ThredUp Inc. 2022 Q3 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 direct marketplace and Resale-as-a-Service offerings. The company completed its acquisition of Remix Global EAD in 2021, expanding into Europe and adding product-sales operations, men’s items and additional supply channels.
This unaudited quarterly report covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods. The company had 100.7 million common shares outstanding as of September 30, 2022 and was an emerging growth company.
Financial Performance and Key Metrics
| Metric | Q3 2022 | Q3 2021 | First 9 Months 2022 | First 9 Months 2021 |
|---|---|---|---|---|
| Revenue | $67.9 million | $63.3 million | $217.1 million | $178.9 million |
| Gross profit | $44.5 million | $46.1 million | $147.4 million | $129.9 million |
| Gross margin | 65.5% | 72.8% | 67.9% | 72.6% |
| Operating loss | $24.2 million | $15.5 million | $73.1 million | $44.1 million |
| Net loss | $23.7 million | $14.7 million | $72.8 million | $45.3 million |
| Net loss margin | 34.8% | 23.3% | 33.5% | 25.3% |
| Adjusted EBITDA loss | $11.0 million | $7.8 million | $37.5 million | $26.0 million |
| Adjusted EBITDA loss margin | 16.2% | 12.4% | 17.3% | 14.5% |
| Active buyers | 1.7 million | 1.4 million | 1.7 million | 1.4 million |
| Orders | 1.6 million | 1.3 million | 5.0 million | 3.6 million |
- Consignment revenue declined 13.6% in Q3 and 2.7% for the first nine months, while product revenue increased 73.6% and 111.8%, respectively.
- Product revenue represented 38.8% of Q3 revenue versus 24.0% in the prior-year quarter, reflecting the European operations acquired through Remix.
- Higher product revenue and buyer activity increased sales, but product operations carried lower margins. Product gross margin declined to 45.6% in Q3 from 53.3%.
- Operating expenses increased 11.5% in Q3 and 26.7% for the first nine months, driven primarily by operations, product and technology costs, personnel, facilities, European operations and stock-based compensation.
- Stock-based compensation expense was $7.2 million in Q3 and $20.8 million for the first nine months, compared with $3.0 million and $9.4 million in the respective 2021 periods.
Cash Flow, Liquidity and Debt
| Balance or Cash Flow | September 30, 2022 | December 31, 2021 or Prior Period |
|---|---|---|
| Cash and cash equivalents | $36.7 million | $84.6 million |
| Marketable securities | $86.5 million | $121.3 million |
| Cash, cash equivalents and short-term marketable securities | $123.2 million | Not separately stated |
| Total cash, cash equivalents and restricted cash | $44.1 million | $91.8 million |
| Total debt outstanding | $31.3 million | $36.0 million |
| Net cash used in operating activities, first nine months | $36.9 million | $14.1 million |
| Capital expenditures, first nine months | $39.3 million | $15.2 million |
- Net cash used in investing activities was $7.0 million, compared with $116.3 million in the prior-year period, primarily because fewer marketable securities were purchased net of maturities.
- Net cash used in financing activities was $2.9 million, compared with $229.0 million of financing inflows in the prior-year period, which included public equity offerings.
- The amended term loan matures July 14, 2027, bears interest at the Wall Street Journal prime rate plus 1.25%, subject to a 6.00% floor, and had an effective rate of 8.22% at September 30, 2022.
- The term loan facility had $38.0 million of remaining availability, and the company reported compliance with its debt covenants.
- Management expects operating losses and negative operating cash flow to continue for the foreseeable future, but stated that existing cash, cash equivalents and short-term marketable securities should meet current short- and long-term capital requirements under its operating plans.
Material Changes, Outlook and Risks
- Revenue growth slowed beginning in the second half of June 2022 and continued into Q3, which management attributed to global economic uncertainty, higher interest rates, inflation and weaker discretionary spending.
- Labor shortages, wage inflation, supply-chain disruptions and higher processing, freight and facility costs adversely affected gross margin and operating expenses.
- The company restructured certain back-office functions and closed processing centers in Tennessee and Texas, consolidating operations into a Texas distribution center under construction. Restructuring charges were $1.8 million in Q3 and $3.2 million for the first nine months.
- The stronger U.S. dollar negatively affected consolidated sales and produced a $5.3 million unfavorable foreign-currency translation adjustment for the first nine months. Management uses natural hedges and had not entered into currency derivatives.
- Management did not provide a specific quantitative revenue, profitability or Adjusted EBITDA forecast in the filing text. It expects continued investment, operating losses and negative operating cash flow.
- The company reported no material changes to previously disclosed risk factors and no material pending legal proceedings. Key risks include macroeconomic weakness, consumer demand, labor availability, inflation, foreign exchange, execution of European integration and distribution-center expansion, and the need for additional financing if requirements increase.
- Disclosure controls and procedures were ineffective as of September 30, 2022 because of a previously reported material weakness in internal control over financial reporting involving information technology controls, account reconciliations, journal entries and staffing. Remediation was ongoing and had not been completed.
Important Facts for Investors to Verify
- Whether the shift toward lower-margin product revenue and European operations continues to pressure consolidated gross margin.
- Whether active-buyer and order growth can offset slowing revenue growth and weaker consumer discretionary demand.
- The pace of operating cash burn, capital expenditures and distribution-center investment relative to the $123.2 million of cash and short-term marketable securities reported at quarter-end.
- Compliance with the term-loan covenants and the impact of rising prime rates on variable-rate debt.
- Progress in remediating the material weakness in internal control over financial reporting.
- The costs, timing and expected benefits of the restructuring and Texas distribution-center consolidation.
- The extent to which stock-based compensation, restructuring charges and other adjustments affect the company’s non-GAAP Adjusted EBITDA presentation.