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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-39848

 

Poshmark, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

27-4827617

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

203 Redwood Shores Parkway, 8th Floor

Redwood City, California

94065

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 262-4771

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock of $0.0001 par value per share

 

POSH

 

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

As of April 30, 2021, the number of outstanding shares of the registrant’s Class A common stock, par value $0.0001 per share, was 15,414,370, and the number of outstanding shares of the registrant’s Class B common stock, par value $0.0001 per share, was 60,282,373.

 

 

 

 

 


 

 

Poshmark, Inc.

Table of Contents

 

 

 

Page

 

Note Regarding Forward-Looking Statements

3

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

4

 

Condensed Consolidated Balance Sheets (unaudited)

4

 

Condensed Consolidated Statements of Operations (unaudited)

5

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)

6

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity (unaudited)

7

 

Condensed Consolidated Statements of Cash Flows (unaudited)

8

 

Notes to Condensed Consolidated Financial Statements (unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

35

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

38

Signatures

39

 

2


 

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which are statements that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

our expectations regarding our revenue, expenses, profitability, and other operating results;

 

the growth rates of the markets in which we compete;

 

our ability to acquire new users and successfully engage new and existing users and convert them into Active Users, Active Buyers, and sellers;

 

the costs and effectiveness of our marketing efforts through paid advertising channels and otherwise, as well as our ability to promote our brand;

 

our ability to continue to collect meaningful data, improve our algorithms, and provide recommendations for our users;

 

our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;

 

our ability to effectively manage our growth, including offering new categories and any international expansion;

 

our ability to maintain our profitability;

 

our ability to maintain the security and availability of our software;

 

our ability to protect our intellectual property rights and avoid disputes in connection with the use of intellectual property rights of others;

 

our ability to protect our users’ information and comply with growing and evolving data privacy laws and regulations;

 

impact of the COVID-19 pandemic on our business and consumers;

 

future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements; and

 

our ability to compete effectively with existing competitors and new market entrants.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, as well as in our other filings with the Securities and Exchange Commission (SEC). Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

3


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Poshmark, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

 

 

December 31,

 

 

March 31,

 

 

 

2020

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

235,834

 

 

$

551,412

 

Marketable securities

 

 

26,238

 

 

 

23,251

 

Prepaid expenses and other current assets

 

 

7,905

 

 

 

11,320

 

Total current assets

 

 

269,977

 

 

 

585,983

 

Property and equipment, net

 

 

8,447

 

 

 

8,318

 

Other assets

 

 

7,010

 

 

 

3,207

 

Total assets

 

$

285,434

 

 

$

597,508

 

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’

  (Deficit) Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

12,317

 

 

$

15,559

 

Funds payable to customers

 

 

117,127

 

 

 

127,593

 

Accrued expenses and other current liabilities

 

 

35,859

 

 

 

39,058

 

Total current liabilities

 

 

165,303

 

 

 

182,210

 

Redeemable convertible preferred stock warrant liability

 

 

3,494

 

 

 

 

Long-term portion of deferred rent and other liabilities

 

 

4,823

 

 

 

4,629

 

Convertible notes

 

 

55,421

 

 

 

 

Total liabilities

 

 

229,041

 

 

 

186,839

 

Commitments and Contingencies (Note 5)

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock, $0.0001 par value; 52,372,222 and zero shares authorized

   as of December 31, 2020 and March 31, 2021, respectively; aggregate liquidation preference of

   $159,704 and zero as of December 31, 2020 and March 31, 2021, respectively; 52,286,631 and

   zero shares issued and outstanding as of December 31, 2020 and March 31, 2021, respectively

 

 

156,175

 

 

 

 

Stockholders’ (deficit) equity

 

 

 

 

 

 

 

 

Preferred Stock, $0.0001 par value, zero and 100,000,000 shares authorized as of

   December 31, 2020 and March 31, 2021, respectively; zero shares issued and

   outstanding as of December 31, 2020 and March 31, 2021

 

 

 

 

 

 

Common stock, $0.0001 par value, 79,000,000 and zero shares authorized as of

   December 31, 2020 and March 31, 2021, respectively; 13,093,065 and zero shares

   issued and outstanding as of December 31, 2020 and March 31, 2021, respectively

 

 

1

 

 

 

 

Class A common stock, $0.0001 par value, zero and 5,000,000,000 shares authorized as of

