have
listed on our social marketplace to buyers (20% of the final price for sales
Costs and Expenses
Cost of Net Revenue. Cost of net revenue primarily consists of costs associated with credit card processing, transaction fees for order related payments, and hosting expenses associated with operating our platform. Cost of net revenue does not include depreciation and amortization.
We expect cost of net revenue to increase in absolute dollars in future periods and to vary from period to period as a percentage of net revenue for the foreseeable future as we grow our platform by increasing Active Buyers and generating higher GMV.
Operations and Support. Operations and support expense primarily consists of personnel-related compensation costs, including stock-based compensation, incurred in providing support to users of our platform including authentication services that we provide. This expense also includes postage and shipping costs that we incur primarily from order losses and cancellations, and credits and incentives issued to buyers for customer satisfaction purposes in excess of shipping facilitation revenue.
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We expect that operations and support expenses will increase in absolute dollars for the foreseeable future as we continue to grow our operations and hire additional employees to support the scaling of our business. To the extent we are successful in becoming more efficient in supporting our users, we would expect operations and support expenses as a percentage of revenue to decrease over the long term.
Research and Development. Research and development expense consist primarily of compensation expenses for engineering, product development, and design employees, including stock-based compensation, expenses associated with ongoing improvements to and maintenance and testing of our platform offerings including website, mobile apps, and other products, and other research and development programs. Research and development expenses are expensed as incurred. We capitalize certain costs associated with website development and software for internal use.
We expect that research and development expenses will increase in absolute dollars and vary from period to period as a percentage of revenue for the foreseeable future as we continue to invest in research and development activities relating to ongoing improvements to and maintenance and testing of our platform offerings including website, mobile apps, and other products, and other research and development programs, including the hiring of engineering, product development, and design employees to support these efforts.
Marketing. Marketing expense primarily consists of expenses associated with
personnel-related compensation costs, including stock-based compensation, and
costs related to user acquisition, public relations, marketing events such as
Posh Parties, and business development. User acquisition costs primarily consist
of costs associated with acquiring new users by spend on advertising channels
such as television, Google, Facebook, Instagram,
We expect that marketing expenses will increase in absolute dollars and vary from period to period as a percentage of revenue for the foreseeable future as we plan to continue to invest in marketing to grow the number of Active Users and Active Buyers and increase our brand awareness. The trend and timing of our brand marketing expenses will depend in part on the timing of marketing campaigns.
General and Administrative. General and administrative expense consists primarily of employee related costs including stock-based compensation for those employees associated with administrative services such as legal, human resources, information technology, accounting, and finance, and all related costs associated with our facilities, such as rent and office administration. These expenses also include certain third-party consulting services, facilities, IT services, meals and other corporate costs not allocated to other expense categories.
We expect that general and administrative expenses will increase in absolute
dollars and vary from period to period as a percentage of revenue for the
foreseeable future as we continue to invest in personnel, corporate
infrastructure, and systems required to support our strategic initiatives, the
growth of our business, and our compliance and reporting obligations, and
controls to enable our internal support functions to scale with the growth of
our business. We expect to incur additional expenses as a result of operating as
a public company, including expenses to comply with the rules and regulations
applicable to companies listed on a national securities exchange, expenses
related to compliance and reporting obligations pursuant to the rules and
regulations of the
Depreciation and Amortization. Depreciation and amortization expense primarily consists of depreciation of computer equipment and software, furniture and fixtures, leasehold improvements, website development and software for internal use and amortization of intangible assets.
We expect that depreciation and amortization expense will increase in absolute dollars as we continue to build out our network infrastructure, recognize amortization expense from acquired intangible assets resulting from acquisitions and establish new office locations to support our growth.
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Interest Income
Interest income primarily relates to amounts earned on our cash and cash equivalents and marketable securities.
Other Expense, Net
Other expense, net mainly relates to changes in fair value of the Convertible Notes, redeemable convertible preferred stock warrants and contingent consideration relating to acquisition, and foreign exchange remeasurement gains and losses recorded from consolidating our foreign subsidiaries at each period end.
Provision (Benefit) for Income Taxes
Our provision (benefit) for income taxes consists primarily of foreign taxes and
state minimum taxes in
We expect to maintain this valuation allowance until it becomes more likely than
not that the benefit of our federal and state deferred tax assets will be
realized by way of expected future taxable income in
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Results of Operations
The results of operations presented below should be reviewed in conjunction with our consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K.
