ThredUp Inc. (TDUP)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full calendar year or any other period.

Overview

ThredUp operates one of the world’s largest online resale platforms for apparel, shoes and accessories. Our mission is to inspire the world to think secondhand first. We believe in a sustainable fashion future and we are proud that our business model creates a positive impact to the benefit of our buyers, sellers, clients, employees, investors and the environment. Our custom-built operating platform consists of distributed processing infrastructure, proprietary software and systems and data science expertise. This platform is powering the rapidly emerging resale economy, one of the fastest growing sectors in retail, according to a GlobalData market survey conducted in January 2023.

ThredUp’s proprietary operating platform is the foundation for our managed marketplace, where we have bridged online and offline technology to make the buying and selling of tens of millions of unique items easy and fun. The marketplaces we have built enable buyers to browse and purchase resale items for primarily apparel, shoes and accessories across a wide range of price points. Buyers enjoy shopping value, premium and luxury brands all in one place, at up to 90% off estimated retail price. Sellers enjoy ThredUp because we make it easy to clean out their closets and unlock value for themselves or for the charity of their choice while doing good for the planet. ThredUp’s sellers order a Clean Out Kit, fill and return it to us using our prepaid label. We take it from there and do the work to make those items available for resale.

In addition to our core marketplace, some of the world’s leading brands and retailers are taking advantage of our RaaS offering, which allows them to conveniently offer a scalable closet clean out service and/or resale shop to their customers. We believe RaaS will accelerate the growth of this emerging category and form the backbone of the modern resale experience.

Recent Business Developments

Discontinued Operations

On November 30, 2024, we divested 91% of our European business and Bulgarian subsidiary, Remix, which qualified for reporting as a discontinued operation. As a result, Remix’s results, including the loss on divestiture, are presented as a single line item, loss from discontinued operations, net of tax in the consolidated statements of income and excluded from continuing operations for all periods presented. Accordingly, any discussion of historical information in Management’s Discussion and Analysis below reflects Remix’s results as a discontinued operation, and amounts, including key operating metrics, and disclosures below pertain to our continuing operations for all periods presented, unless otherwise noted.

In the third quarter of 2024, we recorded a $9.8 million impairment of long-lived assets in connection with the decision to exit the European market, coupled with the decline in our market capitalization. In the fourth quarter, we recognized an $11.3 million loss on the Remix divestiture. Both amounts were included within loss from discontinued operations, net of tax in the consolidated statements of operations for the year ended December 31, 2024.

See Note 15, Discontinued Operations, to the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further details on the transaction.

Overview of 2024 Results from Continuing Operations

Revenue: Total revenue was $260.0 million, an increase of 0.6% year-over-year.

Gross Profit and Margin: Gross profit totaled $207.1 million, representing an increase of 4.4% year-over-year. Gross margin increased by 290 basis points to 79.7% from 76.8% year-over-year.

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Loss from continuing operations: Loss from continuing operations was $40.0 million, or a negative 15.4% of revenue, for the year ended December 31, 2024 as compared to a loss of $52.4 million, or a negative 20.3% of revenue, for the same period in 2023.

Non-GAAP Adjusted EBITDA (loss) from continuing operations(1): Non-GAAP Adjusted EBITDA from continuing operations was $8.7 million, or 3.3% of revenue, for the year ended December 31, 2024 as compared to a non-GAAP Adjusted EBITDA (loss) from continuing operations of $(5.3) million, or (2.1)% of revenue, for the same period in 2023.

Active Buyers and Orders: Active Buyers totaled 1.3 million and Orders totaled 4.9 million in 2024, representing decreases of 6.1% and 0.6%, respectively, compared to the prior year.

Key Financial and Operating Metrics from Continuing Operations

We review a number of operating and financial metrics, including the following key business and non-GAAP metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. These key financial and operating metrics are set forth below for the periods presented.

(1)Non-GAAP Adjusted EBITDA (loss) from continuing operations and Non-GAAP Adjusted EBITDA (loss) from continuing operations margin are non-GAAP measures which may not be comparable to similarly-titled measures used by other companies. See below for a reconciliation of Non-GAAP Adjusted EBITDA (loss) from continuing operations to its most directly comparable GAAP measure, loss from continuing operations.

Active Buyers

An Active Buyer is a ThredUp buyer who has made at least one purchase in the last twelve months. A ThredUp buyer is a customer who has created an account or purchased in our marketplaces, including through our RaaS clients, and is identified by a unique email address. A single person could have multiple ThredUp accounts and count as multiple Active Buyers. The number of Active Buyers is a key driver of revenue for our marketplaces.

Orders

Orders means the total number of orders placed by buyers across our marketplaces, including through our RaaS clients, in a given period, net of cancellations.

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Non-GAAP Financial Measures from Continuing Operations

Non-GAAP Adjusted EBITDA (Loss) from continuing operations and Non-GAAP Adjusted EBITDA (Loss) from continuing operations Margin

Non-GAAP Adjusted EBITDA (loss) from continuing operations means loss from continuing operations adjusted to exclude, where applicable in a given period, stock-based compensation expense, depreciation and amortization, severance and other reorganization costs, interest expense, and provision for income taxes. Non-GAAP Adjusted EBITDA (loss) from continuing operations margin represents Non-GAAP Adjusted EBITDA (loss) from continuing operations divided by Total revenue. We use Non-GAAP Adjusted EBITDA (loss) from continuing operations and Non-GAAP Adjusted EBITDA (loss) from continuing operations margin, which are non-GAAP measures, to evaluate and assess our operating performance and the operating leverage in our business, and for internal planning and forecasting purposes. We believe that Non-GAAP Adjusted EBITDA (loss) from continuing operations and Non-GAAP Adjusted EBITDA (loss) from continuing operations margin, when taken collectively with our GAAP results, may be helpful to investors because they provide consistency and comparability with past financial performance and assist in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results.

The following table provides a reconciliation of loss from continuing operations to non-GAAP Adjusted EBITDA (loss) from continuing operations:

Presentation

Revenue

Our revenue is comprised of consignment revenue and product revenue.

Consignment revenue

We generate consignment revenue primarily from the sale of secondhand apparel, shoes and accessories on behalf of sellers. We recognize consignment revenue, net of seller payouts, discounts, incentives and returns. We expect consignment revenue to continue to increase as we grow our Active Buyers and Orders. Additionally, consignment revenue includes bag fees charged to sellers for processing Clean Out Kits.

Product revenue

We also generate product revenue primarily from the sale of items that we own, which we refer to as our inventory. We recognize product revenue, net of discounts, incentives and returns. We expect the percentage share of product revenue to decrease in the long term as we continue to focus on our consignment model and reduce owned inventory.

Cost of Revenue

Cost of consignment revenue

Cost of consignment revenue consists of outbound shipping, outbound labor and packaging costs. We expect cost of consignment revenue to decrease and gross profit to increase as a percentage of consignment revenue as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

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Cost of product revenue

Cost of product revenue mainly consists of inventory cost, inbound shipping related to the sold merchandise, outbound shipping, outbound labor, packaging costs and inventory write-downs. We expect cost of product revenue to decrease and gross profit to increase as a percentage of product revenue as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

Operating Expenses

Operations, Product and Technology

Operations, product and technology expenses consist primarily of distribution center operating costs and product and technology expenses. Distribution center operating costs mainly include inbound shipping costs, other than those capitalized in inventory, as well as personnel costs, distribution center rent, maintenance and depreciation of equipment and leasehold improvements. Product and technology costs include personnel costs for the design and development of product and the related technology that is used to operate our distribution centers, merchandise science, website development and related expenses for these departments. Operations, product and technology expenses also include an allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect operations, product and technology expenses to increase in absolute dollars in future periods to support our growth, especially as costs to increase our supply (inbound costs) are generally incurred prior to the expected revenue growth. Additionally, we expect to continue investing in automation and other technology improvements to support and drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments, including business acquisitions. We expect these expenses to increase in absolute dollars and decrease as a percentage of revenue over the longer term due to better leverage in our operations.

Marketing

Marketing expense consists primarily of advertising and public relations costs, and personnel costs for employees engaged in marketing. Marketing costs also include an allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect our marketing expenses to fluctuate as a percentage of revenue as we intend to increase marketing spend to drive the growth of our business.

Sales, General and Administrative

Sales, general and administrative expense consists of personnel costs for employees involved in general corporate functions, including accounting, finance, tax, legal and people services, and customer service. Sales, general and administrative also includes payment processing fees, professional fees and allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect to increase sales, general and administrative expense as we grow our infrastructure to support operating as a public company and the overall growth in our business. While these expenses may vary from period to period as a percentage of revenue, we expect them to increase in absolute dollars and decrease as a percentage of revenue over the longer term.

Interest Expense

Interest expense consists of interest and debt issuance costs relating to our term loan facility. Certain 2023 interest costs in conjunction with the build-out of our distribution centers were reclassified from interest expense and capitalized.

Other Income (Expense), Net

Other income (expense), net primarily consists of non-operating income and expenses such as interest income earned on our investments in marketable securities.