   December 31, 2020 and March 31, 2021, respectively; zero and 15,005,786 shares issued

   and outstanding as of December 31, 2020 and March 31, 2021, respectively

 

 

 

 

 

1

 

Class B common stock, $0.0001 par value, zero and 700,000,000 shares authorized as of

   December 31, 2020 and March 31, 2021, respectively; zero and 60,333,307 shares issued

   and outstanding as of December 31, 2020 and March 31, 2021, respectively

 

 

 

 

 

7

 

Additional paid-in capital

 

 

28,300

 

 

 

614,247

 

Treasury stock, at cost (zero shares at December 31, 2020 and 49,685 shares at

    March 31, 2021)

 

 

 

 

 

(2,608

)

Accumulated deficit

 

 

(126,509

)

 

 

(201,031

)

Accumulated other comprehensive (loss) income

 

 

(1,574

)

 

 

53

 

Total stockholders’ (deficit) equity

 

 

(99,782

)

 

 

410,669

 

Total liabilities, redeemable convertible preferred stock and stockholders’ equity

 

$

285,434

 

 

$

597,508

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

4


 

Poshmark, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2021

 

Net revenue

 

$

57,108

 

 

$

80,956

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of net revenue, exclusive of depreciation and amortization

 

 

9,897

 

 

 

12,970

 

Operations and support

 

 

8,536

 

 

 

14,894

 

Research and development

 

 

7,076

 

 

 

18,800

 

Marketing

 

 

34,596

 

 

 

35,478

 

General and administrative

 

 

7,458

 

 

 

18,743

 

Depreciation and amortization

 

 

711

 

 

 

790

 

Total costs and expenses

 

 

68,274

 

 

 

101,675

 

Loss from operations

 

 

(11,166

)

 

 

(20,719

)

Interest income

 

 

328

 

 

 

86

 

Other expense, net

 

 

 

 

 

 

 

 

Change in fair value of redeemable convertible preferred stock warrant liability

 

 

(97

)

 

 

(2,816

)

Change in fair value of the convertible notes

 

 

 

 

 

(49,481

)

Loss on extinguishment of the convertible notes

 

 

 

 

 

(1,620

)

Other, net

 

 

6

 

 

 

(42

)

 

 

 

(91

)

 

 

(53,959

)

Loss before provision (benefit) for income taxes

 

 

(10,929

)

 

 

(74,592

)

Provision (benefit) for income taxes

 

 

58

 

 

 

(70

)

Net loss

 

 

(10,987

)

 

 

(74,522

)

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.89

)

 

$

(1.19

)

Weighted-average shares used to compute net loss per share attributable to common

    stockholders, basic and diluted

 

 

12,347

 

 

 

62,729

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

5


 

Poshmark, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2021

 

Net loss

 

$

(10,987

)

 

$

(74,522

)

Other comprehensive income:

 

 

 

 

 

 

 

 

Reclassification upon extinguishment of the fair value of the convertible notes related

   to instrument-specific credit risk to statement of operations

 

 

 

 

 

1,620

 

Change in foreign currency translation adjustment

 

 

44

 

 

 

6

 

Change in unrealized (losses) gains on marketable securities, net of tax

 

 

(27

)

 

 

1

 

Total other comprehensive income

 

 

17

 

 

 

1,627

 

Comprehensive loss

 

$

(10,970

)

 

$

(72,895

)

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

6


 

 

 

Poshmark, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity

(in thousands, except share data)

(unaudited)

 

 

 

Redeemable

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

Stockholders’

Deficit

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

 

 

52,286,631

 

 

$

156,175

 

 

 

 

12,342,146

 

 

$

1

 

 

$

18,555

 

 

$

(143,354

)

 

$

11

 

 

$

(124,787

)

 

 

 

 

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

 

6,581

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,816

 

 

 

 

 

 

 

 

 

1,816

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

17

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,987

)

 

 

 

 

 

(10,987

)

 

 

 

 

Balance as of March 31, 2020

 

 

52,286,631

 

 

$

156,175

 

 

 

 

12,348,727

 

 

$

1

 

 

$

20,385

 

 

$

(154,341

)

 

$

28

 

 

$

(133,927

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable

Convertible

Preferred Stock

 

 

 

Class A and Class B

Common Stock

 

 

Additional

Paid-in

Capital

 

 

Treasury

Stock

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

(Loss) Income

 

 

Total

Stockholders’

(Deficit) Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2020

 

 

52,286,631

 

 