The following tables set forth our consolidated results of operations data and such data as a percentage of net revenue for the periods presented:
Year Ended December 31,
2021 2020 (1) 2019 (1)
(in thousands)
Net revenue $ 326,009 $ 261,601 $ 204,983
Costs and expenses (2):
Cost of net revenue, exclusive of
depreciation
and amortization 51,858 43,507 34,142
Operations and support 56,719 39,759 29,879
Research and development 58,705 30,025 25,033
Marketing 142,689 92,439 132,228
General and administrative 56,994 27,786 30,506
Depreciation and amortization 3,469 2,894 2,056
Total costs and expenses 370,434 236,410 253,844
(Loss) income from operations (44,425 ) 25,191 (48,861 )
Interest income 224 569 1,677
Other expense, net
Change in fair value of redeemable
convertible
preferred stock warrant liability (2,816 ) (2,273 ) (475 )
Change in fair value of convertible notes (49,481 ) (3,801 ) -
Loss on extinguishment of the convertible
notes (1,620 ) - -
Change in fair value of contingent
consideration (83 ) - -
Other, net (262 ) (393 ) 109
(54,262 ) (6,467 ) (366 )
(Loss) income before provision (benefit) for
income taxes (98,463 ) 19,293 (47,550 ) (Benefit) provision for income taxes (134 ) 447 174 Net (loss) income$ (98,329 ) $ 18,846 $ (47,724 ) Undistributed earnings attributable to participating securities - (12,776 ) -
Net (loss) income attributable to common
stockholders$ (98,329 ) $ 6,070 $ (47,724 ) (1)
Includes the impact of revisions of the consolidated financial statements to correct for errors as noted above.
(2)
Costs and expenses include stock-based compensation expense as follows:
Year Ended December 31,
2021 2020 2019
(in thousands)
Operations and support $ 4,791 $ 686 $ 689
Research and development 21,029 2,571 3,017
Marketing 6,587 1,321 1,306
General and administrative 15,832 3,381 4,675
Total $ 48,239 $ 7,959 $ 9,687
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Year Ended December 31,
2021 2020 (1) 2019 (1)
Net revenue 100 % 100 % 100 %
Costs and expenses:
Cost of net revenue, exclusive of
depreciation and amortization 16 17 17
Operations and support 17 15 14
Research and development 18 12 12
Marketing 44 35 65
General and administrative 18 11 15
Depreciation and amortization 1 1 1
Total costs and expenses 114 91 124
(Loss) income from operations (14 ) 9 (24 )
Interest income - - 1
Other expense, net
Change in fair value of redeemable
convertible preferred stock warrant
liability (1 ) (1 ) -
Change in fair value of convertible
notes (15 ) (1 ) -
Loss on extinguishment of the
convertible notes - - -
Change in fair value of contingent
consideration - - -
Other, net - - -
(16 ) (2 ) -
(Loss) income before (benefit) provision
for
income taxes (30 ) 7 (23 )
(Benefit) provision for income taxes - - -
Net (loss) income (30 )% 7 % (23 )%
Undistributed earnings attributable to
participating securities - (5 ) -
Net (loss) income attributable to common
stockholders (30 )% 2 % (23 )% (1)
Includes the impact of revisions of the consolidated financial statements to correct for errors as noted above.
Comparison of Years Ended
Net Revenue
Year Ended December 31, Change
2021 2020 $ %
(dollars in thousands)
Net revenue $ 326,009 $ 261,601 $ 64,408 25 %
Net revenue increased
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Cost of Net Revenue
Year Ended December 31, Change
2021 2020 $ %
(dollars in thousands)
Cost of net revenue $ 51,858 $ 43,507 $ 8,351 19 %
Cost of net revenue increased
As a percent of revenue, cost of net revenue decreased to 16% from 17% during
the year ended
Operations and Support
Year Ended December 31, Change
2021 2020 $ %
(dollars in thousands)
Operations and support $ 56,719 $ 39,759 $ 16,960 43 %
Operations and support expense increased
Research and Development
Year Ended December 31, Change
2021 2020 $ %
(dollars in thousands)
Research and development $ 58,705 $ 30,025 $ 28,680 96 %
Research and development expense increased
Marketing
Year Ended December 31, Change
2021 2020 $ %
(dollars in thousands)
Marketing $ 142,689 $ 92,439 $ 50,250 54 %
Marketing expense increased
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General and Administrative
Year Ended December 31, Change
2021 2020 $ %
(dollars in thousands)
General and administrative $ 56,994 $ 27,786 $ 29,208 105 %
General and administrative expense increased
Depreciation and Amortization
Year Ended December 31, Change
2021 2020 $ %
(dollars in thousands)
Depreciation and amortization
The increase in depreciation and amortization expense is primarily driven by an increase in the capitalization of website and software development and amortization of intangible assets.
