THREDUP INC.
The following discussion and analysis 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 final prospectus ("Prospectus"), dated March 25, 2021 , filed with the
SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended
("Securities Act"). The following discussion contains forward-looking statements
that reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. You should
review the section titled "Special Note Regarding Forward-Looking Statements"
for a discussion of forward-looking statements and the section titled "Risk
Factors" for a discussion of factors that could cause actual results to differ
materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis. 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.
18
--------------------------------------------------------------------------------Overview
thredUP is one of the world's largest online resale platforms for women's and kids' apparel, shoes and accessories. Our custom-built operating platform is powering the rapidly emerging resale economy, the fastest growing sector in retail. thredUP's platform consists of distributed processing infrastructure, proprietary software and systems and data science expertise. Since our founding in 2009, we have processed over 125 million unique secondhand items from 35,000 brands across 100 categories, saving our buyers an estimated$3.3 billion off estimated retail price. We estimate that we have positively impacted the environment by saving 1.0 billion pounds of CO2 emissions, 2.0 billion kWh of energy and 4.4 billion gallons of water simply by empowering consumers to buy and sell secondhand. thredUP's proprietary operating platform is the foundation for our managed marketplace, where we have bridged online and offline technology to make the buying and selling of tens of millions of unique items easy and fun. The marketplace we have built enables buyers to browse and purchase resale items for women's and kids' apparel, shoes and accessories across a wide range of price points. Buyers love shopping value, premium and luxury brands all in one place, at up to 90% off estimated retail price. Sellers love thredUP because we make it easy to clean out their closets and unlock value for themselves or for the charity of their choice while doing good for the planet. Sellers order a Clean Out Kit, fill it and return it to us using our prepaid label. We take it from there and do the work to make those items available for resale. In 2018, based on our success with consumers directly, we extended our platform to enable brands and retailers to participate in the resale economy. A number of the world's leading brands and retailers are already taking advantage of our Resale-as-a-Service ("RaaS") offering. Recent Business Developments Initial Public Offering Historically, we have financed our operations primarily through private sales of equity securities and debt. Our registration statement related to the initial public offering (the "IPO") was declared effective onMarch 25, 2021 by theSecurities and Exchange Commission (the "SEC"), and our Class A common stock began trading on the Nasdaq Global Select Market ("Nasdaq") onMarch 26, 2021 . Upon the completion of our IPO, we sold 13,800,000 shares of Class A common stock at a price to the public of$14.00 per share. We received aggregate net proceeds of$175.5 million after deducting offering costs, underwriting discounts and commissions of$17.7 million . Follow-on Public Offering OnAugust 2, 2021 , we issued and sold an aggregate of 2,000,000 shares of Class A common stock at a price of$24.25 per share in a registered public offering. The aggregate net proceeds were approximately$45.5 million , after deducting offering costs of$1.1 million and underwriting discounts and commissions of$2.2 million . Acquisition of Remix Global AD OnJuly 24, 2021 , we entered into Share Purchase Agreements (collectively, the "Share Purchase Agreement"), with the shareholders of Remix Global AD ("Remix"), a fashion resale company headquartered inSofia, Bulgaria , to purchase 100% of the outstanding equity interests of Remix and its subsidiary (the "Remix Acquisition"). OnOctober 7, 2021 , the cash paid upon closing was approximately$19.2 million . Shortly after the closing, the company paid approximately$6.2 million of other Remix liabilities. Subject to customary purchase price adjustments, we will also pay$3.5 million in the form of 130,597 shares of newly-issued Class A common stock to be issued 18 months following the closing of the Remix Acquisition. With this acquisition, we add a complementary operational infrastructure and an experienced management team to enable our expansion intoEurope . 