$

156,175

 

 

 

 

13,093,065

 

 

$

1

 

 

$

28,300

 

 

 

 

 

$

(126,509

)

 

$

(1,574

)

 

$

(99,782

)

Conversion of redeemable convertible

   preferred stock to common stock

   upon initial public

   offering

 

 

(52,286,631

)

 

 

(156,175

)

 

 

 

52,286,631

 

 

 

6

 

 

 

156,169

 

 

 

 

 

 

 

 

 

 

 

 

156,175

 

Issuance of common stock upon initial

   public offering, net of underwriting

   discounts and commissions and

   offering costs

 

 

 

 

 

 

 

 

 

7,590,000

 

 

 

1

 

 

 

292,259

 

 

 

 

 

 

 

 

 

 

 

 

292,260

 

Conversion of convertible notes to common

   stock upon initial public offering

 

 

 

 

 

 

 

 

 

1,400,560

 

 

 

 

 

 

104,902

 

 

 

 

 

 

 

 

 

 

 

 

104,902

 

Exercise of common stock warrants

 

 

 

 

 

 

 

 

 

85,583

 

 

 

 

 

 

100

 

 

 

 

 

 

 

 

 

 

 

 

100

 

Reclassification of warrant liability to additional

   paid-in capital upon initial public

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,310

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,310

 

Issuance of common stock upon vesting of

   restricted stock units

 

 

 

 

 

 

 

 

 

140,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax withholding related to vesting of restricted

   stock units

 

 

 

 

 

 

 

 

 

(49,685

)

 

 

 

 

 

 

 

 

(2,608

)

 

 

 

 

 

 

 

 

(2,608

)

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

 

792,137

 

 

 

 

 

 

1,843

 

 

 

 

 

 

 

 

 

 

 

 

1,843

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,364

 

 

 

 

 

 

 

 

 

 

 

 

24,364

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,627

 

 

 

1,627

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(74,522

)

 

 

 

 

 

(74,522

)

Balance as of March 31, 2021

 

 

 

 

$

 

 

 

 

75,339,093

 

 

$

8

 

 

$

614,247

 

 

$

(2,608

)

 

$

(201,031

)

 

$

53

 

 

$

410,669

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements

7


 

 

 

Poshmark, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(10,987

)

 

$

(74,522

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

711

 

 

 

790

 

Stock-based compensation

 

 

1,799

 

 

 

24,141

 

Loss on disposal of property and equipment

 

 

2

 

 

 

1

 

Change in fair value of redeemable convertible preferred stock warrant liability

 

 

97

 

 

 

2,816

 

Change in fair value of the convertible notes

 

 

 

 

 

49,481

 

Loss on extinguishment of the convertible notes

 

 

 

 

 

1,620

 

Accretion of discounts and amortization of premiums on marketable securities, net

 

 

(147

)

 

 

88

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(5,552

)

 

 

(3,320

)

Other assets

 

 

566

 

 

 

3,803

 

Accounts payable

 

 

18,688

 

 

 

3,138

 

Funds payable to customers

 

 

(1,074

)

 

 

10,466

 

Accrued expenses and other current liabilities

 

 

(3,056

)

 

 

1,569

 

Long-term deferred rent and other liabilities

 

 

222

 

 

 

(194

)

Net cash provided by operating activities

 

 

1,269

 

 

 

19,877

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(348

)

 

 

(439

)

Purchases of marketable securities

 

 

(14,320

)

 

 

 

Maturities of marketable securities

 

 

35,157

 

 

 

2,900

 

Net cash provided by investing activities

 

 

20,489

 

 

 

2,461

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from initial public offering, net of underwriting discounts and

  commissions and offering costs

 

 

 

 

 

293,899

 

Proceeds from issuance of redeemable convertible preferred stock warrants

 

 

 

 

 

100

 

Tax withholding related to vesting of restricted stock units

 

 

 

 

 

(2,608

)

Proceeds from exercise of stock options

 

 

14

 

 

 

1,843

 

Net cash provided by financing activities

 

 

14

 

 

 

293,234

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

43

 

 

 

6

 

Net increase in cash and cash equivalents

 

 

21,815

 

 

 

315,578

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

Beginning of period

 

 

63,318

 

 

 

235,834

 

End of period

 

$

85,133

 

 

$

551,412

 

Supplemental cash flow data

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

 

 

$

51

 

Stock-based compensation capitalized to internal use software

 

 

17

 

 

 

223

 

Deferred offering costs included in accounts payable

 

 

 

 

 

182

 

Conversion of convertible notes upon initial public offering

 

 

 

 

 

104,902

 

Conversion of redeemable convertible preferred stock upon initial public offering

 

 

 

 

 

156,175

 

Reclassification of preferred stock warrant liability upon initial public offering

 

 

 

 

 

6,310

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

8


 

 

Poshmark, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

1.

