ThredUp Inc. 2023 Form 10-K Summary
Business context and reporting period
ThredUp operates an online resale marketplace for apparel, shoes and accessories in the United States and Europe, supplemented by Resale-as-a-Service offerings for brands and retailers. This filing covers the fiscal year ended December 31, 2023, rather than a standalone fourth quarter.
At year-end, the Company operated five distribution centers with collective capacity exceeding 12.0 million items and processing capacity above 100,000 unique SKUs per day. It served more than 50 RaaS clients and employed 2,377 employees and professional contractors.
Financial and operating metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $322.0 million | $288.4 million | 11.7% increase |
| Consignment revenue | $213.6 million | $175.0 million | 22.1% increase |
| Product revenue | $108.4 million | $113.4 million | 4.4% decrease |
| Gross profit | $213.8 million | $192.3 million | 11.2% increase |
| Gross margin | 66.4% | 66.7% | 30 basis-point decline |
| Operating loss | $71.8 million | $89.5 million | Improved |
| Net loss | $71.2 million | $92.3 million | 22.8% improvement |
| Net loss margin | 22.1% | 32.0% | Improved |
| Adjusted EBITDA loss | $17.4 million | $43.4 million | 59.9% improvement |
| Active buyers | 1.8 million | 1.7 million | 8.8% increase |
| Orders | 6.9 million | 6.5 million | 6.2% increase |
Revenue growth was driven by higher active buyers, orders and a 5.1% increase in net revenue per order. Consignment revenue represented 66.3% of total revenue, compared with 60.7% in 2022.
Consignment gross margin improved to 81.4% from 78.8%, primarily due to lower outbound shipping, labor and packaging costs. Product gross margin declined to 36.8% from 47.9%, primarily reflecting lower-margin European operations, higher seller payouts and an aged-inventory impairment. The filing does not provide the impairment amount, but states that it reduced product gross margin by approximately 280 basis points.
Operating expenses totaled $285.6 million, compared with $281.8 million in 2022. Stock-based compensation increased to $31.7 million from $26.8 million. Basic and diluted loss per share was $0.68, compared with $0.92 in 2022.
Cash flow, liquidity and debt
| Metric | December 31, 2023 | December 31, 2022 |
|---|---|---|
| Cash and cash equivalents | $56.1 million | $38.0 million |
| Marketable securities | $8.1 million | $66.9 million |
| Cash, cash equivalents and short-term marketable securities | $64.2 million | $104.9 million |
| Inventory | $15.7 million | $17.5 million |
| Term loan outstanding | $26.3 million | $30.3 million |
| Total stockholders’ equity | $103.9 million | $140.0 million |
- Cash used in operating activities was $22.6 million, compared with $52.1 million in 2022.
- Investing activities provided $43.7 million, primarily because marketable-security maturities exceeded purchases and capital expenditures declined after completion of the first phase of the Texas distribution center.
- Capital expenditures were $16.0 million, compared with $43.3 million in 2022.
- Financing activities used $3.6 million, including $4.0 million of debt repayment.
- The Term Loan matures July 14, 2027, bears variable interest tied to the prime rate plus 1.25%, and had an effective interest rate of 10.73% at year-end. The Company stated that $22.5 million remained available for certain equipment purchases and that it was in compliance with all debt covenants.
- Operating lease liabilities totaled $50.6 million on a present-value basis, and non-cancellable purchase commitments totaled $13.2 million.
Material changes versus the prior comparable period
- Revenue growth accelerated the shift toward consignment revenue, while product revenue declined.
- Gross profit increased, but overall gross margin declined modestly because of materially lower product margins in Europe.
- Net loss and Adjusted EBITDA loss narrowed substantially, reflecting improved operating leverage and lower cash operating outflows.
- Operations, product and technology expense increased only 0.7% despite revenue growth, while marketing and sales, general and administrative expenses increased 3.0% and 1.4%, respectively.
- Marketable securities declined by $58.8 million as securities matured and were used to support operations and liquidity.
- The Company modified the vesting schedule of substantially all outstanding RSUs from four years to three years, recognizing $2.4 million of related accelerated stock-based compensation expense.
- A previously reported material weakness in internal control over financial reporting was remediated, and management concluded that internal control was effective as of December 31, 2023. The independent auditor was not required to provide an internal-control attestation because the Company is an emerging growth company.
Guidance, outlook, risks and unusual items
Management expects operating losses to continue in 2024 while it invests in growth and infrastructure. Based on current plans, it expects existing cash, cash equivalents and short-term marketable securities to meet short- and long-term capital requirements for at least the next 12 months. Capital expenditures are expected to be limited in 2024 because the first phase of the Texas distribution center has been completed.
- Key execution risks include attracting and retaining buyers and sellers, obtaining sufficient high-quality inventory, managing distribution-center capacity and processing times, and achieving profitable scale.
- Competition is intense across online resale, traditional thrift and consignment, off-price retail, fast fashion and large online retailers.
- Macroeconomic risks include inflation, interest rates, fuel and labor costs, reduced consumer discretionary spending, shipping costs and foreign-currency fluctuations.
- Cybersecurity, privacy and third-party infrastructure risks remain significant. The Company reported prior threats and breaches involving its systems or vendors, but stated that cybersecurity risks had not materially affected the business, results of operations or financial condition to date.
- The Company depends on third parties including Western Alliance Bank, shipping providers, payment processors, Amazon Web Services, Shopify and other technology vendors.
- The Company reported no material pending legal proceedings. Management does not expect ordinary-course litigation claims to have a material adverse effect.
- The Company has a history of losses, may require additional capital and is subject to debt covenants, including minimum liquidity and performance requirements. Failure to comply could permit acceleration of the debt and enforcement against substantially all assets.
- The Company has a dual-class capital structure. Class B shares carry ten votes per share, and Class B holders collectively controlled approximately 79.2% of voting power at year-end. The dual-class structure is scheduled to sunset on March 30, 2028, subject to the terms described in the filing.
Important facts for investors to verify
- Whether the transition toward consignment revenue improves product economics and offsets lower-margin European operations.
- The pace at which operating losses and negative operating cash flow decline, and whether the Company achieves sustained positive cash flow.
- Actual 2024 capital expenditures, distribution-center utilization and returns on automation investments.
- Liquidity after scheduled debt repayments, variable-rate interest expense and operating lease obligations.
- The amount and recurrence of European inventory impairments, seller-payout changes and other unusual margin pressures.
- Whether active-buyer, order and net-revenue-per-order growth can continue without disproportionate marketing spending.
- The effectiveness of the remediated internal controls and the potential impact of cybersecurity, privacy, regulatory or third-party service disruptions.