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Financial Results from Continuing Operations for the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

Revenue

Total revenue increased $1.5 million, or 0.6%, for the year ended December 31, 2024 as compared to the same period in 2023. The increase in revenue for the year ended December 31, 2024 as compared to the same period in 2023 was driven by a 15.5% growth in consignment revenue, partially offset by a 69.5% decrease in product revenue. The shift reflects our strategic decision to transition our RaaS clients from a product to a consignment model in the third quarter of 2023. The increase in total revenue was due primarily to a 10.6% increase in the average order value, offset by a 6.1% decrease in Active Buyers and a 0.6% decrease in Orders.

Gross Margin

Consignment revenue is recognized net of seller payouts. Seller payouts related to product revenue are included as a component of cost of product revenue. As such, product revenue has a lower gross margin than consignment revenue.

Gross margin was 79.7% and 76.8% for the years ended December 31, 2024 and 2023, respectively, representing an increase of 290 basis points.

The increase in gross margin for the year ended December 31, 2024 as compared to the same period in 2023 was primarily driven by a significantly higher proportion of revenue from the consignment model, which has a higher gross margin than the product model. The transition of our RaaS clients to the consignment model in 2023 contributed to the growth in our consignment revenue, positively impacting our gross margin.

Consignment Gross Margin

Consignment gross margin was 81.5% and 81.4% for the years ended December 31, 2024 and 2023, respectively, remaining relatively flat with a modest increase of 10 basis points, primarily driven by slightly lower outbound shipping and labor costs.

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Product Gross Margin

Product gross margin was 47.2% and 55.3% for the years ended December 31, 2024 and 2023, respectively, representing a decrease of 810 basis points.

The decrease in product gross margin for the year ended December 31, 2024 as compared to the same period in 2023 was primarily due to a 840 basis point increase in product inventory costs. This decrease was partially offset by a 30 basis point decrease in shipping, labor, and packaging costs. The significant decline in cost of product revenue was primarily driven by the transition of our RaaS clients to the consignment model in 2023.

Operations, Product and Technology

Operations, product, and technology expenses decreased $1.1 million or 0.8% for the year ended December 31, 2024 as compared to the same period in 2023. The decrease was primarily driven by a $4.6 million decrease in personnel-related costs following our workforce reorganization in March 2024 and a $0.9 million decrease in facilities, technology and other costs, partially offset by a $3.0 million increase in accelerated depreciation of certain warehouse equipment , a $0.8 million increase in inbound shipping related to consignment revenue, and a $0.6 million increase in severance costs as a result of our workforce reorganization. The decrease in operations, product, and technology expenses as a percentage of total revenue was primarily due to a decrease in operations, product, and technology spend offset by an increase in total revenue, reflecting our ongoing efforts to optimize costs, improve operational efficiency, and leverage economies of scale.

Marketing

Marketing expenses decreased $2.7 million or 5.3% for the year ended December 31, 2024 as compared to the same period in 2023. The decrease was primarily due to a $5.6 million decrease in personnel-related costs following our workforce reorganization in March 2024, of which $3.0 million was related to stock-based compensation expense, partially offset by a $2.7 million increase in advertising costs and a $0.2 million increase in facilities, technology and other costs. The decrease in marketing expenses as a percentage of total revenue was due to a decrease in marketing spend offset by an increase in total revenue, reflecting our efforts to optimize marketing efficiency while leveraging higher revenue growth.

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Sales, General and Administrative

Sales, general, and administrative expenses remained relatively flat, with a modest increase of $0.2 million or 0.3% for the year ended December 31, 2024 as compared to the same period in 2023. The increase was primarily due to a $1.0 million increase in facilities, technology, and other costs, partially offset by a $0.8 million decrease in personnel-related costs following our workforce reorganization in March 2024.

Interest Expense

Interest expense increased $0.3 million for the year ended December 31, 2024 as compared to the same period in 2023. This increase was primarily due to a $0.6 million capitalization of interest costs in the first quarter of 2023 in conjunction with the build-out of our distribution centers, which did not recur in 2024, partially offset by $0.3 million in lower interest costs in 2024 due to reduced outstanding balances.

Other Income, Net

Other income, net increased $0.3 million for the year ended December 31, 2024 as compared to the same period in 2023. The increase was primarily due to a $0.7 million increase in interest income from our marketable securities due to a higher interest rate environment, partially offset by a $0.4 million decrease in claim proceeds for lost shipments.

Liquidity and Capital Resources

We have historically generated negative cash flows from operations and have primarily financed our operations through private and public sales of equity securities and debt. As of December 31, 2024, we had cash, cash equivalents and short-term marketable securities of $44.2 million. Additionally, we have a term loan facility (“Term Loan”) under which $22.5 million remained available to be drawn as of December 31, 2024 for the purchase of certain equipment, and we were in compliance with our debt covenants under the Term Loan as of that date. See Note 8, Long-Term Debt, to the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a further discussion on our Term Loan.

We expect operating losses to continue in 2025 as we continue to invest in growing our business and our infrastructure. Our primary sources of liquidity are cash flows generated from operations, cash on hand and borrowings available under the Term Loan. Our primary use of cash includes seller payouts and product inventory costs, operating costs such as distribution network spend, product and technology expenses, marketing expenses, personnel expenses and other expenditures necessary to support our operations and our growth. Additionally, our primary capital expenditures are related to the set-up, expansion and/or automation of our distribution network. Based upon our current operating plans, we believe that our existing cash, cash equivalents, short-term marketable securities, and remaining availability under the Term Loan will be sufficient for at least the next 12 months to meet our short- and long-term capital requirements, and we do not anticipate expanding our distribution network to include additional locations in the near term. Our cash flow forecast is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

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Our future capital requirements will depend on many factors, including but not limited to, the timing of our increased distribution center automation and expansion plans to support planned revenue growth, the expansion of sales and marketing activities, the potential introduction of new offerings and new RaaS clients, the continuing growth of our marketplaces and overall economic conditions. However, we expect that our capital expenditures will remain modest in 2025. See the section titled “Risk Factors—Risks Relating to Our Indebtedness and Liquidity—We may require additional capital to support business growth, and this capital might not be available or may be available only by diluting existing stockholders.”

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Changes in Cash Flows from Continuing Operating Activities

Net cash provided by continuing operating activities was $4.9 million for the year ended December 31, 2024, compared to net cash used of $9.8 million for the same period in 2023. The $14.7 million increase in continuing operating cash inflows was primarily driven by a $12.4 million reduction in our loss from continuing operations, offset by a $2.2 million decrease in non-cash charges, and $4.5 million of improvements in operating assets and liabilities. This Improvement in operating assets and liabilities was primarily due to: a $12.2 million increase in accounts payables, accrued and other liabilities, primarily reflecting the timing of payments and increased vendor spending; a $3.9 million decrease in accounts receivable due to timing of cash receipts from payment processors; and a $1.0 million increase in operating lease liabilities. This change was partially offset by a $10.7 million decrease in seller payables, primarily due to timing of seller credit cash-outs or redemptions and conversions to gift cards, as well as a $1.5 million decrease in cash inflow from inventory, reflecting a shift in mix from product to consignment following the transition of our RaaS partners to the consignment model in late 2023.

Changes in Cash Flows from Continuing Investing Activities

Net cash used in continuing investing activities was $10.3 million for the year ended December 31, 2024, compared to net cash provided of $46.6 million for the same period in 2023. The $56.8 million increase in continuing investing cash outflows was primarily driven by a $49.5 million decrease in maturities in marketable securities and a $13.9 million increase in purchases of marketable securities, partially offset by a $6.5 million decrease in purchases of property and equipment following the completion of the first phase of our Texas distribution center build-out.

Changes in Cash Flows from Continuing Financing Activities

Net cash used in continuing financing activities was $4.4 million for the year ended December 31, 2024, compared to net cash used of $3.6 million for the same period in 2023. The $0.8 million increase in continuing financing cash outflows was primarily driven by a $1.5 million decrease in proceeds from issuance of stock-based awards, partially offset by a $0.7 million increase in payroll taxes paid on stock-based award activity.

Contractual Obligations

Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. As of December 31, 2024, the value of our non-cancellable unconditional purchase obligations was $9.4 million. See Note 11, Commitments and Contingencies, to the consolidated financial statements included in Part I, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information regarding our purchase obligations.

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For a further discussion on our operating lease commitments and long-term debt as of December 31, 2024, see the sections above as well as Note 7, Leases, and Note 8, Long-Term Debt, to the consolidated financial statements included in Part I, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Indemnification Agreements

In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss or consolidated statements of cash flows.

Critical Accounting Policies and Estimates

Use of Estimates

U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses. Actual results could differ materially from those estimates.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Revenue Recognition

We generate revenue primarily from the sale of secondhand apparel, shoes and accessories on behalf of sellers and partners. We retain a percentage of the proceeds received as payment for our consignment service. We report consignment revenue on a net basis as an agent and not the gross amount collected from the buyer. We recognize consignment revenue upon purchase of the seller’s secondhand item by the buyer.