Interest Income
Year Ended December 31, Change
2021 2020 $ %
(dollars in thousands)
Interest income $ 224 $ 569 $ (345 ) (61 )%
The decrease in interest income is due to the lower balance of our marketable securities and lower interest rates earned from our marketable securities.
Other Expense, Net
Year Ended December 31, Change
2021 2020 $ %
(dollars in thousands)
Other expenses, net $ (54,262 ) $ (6,467 ) $ (47,795 ) 739 %
Other expense, net increased
(Benefit) Provision for Income Taxes
Year Ended December 31, Change
2021 2020 $ %
(dollars in thousands)
(Benefit) provision for income taxes
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The change in our (benefit) provision for income taxes is primarily attributable to pre-tax foreign earnings and changes in state income tax.
Comparison of Years Ended
Net Revenue
Year Ended December 31, Change
2020 2019 $ %
(dollars in thousands)
Net revenue $ 261,601 $ 204,983 $ 56,618 28 %
Net revenue increased
Cost of Net Revenue
Year Ended December 31, Change
2020 2019 $ %
(dollars in thousands)
Cost of net revenue $ 43,507 $ 34,142 $ 9,365 27 %
Cost of net revenue increased
Operations and Support
Year Ended December 31, Change
2020 2019 $ %
(dollars in thousands)
Operations and support $ 39,759 $ 29,879 $ 9,880 33 %
Operations and support expense increased
Research and Development
Year Ended December 31, Change
2020 2019 $ %
(dollars in thousands)
Research and development $ 30,025 $ 25,033 $ 4,992 20 %
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Research and development expense increased
Marketing
Year Ended December 31, Change
2020 2019 $ %
(dollars in thousands)
Marketing $ 92,439 $ 132,228 $ (39,789 ) (30 )%
Marketing expense decreased
General and Administrative
Year Ended December 31, Change
2020 2019 $ %
(dollars in thousands)
General and administrative $ 27,786 $ 30,506 $ (2,720 ) (9 )%
General and administrative expense decreased
Depreciation and Amortization
Year Ended December 31, Change
2020 2019 $ %
(dollars in thousands)
Depreciation and amortization
Depreciation and amortization expense increased$0.8 million for the year endedDecember 31, 2020 compared to the prior year. The increase was primarily due to an increase in leasehold improvements amortization associated with our new headquarters. Interest Income Year Ended December 31, Change 2020 2019 $ % (dollars in thousands) Interest income$ 569 $ 1,677 $ (1,108 ) (66 )%
The decrease in interest income is due to the lower balance of our marketable securities and lower interest rates earned from our marketable securities.
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Other Expense, Net
Year Ended December 31, Change
2020 2019 $ %
(dollars in thousands)
Other expenses, net $ (6,467 ) $ (366 ) $ (6,101 ) 1,667 %
The increase in other expense, net is primarily due to an increase in fair value
of the Convertible Notes and the associated write-off of debt issuance costs
related to the Convertible Notes for the year ended
Provision for Income Taxes
Year Ended December 31, Change
2020 2019 $ %
(dollars in thousands)
Provision for income taxes $ 447 $ 174 273 157 %
The increase in our provision for income taxes is primarily due to state income taxes.
