ThredUp Inc. — Form 10-Q Summary
Business Context and Reporting Period
ThredUp operates an online resale platform for primarily women’s and children’s apparel, shoes and accessories, supported by its U.S. marketplace, Resale-as-a-Service offerings and European operations acquired through Remix Global EAD. This unaudited Form 10-Q covers the three months ended March 31, 2023, compared with the three months ended March 31, 2022.
Financial Performance and Position
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $75.9 million | $72.7 million | 4.4% increase |
| Gross profit | $51.1 million | $50.2 million | 1.7% increase |
| Gross margin | 67.3% | 69.1% | Down 180 bps |
| Operating loss | $20.2 million | $20.6 million | Improved by $0.4 million |
| Net loss | $19.8 million | $20.7 million | Improved by 4.4% |
| Net loss margin | 26.1% | 28.5% | Improved by 240 bps |
| Adjusted EBITDA loss | $6.6 million | $13.0 million | Improved by $6.3 million |
| Adjusted EBITDA loss margin | 8.7% | 17.8% | Improved by 910 bps |
| Cash used in operating activities | $4.5 million | $6.7 million | Improved by $2.2 million |
Consignment revenue declined 2.0% to $46.5 million, while product revenue increased 16.6% to $29.4 million. Management attributed the product growth primarily to European operations and increased supply from RaaS partners. Product revenue represented 38.8% of total revenue versus 34.7% in the prior-year quarter.
Operating expenses were $71.3 million, broadly stable year over year. Operations, product and technology expense declined 2.1%, marketing expense declined 0.6%, and sales, general and administrative expense increased 9.5%. Stock-based compensation increased to $9.4 million from $3.5 million, including a $2.4 million charge related to accelerating the vesting schedule of substantially all outstanding restricted stock units.
At March 31, 2023, cash and cash equivalents were $50.7 million, marketable securities were $42.7 million, and total cash, cash equivalents and short-term marketable securities were approximately $93.5 million. Total assets were $294.8 million and stockholders’ equity was $131.1 million.
Outstanding term-loan principal was $29.3 million, including $3.9 million classified as current. The loan matures in July 2027, bears interest at the prime rate plus 1.25% subject to a 6.00% floor, and had an effective interest rate of 10.22% at quarter end. The company repaid $1.0 million during the quarter and remained in compliance with its debt covenants. Approximately $38.0 million remained available under the facility.
Material Changes Versus the Prior Comparable Period
- Revenue increased 4.4%, driven by product revenue growth, while consignment revenue decreased.
- Gross margin declined because product revenue, which carries a lower margin than consignment revenue, comprised a larger share of sales. Product gross margin fell to 47.0% from 50.8%, while consignment gross margin improved to 80.2% from 78.8%.
- Active buyers declined 2.7% to 1.7 million, and orders declined 7.9% to 1.5 million.
- Net loss improved modestly, while Adjusted EBITDA loss improved substantially, primarily reflecting lower operating losses and higher add-backs, including stock-based compensation.
- Operating cash burn improved to $4.5 million from $6.7 million. Investing cash flow was positive $18.9 million, primarily due to $24.6 million of marketable-security maturities, while capital expenditures declined to $5.7 million from $12.6 million.
- Cash, cash equivalents and restricted cash increased by $12.7 million during the quarter, ending at $56.8 million.
- Shares issued and outstanding increased to 102.8 million at March 31, 2023 from 101.5 million at December 31, 2022. On April 17, 2023, the company issued approximately 130,600 Class A shares to Remix sellers under the acquisition agreement.
Guidance, Outlook, Risks and Unusual Items
Management expects operating losses and negative operating cash flow to continue in the near term while the company invests in its marketplace, technology and distribution infrastructure. Management stated that existing cash, cash equivalents and short-term marketable securities are expected to meet short- and long-term capital requirements under current plans, but noted that future capital needs could increase with distribution-center automation, marketing, new offerings, RaaS expansion and economic conditions.
The company does not anticipate adding distribution-center locations in the near term and expects capital expenditures to decline significantly in 2023 as the first phase of its Texas distribution center is completed. The filing does not provide formal quarterly or full-year revenue or earnings guidance.
- Inflation, wage rates, transportation, freight, processing and utility costs are pressuring margins and operating expenses. Higher interest rates and recession concerns may reduce consumer demand.
- The term loan carries variable-rate exposure; a 1% annual rate change would affect annual interest expense by approximately $0.3 million if borrowings remained constant.
- The company maintains minimum cash deposits with Western Alliance Bank under its loan agreement and relies on an insured cash sweep program. The filing highlights potential liquidity and borrowing-access risks arising from instability or insolvency in the regional banking sector.
- Foreign-currency exposure, principally to the Bulgarian lev, affects the Remix business. The company does not currently use foreign-currency hedges.
- Management reported that disclosure controls and procedures were not effective as of March 31, 2023 because of a previously reported material weakness in internal control over financial reporting related to account reconciliations, journal entries and staffing. Remediation efforts are ongoing.
- No material pending legal proceedings were reported. Management does not expect ordinary-course claims to have a material adverse effect.
- The company adopted the expected-credit-loss standard in the first quarter of 2023; management stated that adoption did not have a material impact.
Important Facts for Investors to Verify
- Whether revenue growth can continue despite declines in active buyers and orders.
- Whether the mix shift toward lower-margin product revenue stabilizes or further reduces consolidated gross margin.
- The pace of reduction in operating losses, Adjusted EBITDA losses and operating cash burn.
- Cash runway, capital-expenditure requirements and the availability and covenant conditions of the Western Alliance term-loan facility.
- The effect of variable interest rates, inflation, labor and transportation costs on margins.
- Progress toward remediating the material weakness in internal control over financial reporting.
- The sustainability of European and RaaS growth and the related foreign-currency and execution risks.
- The impact of elevated stock-based compensation and potential future equity dilution.