We also generate revenue from the sale of our purchased inventory which we refer to as product revenue. We sell our purchased inventory mainly through our online marketplaces. We recognize product revenue on a gross basis. Online sales and sales to our retail partners are recognized upon shipment of the purchased secondhand items to the buyer.

Both consignment and product revenue are recognized net of discounts, incentives and returns. Sales tax assessed by governmental authorities is excluded from revenue.

Loyalty points and rewards are accounted for as separate performance obligations and accrued as deferred revenue in the amount of the transaction price allocated to the points and rewards. The allocated transaction price is based on the estimated fair value per point, net of breakage. Breakage is estimated based on our historical redemption rates. Revenue is recognized when the loyalty rewards are redeemed or expire.

We recognize revenue from gift cards when the gift cards are redeemed by the customer. Additionally, we recognize breakage revenue for the portion of gift card values that are not expected to be redeemed. Previously, breakage revenue was estimated when gift card redemption was deemed remote. Beginning in 2024, with more historical data available, breakage revenue is estimated based upon historical customer redemption patterns. Judgment is required in determining the appropriate grouping of gift cards for analyzing breakage rates, redemption patterns, and estimating the ultimate value of gift cards not expected to be redeemed.

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Stock-Based Compensation

We estimate the fair value of stock options and the ESPP at the grant date using the Black-Scholes option-pricing model (the “Black-Scholes Model”). The fair values of RSUs are determined based on our stock price on the date of grant. The fair values of equity awards are recognized as compensation expense over the requisite service period or over the period in which the related services are received (generally the vesting period), using the straight-line method. We account for forfeitures as they occur.

The Black-Scholes Model considers several variables and assumptions in estimating the fair value of stock-based awards. These variables include per share fair value of the underlying common stock, expected term, risk-free interest rate, expected annual dividend yield and expected stock price volatility over the expected term. For all stock options granted to date, we calculated the expected term using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). We determine volatility using the historical volatility of the stock price of similar publicly traded peer companies. The risk-free interest rate is based on the yield available on United States Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not subject to amortization but will be reviewed for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. Operating as one operating and reportable segment, the Company performs a qualitative assessment annually during the fourth quarter to determine if it is more likely than not that the fair value of its single reporting unit is less than its carrying amount. If it is determined that it is more likely than not that the fair value of its single reporting unit is less than its carrying amount, the Company will perform a quantitative assessment, in which it would use a discounted cash flow approach to estimate the fair value of its single reporting unit. If the fair value of the single reporting unit is less than its carrying amount, then an impairment charge is recognized for the difference between the fair value and carrying amount of goodwill.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

New Accounting Pronouncements

See discussion under Note 2, Significant Accounting Policies, to the consolidated financial statements included in Part I, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for information on new accounting pronouncements.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full calendar year or any other period.

Overview

ThredUp operates one of the world’s largest online resale platforms for apparel, shoes and accessories. Our mission is to inspire the world to think secondhand first. We believe in a sustainable fashion future and we are proud that our business model creates a positive impact to the benefit of our buyers, sellers, clients, employees, investors and the environment. Our custom-built operating platform consists of distributed processing infrastructure, proprietary software and systems and data science expertise. This platform is powering the rapidly emerging resale economy, one of the fastest growing sectors in retail, according to a GlobalData market survey conducted in January 2023.

ThredUp’s proprietary operating platform is the foundation for our managed marketplace, where we have bridged online and offline technology to make the buying and selling of tens of millions of unique items easy and fun. The marketplaces we have built enable buyers in the U.S. and in Europe to browse and purchase resale items for primarily apparel, shoes and accessories across a wide range of price points. Buyers love shopping value, premium and luxury brands all in one place, at up to 90% off estimated retail price. Sellers love ThredUp because we make it easy to clean out their closets and unlock value for themselves or for the charity of their choice while doing good for the planet. ThredUp’s sellers order a Clean Out Kit, fill it and return it to us using our prepaid label. We take it from there and do the work to make those items available for resale. Aside from Clean Out Kits, ThredUp also sources inventory from a variety of supply channels, such as wholesale supply in Europe.

In addition to our core marketplace, some of the world’s leading brands and retailers are taking advantage of our RaaS offering, which allows them to conveniently offer a scalable closet clean out service and/or resale shop to their customers. We believe RaaS will accelerate the growth of this emerging category and form the backbone of the modern resale experience domestically and internationally.

Overview of 2023 Results

Revenue: Total revenue was $322.0 million, an increase of 11.7% year-over-year.

Gross Profit and Margin: Gross profit totaled $213.8 million, representing an increase of 11.2% year-over-year. Gross margin decreased by 30 basis points to 66.4% from 66.7% year-over-year.

Net Loss: Net loss was $71.2 million, or a negative 22.1% of revenue, for the year ended December 31, 2023 as compared to a net loss of $92.3 million, or a negative 32.0% of revenue, for the same period in 2022.

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Non-GAAP Adjusted EBITDA(1): Non-GAAP Adjusted EBITDA loss was $17.4 million, or a negative 5.4% of revenue, for the year ended December 31, 2023 as compared to a non-GAAP Adjusted EBITDA loss of $43.4 million, or a negative 15.0% of revenue, for the same period in 2022.

Active Buyers and Orders: Active Buyers totaled 1.8 million and Orders totaled 6.9 million in 2023, representing growth of 8.8% and 6.2%, respectively, compared to the prior year.

Key Financial and Operating Metrics

We review a number of operating and financial metrics, including the following key business and non-GAAP metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. These key financial and operating metrics are set forth below for the periods presented.

(1)Non-GAAP Adjusted EBITDA loss and Non-GAAP Adjusted EBITDA loss margin are non-GAAP measures which may not be comparable to similarly-titled measures used by other companies. See below for a reconciliation of Non-GAAP Adjusted EBITDA loss to net loss.

Active Buyers

An Active Buyer is a ThredUp buyer who has made at least one purchase in the last twelve months. A ThredUp buyer is a customer who has created an account or purchased in our marketplaces, including through our RaaS clients, and is identified by a unique email address. A single person could have multiple ThredUp accounts and count as multiple Active Buyers. The number of Active Buyers is a key driver of revenue for our marketplaces.

Orders

Orders means the total number of orders placed by buyers across our marketplaces, including through our RaaS clients, in a given period, net of cancellations.

Non-GAAP Financial Measures

Non-GAAP Adjusted EBITDA Loss and Non-GAAP Adjusted EBITDA Loss Margin

Non-GAAP Adjusted EBITDA loss means net loss adjusted to exclude, where applicable in a given period, stock-based compensation expense, depreciation and amortization, interest expense, severance and other charges, provision for income taxes, impairment of non-marketable equity investment, and acquisition-related expenses. Non-GAAP Adjusted EBITDA loss margin represents Non-GAAP Adjusted EBITDA loss divided by Total revenue. We use Non-GAAP Adjusted EBITDA loss and Non-GAAP Adjusted EBITDA loss margin, which are non-GAAP measures, to evaluate and assess our operating performance and the operating leverage in our business, and for internal planning and forecasting purposes. We believe that Non-GAAP Adjusted EBITDA loss and Non-GAAP Adjusted EBITDA loss margin, when taken collectively with our GAAP results, may be helpful to investors because they provide consistency and comparability with past financial performance and assist in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results.

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The following table provides a reconciliation of net loss to non-GAAP Adjusted EBITDA loss:

Presentation

Revenue

Our revenue is comprised of consignment revenue and product revenue.

Consignment revenue

We generate consignment revenue from the sale of secondhand apparel, shoes and accessories on behalf of sellers. We recognize consignment revenue, net of seller payouts, discounts, incentives and returns. We expect consignment revenue to continue to increase as we increase our Active Buyers and Orders, and as we recently transitioned our RaaS partners to the consignment model and introduced the consignment model to our European operations.

Product revenue

We also generate product revenue from the sale of items that we own, which we refer to as our inventory. The sales from our European operations are primarily from sale of owned items. We recognize product revenue, net of discounts, incentives and returns. We expect the percentage share of product revenue to decrease in the long term as we recently transitioned our RaaS partners to the consignment model and introduced the consignment model to our European operations.

Cost of Revenue

Cost of consignment revenue

Cost of consignment revenue consists of outbound shipping, outbound labor and packaging costs. We expect cost of consignment revenue to decrease and gross profit to increase as a percentage of consignment revenue as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

Cost of product revenue

Cost of product revenue mainly consists of inventory cost, inbound shipping related to the sold merchandise, outbound shipping, outbound labor, packaging costs and inventory write-downs. We expect cost of product revenue to decrease and gross profit to increase as a percentage of product revenue as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

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Operating Expenses

Operations, Product and Technology

Operations, product and technology expenses consist primarily of distribution center operating costs and product and technology expenses. Distribution center operating costs mainly include inbound shipping costs, other than those capitalized in inventory, as well as personnel costs, distribution center rent, maintenance and depreciation of equipment and leasehold improvements. Product and technology costs include personnel costs for the design and development of product and the related technology that is used to operate our distribution centers, merchandise science, website development and related expenses for these departments. Operations, product and technology expenses also include an allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect operations, product and technology expenses to increase in absolute dollars in future periods to support our growth, especially as costs to increase our supply (inbound costs) are generally incurred prior to the expected revenue growth. Additionally, we expect to continue investing in automation and other technology improvements to support and drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments, including business acquisitions. We expect these expenses to increase in absolute dollars and decrease as a percentage of revenue over the longer term due to better leverage in our operations.