19 -------------------------------------------------------------------------------- COVID-19 Impact InDecember 2019 , a novel strain of coronavirus was first identified, and inMarch 2020 , theWorld Health Organization categorized COVID-19 as a pandemic. The COVID-19 pandemic has adversely impacted businesses worldwide and has impacted aspects of our business and operations. InMarch 2020 , we shifted all of our corporate employees and contract engineers to a remote work model and implemented additional measures to better enable remote work. As ofSeptember 30, 2021 our remote work model remains in place. Financial Impact In the nine months endedSeptember 30, 2021 , we saw increased demand, which we believe was partly related to COVID-19 recovery and re-opening efforts such as the vaccine roll out, easing of social distancing restrictions and federal stimulus legislation. We also saw increased operating expenses due to the additional labor costs associated with increased processing to support the demand experienced to date and in anticipation of accelerating demand. The growth in net loss is primarily related to the growth in operating expenses. Impact on Processing at our Distribution Centers During the three months endedSeptember 30, 2021 , the number of unprocessed Clean Out Kits increased, when compared to the prior quarter, as we lifted temporary restrictions on the ability of sellers to order Clean Out Kits at the end ofFebruary 2021 , resulting in more Clean Out Kits being received. We still face challenges in hiring and retaining employees and have implemented compensation and benefits programs to enhance hiring and retention, which has contributed to higher Cost of Revenue and higher Operations, Product and Technology expenses. These programs are primarily aimed at mitigating the macro trend of increased competition for labor, including seasonal employment opportunities. We have been monitoring and continue to monitor the impact of COVID-19 on our business and operations. We expect the evolving COVID-19 pandemic to continue to have an adverse impact on our business, results of operations and financial condition, including our revenue and cash flows, for at least the remainder of 2021 and early 2022. For instance, a slowdown or further uncertainty in theU.S. economy, as well as a decrease in government stimulus packages, may result in additional changes in buyer and seller behavior, which could cause either a potential reduction in discretionary spending on our marketplace or increased activity on our marketplace as customers look for high-value, lower-priced alternatives. In particular, following the stimulus package inMarch 2021 , we experienced a brief increase in Orders followed by a return to expected Orders activity. Additionally, future developments, such as new information which may emerge concerning COVID-19, the new COVID-19 strains (e.g. delta variant), and the actions to contain the coronavirus or treat its impact, could have an adverse impact to our business. Due to the unknown duration and unprecedented impact of the COVID-19 pandemic and the range of national, state and local responses thereto, the related financial impact on our business could change and cannot be accurately predicted at this time. See the section titled "Risk Factors-Risks Relating to our Business and Industry-The global COVID-19 pandemic has had and may continue to have an adverse impact on our business, results of operations and financial condition." 20 -------------------------------------------------------------------------------- Overview of Third Quarter Results Revenue: Total revenue was a record at$63.3 million , an increase of 35% year-over-year. Gross Profit and Margin: Gross profit totaled$46.1 million representing growth of 41% year-over-year. Gross margin expanded by 300 basis points to 73% from 70% in the comparable quarter last year. Net Loss: GAAP net loss was$14.7 million for the third quarter 2021, compared to a GAAP net loss of$11.0 million for the third quarter 2020. Adjusted EBITDA: Adjusted EBITDA loss was$7.8 million , a negative 12% of revenue, compared to Adjusted EBITDA loss of$7.5 million for the third quarter 2020, a negative 16% of third quarter 2020 revenue. Active Buyers and Orders: Total third quarter 2021 Active Buyers of 1.44 million and Orders of 1.30 million grew 14% and 28%, respectively, over the comparable quarter last year. Key Financial and Operating Metrics We review a number of operating and financial metrics, including the following key business and non-GAAP metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. These key financial and operating metrics are set forth below for the periods presented. Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 (in thousands) Active Buyers (as of period end) 1,439 1,257 1,439 1,257 Orders 1,300 1,012 3,646 2,966 Net loss $ (14,715)$ (11,004) $ (45,265) $ (30,876) Adjusted EBITDA(1) $ (7,816)$ (7,473) $ (25,971) $ (21,170) (1)See below for a reconciliation of Adjusted EBITDA to net loss. Active Buyers An Active Buyer is a thredUP buyerwho has made at least one purchase in the last twelve months. A thredUP buyer is a customerwho has created an account in our marketplace. A thredUP buyer is identified by a unique email address and a single person could have multiple thredUP accounts and count as multiple Active Buyers. The number of Active Buyers is a key driver of revenue for our marketplace and we expect the number of Active Buyers to increase over time. Orders Orders means the total number of orders placed by buyers across our marketplace, including through our RaaS clients, in a given period, net of cancellations. We expect Orders to increase over time. Adjusted EBITDA Adjusted EBITDA means net loss adjusted to exclude, where applicable in a given period, depreciation and amortization, stock-based compensation expense, acquisition and offering related expenses, interest expense, change in fair value of convertible preferred stock warrant liability and provision for income taxes. We use Adjusted EBITDA to evaluate and assess our operating performance 21 -------------------------------------------------------------------------------- and the operating leverage in our business, and for internal planning and forecasting purposes. We believe that Adjusted EBITDA, when taken collectively with our GAAP results, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The following table provides a reconciliation of net loss to Adjusted EBITDA (in thousands): Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Adjusted EBITDA Reconciliation: Net loss $ (14,715)$ (11,004) $ (45,265) $ (30,876) Depreciation and amortization 2,248 1,425 6,147 3,868 Stock-based compensation expense 2,995 1,649 9,389 5,057 Acquisition and offering related expenses 1,020 - 1,020 - Interest expense 619 368 1,751 865 Change in fair value of convertible preferred stock warrant liability - 89 930 (84) Provision for income taxes 17 - 57 - Adjusted EBITDA $ (7,816)$ (7,473) $ (25,971) $ (21,170) 22
--------------------------------------------------------------------------------
Results of Operations
The following table sets forth our results of operations for the periods
presented:
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Revenue: (in thousands, except per share data)
Consignment $ 48,071 $ 33,657 $ 141,356 $ 103,885
Product 15,203 13,275 37,557 38,697
Total revenue 63,274 46,932 178,913 142,582
Cost of revenue:
Consignment 10,080 7,984 31,599 25,097
Product 7,100 6,172 17,370 19,072
Total cost of revenue 17,180 14,156 48,969 44,169
Gross profit 46,094 32,776 129,944 98,413
Operating expenses:
Operations, product and technology 32,081 25,856 91,455 73,480
Marketing 16,941 10,614 48,344 34,513
Sales, general and administrative 12,569 6,891 34,206 20,762
Total operating expenses 61,591 43,361 174,005 128,755
Operating loss (15,497) (10,585) (44,061) (30,342)
Interest expense (619) (368) (1,751) (865)
Other (expense) income, net 1,418 (51) 604 331
Loss before provision for income
taxes (14,698) (11,004) (45,208) (30,876)
Provision for income taxes 17 - 57 -
Net loss $ (14,715) $ (11,004) $ (45,265) $ (30,876)
Net loss per share attributable to
common stockholders, basic and
diluted $ (0.15) $ (0.93) $ (0.65) $ (2.77)
23-------------------------------------------------------------------------------- Comparison of the Three and Nine Months EndedSeptember 30, 2021 and 2020 Revenue Three months ended September 30, Change Nine months ended September 30, Change 2021 2020 Amount % 2021 2020 Amount % (in thousands, except percentages) Consignment revenue$ 48,071 $ 33,657 $ 14,414 43 %$ 141,356 $ 103,885 $ 37,471 36 % Product revenue 15,203 13,275 1,928 15 % 37,557 38,697 (1,140) (3) % Total revenue$ 63,274 $ 46,932 $ 16,342 35 %$ 178,913 $ 142,582 $ 36,331 25 % Consignment revenue as a % of total revenue 76 % 72 % 79 % 73 % Product revenue as a % of total revenue 24 % 28 % 21 % 27 % The$16.3 million change in total revenue represents a 35% increase in total revenue for the three months endedSeptember 30, 2021 , as compared to the three months endedSeptember 30, 2020 . This increase was primarily attributable to a 28% increase in Orders and a 5% increase in revenue per Order over the same period. The 28% increase in Orders was primarily driven by growth in Active Buyers of 14% over the same period mainly due to our increased marketing and advertising efforts. The$36.3 million change in total revenue represents a 25% increase in total revenue for the nine months endedSeptember 30, 2021 , as compared to the nine months endedSeptember 30, 2020 . This increase was primarily attributable to a 23% increase in Orders and a 2% increase in revenue per Order over the same period. The 23% increase in Orders was primarily driven by growth in