THE REALREAL, INC. The following discussion of our financial condition and results of operations should be read together with our condensed financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes and our Annual Report on Form 10-K filed with theSecurities and Exchange Commission onFebruary 28, 2022 . The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. See the discussion under "Note Regarding Forward-Looking Statements" elsewhere in this Quarterly Report on Form 10-Q for more information. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and particularly in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full calendar year or any other period. Overview We are the world's largest online marketplace for the resale of authenticated luxury goods. We are revolutionizing luxury resale by providing an end-to-end service that unlocks supply from consignors and creates a trusted, curated online marketplace for buyers globally. Since our inception in 2011, we have cultivated a loyal and engaged consignor and buyer base through our investments in our technology platform, logistics infrastructure and people. We offer a wide selection of authenticated, primarily pre-owned luxury goods on our online marketplace bearing the brands of thousands of luxury and premium designers. We offer products across multiple categories including women's and men's fashion, fine jewelry and watches, and home and art. We have built a vibrant online marketplace that we believe expands the overall luxury market, promotes the recirculation of luxury goods and contributes to a more sustainable world. We have transformed the luxury consignment experience by removing the friction and pain points inherent in the traditional consignment model. For consignors, we offer concierge at-home consultation and pickup, subject to safety requirements related to the COVID-19 pandemic, and meetings with consignors via online face-to-face platforms, or virtual consultations. Consignors may also drop off items at our luxury consignment offices. Our larger footprint flagship retail stores, or Flagship stores, and smaller footprint neighborhood retail stores, or Neighborhood stores, provide an alternative location to drop off consigned items and an opportunity to interact with our experts. Consignors may also utilize our complimentary shipping directly to our authentication centers. We leverage our proprietary transactional database and market insights from approximately 28.8 million item sales since inception to deliver optimal pricing and rapid sell-through. For buyers, we offer highly coveted and exclusive authenticated pre-owned luxury goods at attractive values, as well as a high-quality experience befitting the products we offer. Our online marketplace is powered by our proprietary technology platform, including consumer facing applications and purpose-built software that supports our complex, single-SKU inventory management system.
The substantial majority of our revenue is generated by consignment sales. We also generate revenue from other services and direct sales.
•Consignment revenue. When we sell goods through our online marketplace or retail stores on behalf of our consignors, we retain a percentage of the proceeds, which we refer to as our take rate. Take rates vary depending on the total value of goods sold through our online marketplace on behalf of a particular consignor as well as the category and price point of the items. In the three months endedSeptember 30, 2022 and 2021, our overall take rate on consigned goods was 36.0% and 34.9%, respectively. The increase in our take rate was due to the larger sales mix of higher take rate categories such as women's apparel. Additionally, we earn revenue from our subscription program, First Look, in which we offer buyers early access to the items we sell in exchange for a monthly fee. •Direct revenue. When we accept out of policy returns from buyers, or when we make direct purchases from businesses and consignors, we take ownership of goods and retain 100% of the proceeds when the goods subsequently sell through our online marketplace or retail stores. •Shipping services revenue. When we deliver purchased items to our buyers, we charge shipping fees to buyers for the outbound shipping and handling services. We also generate shipping services revenue from the shipping fees for consigned products returned by our buyers to us within policy. Shipping services revenue excludes the effect of buyer incentives and sales tax. We generate revenue from orders processed through our website, mobile app and 19 retail locations. Our omni-channel experience enables buyers to purchase anytime and anywhere. We have a global base of more than 30.2 million members as ofSeptember 30, 2022 . We count as a member any user who has registered an email address on our website or downloaded our mobile app, thereby agreeing to our terms of service. 28
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ThroughSeptember 30, 2022 , we have cumulatively paid more than$3.0 billion in commissions to our consignors. Our GMV increased by 20% to$440.7 million from$367.9 million in the three months endedSeptember 30, 2022 and 2021, respectively. Our GMV increased by 27% to$1,323.0 million from$1,045.3 million in the nine months endedSeptember 30, 2022 and 2021, respectively. Additionally, NMV increased by 19% to$325.1 million from$273.4 million in the three months endedSeptember 30, 2022 and 2021 and by 25% to$968.1 million from$774.1 million in the nine months endedSeptember 30, 2022 and 2021 due to GMV growth. Our total revenue increased by 20% to$142.7 million from$118.8 million in the three months endedSeptember 30, 2022 and 2021, respectively, and increased by 38% to$443.8 million from$322.6 million in the nine months endedSeptember 30, 2022 and 2021, respectively. In the three months endedSeptember 30, 2022 and 2021, our gross profit was$85.8 million and$71.1 million , respectively, representing an increase of 21%. In the nine months endedSeptember 30, 2022 and 2021, our gross profit was$252.1 million and$192.9 million , respectively, representing an increase of 31%. See "-Impact of COVID-19 on our Business" below.
Impact of COVID-19 and Geopolitical Instability on Our Business
The ongoing impact of the COVID-19 pandemic continues to affect our business and results of operations, although to a lesser extent than the prior years. Throughout the pandemic, our top priority has been to protect the health and safety of our employees and our customers. We have experienced difficulty hiring employees in our authentication centers due to labor shortages affecting retail businesses and increased competition for e-commerce fulfillment and authentication center employees. In addition, geopolitical instability has and may in the future impact the macroeconomic environment we operate in. Macroeconomic uncertainty and inflationary pressure have and may in the future drive lower demand for the end customer and increase costs of labor and shipping.
Other Factors Affecting Our Performance
Other key business and marketplace factors, independent of the health and economic impact of the COVID-19 pandemic and the impact of geopolitical instability, impact our business. To analyze our business performance, determine financial forecasts and help develop long-term strategic plans, we focus on the factors described below. While each of these factors presents significant opportunity for our business, collectively, they also pose important challenges that we must successfully address in order to sustain our growth, improve our operating results and achieve and maintain our profitability.