Marketing

Marketing expense consists primarily of advertising, public relations expenditures and personnel costs for employees engaged in marketing. Marketing costs also include an allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect our marketing expenses to fluctuate as a percentage of revenue as we intend to increase marketing spend to drive the growth of our business.

Sales, General and Administrative

Sales, general and administrative expense consists of personnel costs for employees involved in general corporate functions, including accounting, finance, tax, legal and people services, and customer service. Sales, general and administrative also includes payment processing fees, professional fees and allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect to increase sales, general and administrative expense as we grow our infrastructure to support operating as a public company and the overall growth in our business. While these expenses may vary from period to period as a percentage of revenue, we expect them to increase in absolute dollars and decrease as a percentage of revenue over the longer term.

Interest Expense

Interest expense consists of interest and debt issuance costs relating to our term loan facility. Certain interest costs in conjunction with the build-out of our distribution centers in 2022 were reclassified from interest expense and capitalized.

Other Income (Expense), Net

Other income (expense), net consists of non-operating income and expenses such as interest income earned on our investments in marketable securities, impairments of non-marketable equity investments and claim proceeds for lost shipments.

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Financial Results for the Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Revenue

Total revenue increased $33.6 million, or 11.7%, for the year ended December 31, 2023 as compared to the same period in 2022. The increase in revenue for the year ended December 31, 2023 as compared to the same period in 2022 was driven by a 22.1% growth in consignment revenue, partially offset by a 4.4% decrease in product revenue. The increase in total revenue was due primarily to an 8.8% increase in Active Buyers and 6.2% increase in Orders combined with a 5.1% increase in net revenue per Order.

Cost of Revenue

Gross margin was 66.4% and 66.7% for the years ended December 31, 2023 and 2022, respectively, representing a decrease of 30 basis points.

Consignment revenue is recognized net of seller payouts. Seller payouts related to product revenue are included as a component of cost of product revenue. As such, product revenue has a lower gross margin than consignment revenue.

The decrease in gross margin for the year ended December 31, 2023 as compared to the same period in 2022 was due to a decrease in product gross margin by 1110 basis points, primarily driven by our European operations, which have a lower gross margin. This lower product gross margin was offset by a 250 basis point increase in consignment gross margin, primarily driven by lower shipping, labor and packaging costs. The changes in consignment and product gross margins, coupled with the 22.1% increase in consignment revenue and the 4.4% decrease in product revenue, resulted in overall gross margin declining 30 basis points for the year ended December 31, 2023.

Cost of Consignment Revenue

Consignment gross margin was 81.4% and 78.8% for the years ended December 31, 2023 and 2022, respectively, representing an increase of 260 basis points.

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The increase in consignment gross margin for the year ended December 31, 2023 as compared to the same period in 2022 was primarily due to a 250 basis point decrease in outbound shipping, labor and packaging costs.

Cost of Product Revenue

Product gross margin was 36.8% and 47.9% for the years ended December 31, 2023 and 2022, respectively, representing a decrease of 1110 basis points.

The decrease in product gross margin for the year ended December 31, 2023 as compared to the same period in 2022 was primarily due to our European operations, which have a lower product gross margin. Product gross margin decreased primarily due to higher seller payouts and an impairment of aged inventory in our European operations, which unfavorably impacted product gross margin by 1150 and 280 basis points, respectively. This decrease was partially offset by a 170 basis point decrease in inventory costs in the U.S. and a 140 basis point decrease in shipping and labor costs.

Operations, Product and Technology

Operations, product, and technology expenses increased $1.1 million or 0.7% for the year ended December 31, 2023 as compared to the same period in 2022. The increase was primarily due to a $4.4 million increase in facilities, technology, and other costs, of which $2.9 million relates to recognizing incremental rent and depreciation expense on assets related to our Texas distribution center and a $0.3 million increase in inbound shipping. This increase was partially offset by a $2.6 million decrease in personnel-related costs and a $1.0 million decrease in professional services.

Marketing

Marketing expenses increased $1.9 million or 3.0% for the year ended December 31, 2023 as compared to the same period in 2022. The increase was primarily due to a $0.8 million increase in advertising costs and a $1.1 million increase in personnel-related costs, of which $0.6 million was related to stock-based compensation expense.

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Sales, General and Administrative

Sales, general, and administrative expenses increased $0.8 million or 1.4% for the year ended December 31, 2023 as compared to the same period in 2022. The increase was primarily due to a $2.6 million increase in personnel-related costs, of which $2.2 million was related to stock-based compensation expense, and a $1.2 million increase in facilities, technology, and other costs, offset by a $3.0 million decrease in professional services.

Interest Expense

Interest expense increased $1.4 million for the year ended December 31, 2023 as compared to the same period in 2022. This increase was primarily due to a $0.6 million increase in interest costs due to higher interest rates and a $1.0 million decrease in capitalized interest expense in conjunction with the build-out of our distribution centers in 2022, partially offset by a $0.1 million decrease in amortization of debt issuance costs.

Other Income (Expense), Net

Other income (expense), net increased $4.8 million for the year ended December 31, 2023 as compared to the same period in 2022. The net increase was primarily due to a $3.8 million decrease related to an impairment charge related to our non-marketable equity investment in 2022, a $1.7 million increase in interest income on our marketable securities due to a higher interest rate environment, and a $0.1 million foreign currency transaction gain. This increase was partially offset by a $0.8 million decrease in claim proceeds for lost shipments.

Liquidity and Capital Resources

We have historically generated negative cash flows from operations and have primarily financed our operations through private and public sales of equity securities and debt. As of December 31, 2023, we had cash, cash equivalents and short-term marketable securities of $64.2 million. Additionally, we have a term loan facility (“Term Loan”) under which $22.5 million remained available to be drawn as of December 31, 2023 for the purchase of certain equipment, and we were in full compliance with our debt covenants under the Term Loan as of that date. See Note 8, Long-Term Debt, to the Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a further discussion on our Term Loan.

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We expect operating losses to continue in 2024 as we continue to invest in growing our business and our infrastructure. Our primary sources of liquidity are cash flows generated from operations, cash on hand and borrowings available under the Term Loan. Our primary use of cash includes operating costs such as distribution network spend, product and technology expenses, marketing expenses, personnel expenses and other expenditures necessary to support our operations and our growth. Additionally, our primary capital expenditures are related to the set-up, expansion and/or automation of our distribution network. Based upon our current operating plans, we believe that our existing cash, cash equivalents and short-term marketable securities will be sufficient for at least the next 12 months to meet our short- and long-term capital requirements, and we do not anticipate expanding our distribution network to include additional locations in the near term. Our cash flow forecast is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

Our future capital requirements will depend on many factors, including but not limited to, the timing of our increased distribution center automation and expansion plans to support planned revenue growth, the expansion of sales and marketing activities, the potential introduction of new offerings and new RaaS clients, the continuing growth of our marketplaces and overall economic conditions. However, we expect that our capital expenditures will be limited in 2024 as we have completed the first phase of our new distribution center in Texas. See the section titled “Risk Factors—Risks Relating to Our Indebtedness and Liquidity—We may require additional capital to support business growth, and this capital might not be available or may be available only by diluting existing stockholders.”

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Changes in Cash Flows from Operating Activities

Net cash used in operating activities was $22.6 million for the year ended December 31, 2023 compared to the net cash used of $52.1 million same period in 2022. The decrease in cash outflows was primarily due to a $25.7 million decrease in our net loss excluding non-cash expenses. Additionally, changes in operating assets and liabilities were favorable year over year by $3.8 million. This change in operating assets and liabilities was due to a $13.9 million favorable change in accounts and seller payables, consistent with the growth in our consignment business and a $10.1 million reduction in inventory mainly driven by decreased upfront inventory purchases as we transitioned our RaaS partners to the consignment model. This change was partially offset by a $9.9 million unfavorable change in accrued and other liabilities due to timing of vendor payments, an $8.0 million increase in operating lease costs and a $2.6 million unfavorable change in accounts receivable due to timing of cash receipts from payment processors.

Changes in Cash Flows from Investing Activities

Net cash provided by investing activities for the year ended December 31, 2023 increased $34.8 million as compared to the same period in 2022. The favorable change was primarily due to a $21.9 million increase in maturities in marketable securities and a $27.3 million decrease in purchases of property and equipment as we completed the first phase of our Texas distribution center, offset by a $14.4 million increase in purchases of marketable securities.

Changes in Cash Flows from Financing Activities

Net cash used in financing activities for the year ended December 31, 2023 decreased $0.3 million as compared to the same period in 2022, which was primarily due to decreased net debt repayments of $1.9 million, increased proceeds from issuance of stock-based awards of $1.0 million, partially offset by a $2.6 million of increased taxes paid related to stock-based award activity.