Active Buyers of 14% and partially offset by a 7% decrease in Order per Active Buyer over the same period. The growth in Active Buyers was mainly due to our increased marketing and advertising efforts. Consignment sales result in higher gross profit margin than product sales because revenue for consignment sales is recognized net of seller payouts, whereas, for product sales, seller payouts are recognized as a component of cost of revenue, leading to different gross margin profiles between consignment sales and product sales. We believe that our total revenue will increase sequentially in the fourth quarter of 2021 primarily due to the inclusion of the acquired Remix business. Consignment Revenue The$14.4 million change in consignment revenue represents a 43% increase in consignment revenue for the three months endedSeptember 30, 2021 , as compared to the three months endedSeptember 30, 2020 . This increase was primarily attributable to the mix shift from product to consignment sales, which resulted in consignment sales representing 76% of our total revenue mix, up 400 basis points from 72% in the three months endedSeptember 30, 2020 . The$37.5 million change in consignment revenue represents a 36% increase in consignment revenue for the nine months endedSeptember 30, 2021 , as compared to the nine months endedSeptember 30, 2020 . This increase was primarily attributable to the mix shift from product to consignment sales, which resulted in consignment sales representing 79% of our total revenue mix, up 600 basis points from 73% in the nine months endedSeptember 30, 2020 . 24 -------------------------------------------------------------------------------- Product Revenue The$1.9 million change in product revenue represents a 15% increase in product revenue for the three months endedSeptember 30, 2021 , as compared to the three months endedSeptember 30, 2020 , and was primarily attributable to a 35% increase in total revenue. The increase was partially offset by a mix shift from product to consignment sales, which resulted in product sales representing 24% of our total revenue mix, a 400 basis point decrease from 28% in the three months endedSeptember 30, 2020 . The$1.1 million change in product revenue represents a 3% decrease in product revenue for the nine months endedSeptember 30, 2021 , as compared to the nine months endedSeptember 30, 2020 , and was primarily attributable to the mix shift from product to consignment sales, which resulted in product sales representing 21% of our total revenue mix, a 600 basis point decrease from 27% in the nine months endedSeptember 30, 2020 . Cost of Revenue Three months ended September 30, Change Nine months ended September 30, Change 2021 2020 Amount % 2021 2020 Amount % (in thousands, except percentages) Cost of consignment revenue$ 10,080 $ 7,984 $ 2,096 26 %$ 31,599 $ 25,097 $ 6,502 26 % Cost of product revenue 7,100 6,172 928 15 % 17,370 19,072 (1,702) (9) % Total cost of revenue$ 17,180 $ 14,156 $ 3,024 21 %$ 48,969 $ 44,169 $ 4,800 11 % Gross profit$ 46,094 $ 32,776 $ 13,318 41 %$ 129,944 $ 98,413 $ 31,531 32 % Gross profit margin 73 % 70 % 73 % 69 % Cost of revenue as a % of total revenue 27 % 30 % 27 % 31 % Cost of consignment revenue as a % of total cost of revenue 59 % 56 % 65 % 57 % Cost of product revenue as a % of total cost of revenue 41 % 44 % 35 % 43 % Total cost of revenue as a percentage of total revenue, decreased 300 basis points from 30% for the three months endedSeptember 30, 2020 to 27% for the three months endedSeptember 30, 2021 . Total cost of revenue as a percentage of total revenue, decreased 400 basis points from 31% for the nine months endedSeptember 30, 2020 to 27% for the nine months endedSeptember 30, 2021 . During both the three and nine months periods endedSeptember 30, 2021 a revenue mix shift from product to consignment sales resulted in decreased costs of revenue as a percent of revenue as consignment revenue has a higher gross margin profile. 25 --------------------------------------------------------------------------------
Cost of Consignment Revenue
Three months ended September
30, Change Nine months ended September 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Cost of consignment
revenue $ 10,080 $ 7,984 $ 2,096 26 % $ 31,599 $ 25,097 $ 6,502 26 %
As a percent of
consignment revenue 21 % 24 % 22 % 24 %
Consignment gross margin 79 % 76 % 78 % 76 %
The $2.1 million change in cost of consignment revenue represents a 26% increase
in the cost of consignment revenue for the three months ended September 30, 2021
compared to the three months ended September 30, 2020 .
The $6.5 million change in cost of consignment revenue represents a 26% increase
in the cost of consignment revenue for the nine months ended September 30, 2021
compared to the nine months ended September 30, 2020 .