Consignors and Buyers
Consignor growth and retention. We grow our sales by increasing the supply of luxury goods offered through our consignment online marketplace. We grow our supply both by attracting new consignors and by creating lasting engagement with existing consignors. We generate leads for new consignors principally through our advertising activity. We convert those leads into active consignors through the activities of our sales professionals, who are trained and incentivized to identify and source high-quality, coveted luxury goods from consignors. Our sales professionals form a consultative relationship with consignors and deliver a high-quality, rapid consigning experience. Our existing relationships with consignors allow us to unlock valuable supply across multiple categories within the home, including women's, men's, kids', jewelry and watches, and home and art. We leverage our proprietary transactional database and market insights based on more than 28.8 million item sales since inception to deliver consignors optimal pricing and rapid sell-through. Our growth has been driven in significant part by repeat sales by existing consignors concurrent with growth of our consignor base. The percentage of GMV from repeat consignors in the three months endedSeptember 30, 2022 was 80% as compared to 84% for the three months endedSeptember 30, 2021 . Buyer growth and retention. We grow our business by attracting and retaining buyers. We attract and retain buyers by offering highly coveted, authenticated, pre-owned luxury goods at attractive values and delivering a high-quality, luxury experience. We measure our success in attracting and retaining buyers by tracking buyer satisfaction and purchasing activity over time. We have experienced high buyer satisfaction, as evidenced by our buyer net promoter score of 62 in 2021, and compared to our online shopping industry average of 40 according to NICE SatmetrixU.S. Consumer 2021 data. If we fail to continue to attract and retain our buyer base to our online marketplace, our operating results would be adversely affected. We believe there is substantial opportunity to grow our business by having buyers also become consignors and vice versa. During the three months endedSeptember 30, 2022 , we updated the way we measure buyers who have become consignors and vice versa to include the last 12 months of activity, where previously we had measured using only the last quarter. As ofSeptember 30, 2022 , 15% of our buyers during the last twelve months had become consignors at any point in that time, and 50% of our consignors during the last twelve months had also been buyers at any point in that time. We believe our updated method of measuring buyers who have become consignors and vice versa more accurately reflects the flywheel that 29
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enhances the network effect of our online marketplace. If we fail to continue to attract and retain our buyer base to our online marketplace, our operating results would be adversely affected.
Scaling operations and technology. To support the future growth of our business, we are expanding our capacity through investments in physical infrastructure, talent and technology. We principally conduct our intake, authentication, merchandising and fulfillment operations in our four leased authentication centers located inArizona andNew Jersey comprising an aggregate of approximately 1.4 million square feet of space. InOctober 2020 , we secured a lease inArizona for an additional authentication center and moved operations from our formerBrisbane authentication center inJune 2021 . We operate flagship retail stores inNew York ,Los Angeles ,San Francisco , andChicago . We operate neighborhood stores inNew York ,Palo Alto ,Newport Beach ,Greenwich ,Dallas ,Austin ,Atlanta ,Marin County , Manhasset, andPalm Beach . Additionally, we opened a neighborhood store inBrentwood, California during the nine months endedSeptember 30, 2022 . In addition to scaling our physical infrastructure, growing our single-SKU business operations requires that we attract, train and retain highly-skilled personnel for purposes of authentication, copywriting, merchandising, pricing and fulfilling orders. We have invested substantially in technology to automate our operations and support growth, including proprietary machine learning technology to support efficiency and quality. We continue to strategically invest in technology, as innovation positions us to scale and support growth into the future. Seasonality. Historically, we have observed trends in seasonality of supply and demand in our business. Specifically, our supply increases in the third and fourth quarters, and our demand increases in the fourth quarter. As a result of this seasonality, we typically see stronger AOV and more rapid sell-through in the fourth quarter. We also incur higher operating expenses in the last four months of the year as we increase advertising spend to attract consignors and buyers and increase headcount in sales and operations to handle the higher volumes.
Key Financial and Operating Metrics
The key operating and financial metrics that we use to assess the performance of
our business are set forth below for the three and nine months ended
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(In thousands, except AOV and percentages)
GMV $ 440,659 $ 367,925 $ 1,323,028 $ 1,045,253
NMV $ 325,105 $ 273,417 $ 968,124 $ 774,088
Consignment revenue $ 93,874 $ 78,373 $ 274,780 $ 215,712
Direct revenue $ 34,005 $ 29,387 $ 125,474 $ 75,582
Shipping services revenue $ 14,824 $ 11,078 $ 43,584 $ 31,273
Number of orders 952 757 2,764 2,119
Take rate 36.0 % 34.9 % 36.0 % 34.6 %
Active buyers 950 772 950 772
AOV $ 463 $ 486 $ 479 $ 494
% of GMV from repeat buyers 84.2 % 84.1 % 84.6 % 84.0 %
GMV
Gross merchandise value ("GMV") represents the total amount paid for goods
across our online marketplace in a given period. We do not reduce GMV to reflect
product returns or order cancellations. GMV includes amounts paid for both
consigned goods and our inventory net of platform-wide discounts and excludes
the effect of buyer incentives, shipping fees and sales tax. Platform-wide
discounts are made available to all buyers on the online marketplace, and impact
commissions paid to consignors. Buyer incentives apply to specific buyers and
consist of coupons or promotions that offer credits in connection with purchases
on our platform. In addition to revenue, we believe this is an important measure
of the scale and growth of our online marketplace and a key indicator of the
health of our consignor ecosystem. We monitor trends in GMV to inform budgeting
and operational decisions to support and promote growth in our business and to
monitor our success in adapting our business to meet the needs of our consignors
and buyers. While GMV is the primary driver of our revenue, it is not a proxy
for
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revenue or revenue growth. See Note 2-Summary of Significant Accounting Policies-Revenue Recognition-Consignment Revenue.