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Contractual Obligations

Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. As of December 31, 2023, the value of our non-cancellable unconditional purchase obligations was $13.2 million. See Note 11, Commitments and Contingencies, to the Consolidated Financial Statements included in Part I, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information regarding our purchase obligations.

For a further discussion on our operating lease commitments and long-term debt as of December 31, 2023, see the sections above as well as Note 7, Leases, and Note 8, Long-Term Debt, to the Consolidated Financial Statements included in Part I, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Indemnification Agreements

In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss or consolidated statements of cash flows.

Critical Accounting Policies and Estimates

Use of Estimates

U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses. Actual results could differ materially from those estimates.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Revenue Recognition

We generate revenue primarily from the sale of secondhand apparel, shoes and accessories on behalf of sellers and partners. We retain a percentage of the proceeds received as payment for our consignment service. We report consignment revenue on a net basis as an agent and not the gross amount collected from the buyer. We recognize consignment revenue upon purchase of the seller’s secondhand item by the buyer.

We also generate revenue from the sale of our purchased inventory which we refer to as product revenue. We sell our purchased inventory mainly through our online marketplaces. We recognize product revenue on a gross basis. Online sales and sales to our retail partners are recognized upon shipment of the purchased secondhand items to the buyer.

Both consignment and product revenue are recognized net of discounts, incentives and returns. Sales tax assessed by governmental authorities is excluded from revenue.

Loyalty points and rewards are accounted for as separate performance obligations and accrued as deferred revenue in the amount of the transaction price allocated to the points and rewards. The allocated transaction price is based on the estimated fair value per point, net of breakage. Breakage is estimated based on our historical redemption rates. Revenue is recognized when the loyalty rewards are redeemed or expire.

We recognize revenue from gift cards when the gift cards are redeemed by the customer, and we recognize breakage revenue when we determine that the redemption of gift cards is remote, which is two years after issuance.

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Stock-Based Compensation

We estimate the fair value of stock options and the ESPP at the grant date using the Black-Scholes option-pricing model (the “Black-Scholes Model”). The fair values of RSUs are determined based on our stock price on the date of grant. The fair values of equity awards are recognized as compensation expense over the requisite service period or over the period in which the related services are received (generally the vesting period), using the straight-line method. The estimated fair value of equity awards that contain performance conditions is expensed over the term of the award once we have determined that it is probable that performance conditions will be satisfied. We account for forfeitures as they occur.

The Black-Scholes Model considers several variables and assumptions in estimating the fair value of stock-based awards. These variables include per share fair value of the underlying common stock, expected term, risk-free interest rate, expected annual dividend yield and expected stock price volatility over the expected term. For all stock options granted to date, we calculated the expected term using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). We determine volatility using the historical volatility of the stock price of similar publicly traded peer companies. The risk-free interest rate is based on the yield available on United States Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award.

Goodwill and Acquired Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not subject to amortization but will be reviewed for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.

Acquired intangible assets with determinable lives are generally amortized over their estimated useful lives using the straight-line method. We review intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

New Accounting Pronouncements

See discussion under Note 2, Significant Accounting Policies, to the Consolidated Financial Statements included in Part I, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for information on new accounting pronouncements.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full calendar year or any other period.

This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-over-year comparisons between 2022 and 2021. Discussions of 2020 items and year-over-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 10-K”).

Overview

thredUP operates one of the world’s largest online resale platforms for apparel, shoes and accessories. Our mission is to inspire a new generation of consumers to think secondhand first. We believe in a sustainable fashion future and we are proud that our business model creates a positive impact to the benefit of our buyers, sellers, clients, employees, investors and the environment. Our custom-built operating platform consists of distributed processing infrastructure, proprietary software and systems and data science expertise. This platform is powering the rapidly emerging resale economy, one of the fastest growing sectors in retail, according to a GlobalData market survey conducted in February 2022.

thredUP’s proprietary operating platform is the foundation for our managed marketplace, where we have bridged online and offline technology to make the buying and selling of tens of millions of unique items easy and fun. The core marketplace we have built in the U.S. enables buyers to browse and purchase resale items for primarily women’s and kids’ apparel, shoes and accessories across a wide range of price points. Buyers love shopping value, premium and luxury brands all in one place, at up to 90% off estimated retail price. Sellers love thredUP because we make it easy to clean out their closets and unlock value for themselves or for the charity of their choice while doing good for the planet. thredUP’s sellers order a Clean Out Kit, fill it and return it to us using our prepaid label. We take it from there and do the work to make those items available for resale.

In addition to our core marketplace, some of the world’s leading brands and retailers are already taking advantage of our RaaS offering, which allows them to conveniently offer a scalable closet clean out service and/or resale shop to their customers. We believe RaaS will accelerate the growth of this emerging category and form the backbone of the modern resale experience domestically and internationally.

In 2021, we acquired Remix Global EAD (“Remix”), a fashion resale company based in Sofia, Bulgaria. With this acquisition, we further expanded our reach to European customers, added a complementary operational infrastructure and added an experienced management team to enable our expansion into Europe. In addition, Remix’s product assortment extended our resale offering to include men’s items and items sourced from a variety of supply channels, such as wholesale supply.

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Recent Business Developments

Macroeconomic Factors

Macroeconomic factors, including inflation, increased interest rates, significant capital market volatility, the prolonged COVID-19 pandemic, global supply chain constraints, and global economic and geopolitical developments have direct and indirect impacts on our results of operations that are difficult to isolate and quantify. These factors contributed to increases in our operating costs during 2022 primarily due to increased transportation costs and wage rates. In addition, rising fuel, utility, and food costs, rising interest rates, and recessionary fears may impact customer demand and our ability to forecast consumer spending patterns. We expect some or all of these factors to continue to impact our operations into 2023.

Foreign Currency

During 2022, the U.S. dollar appreciated against major European currencies, including the Bulgarian lev. We believe the strengthening U.S. dollar had a negative impact on our European sales. We are managing the currency risk related to earnings through natural hedges and have offsetting costs relating to operating our business and a regional source of supply. Therefore, changes to exchange rates have not had a significant impact to our consolidated financial results. We continue to monitor our foreign exchange exposure as we grow our business globally. We have not engaged in hedging of foreign currency transactions to date, although we may choose to do so in the future. For further details, please refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of this Annual Report on Form 10-K.

Restructuring

In the second and third quarters of 2022, we restructured certain corporate and managerial functions to improve efficiencies and to reduce overhead costs. In addition, we closed our processing centers in Tennessee and Texas and consolidated their operations into our distribution center in Texas. These activities have, and are expected to, provide future efficiency benefits; however, the actual results may differ.

Overview of 2022 Results

Revenue: Total revenue was $288.4 million, an increase of 14.5% year-over-year.

Gross Profit and Margin: Gross profit totaled $192.3 million, representing an increase of 8.0% year-over-year. Gross margin decreased by 405 basis points to 66.7% from 70.7% year-over-year.

Net Loss Attributable to Common Stockholders: Net loss attributable to common stockholders was $92.3 million, or a negative 32.0% of revenue, for the year ended December 31, 2022 as compared to a net loss attributable to common stockholders of $63.2 million, or a negative 25.1% of revenue, for the same period in 2021.

Non-GAAP Adjusted EBITDA: Non-GAAP Adjusted EBITDA loss was $43.4 million, or a negative 15.0% of revenue, for the year ended December 31, 2022 as compared to a non-GAAP Adjusted EBITDA loss of $36.5 million, or a negative 14.5% of revenue, for the same period in 2021.

Active Buyers and Orders: Active Buyers totaled 1.65 million and Orders totaled 6.51 million in 2022, representing a decline of 2.4% and growth of 22.1%, respectively, compared to the prior year.

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Key Financial and Operating Metrics

We review a number of operating and financial metrics, including the following key business and non-GAAP metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. These key financial and operating metrics are set forth below for the periods presented.

(1)Adjusted EBITDA is a non-GAAP measure which may not be comparable to similarly-titled measures used by other companies. See below for a reconciliation of Adjusted EBITDA loss to net loss attributable to common stockholders.

Active Buyers

An Active Buyer is a thredUP buyer who has made at least one purchase in the last twelve months. A thredUP buyer is a customer who has created an account or purchased in our marketplaces, including through our RaaS clients, and is identified by a unique email address. A single person could have multiple thredUP accounts and count as multiple Active Buyers. The number of Active Buyers is a key driver of revenue for our marketplaces.

Orders

Orders means the total number of orders placed by buyers across our marketplaces, including through our RaaS clients, in a given period, net of cancellations. We expect Orders to increase over time.

Non-GAAP Financial Metrics

Non-GAAP Adjusted EBITDA

Non-GAAP Adjusted EBITDA loss means net loss attributable to common stockholders adjusted to exclude, where applicable in a given period, stock-based compensation expense, depreciation and amortization, impairment of non-marketable equity investment, restructuring charges, interest expense, acquisition-related expenses, provision for income taxes, change in fair value of convertible preferred stock warrant liability. We use Adjusted EBITDA loss, a non-GAAP metric, to evaluate and assess our operating performance and the operating leverage in our business, and for internal planning and forecasting purposes. We believe that non-GAAP Adjusted EBITDA loss, when taken collectively with our GAAP results, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results.