Liquidity and Capital Resources
As of
As of
Since our inception, we have most often generated negative cash flows from
operations and as of
Consolidated Statements of Cash Flows Data
Year Ended December 31,
2021 2020 2019
(in thousands)
Net cash provided by (used in):
Operating activities $ 28,572 $ 86,057 $ (5,926 )
Investing activities 17,524 37,871 (5,260 )
Financing activities 296,462 50,248 889
Effect of foreign exchange rate changes on
cash and
cash equivalents 78 73 (34 )
Net increase (decrease) in cash and cash
equivalents $ 342,636 $ 174,249 $ (10,331 ) Cash Flows from Operating Activities
For the year ended
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in net operating assets and liabilities of
For the year ended
For the year ended
Cash Flows from Investing Activities
For the year ended
For the year ended
For the year ended
Cash Flows from Financing Activities
For the year ended
For the year ended
For the year ended
Concentration of Credit Risk
We are subject to concentration of credit risk principally from cash and cash
equivalents. We reduce credit risk by placing our cash and cash equivalents with
major financial institutions with high credit ratings. No customer accounted for
10% or more of our net revenue for the years ended
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Contractual Obligations and Commitments
Our principal commitments consist of rental payments under our non-cancelable operating leases and purchase commitments which expire between 2022 and 2025. The following table summarizes our contractual commitments as ofDecember 31, 2021 (in thousands): Payments Due by Period Less than 1 1-3 3-5 More than Total Year Years Years 5 Years Operating lease commitments$ 15,021 $ 6,045 $ 8,935 $ 41 $ - Purchase commitments(1) 3,380 3,380 - - - Total$ 18,401 $ 9,425 $ 8,935 $ 41 $ - (1)
Relates to non-cancelable commitments for network and cloud services in the
ordinary course of business with varying expiration terms through
Convertible Note Financing
In
Critical Accounting Policies and Estimates
Our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.
We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information, see Note 2 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Revenue Recognition
We recognize revenue when we satisfy our performance obligations. We consider both sellers and buyers to be customers. We generate revenue from sellers for fees earned when sellers sell items they have listed on our social marketplace to buyers. We generate revenue from buyers for fees earned when they purchase shipping labels used for delivery of the items purchased. We periodically reassess our revenue recognition policies as new offerings become material and business models evolve. We recognize revenue net of estimated returns and cancellations based on our historical experience. Transactions may be cancelled by a buyer or seller in certain circumstances. In 2021, 2020 and 2019, cancellations were 15%, 14% and 12%, respectively, of GMV, including returns which were 2%, 2% and 2%, respectively, of GMV.
We enter into the TOS with buyers and sellers to use our technology platform. The TOS governs these parties' use of the platform, including payment terms for the buyer and the seller and services to be provided by us. Under the TOS, upon the buyer's purchase from the seller, the buyer, the seller and we are committed to perform and enforceable rights and obligations are established.
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Sellers
Sellers are able to list their items for sale on our social marketplace at no
charge. We charge a fee upon the sale of items listed on our social marketplace.
The fee is 20% of the final price for sales
We evaluate the presentation of revenue from sellers on a gross or net basis based on whether we act as a principal or an agent in the sale of listed items between sellers and buyers. We do not control the listed items at any time prior to the transfer of such items to buyers. We act as an agent in facilitating the sale of items from sellers to buyers by allowing them to connect and interact on our social marketplace. We are not primarily responsible for fulfillment of purchased items, do not have inventory risk, and do not set the price for the listed item. As such, we report revenue from sellers on a net basis to reflect the fees received from sellers.
Revenue is recognized at the point in time we satisfy the performance obligation to facilitate the sale of a listed item. This occurs when both the seller and the buyer agree to a sale and the payment is processed on our platform. For luxury items authenticated by us, sale facilitation revenue is recognized when we authenticate and arrange for shipment of the items to the buyer, as this is the point in time a sale is finalized and we have satisfied our performance obligation.
Buyers
When a sale is finalized, the buyer purchases a shipping label from the
We evaluate the presentation of revenue from buyers on a gross or net basis based on whether we act as a principal or an agent in shipment of listed items between sellers and buyers. We do not control the shipping service, which is provided by the shipping provider. We are not primarily responsible for shipping, and we do not assume any of the risks for the items shipped such as risk of damage or loss during shipping. We act as an agent of the buyer in facilitating the shipping. As such, we report revenue on a net basis which is the difference between the shipping fee paid by the buyer and the cost of shipping labels paid to the shipping provider.
Revenue from shipping facilitation is recognized upon transfer of the shipping label to the seller on behalf of the buyer.
We estimate chargebacks based on historical collectability rates. We record a reserve for chargebacks in accrued expenses and other current liabilities with an offset to general and administrative expenses.
Sales tax and other amounts collected on behalf of third parties are excluded from the transaction price.