NMV
Net merchandise value ("NMV") represents the value of sales from both consigned
goods and our inventory net of platform-wide discounts less product returns and
order cancellations and excludes the effect of buyer incentives, shipping fees
and sales tax. We believe NMV is a supplemental measure of the scale and growth
of our online marketplace. Like GMV, NMV is not a proxy for revenue or revenue
growth.
Consignment Revenue
Consignment revenue is generated from the sale of pre-owned luxury goods through
our online marketplace and retail stores on behalf of consignors. We retain a
portion of the proceeds received, which we refer to as our take rate. We
recognize consignment revenue, net of allowances for product returns, order
cancellations, buyer incentives and adjustments. We also generate revenue from
subscription fees paid by buyers for early access to products.
Direct Revenue
Direct revenue is generated from the sales of company-owned inventory. We recognize direct revenue upon shipment of the goods sold, based on the gross purchase price net of allowances for product returns, buyer incentives and adjustments.
Shipping Services Revenue Shipping services revenue is generated from shipping fees we charge to buyers for outbound shipping and handling activities related to delivering purchased items to our buyers. We also generate shipping services revenue from the shipping fees for consigned products returned by our buyers to us within policy. We recognize shipping services revenue over time as the shipping activity occurs. Shipping services revenue excludes the effect of buyer incentives and sales tax.
Number of Orders
Number of orders means the total number of orders placed across our online marketplace and retail stores in a given period. We do not reduce number of orders to reflect product returns or order cancellations.
Take Rate
Take rate is a key driver of our revenue and provides comparability to other marketplaces. The numerator used to calculate our take rate is equal to net consignment sales and the denominator is equal to the numerator plus consignor commissions. Net consignment sales represent the value of sales from consigned goods net of platform-wide discounts less consignor commission, product returns and order cancellations. We exclude direct revenue from our calculation of take rate because direct revenue represents the sale of inventory owned by us, which costs are included in cost of direct revenue. Our take rate reflects the high level of service that we provide to our consignors across multiple touch points and the consistently high velocity of sales for their goods. Subsequent to our third quarter, inNovember 2022 , we updated our take rate structure with the goals of increasing supply of higher value items, limiting consignment of lower value items, and optimizing take rate. Previously, our take rate was primarily based on a tiered commission structure for consignors, where the more they sell the higher percent commission they earn. Consignors typically started at a 55% commission (which equals a 45% take rate for us) and could earn up to a 70% commission. In addition, there were commission exceptions from the tiered commission structure based on category and price point of the items. Beginning inNovember 2022 , the take rate structure is primarily based on the category and the price point of the sold items. For example, under the updated take rate structure, consignors can earn 20% commission on all sold items under$100 , and 85% commission on watches sold for over$7,500 . We launched a pricing tool for our consignors that provides detail on commission rates for specific categories and other aspects of the take rate structure. Consignors are eligible to receive additional commissions based on total net sales under an added tiered commission structure. Management assesses changes in take rates by monitoring the volume of GMV and take rate across each discrete commission grouping, encompassing commission tiers and exceptions.
Active Buyers
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Active buyers include buyers who purchased goods through our online marketplace during the 12 months ended on the last day of the period presented, irrespective of returns or cancellations. We believe this metric reflects scale, brand awareness, buyer acquisition and engagement.
Average Order Value ("AOV")
Average order value ("AOV") means the average value of all orders placed across
our online marketplace and retail stores, excluding the effect of buyer
incentives, shipping fees and sales taxes. Our focus on luxury goods across
multiple categories drives a consistently strong AOV. Our AOV reflects both the
average price of items sold as well as the number of items per order. Our AOV is
a key driver of our operating leverage.
Percent of GMV from Repeat Buyers
Repeat buyers represents buyers who made a purchase in the months subsequent to
the month they made their initial purchase across our online marketplace and
retail stores. GMV from repeat buyers reflects purchases made after their
initial purchase month.
Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is a key performance measure that our management uses to assess
our operating performance. Because Adjusted EBITDA facilitates internal
comparisons of our historical operating performance on a more consistent basis,
we use this measure as an overall assessment of our performance, to evaluate the
effectiveness of our business strategies and for business planning purposes.
Adjusted EBITDA may not be comparable to similarly titled metrics of other
companies.
Adjusted EBITDA means net loss before interest income, interest expense, other
(income) expense net, provision for income taxes, and depreciation and
amortization, further adjusted to exclude stock-based compensation, payroll
taxes on employee stock transactions, restructuring charges, CEO transition
costs, and certain one-time expenses. Adjusted EBITDA provides a basis for
comparison of our business operations between current, past and future periods
by excluding items that we believe are not indicative of our core operating
performance. Adjusted EBITDA is a non-GAAP measure. Adjusted EBITDA has certain
limitations as the measure excludes the impact of certain expenses that are
included in our statements of operations that are necessary to run our business
and should not be considered as an alternative to net loss or any other measure
of financial performance calculated and presented in accordance with GAAP.