Organization

Description of Business

Poshmark, Inc. (the Company) was incorporated in the state of Delaware with headquarters in Redwood City, California, and has wholly-owned subsidiaries based in Chennai, India, Vancouver, Canada, and New South Wales, Australia. The Company is a social marketplace that combines the human connection of a physical shopping experience with the scale, reach, ease, and selection benefits of eCommerce. In doing so, the Company brings the power of community to buying and selling online. Pairing technology with the inherent human desire to socialize, the Company creates passion and personal connections among users.

The accompanying unaudited condensed financial statements have been prepared assuming the Company will continue as a going concern. Since inception, the Company has incurred net losses. The Company generated net loss of $74.5 million for the three months ended March 31, 2021. The Company had an accumulated deficit of $201.0 million as of March 31, 2021, respectively. The Company has historically financed its operations primarily through the issuance and sale of redeemable convertible preferred stock and through the issuance of convertible debt. While the Company believes that its current cash, cash equivalents, and marketable securities are adequate to meet its needs for a one-year period from the date these condensed consolidated financial statements are issued, the Company may need to borrow funds or raise additional equity to achieve its longer-term business objectives.

Initial Public Offering

On January 19, 2021, the Company completed its initial public offering (IPO). In connection with the IPO, it authorized two new classes of common stock: Class A common stock and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting, conversion and transfer rights. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Each share of Class B common stock is convertible at any time at the option of the stockholder into one share of Class A common stock and has no expiration date. The Class B common stock automatically converts to Class A common stock upon transfers or any sale. In its IPO, the Company issued and sold 6,600,000 shares of its Class A common stock at the public offering price of $42.00 per share, plus an additional 990,000 shares of common stock at the public offering price of $42.00 per share pursuant to the exercise of the underwriters’ option to purchase additional shares. The Company received net proceeds of $292.3 million after deducting underwriting discounts and commissions and offering expenses. Upon the closing of the IPO:

 

all 52,286,631 shares of the Company’s outstanding redeemable convertible preferred stock automatically converted into an equivalent number of shares of Class B common stock on a one-to-one basis;

 

convertible notes with an aggregate principal amount of $50.0 million automatically converted into 1,400,560 shares of our Class A common stock at a conversion price equal to 85% of the IPO price of $42.00 per share; and

 

redeemable convertible preferred stock warrants amounting to 85,583 automatically converted into Class B common stock warrants.

Upon completion of the IPO, $4.2 million of deferred offering costs were reclassified to additional paid-in capital and accounted for as a reduction of the IPO proceeds in the condensed consolidated balance sheets.

2.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and condensed footnotes have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information as well as the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited financial statements as of that date but does not include all disclosures, including notes required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the financial position, results of operations and cash flows for the interim periods. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results of operations expected for the entire year ending December 31, 2021 or for any other future annual or interim periods. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 23, 2021.

9


 

For the foreign subsidiaries where the local currency is the functional currency, translation adjustments of foreign currency financial statements into U.S. dollars are recorded as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses have not been material for all periods presented.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Estimates include the fair value of financial instruments, capitalization and estimated useful life of internal-use software, allowance for expected chargeback losses, estimates related to credits, incentives and refunds issued to customers, valuation of the convertible notes preceding its IPO, valuation of the redeemable convertible preferred stock warrant liability preceding its IPO, stock-based compensation, valuation of the Company’s common stock preceding its IPO, and valuation of deferred income tax assets and the uncertain tax position. To the extent there are material differences between these estimates, judgments or assumptions and actual results, the condensed consolidated financial statements will be affected.

The World Health Organization declared in March 2020 that the recent outbreak of the coronavirus disease (COVID-19) constituted a pandemic. The COVID-19 pandemic has caused general business disruption worldwide beginning in January 2020. The global impact of COVID-19 continues to rapidly evolve, and the Company will continue to monitor the situation and the effects on its business and operations closely. The Company does not yet know the full extent of potential impacts on its business or operations or on the global economy as a whole, particularly if the COVID-19 pandemic continues and persists for an extended period of time. Given the uncertainty, the Company cannot reasonably estimate the impact on its future results of operations, cash flows, or financial condition. As of the date of issuance of the condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments or the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s condensed consolidated financial statements.