The increased cost of consignment revenue in both the three and nine month
periods ended September 30, 2021 was primarily driven by higher consignment
revenue and related costs outlined in the below table. Consignment gross margin
increased 300 basis points to 79% for the three months ended September 30, 2021
compared to 76% for the three months ended September 30, 2020 . Consignment gross
margin increased 200 basis points to 78% for the nine months ended September 30,
2021 compared to 76% for the three months ended September 30, 2020 . Consignment
revenue growth outpaced the increase in outbound shipping and packaging costs
due to increased revenue per order and efficiencies in our shipping process in
both periods.
Three months ended September Nine months ended September
30, Change 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Outbound shipping $ 6,767 $ 5,710 $ 1,057 19 % $ 22,826 $ 18,089 $ 4,737 26 %
Direct labor 2,333 1,578 755 48 % 6,116 5,191 925 18 %
Packaging 768 544 224 41 % 2,301 1,547 754 49 %
Other 212 152 60 39 % 356 270 86 32 %
Total cost of
consignment revenue $ 10,080 $ 7,984 $ 2,096 26 % $ 31,599 $ 25,097 $ 6,502 26 %
26--------------------------------------------------------------------------------
Cost of Product Revenue
Three months ended September
30, Change Nine months ended September 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Cost of product revenue $ 7,100 $ 6,172 $ 928 15 % $ 17,370 $ 19,072 $ (1,702) (9) %
As a percent of product
revenue 47 % 46 % 46 % 49 %
Product gross margin 53 % 54 % 54 % 51 %
The $0.9 million change in cost of product revenue represents a 15% increase in
the cost of product revenue for the three months ended September 30, 2021
compared to the three months ended September 30, 2020 .
The $1.7 million change in cost of product revenue represents a 9% decrease in
the cost of product revenue for the nine months ended September 30, 2021
compared to the nine months ended September 30, 2020 .
The increased cost of product revenue in the three month period ended
September 30, 2021 was primarily driven by higher product revenue. The decreased
cost of product revenue in the nine month period ended September 30, 2021 was
primarily driven by lower product revenue, partially offset by increased product
gross margin due to a higher average selling price per item and lower costs as
outlined in the below table.
Three months ended September Nine months ended September
30, Change 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Inventory costs $ 4,508 $ 3,462 $ 1,046 30 % $ 10,369 $ 10,473 $ (104) (1) %
Outbound shipping 1,845 1,979 (134) (7) % 5,178 6,265 (1,087) (17) %
Direct labor 601 540 61 11 % 1,358 1,794 (436) (24) %
Packaging 146 191 (45) (24) % 465 540 (75) (14) %
Total cost of product $ 7,100 $ 6,172 $ 928 15 % $ 17,370 $ 19,072 $ (1,702) (9) %
revenue
We believe that our gross profit will increase and our gross profit margin will
be lower sequentially in the fourth quarter due to the inclusion of the acquired
Remix business.
27
--------------------------------------------------------------------------------
Operating Expenses
Three months ended September
30, Change Nine months ended September 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Operations, product and
technology $ 32,081 $25,856 $ 6,225 24 % $ 91,455 $73,480 $ 17,975 24 %
Marketing 16,941 10,614 6,327 60 % 48,344 34,513 13,831 40 %
Sales, general and
administrative 12,569 6,891 5,678 82 % 34,206 20,762 13,444 65 %
Total operating expenses $ 61,591 $ 43,361 $ 18,230 42 % $ 174,005 $ 128,755 $ 45,250 35 %
Operations, product and
technology as a % of total
revenue 51 % 55 % 51 % 52 %
Marketing as a % of total
revenue 27 % 23 % 27 % 24 %
Sales, general and
administrative as a % of total
revenue 20 % 15 % 19 % 15 %
Operating expenses increased $18.2 million , or 42%, for the three months ended
September 30, 2021 compared to the three months ended September 30, 2020 . Gross
profit increased $13.3 million , or 41% growth in the same period.
Operating expenses increased $45.3 million , or 35%, for the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 . Gross
profit increased $31.5 million , or 32% growth in the same period.