The following table provides a reconciliation of net loss to Adjusted EBITDA (in
thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Adjusted EBITDA Reconciliation:
Net loss $ (47,258) $
(57,196)
7,195 6,034 20,255 17,840
Stock-based compensation (1) 10,841 12,592 37,020 36,324
CEO separation benefits (2) - - 902 -
CEO transition costs (3) 452 - 1,018 -
Payroll taxes expense on employee stock
transactions 137 245 412 967
Legal fees reimbursement benefit (4) (1,400) (500) (1,400) (500)
Legal settlement (5) 152 500 456 11,788
Restructuring charges (6) - 811 275 2,314
Interest income (1,002) (55) (1,360) (249)
Interest expense 2,675 6,072 8,014 15,374Other (income) expense, net (6) (5) (133) (22) Provision for income taxes 63 28 96 83 Adjusted EBITDA$ (28,151) $ (31,474) $ (92,280) $ (99,993) 32
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(1) The stock-based compensation expense for the nine months endedSeptember 30, 2022 includes a one-time charge of$1.0M related to the modification of certain equity awards pursuant to the terms of the transition and separation agreement entered into with our founder,Julie Wainwright , in connection with her resignation as Chief Executive Officer ("CEO") onJune 6, 2022 (the "Separation Agreement"). (2) The separation benefit charges for the nine months endedSeptember 30, 2022 consists of base salary, bonus and benefits for the 2022 fiscal year, as well as an additional twelve months of base salary and benefits payable toJulie Wainwright pursuant to the Separation Agreement. In addition, see footnote 1 for disclosure regarding the incremental stock-based compensation expense incurred in connection with the Separation Agreement. (3) The CEO transition charges for the three and nine months endedSeptember 30, 2022 consist of general and administrative fees, including legal and recruiting expenses, as well as retention bonuses for certain executives incurred in connection with our founder's resignation onJune 6, 2022 .
(4) During the three and nine months ended
(5) The legal settlement charges for the nine months endedSeptember 30, 2021 reflects legal settlement expenses arising from the settlement of a putative shareholder class action and derivative case. (6) The restructuring charges for the nine months endedSeptember 30, 2022 consists of employee severance payments and benefits. The restructuring charges for the three and nine months endedSeptember 30, 2021 consist of the costs to transition operations from theBrisbane warehouse to our newPhoenix warehouse.
Components of our Operating Results
Revenue
Our revenue is comprised of consignment revenue, direct revenue and shipping services revenue.
•Consignment revenue. We generate the substantial majority of our revenue from the sale of pre-owned luxury goods through our online marketplace and retail stores on behalf of consignors. For consignment sales, we retain a percentage of the proceeds received, which we refer to as our take rate. We recognize consignment revenue, net of allowances for product returns, order cancellations, buyer incentives and adjustments. Additionally, we generate service revenue from subscription fees paid by buyers for early access to products, but to date our subscription revenue has not been material. •Direct revenue. We generate direct revenue from the sale of items that we own, which we refer to as our inventory. We generally acquire inventory when we accept out of policy returns from buyers, and when we make direct purchases from businesses and consignors. We recognize direct revenue upon shipment based on the gross purchase price paid by buyers for goods, net of allowances for product returns, buyer incentives and adjustments. •Shipping services revenue. We generate shipping services revenue from the outbound shipping and handling fees we charge when delivering purchased items to our buyers. We also generate shipping services revenue from the shipping fees for consigned products returned by our buyers to us within policy. We recognize shipping services revenue over time as the shipping activity occurs. Shipping services revenue excludes the effect of buyer incentives and sales tax.
Cost of Revenue
Cost of consignment revenue consists of credit card fees, packaging, customer service personnel-related costs, website hosting services, and consignor inventory adjustments related to lost or damaged products. Cost of direct revenue consists of the cost of goods sold, credit card fees, packaging, customer service personnel-related costs, website hosting services, and inventory adjustments for lower of cost or net realizable value provisions and for lost or damaged products. Cost of shipping services revenue consists of the outbound shipping and handling costs to deliver purchased items to our buyers, the shipping costs for consigned products returned by our buyers to us within policy, and an allocation of the credit card fees associated with the shipping fee charged. Marketing Marketing expense comprises the cost of acquiring and retaining consignors and buyers, including the cost of television, digital and direct mail advertising. Marketing expense also includes personnel-related costs for employees engaged in these activities. We expect these expenses to continue to decrease as a percentage of revenue.
Operations and Technology
Operations and technology expense principally includes personnel-related costs
for employees involved with the authentication, merchandising and fulfillment of
goods sold through our online marketplace and retail stores, as well as our
general information technology expense. Operations and technology expense also
includes allocated facility and overhead costs, costs related to our retail
stores, facility supplies, inbound consignment shipping costs, and depreciation
of hardware and
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equipment, as well as research and development expense for technology associated with managing and improving our operations. We capitalize a portion of our proprietary software and technology development costs. As such, operations and technology expense also includes amortization of capitalized technology development costs. We expect operations and technology expense to increase in future periods to support our growth, including continuing to invest in automation and other technology improvements to support and drive efficiency in our operations. These expenses may vary from year to year as a percentage of revenue, depending primarily upon when we choose to make more significant investments. We expect these expenses to continue to decrease as a percentage of revenue.
Selling, General and Administrative
Selling, general and administrative expense is principally comprised of personnel-related costs for our sales professionals and employees involved in finance and administration. Selling, general and administrative expense also includes allocated facilities and overhead costs and professional services, including accounting and legal advisors. We expect these expenses to continue to decrease as a percentage of revenue.
Legal Settlement
Legal settlement expense primarily includes actual or estimated losses related to legal settlements when they become probable and estimable.
Provision for Income Taxes
Our provision for income taxes consists primarily of state minimum taxes inthe United States . We have a full valuation allowance for our net deferred tax assets primarily consisting of net operating loss carryforwards, accruals and reserves, stock-based compensation, fixed assets, and other book-to-tax timing differences. We expect to maintain this full valuation allowance for the foreseeable future.