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The following table provides a reconciliation of GAAP net loss attributable to common stockholders to non-GAAP Adjusted EBITDA loss:

Presentation

Revenue

Our revenue is comprised of consignment revenue and product revenue.

Consignment revenue

We generate consignment revenue from the sale of secondhand women’s and kids’ apparel, shoes and accessories on behalf of sellers. We recognize consignment revenue, net of seller payouts, discounts, incentives and returns. We expect consignment revenue to continue to increase as we increase our Active Buyers and Orders and grow our business.

Product revenue

We also generate product revenue from the sale of items that we own, which we refer to as our inventory. While we shifted our business to primarily consignment sales in mid-2019, historically, we purchased most of our inventory from our sellers prior to inclusion on our online marketplace. The sales from our newly acquired European operations are primarily from sale of owned items. We recognize product revenue, net of discounts, incentives and returns. We expect product revenue to increase in absolute dollars and as a percentage of total revenue in the near term as we continue to grow our international business. We expect the percentage share of product revenue to decrease in the long term as we introduce the consignment model to our European operations.

Cost of Revenue

Cost of consignment revenue

Cost of consignment revenue consists of outbound shipping, outbound labor and packaging costs. We expect cost of consignment revenue to decrease and gross margin to increase as a percentage of total consignment revenue as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

Cost of product revenue

Cost of product revenue mainly consists of inventory cost, inbound shipping related to the sold merchandise, outbound shipping, outbound labor, packaging costs and inventory write-downs. We expect cost of product revenue to increase in absolute dollars and decrease as a percentage of total revenue, leading to an increase in gross margin. We expect further gross margin to increase as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

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Operating Expenses

Operations, Product and Technology

Operations, product and technology expenses consist primarily of distribution center operating costs and product and technology expenses. Distribution center operating costs mainly include inbound shipping costs, other than those capitalized in inventory, as well as personnel costs, distribution center rent, maintenance and depreciation of equipment and leasehold improvements. Product and technology costs include personnel costs for the design and development of product and the related technology that is used to operate our distribution centers, merchandise science, website development and related expenses for these departments. Operations, product and technology expenses also include an allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect operations, product and technology expenses to increase in absolute dollars in future periods to support our growth, especially as costs to increase our supply (inbound costs) are generally incurred prior to the expected revenue growth. Additionally, we expect to bring on additional distribution centers and continue investing in automation and other technology improvements to support and drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments, including business acquisitions. We expect these expenses to increase in absolute dollars and decrease as a percentage of revenue over the longer term due to better leverage in our operations.

Marketing

Marketing expense consists primarily of advertising, public relations expenditures and personnel costs for employees engaged in marketing. Marketing costs also include an allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect our marketing expenses to fluctuate as a percentage of revenue as we intend to increase marketing spend to drive the growth of our business.

Sales, General and Administrative

Sales, general and administrative expense consists of personnel costs for employees involved in general corporate functions, including accounting, finance, tax, legal and people services, and customer service. Sales, general and administrative also includes payment processing fees, professional fees and allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect to increase sales, general and administrative expense as we grow our infrastructure to support operating as a public company and the overall growth in our business. While these expenses may vary from period to period as a percentage of revenue, we expect them to increase in absolute dollars and decrease as a percentage of revenue over the longer term.

Other Expense (Income), Net

Other expense (income), net consists of non-operating income and expenses such as impairments of non-marketable equity investments, claim proceeds for lost shipments, and changes in the fair value of convertible preferred stock warrants.

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Financial Results for the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

Revenue

Total revenue increased $36.6 million, or 14.5%, for the year ended December 31, 2022 as compared to the same period in 2021. The increase was attributable to a 22.1% increase in total Orders mainly due to the inclusion of our European operations beginning October 2021, which increased product revenue by $47.4 million. This was partially offset by a $11.1 million decrease in consignment revenue primarily in our core marketplace.

We experienced slowing revenue and Order growth beginning in June 2022 and continuing into the second half of the year that was attributable to various factors including, but not limited to, general global economic uncertainty, rising interest rates, increased inflation, and weakening consumer discretionary spending, as well as excess inventory at retailers and brands leading to a highly promotional and competitive environment.

Cost of Revenue

Gross margin was 66.7% and 70.7% for the years ended December 31, 2022 and 2021, respectively, or an unfavorable change of 400 basis points.

The decrease in gross margin for the year ended December 31, 2022 as compared to the same period in 2021 was due to the inclusion of operating results of our European operations from October 2021 onward. Revenue from our European operations is derived from product sales with a lower gross margin. Consignment sales have a higher gross margin than product sales but made up a smaller percentage of total revenue for the year ended December 31, 2022 as compared to the same period in 2021. Revenue for consignment sales is recognized net of seller payouts and cost of items sold, whereas for product sales, seller payouts and cost of items sold are included as a component of cost of revenue.

Cost of Consignment Revenue

Consignment gross margin was 78.8% and 77.5% for the years ended December 31, 2022 and 2021, respectively, or a favorable change of 130 basis points.

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The increase in consignment gross margin for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a favorable impact of outbound shipping as a result of order consolidation of 240 basis points, partially offset by an unfavorable impact of direct labor of 60 basis points and an unfavorable impact of packaging and other costs of 50 basis points.

Cost of Product Revenue

Product gross margin was 47.9% and 51.6% for the years ended December 31, 2022 and 2021, or an unfavorable change of 370 basis points.

The decrease in product gross margin for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a net unfavorable impact of 800 basis points from including our European operations from October 2021 onward, which have a lower product gross margin, and an unfavorable impact of direct labor and packaging of 80 basis points, partially offset by a favorable impact of inventory costs of 280 basis points and a favorable impact of outbound shipping of 230 basis points.

Operations, Product and Technology

The $27.6 million increase in operations, product and technology expenses for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a $14.3 million increase in personnel-related costs resulting from the inclusion of our European operations from October 2021 onward, increases in employee salaries, wages and stock-based compensation, expenses associated with our distribution network, and restructuring charges; an $8.6 million increase in facilities, technology and other allocated costs resulting from the expansion of our distribution network, the inclusion of our European operations and higher technology and other costs; a $3.5 million increase in inbound shipping; and $1.1 million in amortization of acquired developed technology.

Marketing

The $0.7 million increase in marketing expenses for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a $4.0 million increase in personnel-related costs related to salaries, stock-based compensation and other expenses resulting from the inclusion of our European operations from October 2021 onward; a $1.3 million increase in facilities, technology and allocated costs; and a $0.3 million increase in professional services; partially offset by a $4.8 million decrease in costs of lead generation, affiliates and partnerships, and advertising.

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Sales, General and Administrative

The $13.0 million increase in sales, general, and administrative expenses for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a $13.8 million increase in personnel-related costs related to salaries, stock-based compensation, restructuring, our European operations and other personnel costs; and a $1.0 million increase in facilities, technology and allocated costs; partially offset by a $1.1 million decrease in professional services and $0.7 million of other corporate expenses.

Interest Expense

The $1.5 million decrease in interest expense for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to an increase in amounts capitalized as part of an asset and reclassified from interest expense.

Other Expense (Income), Net

The $1.9 million of other expense, net for the year ended December 31, 2022 was primarily due to an impairment charge related to our non-marketable equity investment, partially offset by claim proceeds for lost shipments.

The $1.6 million of other income, net for the year ended December 31, 2021 was primarily comprised of claim proceeds for lost shipments, offset by change in preferred stock warrants.

Liquidity and Capital Resources

We have historically generated negative cash flows from operations and have primarily financed our operations through private and public sales of equity securities and debt. As of December 31, 2022, we had cash, cash equivalents and short-term marketable securities of $104.9 million. Additionally, we have a term loan facility (“Term Loan”) under which $38.0 million remained available to be drawn as of December 31, 2022, and we were in full compliance with our debt covenants under the Term Loan as of that date. See Note 9, Long-Term Debt, to the Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a further discussion on our Term Loan.

We expect operating losses and negative cash flows from operations to continue in the near term as we continue to invest in growing our business and expanding our infrastructure. Our primary use of cash includes operating costs such as distribution network spend, product and technology expenses, marketing expenses, personnel expenses and other expenditures necessary to support our operations and our growth. Additionally, our primary capital expenditures are related to the set-up, expansion and/or automation of our distribution network and may be accelerated or delayed based on our operating position and business needs. Based upon our current operating plans, we believe that our existing cash, cash equivalents and short-term marketable securities will be sufficient to meet our short- and long-term capital requirements and we do not anticipate expanding our distribution network to include additional locations in the near term. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

Our future capital requirements will depend on many factors, including, but not limited to the timing of our increased distribution center automation and expansion plans to support planned revenue growth, the expansion of sales and marketing activities, the potential introduction of new offerings and new RaaS clients, the continuing growth of our marketplaces and overall economic conditions. However, we expect that our capital expenditures will decline significantly in 2023 as we completed the first phase of our new distribution center in Texas. We may seek additional equity or debt financing. See the section titled “Risk Factors—Risks Relating to Our Indebtedness and Liquidity—We may require additional capital to support business growth, and this capital might not be available or may be available only by diluting existing stockholders.”