Revenue Recognition

The Company recognizes revenue when it satisfies its performance obligations. The Company considers both sellers and buyers to be customers. The Company generates revenue from sellers for fees earned when sellers sell items they have listed on the Company’s platform to buyers. The Company generates revenue from buyers for fees earned when they purchase shipping labels used for delivery of the items purchased. The Company periodically reassesses its revenue recognition policies as new offerings become material, and business models evolve. The Company recognizes revenue net of estimated returns and cancellations based on its historical experience. Transactions may be cancelled by a buyer or seller in certain circumstances.

The Company enters into the Terms of Service (TOS) with buyers and sellers to use the Company’s technology platform. The TOS governs these parties’ use of the platform, including payment terms for the buyer and the seller and services to be provided by the Company. Under the TOS, upon the buyer’s purchase from the seller, the Company, buyer, and seller are committed to perform and enforceable rights and obligations are established.

Sellers

Sellers are able to list their items for sale on the Company’s platform at no charge. The Company charges a fee upon the sale of items listed on its platform. The fee is a fixed dollar amount for orders under a certain value, and a fixed percentage of the final sales price of the item for orders greater than that. The service the Company provides to sellers includes the facilitation of the sale of their items as well as certain ancillary activities such as payment processing and authentication (for luxury items). These activities comprise a single performance obligation to sellers, which is to facilitate the sale of the listed items between sellers and buyers on the Company’s platform (sale facilitation).

The Company evaluates the presentation of revenue from sellers on a gross or net basis based on whether it acts as a principal or an agent in the sale of listed items between sellers and buyers. The Company does not control the listed items at any time prior to the transfer of such items to buyers. The Company acts as an agent in facilitating the sale of items from sellers to buyers by allowing them to connect and interact on the Company’s platform. The Company is not primarily responsible for fulfillment of purchased items, does not have inventory risk, and does not set the price for the listed item. As such, the Company reports revenue from sellers on a net basis to reflect the fees received from sellers.

10


 

Revenue is recognized at the point in time the Company satisfies its performance obligation to facilitate the sale of a listed item. This occurs when both the seller and the buyer agree to a sale and the payment is processed on the Company’s platform. For luxury items authenticated by the Company, sale facilitation revenue is recognized when the Company authenticates and arranges for shipment of the items to the buyer, as this is the point in time a sale is finalized and the Company has satisfied its performance obligation.

Buyers

When a sale is finalized, the buyer purchases a shipping label from United States Postal Service (USPS), or the relevant shipping provider for the Canada and Australia marketplace, through the Poshmark platform. The Company emails the shipping label to the seller and the seller ships the item to the buyer through the shipping provider. The Company does not purchase the shipping label on behalf of the buyer until after the buyer has purchased an item and has remitted payment. As a result, the Company has one performance obligation to buyers, which is to facilitate the sale of shipping labels to buyers for delivery of items purchased on the Company’s platform (shipping facilitation).

The Company evaluates the presentation of revenue from buyers on a gross or net basis based on whether it acts as a principal or an agent in shipment of listed items between sellers and buyers. The Company does not control the shipping service, which is provided by the shipping provider. The Company is not primarily responsible for shipping and it does not assume any of the risks for the items shipped such as risk of damage or loss during shipping. The Company acts as an agent of the buyer in facilitating the shipping. As such, the Company reports revenue on a net basis which is the difference between the shipping fee paid by the buyer and the cost of shipping labels paid to the shipping provider.

Revenue from shipping facilitation is recognized upon transfer of the shipping label to the seller on behalf of the buyer.

The Company estimates chargebacks based on historical collectability rates. The Company records a reserve for chargebacks in accrued expenses and other accrued liabilities with an offset to general and administrative expenses. Chargebacks have not been material for all periods presented.

Sales tax and other amounts collected on behalf of third parties are excluded from the transaction price.