Results of Operations
The following tables set forth our results of operations (in thousands) and such data as a percentage of revenue for the periods presented:
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Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Revenue:
Consignment revenue $ 93,874 $ 78,373 $ 274,780 $ 215,712
Direct revenue 34,005 29,387 125,474 75,582
Shipping services revenue 14,824 11,078 43,584 31,273
Total revenue 142,703 118,838 443,838 322,567
Cost of revenue:
Cost of consignment revenue 15,206 10,162 43,193 29,872
Cost of direct revenue 28,721 25,025 105,415 65,365
Cost of shipping services revenue 12,999 12,552 43,149 34,480
Total cost of revenue 56,926 47,739 191,757 129,717
Gross profit 85,777 71,099 252,081 192,850
Operating expenses:
Marketing 13,511 15,708 48,469 44,378
Operations and technology 70,782 61,135 207,311 172,906
Selling, general and administrative 46,860 44,912 147,063 132,504
Legal settlement 152 500 456 11,788
Total operating expenses 131,305 122,255 403,299 361,576
Loss from operations (45,528) (51,156) (151,218) (168,726)
Interest income 1,002 55 1,360 249
Interest expense (2,675) (6,072) (8,014) (15,374)
Other income, net 6 5 133 22
Loss before provision for income taxes (47,195) (57,168) (157,739) (183,829)
Provision for income taxes 63 28 96 83
Net loss $ (47,258) $ (57,196) $ (157,835) $ (183,912)
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Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Revenue:
Consignment revenue 66 % 66 % 62 % 67 %
Direct revenue 24 25 28 23
Shipping services revenue 10 9 10 10
Total revenue 100 100 100 100
Cost of revenue:
Cost of consignment revenue 11 9 10 9
Cost of direct revenue 20 21 24 20
Cost of shipping services revenue 9 10 9 11
Total cost of revenue 40 40 43 40
Gross profit 60 60 57 60
Operating expenses:
Marketing 9 14 11 14
Operations and technology 50 51 47 53
Selling, general and administrative 33 38 33 41
Legal settlement - - - 4
Total operating expenses 92 103 91 112
Loss from operations (32) (43) (34) (52)
Interest income 1 - - -
Interest expense (2) (5) (2) (5)
Other income, net - - - -
Loss before provision for income taxes (33) (48) (36) (57)
Provision for income taxes - - - -
Net loss (33) % (48) % (36) % (57) %
Comparison of the Three Months Ended
Consignment Revenue
Three Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Consignment revenue $ 93,874 $ 78,373 $ 15,501 20 %
Consignment revenue increased by $15.5 million , or 20%, in the three months
ended September 30, 2022 compared to the three months ended September 30, 2021 .
The increase in revenue was driven primarily by a 20% increase in GMV during the
three months ended September 30, 2022 , and improvement in our take rate during
the three months ended September 30, 2022 . GMV growth during the three months
ended September 30, 2022 was driven by a 26% increase in orders, partially
offset by a 5% decrease in AOV. We believe the GMV growth is driven by
heightened interest in luxury resale due to increasing consumer desire for more
affordable, accessible luxury goods in a sustainable circular economy.
Returns and cancellations as a percentage of GMV for the three months ended
September 30, 2022 was 26.2% compared to 25.7% for the three months ended
September 30, 2021 . Our take rate increased to 36.0% from 34.9% during the three
months ended September 30, 2022 compared to the three months ended September 30,
2021 due to an increased contribution from higher take rate products such as
women's apparel.
Direct Revenue
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Three Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Direct revenue $ 34,005 $ 29,387 $ 4,618 16 %
Direct revenue increased by $4.6 million , or 16%, in the three months ended
September 30, 2022 compared to the three months ended September 30, 2021 . The
increase was primarily driven by the sell-through of company owned inventory
from previous direct purchases from businesses and consignors. We recognize
direct revenue on a gross basis upon shipment of the purchased good to the
buyer. Direct revenue decreased as a percentage of total revenue compared to the
same three month period last year as we have acted to limit the amount of direct
purchases from businesses and plan to continue to do so in the future. Direct
revenue as a percentage of total revenue may vary from period to period
primarily based on the growth of consignment revenue, as well as the amount of
company-owned inventory we acquire. We anticipate direct revenue to decrease as
a percentage of total revenue over the longer term.
Shipping Services Revenue
Three Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Shipping services revenue $ 14,824 $
11,078
Shipping services revenue increased by$3.7 million , or 34%, in the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 primarily due to increased shipping rates charged to buyers for outbound and return shipments and the fulfillment of a larger number of orders, which increased 26% in the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Cost of Consignment Revenue Three Months Ended September 30, Change 2022 2021 Amount % (In thousands, except percentage) Cost of consignment revenue $ 15,206 $
10,162
Cost of consignment revenue increased by$5.0 million , or 50%, in the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . The increases are primarily attributable to higher credit card fees and overhead costs driven by growth in our business. Consignment revenue gross margin decreased by 3 percentage points in the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . This decrease was primarily attributable to higher credit card fees and overhead costs associated with consignment revenue transactions. Cost of Direct Revenue Three Months Ended September 30, Change 2022 2021 Amount % (In thousands, except percentage) Cost of direct revenue $ 28,721$ 25,025 $ 3,696 15 %
Cost of direct revenue increased by
Direct revenue gross margin increased by 1 percentage point for the three months
ended
The margin profile of our direct revenue is lower than consignment revenue. While direct revenue gross margin increased, our total gross margin remained flat in the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Gross margin may vary from period to period. 37
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Cost of Shipping Services Revenue
Three Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Cost of shipping services revenue $ 12,999 $ 12,552 $ 447 4 %
Cost of shipping services revenue increased by $0.4 million , or 4%, in the three
months ended September 30, 2022 compared to the three months ended September 30,
2021 , primarily due to the increase in orders and higher shipping fees.
The shipping services revenue gross margin increased by 26 percentage points for
the three months ended September 30, 2022 , primarily due to increased shipping
rates charged to buyers for outbound and return shipments.
Marketing
Three Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Marketing $ 13,511 $ 15,708 $ (2,197) -14 %
Marketing expense decreased by $2.2 million , or 14%, in the three months ended
September 30, 2022 , compared to the three months ended September 30, 2021 . The
decrease was primarily due to decreased advertising costs as we gain more
efficiency in our buyer acquisition costs.
As a percent of revenue, marketing expense decreased to 9% from 14% in the three
months ended September 30, 2022 and 2021, respectively. These expenses may vary
from period to period as a percentage of revenue, depending primarily upon our
marketing investments. We expect these expenses to decrease as a percentage of
revenue over the longer term.