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Cash Flows

The following table summarizes our cash flows for the periods indicated:

Changes in Cash Flows from Operating Activities

Net cash used in operating activities increased $17.1 million, or 48.8%, for the year ended December 31, 2022 as compared to the same period in 2021. The increase in net cash used in operating activities for the year ended December 31, 2022 was due to $12.5 million of unfavorable changes in operating assets and liabilities and a $4.6 million increase in net loss attributable to common stockholders excluding non-cash and reconciling items disclosed within our consolidated statement of cash flows. The $12.5 million change in operating assets and liabilities was primarily the result of unfavorable changes in seller payable, inventory, accrued and other current liabilities, and accounts payable, partially offset by favorable changes in other current and non-current assets and operating lease liabilities. The $4.6 million increase in net loss attributable to common stockholders excluding non-cash and reconciling items was primarily driven by lower gross margin and higher operating expenses.

Changes in Cash Flows from Investing Activities

Net cash provided by investing activities was $8.9 million for the year ended December 31, 2022 compared to net cash used in investing activities of $169.6 million for the same period in 2021. The decrease in net cash used in investing activities for the year ended December 31, 2022 was primarily due a $174.6 million decrease in net cash used to purchase marketable securities and a $23.6 million decrease in acquisitions, partially offset by a $23.4 million net increase in purchases of property and equipment.

Changes in Cash Flows from Financing Activities

Net cash used in financing activities increased $232.9 million, or 101.7%, for the year ended December 31, 2022 as compared to the same period in 2021. The increase in net cash used in financing activities for the year ended December 31, 2022 was primarily due to a $222.2 million decrease in net proceeds from the IPO and secondary offerings in 2021, a $6.6 million increase in net repayments of debt, and a $4.2 million decrease in net proceeds from the exercise of employee stock awards.

Contractual Obligations

Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. As of December 31, 2022, the value of our non-cancellable unconditional purchase obligations was $5.7 million. See Note 12, Commitments and Contingencies, to the Consolidated Financial Statements included in Part I, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information regarding our purchase obligations.

For a further discussion on our operating lease commitments and long-term debt as of December 31, 2022, see the sections above as well as Note 8, Leases, and Note 9, Long-Term Debt, to the Consolidated Financial Statements included in Part I, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

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Indemnification Agreements

In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss or consolidated statements of cash flows.

Critical Accounting Policies and Estimates

Use of Estimates

U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses. Actual results could differ materially from those estimates.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Revenue Recognition

We generate revenue primarily from the sale of secondhand women’s and kids’ apparel, shoes and accessories on behalf of sellers. We retain a percentage of the proceeds received as payment for our consignment service. We report consignment revenue on a net basis as an agent and not the gross amount collected from the buyer. We recognize consignment revenue upon purchase of the seller’s secondhand item by the buyer.

We also generate revenue from the sale of our purchased inventory which we refer to as product revenue. We sell our purchased inventory mainly through our online marketplace. We recognize product revenue on a gross basis. Online sales and sales to our retail partners are recognized upon shipment of the purchased secondhand items to the buyer. Sales at retail stores are recognized upon checkout and sales of accepted items from goody boxes are recognized upon acceptance, which generally occurs at the same time as payment.

Both consignment and product revenue are recognized net of discounts, incentives and returns. Sales tax assessed by governmental authorities is excluded from revenue.

Loyalty points and rewards are accounted for as separate performance obligations and accrued as deferred revenue in the amount of the transaction price allocated to the points and rewards. The allocated transaction price is based on the estimated fair value per point, net of breakage. Breakage is estimated based on our historical redemption rates. Revenue is recognized when the loyalty rewards are redeemed or expire.

For gift cards and site credits, we recognize breakage revenue when we determine that the redemption of gift cards and site credits is remote.

Stock-Based Compensation

We estimate the fair value of stock options and the ESPP at the grant date using the Black-Scholes option-pricing model (the “Black-Scholes Model”). The fair values of Restricted Stock Units (“RSU”) are determined based on our stock price on the date of grant. The fair values of equity awards are recognized as compensation expense over the requisite service period or over the period in which the related services are received (generally the vesting period), using the straight-line method. The estimated fair value of equity awards that contain performance conditions is expensed over the term of the award once we have determined that it is probable that performance conditions will be satisfied. We account for forfeitures as they occur.

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The Black-Scholes Model considers several variables and assumptions in estimating the fair value of stock-based awards. These variables include per share fair value of the underlying common stock, expected term, risk-free interest rate, expected annual dividend yield and expected stock price volatility over the expected term. For all stock options granted to date, we calculated the expected term using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). We determine volatility using the historical volatility of the stock price of similar publicly traded peer companies. The risk-free interest rate is based on the yield available on United States Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award.

Business Combinations

We account for our business combinations using the acquisition method of accounting, which requires, among other things, allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date. The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Once the purchase accounting is finalized, any subsequent adjustments are reflected in the consolidated statements of operations. Acquisition costs, such as legal and consulting fees, are expensed as incurred.

Acquired Intangible Assets

When we acquire a business, a portion of the purchase price is typically allocated to identifiable intangible assets, such as trademarks, acquired technology and customer relationships. Fair value of these assets is determined primarily using the income approach, which requires us to project future cash flows and apply an appropriate discount rate. We amortize intangible assets with finite lives over their expected useful lives. Our estimates are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur. Incorrect estimates could result in future impairment charges, and those charges could be material to our results of operations.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not subject to amortization but will be reviewed for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

New Accounting Pronouncements

See discussion under Note 2, Significant Accounting Policies, to the Consolidated Financial Statements included in Part I, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for information on new accounting pronouncements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full calendar year or any other period.

A discussion regarding our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020 is presented below. A discussion regarding our financial condition and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 is included under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our final prospectus filed pursuant to Rule 424(b) on March 26, 2021 (“Prospectus”).

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Overview

thredUP is one of the world’s largest online resale platforms for women’s and kids’ apparel, shoes and accessories. Our mission is to inspire a new generation of consumers to think secondhand first. We believe in a sustainable fashion future and we are proud that our business model creates a positive impact to the benefit of our buyers, sellers, clients, employees, investors and the environment. Our custom-built operating platform consists of distributed processing infrastructure, proprietary software and systems and data science expertise. This platform is powering the rapidly emerging resale economy, one of the fastest growing sectors in retail, according to a GlobalData market survey conducted in April 2021.

thredUP’s proprietary operating platform is the foundation for our managed marketplace, where we have bridged online and offline technology to make the buying and selling of tens of millions of unique items easy and fun. The marketplace we have built enables buyers to browse and purchase resale items for women’s and kids’ apparel, shoes and accessories across a wide range of price points. Buyers love shopping value, premium and luxury brands all in one place, at up to 90% off estimated retail price. Sellers love thredUP because we make it easy to clean out their closets and unlock value for themselves or for the charity of their choice while doing good for the planet. Sellers order a Clean Out Kit, fill it and return it to us using our prepaid label. We take it from there and do the work to make those items available for resale. In 2018, based on our success with consumers directly, we extended our platform to enable brands and retailers to participate in the resale economy. A number of the world’s leading brands and retailers are already taking advantage of our RaaS offering. In October 2021, we closed the acquisition of Remix, a fashion resale company headquartered in Sofia, Bulgaria, which further expands our reach to the European customer. With this acquisition, we added a complementary operational infrastructure and an experienced management team to enable our expansion into Europe.

Recent Business Developments

Initial and Follow-on Public Offering

Historically, we have financed our operations primarily through private sales of equity securities and debt. Our registration statement related to the initial public offering (the “IPO”) was declared effective on March 25, 2021 by the SEC, and our Class A common stock began trading on the Nasdaq Global Select Market (“Nasdaq”) on March 26, 2021. Upon the completion of our IPO, we sold 13.8 million shares of Class A common stock at a price to the public of $14.00 per share. We received aggregate net proceeds of $175.5 million after deducting offering costs, underwriting discounts and commissions of $17.7 million.

On August 2, 2021, we issued and sold an aggregate of two million shares of Class A common stock at a price of $24.25 per share in a registered public offering. The aggregate net proceeds were approximately $45.5 million, after deducting offering costs of $1.1 million and underwriting discounts and commissions of $2.2 million.

Acquisition of Remix Global AD

On July 24, 2021, we entered into Share Purchase Agreements (collectively, the “Share Purchase Agreement”), with the shareholders of Remix to purchase 100% of the outstanding equity interests of Remix and its subsidiary (the “Remix Acquisition”). On October 7, 2021, we completed our acquisition of Remix and paid approximately $7.2 million in cash to shareholders of Remix and its subsidiary, and $12.1 million in cash to pay off Remix’s outstanding term loan. Shortly after the completion of Remix Acquisition, we paid on behalf of Remix approximately $6.2 million in cash for its outstanding tax and other liabilities. Subject to customary purchase price adjustments, we will issue 130,597 shares of our Class A common stock 18 months following the completion of the Remix Acquisition to four shareholders of Remix.

