ThredUp Inc. Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual report, not a standalone fourth-quarter filing. ThredUp operates an online resale marketplace for apparel, shoes and accessories, supplemented by Resale-as-a-Service offerings and European operations acquired through Remix in October 2021.
Financial and Operating Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $288.4 million | $251.8 million | 14.5% increase |
| Consignment revenue | $175.0 million | $186.1 million | 6.0% decrease |
| Product revenue | $113.4 million | $65.7 million | 72.6% increase |
| Gross profit | $192.3 million | $178.1 million | 8.0% increase |
| Gross margin | 66.7% | 70.7% | Down 400 basis points |
| Operating loss | $89.5 million | $62.4 million | Loss increased |
| Net loss attributable to common stockholders | $92.3 million | $63.2 million | Loss increased 46.1% |
| Net loss margin | (32.0%) | (25.1%) | 45 basis points worse |
| Adjusted EBITDA loss | $43.4 million | $36.5 million | Loss increased 18.9% |
| Operating cash flow | $(52.1) million | $(35.0) million | Cash use increased |
| Active buyers | 1.65 million | 1.69 million | 2.4% decrease |
| Orders | 6.51 million | 5.33 million | 22.1% increase |
Consignment revenue represented 60.7% of total revenue versus 73.9% in 2021. Product revenue grew primarily because of the inclusion of Remix operations and was recorded on a gross basis, but carried lower margins. Consignment gross margin improved to 78.8% from 77.5%, while product gross margin declined to 47.9% from 51.6%.
Operating expenses increased to $281.8 million from $240.5 million. Operations, product and technology expense increased 21.5% to $155.6 million; marketing increased 1.2% to $64.4 million; and sales, general and administrative expense increased 26.6% to $61.8 million. Stock-based compensation increased to $26.8 million from $13.0 million.
Liquidity, Debt and Cash Flow
- Cash and cash equivalents were $38.0 million, and marketable securities were $66.9 million, for total cash, cash equivalents and short-term marketable securities of $104.9 million at year-end.
- Net cash used in operating activities was $52.1 million. Investing activities provided $8.9 million, while financing activities used $3.9 million.
- Cash, cash equivalents and restricted cash declined to $44.1 million from $91.8 million.
- Term-loan borrowings outstanding were $30.3 million, with $38.0 million of additional borrowing capacity available under the facility as of year-end. The loan matures July 14, 2027 and bears interest at the prime rate plus 1.25%, subject to a 6.00% floor.
- The company was in compliance with its debt covenants at December 31, 2022. Scheduled principal payments total $4.0 million annually from 2023 through 2026, with $14.3 million scheduled in 2027.
- Operating lease liabilities totaled $55.1 million, and non-cancellable purchase obligations totaled $5.7 million.
Material Changes and Unusual Items
- Revenue growth slowed beginning in June 2022 and continued to weaken in the second half of the year, reflecting inflation, higher interest rates, economic uncertainty, weaker discretionary spending and increased retail promotions.
- The company restructured corporate and managerial functions, closed processing centers in Tennessee and Texas, and consolidated operations into its Texas distribution center. Restructuring charges were $3.2 million.
- The company recorded a $3.8 million impairment of a non-marketable equity investment.
- Capital expenditures increased to $43.3 million from $19.8 million, primarily for distribution-center expansion and automation. Management expects capital expenditures to decline significantly in 2023 after completing the first phase of a new Texas distribution center.
- The U.S. dollar’s appreciation negatively affected European sales, although management stated that foreign-exchange movements did not have a significant effect on consolidated financial results. Foreign-currency translation loss was $2.4 million.
Outlook, Commentary and Principal Risks
Management expects operating losses and negative operating cash flow to continue in the near term while the company invests in supply, technology, automation, marketing and infrastructure. Management believes existing cash, investments and available borrowing capacity will meet short- and long-term requirements under current plans, but acknowledges that additional equity or debt financing may be required.
- Key business risks include continued losses, declining active buyers, weaker consumer demand, competition from resale platforms and retailers, supply quality and processing capacity, shipping and labor-cost inflation, and the uncertain profitability of RaaS offerings.
- The company relies on third-party infrastructure, payment processors, shipping providers and digital advertising platforms. Service interruptions, pricing changes, cybersecurity incidents or algorithm changes could adversely affect results.
- COVID-19 effects, geopolitical instability related to Ukraine, Ukrainian IT contractors, foreign-currency movements and evolving privacy regulations remain relevant operating risks.
- Management and the auditors identified a material weakness in internal control over financial reporting related to account reconciliations, journal entries and insufficient accounting personnel. Disclosure controls and internal control over financial reporting were not effective at December 31, 2022; remediation remains in progress.
- The dual-class structure gives Class B holders approximately 81.3% of voting power, limiting Class A stockholders’ influence. The dual-class structure is scheduled to sunset on March 30, 2028, subject to the company’s governing documents.
Investor Verification Checklist
- Verify whether revenue growth can continue without further deterioration in active buyers, consignment revenue or gross margin.
- Assess the effect of Remix and the increasing mix of lower-margin product revenue on consolidated profitability.
- Monitor operating cash burn, available liquidity, capital expenditures and compliance with loan covenants.
- Track progress in remediating the material weakness in internal control over financial reporting.
- Evaluate whether restructuring and automation produce the expected cost savings and operating leverage.
- Review future RaaS client growth, retention, unit economics and contribution to revenue and supply.
- Assess exposure to inflation, interest rates, shipping costs, consumer demand, European currency movements and Ukraine-related disruptions.
- Consider dilution risk from equity compensation, including $58.7 million of unrecognized RSU compensation and approximately 7.9 million nonvested RSUs outstanding at year-end.