Operations and Technology
Three Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Operations and technology $ 70,782 $
61,135
Operations and technology expense increased by
As a percent of revenue, operations and technology expense decreased to 50% from 51% in the three months endedSeptember 30, 2022 and 2021, respectively. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments. We expect these expenses to decrease as a percentage of revenue over the longer term.
Selling, General and Administrative
Three Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Selling, general and administrative $ 46,860 $ 44,912 $ 1,948 4 %
Selling, general and administrative expense increased by $1.9 million , or 4%, in
the three months ended September 30, 2022 compared to the three months ended
September 30, 2021 . The increase was driven by higher employee compensation
expenses, including stock-based compensation expense due to increased headcount,
in addition to an increase in software fees.
As a percent of revenue, selling, general and administrative expense decreased
to 33% from 38% in the three months ended September 30, 2022 and 2021,
respectively. These expenses may vary from period to period as a percentage of
revenue. We expect these expenses to decrease as a percentage of revenue over
the longer term.
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Interest Income
Three Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Interest income $ 1,002 $ 55 $ 947 1,722 %
Interest income increased by $0.9 million , or over 100%, for the three months
ended September 30, 2022 as compared to the three months ended September 30,
2021 . The increase was primarily driven by higher average interest rates.
Interest Expense
Three Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Interest expense $ (2,675) $ (6,072) $ 3,397 -56 %
Interest expense decreased by $3.4 million , or 56%, for the three months ended
September 30, 2022 compared to the three months ended September 30, 2021 . The
decrease was primarily due to the adoption of ASU 2020-06 on January 1, 2022 ,
which eliminated the debt discount related to both the 3.00% convertible senior
notes issued in June 2020 and the 1.00% convertible senior notes issued in March
2021 .
Other Income, Net
Three Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Other income, net $ 6 $ 5 $ 1 0 %
Other income remained flat in the three months ended
Legal Settlement
Three Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Legal settlement $ 152 $ 500 $ (348) -70 %
Legal settlement expense decreased by $0.3 million , or 70%, during the three
months ended September 30, 2022 compared to the three months ended September 30,
2021 .
Comparison of the Nine Months Ended
Consignment Revenue
Nine Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Consignment revenue, net $ 274,780 $ 215,712 $ 59,068 27 %
Consignment revenue increased by $59.1 million , or 27%, in the nine months ended
September 30, 2022 compared to the nine months ended September 30, 2021 . The
increase in revenue was driven primarily by a 27% increase in GMV during the
nine months ended September 30, 2022 , and improvement in our take rate during
the nine months ended September 30, 2022 . GMV growth during the nine months
ended September 30, 2022 was driven by a 30% increase in orders, due to an
increased market demand for online luxury goods, partially offset by a 3%
decrease in AOV. We believe GMV growth is driven
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by heightened interest in luxury resale due to increasing consumer desire for more affordable, accessible luxury goods in a sustainable circular economy.
Returns and cancellations as a percentage of GMV for the nine months endedSeptember 30, 2022 was 26.8% compared to 25.9% for the nine months endedSeptember 30, 2021 . Our take rate increased to 36.0% from 34.6% during the nine months endedSeptember 30, 2022 compared to the same period last year due to an increased contribution from higher take rate products such as women's apparel. Direct Revenue Nine Months Ended September 30, Change 2022 2021 Amount % (In thousands, except percentage) Direct revenue $ 125,474$ 75,582 $ 49,892 66 % Direct revenue increased by$49.9 million , or 66%, in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . The increase was primarily driven by the higher sales mix of company-owned inventory due to direct purchases from businesses and consignors. We recognize direct revenue on a gross basis upon shipment of the purchased good to the buyer. Direct revenue has increased as a percentage of total revenue in recent quarters as a result of sell-through of company owned inventory from previous direct purchases from businesses. We intend to limit the amount of direct purchases from businesses in the future. Direct revenue as a percentage of total revenue may vary from period to period primarily based on the growth of consignment revenue, as well as the amount of company-owned inventory we purchase. We anticipate direct revenue to decrease as a percentage of total revenue over the longer term. Shipping Services Revenue Nine Months Ended September 30, Change 2022 2021 Amount % (In thousands, except percentage) Shipping services revenue $ 43,584$ 31,273 $ 12,311 39 % Shipping services revenue increased by$12.3 million , or 39%, in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . The increase was primarily due to increased shipping rates charged to buyers for outbound and return shipments and the fulfillment of a larger number of orders, which increased 30% in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 .
Cost of Consignment Revenue
Nine Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Cost of consignment revenue, net $ 43,193 $ 29,872 $ 13,321 45 %
Cost of consignment revenue increased by $13.3 million , or 45%, in the nine
months ended September 30, 2022 compared to the nine months ended September 30,
2021 . The increases were primarily attributable to credit card fees driven by
growth in our business.
Consignment revenue gross margin decreased by 2 percentage point in the nine
months ended September 30, 2022 compared to the nine months ended September 30,
2021 . This decrease was primarily attributable to higher credit card fees and
overhead costs associated with consignment revenue transactions.
Cost of Direct Revenue
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Nine Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Cost of direct revenue $ 105,415 $ 65,365 $ 40,050 61 %
Cost of direct revenue increased by
Direct revenue gross margin increased by 2 percentage points for the nine months
ended
The margin profile of our direct revenue is lower than consignment revenue. Our total gross margin decreased by 3% in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 due to the increase in direct revenue as a percentage of total revenue. Gross margin may vary from period to period.
Cost of Shipping Services Revenue
Nine Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Cost of shipping services revenue $ 43,149 $ 34,480 $ 8,669 25 %
Cost of shipping services revenue increased by $8.7 million , or 25%, in the nine
months ended September 30, 2022 compared to the nine months ended September 30,
2021 . The increase was primarily due to the fulfillment of a larger number of
orders as well as higher shipping fees.
