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, including marketplace, product sales and Resale-as-a-Service offerings. The filing covers the unaudited quarter and six months ended June 30, 2022. Results include European operations acquired through Remix in October 2021.
Key Financial Metrics
| Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 |
|---|---|---|---|---|
| Revenue | $76.4 million | $60.0 million | $149.1 million | $115.6 million |
| Gross profit | $52.6 million | $44.1 million | $102.9 million | $83.9 million |
| Gross margin | 69% | 74% | 69% | 73% |
| Operating loss | $28.3 million | $13.9 million | $48.9 million | $28.6 million |
| GAAP net loss | $28.4 million | $14.4 million | $49.1 million | $30.6 million |
| Adjusted EBITDA loss | $13.5 million | $9.0 million | $26.5 million | $18.2 million |
| Net cash used in operating activities | Not separately provided | Not separately provided | $24.8 million | $9.1 million |
Q2 revenue increased 27% year over year, while gross profit increased 19%. Net loss margin widened to negative 37% from negative 24%, and Adjusted EBITDA margin declined to negative 18% from negative 15%.
- Consignment revenue was essentially flat in Q2 at $48.5 million and increased 3% for the six-month period.
- Product revenue increased 145% in Q2 and 138% for the six-month period, primarily from the European business and higher domestic finished-goods purchases.
- Active buyers increased 29% to 1.72 million, and orders increased 40% to 1.70 million in Q2.
- Revenue per order declined 9% in Q2 and 10% for the six-month period, primarily due to lower European revenue per order.
- Operating expenses increased 40% in Q2 and 35% for the six-month period. Operations, product and technology expense increased 42% in Q2; marketing increased 23%; and sales, general and administrative expense increased 58%.
- Stock-based compensation expense was $10.1 million in Q2 and $13.6 million for the six-month period, compared with $2.9 million and $6.4 million, respectively, in the prior-year periods.
Liquidity, Debt and Cash Flow
- As of June 30, 2022, cash and cash equivalents were $52.2 million, marketable securities were $96.3 million, and cash, cash equivalents and short-term marketable securities totaled $148.5 million.
- Cash, cash equivalents and restricted cash declined by $32.5 million during the first six months to $59.4 million.
- Capital expenditures were $27.6 million for the first six months, primarily for new distribution centers and infrastructure.
- Long-term debt outstanding was $32.0 million, down from $36.0 million at December 31, 2021. The company repaid $4.0 million during the first six months and was in compliance with its debt covenants.
- On July 14, 2022, the company amended its term loan, increasing total borrowing availability to $70.0 million, extending maturity to July 14, 2027, and making an additional $38.0 million equipment-financing tranche available. Borrowings carry interest based on the prime rate plus a margin, subject to a floor.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven primarily by Remix and higher product revenue rather than growth in consignment revenue.
- Gross margin declined by 471 basis points in Q2 because European operations are predominantly product-based and have lower margins than consignment sales.
- Labor, processing, shipping, facilities, technology and public-company costs increased, contributing to substantially wider operating and net losses.
- Operating cash burn increased to $24.8 million from $9.1 million for the comparable six-month period, while capital expenditures increased to $27.6 million from $9.0 million.
- The company incurred $1.1 million of restructuring charges in Q2 and $1.4 million for the first six months. It restructured certain back-office functions and closed its Tennessee processing center, consolidating operations into Texas.
- Foreign currency translation losses of $3.0 million for the first six months reduced accumulated other comprehensive income.
Outlook, Commentary, Risks and Unusual Items
Management expects operating losses and negative operating cash flows to continue for the foreseeable future while the company invests in distribution capacity, automation, technology, marketing and international expansion. 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 also noted that additional equity or debt financing may be required.
- Revenue and order growth slowed in the second half of June amid global economic uncertainty, inflation and weaker discretionary spending.
- COVID-19-related labor shortages, supply-chain disruption and higher labor and processing costs continued to affect operations.
- Inflation, fuel and freight costs, higher wages, rising interest rates and foreign-exchange movements may pressure margins, borrowing costs and consumer demand.
- The company expects European operations to increase cost of revenue as a percentage of revenue in the short term because of their lower product margins.
- Management disclosed that disclosure controls and procedures were not effective as of June 30, 2022 because of a previously reported material weakness in internal controls over financial reporting. The weakness involves information-technology controls, account reconciliations, journal-entry review and staffing. Remediation remains in progress.
- The company reported no material pending legal proceedings and stated that ordinary-course litigation is not expected to have a material adverse effect.
Important Facts for Investors to Verify
- Whether customer, order and revenue growth can continue after the slowdown observed late in June 2022.
- Whether the European product mix will cause sustained gross-margin pressure and lower revenue per order.
- The pace of operating cash burn, capital expenditures and distribution-center expansion relative to the $148.5 million of cash and short-term marketable securities.
- Compliance with the amended term-loan covenants, including cash availability, cash-holding and minimum-revenue requirements.
- Progress and timing of remediation of the material weakness in internal controls.
- Whether restructuring activities deliver expected savings without additional charges or operational disruption.
- The effect of inflation, labor availability, interest rates, foreign-exchange movements and consumer discretionary spending on future results.