Operating expenses for the three and nine months ended September 30, 2021 have
been growing faster than our gross profit growth for the same periods as we
continue to invest in the expansion of distribution center processing capacity,
marketing efforts, and infrastructure to support being a public company.
Results by operating expenses line item are discussed below.
28
--------------------------------------------------------------------------------Operations, Product and Technology
Three months ended September
30, Change Nine months ended September 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Personnel-related costs $ 20,218 $ 15,260 $ 4,958 32 % $ 58,169 $ 42,268 $ 15,901 38 %
Facilities and other allocated
costs 6,696 5,973 723 12 % 19,197 17,801 1,396 8 %
Inbound shipping 4,987 4,084 903 22 % 13,619 12,247 1,372 11 %
Other 180 539 (359) (67) % 470 1,164 (694) (60) %
Total operations, product and
technology expenses $ 32,081 $ 25,856 $ 6,225 24 % $ 91,455 $ 73,480 $ 17,975 24 %
Operations, product and
technology as % of total revenue 51 % 55 % 51 % 52 %
Personnel-related costs increased by 32% from $15.3 million for the three months
ended September 30, 2020 to $20.2 million for the three months ended
September 30, 2021 due to a 32% increase in average headcount for operations,
research and development as of third quarter 2021 compared to third quarter
2020. Personnel-related costs increased by 38% from $42.3 million for the nine
months ended September 30, 2020 to $58.2 million for the nine months ended
September 30, 2021 due to a 29% increase in the average headcount for
operations, research and development. The increase in both periods was also due
to increases in compensation at distribution centers primarily to attract and
retain processing center staff in order to support our distribution center
operations growth.
Facilities and other allocated costs increased by 12% from $6.0 million for the
three months ended September 30, 2020 to $6.7 million for the three months ended
September 30, 2021 . Facilities and other allocated costs increased by 8% from
$17.8 million for the nine months ended September 30, 2020 to $19.2 million for
the nine months ended September 30, 2021 . The increase in both periods was
primarily due to the addition of our new Georgia distribution center in June
2020 .
Inbound shipping costs increased by 22% from $4.1 million for the three months
ended September 30, 2020 to $5.0 million for the three months ended
September 30, 2021 . Inbound shipping costs increased by 11% from $12.2 million
for the nine months ended September 30, 2020 to $13.6 million for the nine
months ended September 30, 2021 . The increase in both periods was primarily due
to higher shipping volumes and rates. We lifted restrictions on the ability of
sellers to order Clean Out Kits at the end of February 2021 , resulting in more
Clean Out Kits being received.
29
--------------------------------------------------------------------------------
Marketing
Three months ended September
30, Change Nine months ended September 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Marketing and advertising $ 14,651 $ 9,066 $ 5,585 62 % $ 41,614 $ 29,926 $ 11,688 39 %
costs
Other 2,290 1,548 742 48 % 6,730 4,587 2,143 47 %
Total marketing expense $ 16,941 $ 10,614 $ 6,327 60 % $ 48,344 $ 34,513 $ 13,831 40 %
Marketing as % of total
revenue 27 % 23 % 27 % 24 %
Marketing and advertising costs increased 60% for the three months ended
September 30, 2021 , compared to 41% gross profit growth. Marketing and
advertising costs increased 40% for the nine months ended September 30, 2021 ,
compared to 32% gross profit growth. Marketing and advertising costs increased
by 62% from $9.1 million for the three months ended September 30, 2020 to
$14.7 million for the three months ended September 30, 2021 and 39% from
$29.9 million for the nine months ended September 30, 2020 to $41.6 million for
the nine months ended September 30, 2021 . These increases were primarily due to
increased efforts to attract new buyers to our marketplace because our growth
rates during 2020 were impacted by COVID-19 pandemic.