The shipping services revenue gross margin increased by 11 percentage points for
the nine months ended September 30, 2022 , primarily due to increased shipping
rates charged to buyers for outbound and return shipments.
Marketing
Nine Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Marketing $ 48,469 $ 44,378 $ 4,091 9 %
Marketing expense increased by $4.1 million , or 9%, in the nine months ended
September 30, 2022 compared to the nine months ended September 30, 2021 . The
increase was primarily due to increases in advertising costs as we seek to
enhance the digital experience on our online marketplace and grow the number of
buyers and consignors.
As a percent of revenue, marketing expense decreased to 11% from 14% in the nine
months ended September 30, 2022 and 2021, respectively. These expenses may vary
from period to period as a percentage of revenue, depending primarily upon our
marketing investments. We expect these expenses to decrease as a percentage of
revenue over the longer term.
Operations and Technology
Nine Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Operations and technology $ 207,311 $ 172,906 $ 34,405 20 %
Operations and technology expense increased by $34.4 million in the nine months
ended September 30, 2022 compared to the nine months ended September 30, 2021 .
The increase was primarily due to higher employee compensation related expenses
due to an increase in headcount as well as higher inbound consignment shipping
costs. The increase was also attributed to higher amortization associated with
capitalized proprietary software.
As a percent of revenue, operations and technology expense decreased to 47% from
53% in the nine months ended September 30, 2022 and 2021, respectively. These
expenses may vary from period to period as a percentage of revenue,
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depending primarily upon when we choose to make more significant investments. We expect these expenses to decrease as a percentage of revenue over the longer term.
Selling, General and Administrative
Nine Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Selling, general and administrative $ 147,063 $ 132,504 $ 14,559 11 %
Selling, general and administrative expense increased by $14.6 million , or 11%,
in the nine months ended September 30, 2022 and 2021, respectively. The increase
was driven by higher employee compensation expenses, including stock-based
compensation expense due to increased headcount, in addition to an increase in
travel expenses and cloud and software services fees. The increases were also
driven by costs associated with the resignation of the Company's founder during
the nine months ended September 30, 2022 .
As a percent of revenue, selling, general and administrative expense decreased
to 33% from 41% in the nine months ended September 30, 2022 and 2021,
respectively. These expenses may vary from period to period as a percentage of
revenue. We expect these expenses to decrease as a percentage of revenue over
the longer term.
Interest Income
Nine Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Interest income $ 1,360 $ 249 $ 1,111 446 %
Interest income increased by
Interest Expense
Nine Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Interest expense $ (8,014) $ (15,374) $ 7,360 -48 %
Interest expense decreased by $7.4 million , or 48%, for the nine months ended
September 30, 2022 compared to the nine months ended September 30, 2021 . The
decrease was primarily due to the adoption of ASU 2020-06 on January 1, 2022 ,
which eliminated the debt discount related to both the 3.00% convertible senior
notes issued in June 2020 and the 1.00% convertible senior notes issued in March
2021 .
Other Income, Net
Nine Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Other income, net $ 133 $ 22 $ 111 505 %
Other income increased by
Legal Settlement
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Nine Months Ended September 30, Change
2022 2021 Amount %
(In thousands, except percentage)
Legal settlement $ 456 $ 11,788 $ (11,332) -96 %
Legal settlement expense decreased by $11.3 million , or 96%%, during the nine
months ended September 30, 2022 compared to the nine months ended September 30,
2021 . The decrease was primarily due to the $11.0 million legal settlement
accrued for during the nine months ended September 30, 2021 in connection with
the settlement of the shareholder class action filed against us.
Liquidity and Capital Resources
As ofSeptember 30, 2022 , we had cash and cash equivalents of$300.4 million and an accumulated deficit of$912.5 million . Since inception, we have generated negative cash flows from operations and have primarily financed our operations through equity and convertible debt financings. InJuly 2019 , we received net proceeds of$315.5 million upon completion of our IPO onJuly 2, 2019 . InJune 2020 , we received net proceeds of$143.3 million from the issuance of the 2025 Notes and the related capped call transactions. InMarch 2021 , we received net proceeds of$244.5 million from the 2028 Notes and the related capped call transactions.
We expect that operating losses and negative cash flows from operations could
continue in the foreseeable future. We believe our existing cash and cash
equivalents as of
Our future capital requirements will depend on many factors, including, but not limited to, our ability to grow our revenues and the timing of investments to support growth in our business, such as the build-out of our authentication centers and, to a lesser extent, the opening of new retail stores. We may seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations could be adversely affected. Cash Flows
The following table summarizes our cash flows for the periods indicated.
Nine Months Ended September 30,
2022
2022 2021
Net cash provided by (used in):
Operating activities $ (95,255) $ (123,387)
Investing activities (26,255) (33,758)
Financing activities 3,778 251,108
Net increase (decrease) in cash and cash equivalents $
(117,732)
During the nine months endedSeptember 30, 2022 , net cash used in operating activities was$95.3 million , which consisted of a net loss of$157.8 million , adjusted by non-cash charges of$76.0 million and cash outflows due to a net change of$13.4 million in our operating assets and liabilities. The net change in our operating assets and liabilities was primarily the result of cash outflows due to a decrease of$13.1 million in operating lease liabilities, an increase of$6.5 million in prepaid expenses and other current assets, a$4.5 million decrease in other accrued and current liabilities, partially offset by a decrease of$8.0 million in inventory driven by a decrease in direct purchases of inventory from vendors, and by a$4.1 million increase in accounts payable. During the nine months endedSeptember 30, 2021 , net cash used in operating activities was$123.4 million , which consisted of a net loss of$183.9 million , adjusted by non-cash charges of$81.4 million and cash outflows due to a net change of$20.8 million in our operating assets and liabilities. The net change in our operating assets and liabilities was primarily the result of cash outflows due to an increase of$21.6 million in inventory driven by an increase in direct purchases of inventory 43
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from vendors, a decrease of$12.5 million in operating lease liability, a increase of$5.3 million in prepaid expenses and other current assets, and a$6.2 million decrease in accounts payable, partially offset by a$22.0 million increase in other accrued and current liabilities.
