ThredUp Inc. 2022 First-Quarter Form 10-Q Summary
Business Context and Reporting Period
ThredUp operates an online resale marketplace for primarily women’s and children’s apparel, shoes and accessories, along with Resale-as-a-Service offerings. The unaudited reporting period ended March 31, 2022. Results include the European operations acquired through Remix Global EAD, which was acquired in October 2021.
Financial Results and Key Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $72.7 million | $55.7 million | Up 31% |
| Gross profit | $50.2 million | $39.7 million | Up 26% |
| Gross margin | 69% | 71% | Down 224 basis points |
| Operating loss | $20.6 million | $14.7 million | Higher loss |
| Net loss | $20.7 million | $16.2 million | Higher loss |
| Net loss per share | $0.21 | $0.86 | Lower loss per share due largely to higher share count |
| Adjusted EBITDA loss | $13.0 million | $9.1 million | Higher loss |
| Adjusted EBITDA margin | (18%) | (16%) | Down 2 percentage points |
- Consignment revenue increased 6% to $47.4 million, while product revenue increased 130% to $25.3 million. Product revenue represented 35% of total revenue versus 20% in the prior-year quarter.
- Orders increased 45% to 1.64 million and active buyers increased 33% to 1.72 million. Revenue per order declined 10%, primarily because European operations generated lower revenue per order than domestic operations.
- Operating expenses increased 30% to $70.8 million, led by higher operations, product and technology costs, personnel, facilities, infrastructure, public-company costs and European expansion expenses.
- Consignment gross margin improved to 79% from 76%, while product gross margin declined to 51% from 53%. The consolidated margin decline primarily reflected the higher mix of lower-margin product revenue from Europe.
- Net cash used in operating activities was $6.7 million, compared with $1.1 million of cash provided in Q1 2021. Capital expenditures were $12.6 million, primarily for new distribution centers.
- Cash, cash equivalents and marketable securities totaled $183.8 million at March 31, 2022, compared with $205.8 million at December 31, 2021. Cash, cash equivalents and restricted cash were $75.9 million.
- Total debt principal outstanding was $34.0 million, with $7.8 million classified as current. The term loan had a 5.50% nominal interest rate and a 6.65% effective interest rate; the Company was in compliance with its covenants.
- Property and equipment, net increased to $73.1 million from $55.5 million at year-end 2021, reflecting infrastructure and distribution-center investment.
Material Changes Versus the Prior Comparable Period
- Revenue growth accelerated through increased orders, active buyers and the addition of Remix, but the revenue mix shifted toward product sales with lower gross margins.
- Gross profit grew more slowly than revenue, and operating and Adjusted EBITDA losses widened as the Company invested in capacity, technology, personnel, marketing, public-company infrastructure and European expansion.
- Liquidity declined by approximately $22.0 million from year-end, primarily due to operating cash burn, capital expenditures and debt repayment. Q1 2021 liquidity had benefited from IPO proceeds, whereas Q1 2022 had no comparable equity financing.
- Accumulated deficit increased to $336.1 million from $315.3 million.
- Unrealized losses on marketable securities increased, contributing $1.0 million to other comprehensive loss. Foreign currency translation adjustments contributed an additional $0.7 million of comprehensive loss.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide specific quantitative revenue, margin or earnings guidance. Management expects operating losses and negative operating cash flows to continue for the foreseeable future.
- Management stated that existing cash, cash equivalents and short-term marketable securities are expected to satisfy current short- and long-term capital requirements under current operating plans, while noting that additional financing may be required and could cause dilution or add debt-service obligations.
- COVID-19 recovery and reopening increased demand, but labor shortages, wage inflation, freight, processing and other costs negatively affected margins and expenses. The Company expects continuing short-term adverse effects from the pandemic and related uncertainty.
- Inflation, rising interest rates, supply-chain and labor constraints, foreign-currency exposure related to Remix, competitive pressures and the ability to scale processing capacity are material risks.
- The Company continues to report a material weakness in internal control over financial reporting involving information-technology controls, account reconciliations, journal entries and staffing. Disclosure controls were therefore not effective as of March 31, 2022, although management concluded that the interim financial statements fairly present the reported results.
- New distribution centers in Texas and Bulgaria were under construction. The Company also entered into additional long-term lease commitments in Sofia, Bulgaria.
- No material pending legal proceedings or material changes to previously disclosed risk factors were reported.
Investor Verification Priorities
- Verify whether European operations can improve product gross margins and revenue per order as integration progresses.
- Monitor operating cash burn, capital expenditures, distribution-center expansion and the resulting liquidity runway.
- Assess the path toward positive Adjusted EBITDA and GAAP profitability as operating expenses continue to grow faster than gross profit.
- Track labor, wage, freight and inflationary pressures and their effects on cost of revenue and operations expenses.
- Confirm remediation and sustained effectiveness of the material weakness in internal control over financial reporting.
- Review term-loan maturities, interest-rate exposure and compliance with debt covenants.
- Evaluate foreign-currency effects, lease commitments and integration risks associated with Remix.