Sales, General and Administrative
Three months ended September
30, Change Nine months ended September 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Personnel-related costs $ 5,446 $ 3,260 $ 2,186 67 % $ 16,249 $ 10,195 $ 6,054 59 %
Professional services 2,570 1,363 1,207 89 % 5,861 3,315 2,546 77 %
Payment processing fees 2,198 1,416 782 55 % 6,024 4,703 1,321 28 %
Other 2,355 852 1,503 176 % 6,072 2,549 3,523 138 %
Total sales, general and
administrative costs $ 12,569 $ 6,891 $ 5,678 82 % $ 34,206 $ 20,762 $ 13,444 65 %
Sales, general and administrative 20 % 15 % 19 % 15 %
as % of total revenue
Sales, general and administrative expense increased 82% for the three months endedSeptember 30, 2021 , compared to 41% gross profit growth. Sales, general and administrative expense increased 65% for the nine months endedSeptember 30, 2021 , compared to 32% gross profit growth. This increase in both periods was mainly the result of investments, primarily in personnel and professional services costs, made towards scaling our business and improving our processes as we became a public company. Personnel-related costs increased from$3.3 million for the three months endedSeptember 30, 2020 to$5.4 million for the three months endedSeptember 30, 2021 . Personnel-related costs increased from$10.2 million for the nine months endedSeptember 30, 2020 to$16.2 million for the nine months endedSeptember 30, 2021 . The increases were primarily due to a 46% and a 31% average headcount increase in each comparative period, respectively, to support growth in our corporate functions and other costs 30 -------------------------------------------------------------------------------- related to being a public company. In addition, non-cash stock-based compensation increased by$1.2 million and$3.2 million for the three and nine months endedSeptember 30, 2021 , respectively. Professional services costs increased 89% from$1.4 million for the three months endedSeptember 30, 2020 to$2.6 million for the three months endedSeptember 30, 2021 . Professional services costs increased 77% from$3.3 million for the nine months endedSeptember 30, 2020 to$5.9 million for the nine months endedSeptember 30, 2021 . The increases in both periods were mainly due to an increase in accounting, consulting and legal fees of$1.2 million and$2.5 million for the three and nine months endedSeptember 30, 2021 , respectively, for being a public company and for the Remix acquisition. Payment processing fees increased 55% from$1.4 million for the three months endedSeptember 30, 2020 to$2.2 million or the three months endedSeptember 30, 2021 . Payment processing fees increased 28% from$1.3 million for the nine months endedSeptember 30, 2020 to$4.7 million for the nine months endedSeptember 30, 2021 . The increases in both periods were mainly due to an increase in overall sales. Other expenses increased from$0.9 million for the three months endedSeptember 30, 2020 to$2.4 million for the three months endedSeptember 30, 2021 . Other expenses increased from$2.5 million for the nine months endedSeptember 30, 2020 to$6.1 million for the nine months endedSeptember 30, 2021 . The increases in both periods were mainly due to insurance and other costs related to being a public company and as well as technology and other costs to support our growing business. We believe that our expenses in operations, product and technology, marketing, and sales, general and administrative will continue to increase sequentially in absolute dollars in the fourth quarter of 2021, primarily due to the inclusion of the Remix business. Additionally, we will continue to make investments in processing capacity for our future growth, increase marketing spend to acquire new customers and spend on infrastructure to support our development as a public company. Liquidity and Capital Resources As ofSeptember 30, 2021 , we had cash and cash equivalents of$160.9 million and an accumulated deficit of$297.4 million . Since our founding, we have generated negative cash flows from operations and have primarily financed our operations through private and public sales of equity securities and debt. Additionally, we currently have a term loan facility withWestern Alliance Bank . InMarch 2021 , we completed our IPO for aggregate net proceeds of$175.5 million , net of offering costs, underwriter discounts and commissions of$17.7 million . InAugust 2021 , we completed our follow-on public offering and sold an aggregate of 2,000,000 shares. The aggregate net proceeds were$45.5 million after deducting$3.3 million of underwriter discounts and commissions and offering costs. We expect operating losses and negative cash flows from operations to continue into the foreseeable future as we continue to invest in growing our business and expanding our infrastructure. Our primary use of cash includes operating costs such as distribution center operating costs and product and technology expenses, marketing expenses, personnel expenses and other expenditures necessary to support our operations and our growth. Additionally, our primary capital expenditures are related to the set-up, automation and expansion of our distribution centers. Based upon our current operating plans, we believe that our existing cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. Our future capital requirements will depend on many factors, including, but not limited to the timing of our increased distribution center automation and expansion plans to support planned revenue growth, the expansion of sales and marketing activities, the potential introduction of new offerings and new RaaS clients, the continuing growth of our marketplace and overall economic conditions. We may seek additional equity or debt financing. If we raise equity financing, our stockholders may experience 31 -------------------------------------------------------------------------------- significant dilution of their ownership interests. If we conduct an additional debt financing, the terms of such debt financing may be similar or more restrictive than our current term loan facility and we would have additional debt service obligations. 