Incentives
Under the referral program, an existing user (the referrer) earns an incentive (Posh Credit) when a new user (the referee) first buys an item on our platform. Posh Credits are not redeemable for cash and can only be applied for purchases on our platform. We record the incentive to the referrer, which is in exchange for a distinct referral service, as a liability at the time the incentive is earned by the referrer with a corresponding charge recorded to marketing expense in the consolidated statements of operations.
Credits and incentives issued to existing users for referring new users are contingent upon a new user completing an initial purchase on our platform and represent an incremental cost of obtaining a contract with a customer. We expense such new user referral incentives as marketing expense when the referral incentives are earned because the amortization period would be one year or less.
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We have several buyer incentive programs, which are offered to encourage buyer activity on our platform. These promotions reduce the fees we charge for shipping facilitation. Accordingly, we record these incentives as a reduction to revenue from the buyer when the incentive is used by the buyer. Amounts in excess of cumulative shipping facilitation revenue earned are presented as marketing expense in our consolidated statements of operations.
We participate in certain joint incentive programs with sellers that are recorded as a reduction to the fees received from the seller.
We may elect to issue incentives to buyers for customer satisfaction purposes or for refunds. These incentives (which are in the form of Posh Credits) can be applied towards future orders and, thereby, results in a reduced fee earned by us from the buyer, or redeemable credits that can also be redeemed for cash. In cases where the seller performed as required by our TOS, we reduce shipping facilitation revenue earned on the transaction and any cumulative revenue earned from the same buyer for Posh Credits and redeemable credits granted. If the amount of the incentive exceeds cumulative revenues from the buyer, then the excess is presented as operations and support expense in the consolidated statements of operations. If refunds are provided in a case where the seller did not perform and the amount cannot be recovered from the seller, the refund is presented as a reduction of revenue.
Stock-Based Compensation
We grant stock-based awards consisting of stock options and RSUs to employees and consultants.
RSUs granted prior to the occurrence of a Qualified IPO vest upon the
satisfaction of both time-based service and performance-based conditions. The
time-based vesting condition for the majority of these awards is satisfied over
four years. The performance-based vesting condition is satisfied upon the
occurrence of a qualifying event, which is generally defined as a change in
control transaction or the effective date of a Qualified IPO. Through
Stock-based compensation expense for employee stock options is measured based on the grant-date fair value of the awards and is recognized in the consolidated statements of operations on a straight-line basis over the requisite service period, net of forfeitures. Forfeitures are recognized as they occur.
We estimate the fair value of stock options granted to employees and directors
using the Black-Scholes option-pricing model. The Black-Scholes model considers
several variables and assumptions in estimating the fair value of stock-based
awards. These variables include per share fair value of the underlying common
stock, exercise price, expected term, risk-free interest rate, expected annual
dividend yield, and expected stock price volatility over the expected term. For
all stock options granted, we calculated the expected term using the simplified
method. We have no publicly available stock information. Therefore, we have used
the historical volatility of the stock price of similar publicly traded peer
companies to estimate volatility of our equity awards granted. The risk-free
interest rate is based on the yield available on
Prior to our initial public offering, the fair value of the shares of common stock underlying the stock options was determined by our board of directors, with assistance by management and using contemporaneous third-party valuations, as there was no public market for the common stock. Following the closing of our initial public offering, the fair value per share of our common stock for purposes of determining stock-based compensation is the closing price of our common stock as reported on the applicable grant date.
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The following table summarizes the weighted-average assumptions used in estimating the fair value of stock options granted during each of the periods presented:
Year Ended December 31,
2021 2020 2019
Expected dividend yield - - -
Expected volatility 52.0% 51.8% 39.7% - 46.2% Risk-free interest rate 0.5% 0.5% 1.7% - 2.6% Expected term (in years) 5.5 6.1 5.4 - 6.1
Internal Use Software
We capitalize certain costs associated with website development and software for internal use. The costs incurred in the preliminary stages of website and software development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental and deemed by management to be significant, are capitalized and amortized on a straight-line basis over the estimated life of the asset. Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the website or software that result in added functionality which are capitalized and amortized over their estimated useful lives. Capitalized costs are included in property and equipment, net on our consolidated balance sheets.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act 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 we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Recent Accounting Pronouncements
See Note 2 "Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
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