Incentives

Under the referral program, an existing user (the referrer) earns an incentive (Posh Credit) when a new user (the referee) first buys an item on the Company’s platform. Posh Credits are not redeemable for cash and can only be applied for purchases on the Company’s platform. The Company records the incentive to the referrer, which is in exchange for a distinct referral service, as a liability at the time the incentive is earned by the referrer with a corresponding charge recorded to marketing expense in the condensed consolidated statements of operations. Credits and incentives issued to existing users for referring new users are contingent upon a new user completing an initial purchase on the Company’s platform and represent an incremental cost of obtaining a contract with a customer. The Company expenses such new user referral incentives as marketing expense when the referral incentives are earned because the amortization period would be one year or less.

The Company has several buyer incentive programs, which are offered to encourage buyer activity on the Company’s platform. These promotions reduce the fees for shipping facilitation charged by the Company. Accordingly, the Company records these incentives as a reduction to revenue from the buyer when the incentive is used by the buyer. Amounts in excess of cumulative shipping facilitation revenue earned are presented as marketing expense in the condensed consolidated statements of operations.

The Company participates in certain joint incentive programs with sellers that are recorded as a reduction to the fees received from the seller.

11


 

The Company may elect to issue incentives to buyers for customer satisfaction purposes or for refunds. These incentives (which are in the form of Posh Credits) can be applied towards future orders and, thereby, results in a reduced fee earned by the Company from the buyer, or redeemable credits that can also be redeemed for cash. In cases where the seller performed as required by the Company’s TOS, the Company reduces shipping facilitation revenue earned on the transaction and any cumulative revenue earned from the same buyer for Posh Credits and redeemable credits granted. If the amount of the incentive exceeds cumulative revenues from the buyer, then the excess is presented as operations and support expense in the consolidated statements of operations. If refunds are provided in a case where the seller did not perform and the amount cannot be recovered from the seller, the refund is presented as a reduction of revenue. Referral incentives, joint incentives, refunds and buyer incentives are recorded in the condensed consolidated statements of operations as follows for the periods indicated (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2021

 

Reduction to net revenue

 

$

1,319

 

 

$

2,204

 

Operations and support

 

 

1,293

 

 

 

2,015

 

Marketing

 

 

2,075

 

 

 

2,208

 

 

 

$

4,687

 

 

$

6,427

 

 

Cost of Net Revenue

Cost of net revenue consists of costs associated with credit card processing, order transaction fees and hosting expenses associated with operating the Company’s platform. Cost of net revenue does not include depreciation and amortization.

Stock-Based Compensation

The Company has granted stock-based awards consisting of stock options and RSUs to employees and consultants.

RSUs granted prior to the occurrence of a Qualified IPO vest upon the satisfaction of both time-based service and performance-based conditions. The time-based vesting condition for the majority of these awards is satisfied over four years. The performance-based vesting condition is satisfied upon the occurrence of a qualifying event, which is generally defined as a change in control transaction or the effective date of a Qualified IPO. Through December 31, 2020, no stock-based compensation expense had been recognized for RSUs with a liquidity event performance condition, as such qualifying event was not probable. Upon the completion of Company's IPO, the liquidity event performance condition was met. Accordingly, upon the effectiveness of the IPO, the Company recognized cumulative stock-based compensation expense determined using the grant-date fair values and the accelerated attribution method. The remaining stock-based compensation related to these awards will be recognized over the remaining time-based service over the remaining requisite service period using the accelerated attribution method. RSUs granted after the date of the Qualified IPO only include a time-based service condition.  Accordingly, these awards will be measured using the grant date fair values and will be amortized on a straight-line basis over the requisite service period. Forfeitures for all stock-based awards are recognized as they occur.

The Company estimates the fair value of stock options granted to employees and directors using the Black-Scholes option-pricing model. 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;

 

exercise price;

 

expected term;

 

risk-free interest rate;

 

expected annual dividend yield; and

 

expected stock price volatility over the expected term.

For all stock options granted, the expected term is calculated using the simplified method. The Company has no publicly available stock information and, therefore, uses the historical volatility of the stock price of similar publicly traded peer companies to estimate volatility of equity awards granted. The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award.

 

12


 

 

Prior to the completion of the IPO, the fair value of the shares of common stock underlying the stock options has been determined by the board of directors as there was no public market for the common stock. The board of directors determines the fair value of the Company’s common stock by considering a number of objective and subjective factors including: contemporaneous third-party valuations of the Company’s common stock, the valuation of comparable companies, sales of redeemable convertible preferred stock to unrelated third-parties, the Company’s operating and financial performance, the lack of liquidity of common stock, and general and industry specific economic outlook, amongst other factors. After the completion of the IPO, the fair value of the Company’s common stock is determined by the closing price, on the date of grant, of its common stock, which is traded on the Nasdaq Global Select Market.

