ThredUp Inc. Form 10-Q Summary
Business Context and Reporting Period
ThredUp operates an online resale platform for apparel, shoes, and accessories in the United States and Europe, including its managed marketplace and Resale-as-a-Service offerings. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023, compared with the corresponding 2022 periods.
Financial Performance and Liquidity
| Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|---|---|---|---|
| Total revenue | $82.7 million | $76.4 million | $158.6 million | $149.1 million |
| Gross profit | $55.7 million | $52.6 million | $106.8 million | $102.9 million |
| Gross margin | 67.4% | 68.9% | 67.4% | 69.0% |
| Operating loss | $18.7 million | $28.3 million | $38.9 million | $48.9 million |
| Net loss | $18.8 million | $28.4 million | $38.6 million | $49.1 million |
| Net loss per share | $0.18 | $0.29 | $0.37 | $0.50 |
| Adjusted EBITDA loss | $5.0 million | $13.5 million | $11.6 million | $26.5 million |
Consignment revenue increased 10.1% year over year in the second quarter to $53.4 million, while product revenue increased 4.9% to $29.2 million. For the first six months, consignment revenue increased 4.1% to $99.9 million and product revenue increased 10.4% to $58.7 million.
Gross margin declined primarily because of higher inventory costs, a greater contribution from lower-margin product revenue, and the expansion of European operations. Consignment gross margin improved to 82.1% from 78.9%, while product gross margin declined to 40.7% from 51.4%.
Operating expenses decreased 8.1% in the second quarter to $74.4 million. Operations, product, and technology expense declined 9.5%, marketing declined 5.1%, and sales, general, and administrative expense declined 7.8%. Stock-based compensation was $7.6 million in the quarter and $17.0 million year to date.
Active buyers declined 0.8% to 1.7 million, while second-quarter orders increased 5.0% to 1.8 million. Six-month orders declined 1.3% to 3.3 million.
Cash, cash equivalents, and short-term marketable securities totaled $76.9 million at June 30, 2023, including $51.1 million of cash and cash equivalents and $25.9 million of marketable securities. Cash, cash equivalents, and restricted cash totaled $57.1 million.
- Operating cash flow was negative $14.8 million for the first six months, compared with negative $24.8 million in the prior-year period.
- Investing activities provided $29.3 million, primarily because of marketable-security maturities and lower capital expenditures.
- Capital expenditures were $12.3 million, down from $27.6 million.
- Debt outstanding under the term loan was $28.3 million, with $38.0 million remaining available to draw.
- The term 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 10.47% at June 30, 2023.
- The company was in compliance with its debt covenants.
Material Changes Versus the Prior Comparable Period
- Revenue grew 8.2% in the second quarter and 6.3% for the first six months.
- Gross profit increased, but gross margin contracted by 150 basis points in the quarter and 160 basis points year to date.
- Net loss improved by $9.6 million in the quarter and $10.6 million year to date.
- Adjusted EBITDA loss improved substantially, with the margin improving from negative 17.7% to negative 6.1% in the quarter.
- Operating cash burn improved by $10.0 million year to date.
- Cash and cash equivalents increased from $38.0 million at December 31, 2022 to $51.1 million at June 30, 2023, while marketable securities declined from $66.9 million to $25.9 million, primarily reflecting maturities and repositioning of investments.
- Debt declined by $2.0 million from December 31, 2022.
- The company issued 130,597 Class A shares in April 2023 to sellers in connection with the Remix Global EAD acquisition.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management expects operating losses and negative operating cash flow to continue in 2023. Based on current plans, management believes existing cash, cash equivalents, and short-term marketable securities will satisfy short- and long-term capital requirements. The company does not expect to add distribution-center locations in the near term and expects capital expenditures to decline significantly as the first phase of its Texas distribution center is completed. Management may seek additional equity or debt financing.
Inflation, higher interest rates, fuel and labor costs, transportation costs, economic uncertainty, and changing consumer spending patterns have pressured costs, margins, and potentially customer demand. The term loan carries variable-rate exposure; a one-percentage-point annual change in interest rates would affect annual interest expense by approximately $0.3 million, assuming constant borrowings.
The company continues to report a material weakness in internal control over financial reporting related to account reconciliations, journal entries, and insufficient accounting personnel. Disclosure controls and procedures were therefore ineffective as of June 30, 2023. Management has added personnel and implemented new processes and systems, but remediation is not complete.
There were no material pending legal proceedings, and management reported no material changes to previously disclosed risk factors. An unusual item included $2.4 million of stock-based compensation expense recognized in the first quarter from accelerating the vesting schedule of substantially all outstanding restricted stock units.
Investor Verification Points
- Verify whether revenue growth can continue while active buyers remain broadly flat and six-month orders are declining.
- Monitor product gross margin, European operating performance, inventory costs, and the overall gross-margin trajectory.
- Assess the pace of operating-loss and cash-burn reduction against management’s expectation of continued losses in 2023.
- Review liquidity relative to the $28.3 million term loan balance, variable interest rate, covenant requirements, and remaining availability.
- Track completion of the material-weakness remediation and the timing of any auditor confirmation that controls are operating effectively.
- Evaluate the effect of stock-based compensation, restricted-stock-unit dilution, and potential future equity or debt financing.