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 harmed. See the section titled "Risk Factors-Risks Relating to Our Business and Industry-We may require additional capital to support business growth, and this capital might not be available or may be available only by diluting existing stockholders." Cash Flows The following table summarizes our cash flows for the periods indicated. Nine months ended September 30, 2021 2020 (in thousands) Net cash provided by (used in): Operating activities $ (14,132)$ (4,863) Investing activities (116,322) (14,359) Financing activities 229,032 13,396
Net increase (decrease) in cash, cash equivalents and restricted cash
$
98,578
Changes in Cash Flow from Operating Activities For the nine months endedSeptember 30, 2021 , net cash used in operating activities was$14.1 million , which consisted of a net loss of$45.3 million , partially offset by non-cash charges of$20.5 million and a net change of$10.6 million in our operating assets and liabilities. The change in operating assets and liabilities is due to a$14.1 million increase in accrued and other current liabilities, primarily resulting from an increase in allowance for returns and accrued vendor liabilities due to higher operating expenses as we grow our business and a$4.6 million increase in seller payable due to the timing of payments. These changes were partially offset by a$4.7 million increase in other current and non-current assets resulting from an increase in prepaid insurance and a reduction in operating lease liabilities of$3.2 million resulting from the payment of leases. For the nine months endedSeptember 30, 2020 , net cash used in operating activities was$4.9 million , which consisted of a net loss of$30.9 million , partially offset by a net change of$14.0 million in our operating assets and liabilities and non-cash adjustment of$12.0 million . Changes in Cash Flow from Investing Activities For the nine months endedSeptember 30, 2021 , net cash used in investing activities was$116.3 million , which was driven by$102.7 million in new purchases of marketable securities and$15.2 million of capital expenditures primarily for our distribution centers, partially offset by$1.6 million maturities of marketable securities. For the nine months endedSeptember 30, 2020 , net cash used in investing activities was$14.4 million , which consisted of capital expenditures primarily for our distribution centers. Changes in Cash Flow from Financing Activities For the nine months endedSeptember 30, 2021 , net cash provided by financing activities was$229.0 million , which consisted mainly of$222.7 million in net proceeds from the sale of Class A common 32 -------------------------------------------------------------------------------- stock offerings,$4.6 million in net debt financing proceeds and$3.8 million from proceeds from exercise of common stock options and withholding taxes for the net share settlement of restricted stock units. These proceeds were partially offset by$3.6 million in offering costs paid for the IPO,$2.0 million in repayment of debt, and$0.6 million in offering costs paid for the follow-on offering. For the nine months endedSeptember 30, 2020 , net cash provided by financing activities was$13.4 million , which consisted mainly of$13.4 million proceeds from net debt issuance and$1.8 million proceeds from exercise of common stock options. These proceeds were partially offset by a$1.2 million repayment of debt. Contractual Obligations and Commitments We entered into an additional$5.0 million term loan withWestern Alliance Bank inFebruary 2021 , the contract to acquire Remix inJuly 2021 (Refer to Note 1, Organization and Description of Business), and into lease obligations of approximately$28.1 million in aggregate inSeptember 2021 (Refer to Note 6, Lease Agreements). Other than this, there have been no material changes to our contractual obligations, as compared to those disclosed as ofDecember 31, 2020 in the Prospectus. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including any entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical Accounting Policies and Estimates Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance withUnited States generally accepted accounting principles ("GAAP"). The preparation of these financial statements requires us 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 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. There have been no significant changes to our critical accounting policies sinceDecember 31, 2020 . For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements, refer to the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Prospectus. Recent Accounting Pronouncements For information on recently issued accounting pronouncements, refer to Note 2 titled "Significant Accounting Policies" to our unaudited condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements. JOBS Act Accounting Election We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act ("JOBS Act"). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to 33 -------------------------------------------------------------------------------- use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. 34
--------------------------------------------------------------------------------
© Edgar Online, source