Convertible Notes

As permitted under ASC 825, Financial Instruments (ASC 825), the Company has elected the fair value option to account for its convertible notes that were issued in September of 2020. In accordance with ASC 825, the Company records its convertible notes at fair value with changes in fair value recorded in the consolidated statement of operations in other expense, net, with the exception of changes in fair value due to instrument-specific credit risk which are required to be recognized in accumulated other comprehensive income (loss), a component of stockholders’ deficit. As a result of applying the fair value option, direct costs and fees related to the convertible notes were recognized in other expense, net, as incurred and were not deferred.

Concentrations of Risk

The Company currently uses one carrier to handle all shipments in each country in which it operates, two gateways to process payments and one third-party vendor to host the Company’s information technology environment. A significant disruption in the operations of one of more of these vendors could have an adverse effect on the Company’s business, financial condition, and results of operations.

The majority of the Company’s cash and cash equivalents are held by one high-credit quality financial institution within the United States with balances maintained in excess of the FDIC insurance limits.

No customer accounted for 10% or more of the Company’s net revenue as of and for the three months ended March 31, 2020, and 2021.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The implementation costs incurred in a hosting arrangement that is a service contract should be presented as a prepaid asset in the balance sheet and expensed over the term of the hosting arrangement to the same line item in the statement of operations as the costs related to the hosting fees. The Company adopted this new standard on January 1, 2021 on a prospective basis. The adoption of this standard did not have a material impact on its condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This amended guidance is intended to remove certain exceptions to the general principles in current U.S. GAAP, simplify areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The Company early adopted the new standard effective January 1, 2021 on a prospective basis. The adoption of this guidance did not have a material impact on its condensed consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and since that date, has issued several ASUs to further clarify certain aspects of ASU 2016-02 and provide entities with practical expedients that may be elected upon adoption. This standard requires lessees to recognize all leases, including operating leases, on the balance sheet as a right-of-use (ROU) asset and lease liability, unless the lease is a short-term lease. In July 2018, the FASB issued ASU 2018-11, Targeted Improvements – Leases (Topic 842). This update provides an alternative transition method that allows entities to elect to apply the standard prospectively at its effective date, versus recasting the prior periods presented. In June 2020, the FASB issued ASU 2020-05, deferring the effective date for one year for all other entities. The Company plans to adopt this standard using the alternative transition method on January 1, 2022 and is currently evaluating the impact to the consolidated financial statements. At a minimum, total assets and total liabilities will increase upon adoption as the Company expects to record a ROU asset and a lease liability for its operating leases. The Company is currently evaluating the effect that implementation of this standard will have on its consolidated financial statements upon adoption.

13


 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard amended guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For available for sale debt securities, credit losses will be presented as an allowance rather than as a write-down. In November 2019, the FASB issued ASU 2019-10, amending the effective dates. This new standard will be effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact of adopting this standard on its consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. Additionally, the amended guidance requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. This new standard will be effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years using the fully retrospective or modified retrospective method. Early adoption is permitted. The Company is currently evaluating the effect that implementation of this standard will have on its consolidated financial statements upon adoption.

3.Supplemental Financial Statement Information

Cash Equivalents and Marketable Securities

The following tables summarize the cost or amortized cost, gross unrealized gains, gross unrealized losses and fair value of the cash equivalents and marketable securities as of December 31, 2020 and March 31, 2021 (in thousands):

 

 

 

December 31, 2020

 

 

 

Cost or

Amortized

 

 

Unrealized

 

 

Estimated

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Cash equivalents(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

46,436

 

 

$

 

 

$

 

 

$

46,436

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

6,090

 

 

 

 

 

 

 

 

 

6,090

 

Corporate bonds

 

 

4,972

 

 

 

1

 

 

 

(2

)

 

 

4,971

 

U.S. Treasury securities

 

 

15,176

 

 

 

1

 

 

 

 

 

 

15,177

 

Total

 

$

72,674

 

 

$

2

 

 

$

(2

)

 

$

72,674

 

 

(1)

Included in cash and cash equivalents on the consolidated balance sheet as of December 31, 2020.

 

 

 

March 31, 2021

 

 

 

Cost or

Amortized

 

 

Unrealized

 

 

Estimated

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Cash equivalents(1)