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COVID-19 Impact

In December 2019, a novel strain of coronavirus was first identified, and in March 2020, the World Health Organization categorized COVID-19 as a pandemic. The COVID-19 pandemic has adversely impacted businesses worldwide and has impacted aspects of our business and operations.

In March 2020, we shifted all of our corporate employees and contract engineers to a remote work model and implemented additional measures to better enable remote work. As of December 31, 2021, our remote work model remains largely in place.

Financial Impact

In the twelve months ended December 31, 2021, we saw increased demand, which we believe was partly related to COVID-19 recovery and re-opening efforts such as the vaccine roll out, easing of social distancing restrictions and federal stimulus legislation. We also saw increased operating expenses due to the additional labor costs associated with increased processing to support the demand experienced to date and in anticipation of accelerating demand.

Impact on Processing at our Distribution Centers

We still face challenges in hiring and retaining employees and have implemented compensation and benefits programs to enhance hiring and retention, which has contributed to higher Cost of Revenue and higher Operations, Product and Technology expenses. These programs are primarily aimed at mitigating the macro trend of increased competition for labor, including seasonal employment opportunities.

We have been monitoring and continue to monitor the varied impact of COVID-19 on our business and operations. In the twelve months ended December 31, 2021, we saw increased demand from the prior year, which we believe was partly related to COVID-19 recovery and re-opening efforts such as the vaccine roll out, easing of social distancing restrictions and federal stimulus legislation. More broadly however, we expect the evolving COVID-19 pandemic to continue to have an adverse impact on our business, results of operations and financial condition, including our revenue and cash flows, for at least the first part of 2022. For instance, a slowdown or further uncertainty in the United States economy may result in additional changes in buyer and seller behavior, which could cause either a potential reduction in discretionary spending on our marketplace or increased activity on our marketplace as customers look for high-value, lower-priced alternatives. In particular, following the stimulus package in March 2021, we experienced a brief increase in Orders followed by a return to expected Orders activity. Additionally, future developments, such as new information which may emerge concerning COVID-19, the new COVID-19 strains (e.g., delta and omicron variants), and the actions to contain the coronavirus or treat its impact, could have an adverse impact to our business. Due to the unknown duration and unprecedented impact of the COVID-19 pandemic and the range of national, state and local responses thereto, the related financial impact on our business could change and cannot be accurately predicted at this time. See the section titled “Risk Factors—Risks Relating to our Business and Industry—The global COVID-19 pandemic has had and may continue to have an adverse impact on our business, results of operations and financial condition.”

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Overview of 2021 Results

Revenue: Total revenue was a record at $251.8 million, an increase of 35% year-over-year.

Gross Profit and Margin: Gross profit totaled $178.1 million representing growth of 39% year-over-year. Gross margin expanded by 185 basis points to 71% from 69% last year.

Net Loss: GAAP net loss was $63.2 million for the year ended December 31, 2021, representing a 32% increase from the GAAP net loss of $47.9 million for the year ended December 31, 2020.

Adjusted EBITDA: Adjusted EBITDA loss was $36.5 million, a negative 14% of revenue, compared to Adjusted EBITDA loss of $33.4 million for the year ended December 31, 2020, a negative 18% of 2020 revenue.

Active Buyers and Orders: Total 2021 Active Buyers of 1.69 million and Orders of 5.3 million grew 36% and 34%, respectively, compared to 2020.

Key Financial and Operating Metrics

We review a number of operating and financial metrics, including the following key business and non-GAAP metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. These key financial and operating metrics are set forth below for the periods presented.

(1)See below for a reconciliation of Adjusted EBITDA to net loss.

Active Buyers

An Active Buyer is a thredUP buyer who has made at least one purchase in the last twelve months. A thredUP buyer is a customer who has created an account in our marketplace. A thredUP buyer is identified by a unique email address and a single person could have multiple thredUP accounts and count as multiple Active Buyers. The number of Active Buyers is a key driver of revenue for our marketplace and we expect the number of Active Buyers to increase over time.

Orders

Orders means the total number of orders placed by buyers across our marketplace, including through our RaaS clients, in a given period, net of cancellations. We expect Orders to increase over time.

Adjusted EBITDA

Adjusted EBITDA means net loss adjusted to exclude, where applicable in a given period, depreciation and amortization, stock-based compensation expense, acquisition and offering related expenses, interest expense, change in fair value of convertible preferred stock warrant liability, loss on extinguishment of debt, and provision for income taxes. We use Adjusted EBITDA, a Non-GAAP metric,

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to evaluate and assess our operating performance and the operating leverage in our business, and for internal planning and forecasting purposes. We believe that Adjusted EBITDA, when taken collectively with our GAAP results, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results.

The following table provides a reconciliation of net loss to Adjusted EBITDA (in thousands):

Components of Results of Operations

Revenue

Our revenue is comprised of consignment revenue and product revenue.

Consignment revenue

We generate consignment revenue from the sale of secondhand women’s and kids’ apparel, shoes and accessories on behalf of sellers. We recognize consignment revenue, net of seller payouts, discounts, incentives and returns. We expect consignment revenue to continue to increase as we increase our Active Buyers and Orders and grow our business.

Product revenue

We also generate product revenue from the sale of items that we own, which we refer to as our inventory. While we shifted our business to primarily consignment sales in mid-2019, historically, we purchased most of our inventory from our sellers prior to inclusion on our online marketplace. The sales from our newly acquired European operations are primarily from sale of owned items. We recognize product revenue, net of discounts, incentives and returns. We expect product revenue to increase in absolute dollars and as a percentage of total revenue in the near term as we continue to grow our international business. We expect the percentage share of product revenue to decrease in the long term as we introduce the consignment model to our European operations.

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Cost of Revenue

Cost of consignment revenue

Cost of consignment revenue consists of outbound shipping, outbound labor and packaging costs. We expect cost of consignment revenue to decrease and gross margin to increase as a percentage of total consignment revenue as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

Cost of product revenue

Cost of product revenue mainly consists of inventory cost, inbound shipping related to the sold merchandise, outbound shipping, outbound labor, packaging costs and inventory write-downs. We expect cost of product revenue to increase in absolute dollars and decrease as a percentage of total revenue, leading to an increase in gross margin. We expect further gross margin to increase as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

Operating Expenses

Operations, Product and Technology

Operations, product and technology expenses consist primarily of distribution center operating costs and product and technology expenses. Distribution center operating costs mainly include inbound shipping costs, other than those capitalized in inventory, as well as personnel costs, distribution center rent, maintenance and depreciation of equipment and leasehold improvements. Product and technology costs include personnel costs for the design and development of product and the related technology that is used to operate our distribution centers, merchandise science, website development and related expenses for these departments. Operations, product and technology expenses also include an allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect operations, product and technology expenses to increase in absolute dollars in future periods to support our growth, especially as costs to increase our supply (inbound costs) are generally incurred prior to the expected revenue growth. Additionally, we expect to bring on additional distribution centers and continue investing in automation and other technology improvements to support and drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments, including business acquisitions. We expect these expenses to increase in absolute dollars and decrease as a percentage of revenue over the longer term due to better leverage in our operations.

Marketing

Marketing expense consists primarily of advertising, public relations expenditures and personnel costs for employees engaged in marketing. Marketing costs also include an allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect our marketing expenses to fluctuate as a percentage of revenue as we intend to increase marketing spend to drive the growth of our business.

Sales, General and Administrative

Sales, general and administrative expense consists of personnel costs for employees involved in general corporate functions, including accounting, finance, tax, legal and people services, customer service, and retail stores. Sales, general and administrative also includes payment processing fees, professional fees and allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect to increase sales, general and administrative expense as we grow our infrastructure to support operating as a public company and the overall growth in our business. While these expenses may vary from period to period as a percentage of revenue, we expect them to increase in absolute dollars and decrease as a percentage of revenue over the longer term.

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Interest expense

In 2019, we entered into a loan and security agreement with Western Alliance Bank. As of December 31, 2021, we had borrowed $40.0 million under our loan and security agreement, with $36.0 million principal outstanding. For the years ended December 31, 2021, 2020 and 2019, we recorded $2.3 million, $1.3 million and $1.4 million of interest expense, respectively.

Other income, net

Other income, net for the year ended December 31, 2021 is primarily comprised of claim proceeds for lost shipments, offset by change in preferred stock warrants. Other income, net for the years ended December 31, 2020 and 2019 was immaterial.

Results of Operations

The results of operations presented below should be reviewed in conjunction with our consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K:

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Comparison of Years Ended December 31, 2021 and 2020

Revenue

The $65.8 million increase in total revenue represents a 35% increase in total revenue for the year ended December 31, 2021, as compared to the year ended December 31, 2020. This increase was primarily attributable to a 34% increase in Orders and a 1% increase in revenue per Order over the same period. The 34% increase in Orders was primarily driven by growth in Active Buyers of 36% over the same period mainly due to our increased marketing and advertising efforts and our expansion into Europe through the acquisition of Remix.

Cost of Revenue