During the nine months endedSeptember 30, 2022 , net cash used in investing activities was$26.3 million , which consisted of$16.4 million for purchases of property and equipment, net, including leasehold improvements and$9.8 million for capitalized proprietary software development costs. During the nine months endedSeptember 30, 2021 , net cash used in investing activities was$33.8 million , which consisted of$30.3 million for purchases of property and equipment, net, including leasehold improvements, and$7.5 million for capitalized proprietary software development costs, partially offset by$4.0 million of proceeds from maturities on short-term investments.
Net Cash Provided by Financing Activities
During the nine months endedSeptember 30, 2022 , net cash provided by financing activities was$3.8 million , which consisted of proceeds of$2.9 million from the exercise of stock options and proceeds of$0.9 million from the issuance of ESPP shares, partially offset by less than$0.1 million of taxes related to restricted stock units vesting. During the nine months endedSeptember 30, 2021 , net cash provided by financing activities was$251.1 million , which primarily consisted of proceeds of$278.2 million from the issuance of the 1.00% convertible senior notes, net of issuance costs,$5.5 million from the exercise of stock options, partially offset by$33.7 million for the purchase of capped calls related to the 2028 Notes issuance.
Convertible Senior Notes
As ofSeptember 30, 2022 , we had 3.00% convertible senior notes due 2025 outstanding in an aggregate principal amount of$172.5 million and 1.00% convertible senior notes due 2028 outstanding in an aggregate principal amount of$287.5 million . A portion of the net proceeds from the sale of these convertible senior notes was used to fund the net cost of entering into the capped call transactions described below. We intend to use the remainder of the net proceeds for general corporate purposes. The 2025 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at the Company's election, at an initial conversion rate of 56.2635 shares of our common stock per$1,000 principal amount of the convertible senior notes, which is equivalent to an initial conversion price of approximately$17.77 per share of our common stock. The initial conversion price of the notes represents a premium of approximately 27.5% over the$13.94 closing price of our common stock onJune 10, 2020 . The 2028 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at the Company's election, at an initial conversion rate of 31.4465 shares of our common stock per$1,000 principal amount of the convertible senior notes, which is equivalent to an initial conversion price of approximately$31.80 per share of our common stock. The initial conversion price of the notes represents a premium of approximately 32.5% over the$24.00 closing price of our common stock onMarch 3, 2021 . In connection with the convertible senior notes, we entered into privately negotiated capped call transactions, with certain of the initial purchasers or their affiliates. The capped call transactions cover, subject to anti-dilution adjustments, the number of shares of common stock underlying the convertible senior notes sold in the offering. The capped call transactions are generally expected to reduce potential dilution to our common stock upon any conversion of the notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap. The cap price of the capped call transactions related to the 2025 Notes was initially$27.88 per share, which represents a premium of 100.0% over the closing price of our common stock of$13.94 per share onJune 10, 2020 , and is subject to certain adjustments under the terms of the capped call transactions. The cap price of the capped call transactions related to the 2028 Notes was initially$48.00 per share, which represents a premium of 100.0% over the closing price of our common stock of$24.00 per share onMarch 3, 2021 , and is subject to certain adjustments under the terms of the capped call transactions.
For additional details related to our convertible senior notes, please see "Note 7 - Convertible Senior Notes, Net" to the condensed financial statements included in this report.
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Contractual Obligations and Commitments
As of
Critical Accounting Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance withUnited States generally accepted accounting principles. The preparation of these financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material.
While our significant accounting policies are more fully described in Note 2-Summary of Significant Accounting Policies, we believe that the accounting estimates discussed below relate to the more significant areas involving management's judgments and estimates.
Leases
For our operating leases, we record a lease liability based on the present value of the lease payments at lease inception, using the applicable incremental borrowing rate. We estimate the incremental borrowing rate based on our own estimated synthetic credit rating, corresponding yield curve, and the terms of each lease at the lease commencement date. Given the lack of a directly observable Company specific credit rating, there is significant judgment in the methodology used to develop the incremental borrowing rates, including the development of the synthetic credit rating. Management also typically utilizes third party valuation specialists to provide market yield curves associated with our estimated synthetic credit rating. The incremental borrowing rates we used ranged from 2.3% to 9.3% depending on the lease terms. The sensitivity of the estimate is mainly due to the judgement used in the development of the synthetic credit rating and yield curves at lease inception.
Convertible Senior Notes
Prior to the adoption of ASU 2020-06 and in recording our convertible debt instruments, we separately accounted for the liability and equity components by allocating proceeds between the liability component and the embedded conversion options, or equity components. We allocated the debt components of the instruments on the basis of the estimated fair value of a similar liability that does not have an associated convertible feature and the remaining proceeds were allocated to the equity component. The allocation was performed in a manner that reflects our non-convertible debt borrowing rate for similar debt. The fair value borrowing rate is considered a critical estimate because of the judgment necessary in assessing an interest rate that would be available to the company of a similar debt instrument that does not have a conversion feature. For the 2025 Notes with a principal amount of$172.5 million , an interest rate of 5.67% was used to compute the initial fair value of the liability component of$152.7 million . For the 2028 Notes with a principal amount of$287.5 million , an interest rate of 7.18% was used to compute the initial fair value of the liability component of$191.3 million .
Recent Accounting Pronouncements
For more information on recently issued accounting pronouncements, see Note 2 to our unaudited condensed financial statements "Summary of Significant Accounting Policies" in this Quarterly Report on Form 10-Q.
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