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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________________________________
FORM 10-Q
___________________________________________________
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
OR
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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: 001-38953
___________________________________________________
The RealReal, Inc.
(Exact Name of Registrant as Specified in its Charter)
___________________________________________________
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Delaware |
45-1234222 |
( State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
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55 Francisco Street Suite 600
San Francisco, CA
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94133 |
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(Address of principal executive offices) |
(Zip Code) |
(855) 435-5893
(Registrant’s telephone number, including area code)
__________________________________________________________________
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
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Trading
Symbol(s) |
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Name of each exchange on which registered |
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Common stock, $0.00001 par value |
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REAL |
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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.
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Large accelerated filer |
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Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
☐ |
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Emerging growth company |
☐ |
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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 October 31, 2022, the registrant had 98,065,780 shares
of common stock, $0.00001 par value per share,
outstanding.
Table of Contents
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains
forward-looking statements within the meaning of the federal
securities laws. All statements other than statements of historical
fact contained in this Quarterly Report on Form 10-Q, including
statements regarding our future results of operations and financial
position, business strategy and plans, objectives of management for
future operations, long term operating expenses, the opening of
additional retail stores in the future, the development of our
automation technology, expectations for capital requirements and
the use of proceeds from our initial public offering,
are forward-looking statements. These statements involve
known and unknown risks, uncertainties and other important factors
that may cause our actual results, performance or achievements to
be materially different from any future results, performance or
achievements expressed or implied by
the forward-looking statements.
In some cases, you can identify forward-looking statements by
terms such as “may,” “should,” “expects,” “plans,” “anticipates,”
“could,” “intends,” “target,” “projects,” “contemplates,”
“believes,” “estimates,” “predicts,” “potential” or “continue” or
the negative of these terms or other similar expressions. The
forward-looking statements in this Quarterly Report on Form 10-Q
are only predictions. We have based
these forward-looking statements largely on our current
expectations and projections about future events and financial
trends that we believe may affect our business, financial condition
and results of operations.
These forward-looking statements speak only as of the
date of this Quarterly Report on Form 10-Q and are subject to a
number of risks, uncertainties and assumptions described in the
section titled “Risk Factors” included under Part II, Item 1A below
and elsewhere in this Quarterly Report on Form 10-Q, as well as in
our other filings with the Securities and Exchange Commission
(SEC). Because forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or
quantified, you should not rely on these forward-looking statements
as predictions of future events. The events and circumstances
reflected in our forward-looking statements may not be achieved or
occur and actual results could differ materially from those
projected in the forward-looking statements. Some of the
key factors that could cause actual results to differ from our
expectations include:
•our
future financial performance, including our expectations regarding
our revenue, cost of revenue, operating expenses, and our ability
to achieve and maintain future profitability, in particular with
respect to the impacts of the COVID-19 pandemic, inflation,
macroeconomic uncertainty and geopolitical
instability;
•our
ability to effectively manage or sustain our growth and to
effectively expand our operations;
•our
strategies, plans, objectives and goals;
•the
market demand for authenticated, pre-owned luxury goods
and new and pre-owned luxury goods in general and the
online market for luxury goods;
•our
ability to compete with existing and new competitors in existing
and new markets and offerings;
•our
ability to attract and retain consignors and buyers;
•our
ability to increase the supply of luxury goods offered through our
online marketplace;
•our
ability to timely and effectively scale our
operations;
•our
ability to enter international markets
•our
ability to optimize, operate and manage our authentication
centers;
•our
ability to develop and protect our brand;
•our
ability to comply with laws and regulations;
•our
expectations regarding outstanding litigation;
•our
expectations and management of future growth;
•our
expectations concerning relationships with third
parties;
•economic
and industry trends, projected growth or trend
analysis;
•seasonal
sales fluctuations;
•our
ability to add capacity, capabilities and automation to our
operations; and
•our
ability to attract and retain key personnel.
In addition, statements such as “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, although 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 a thorough inquiry
into, or review of, all potentially available relevant information.
These statements are inherently uncertain and investors are
cautioned not to unduly rely upon these statements. Furthermore, if
our forward-looking statements prove to be inaccurate, the
inaccuracy may be
material. In light of the significant uncertainties in these
forward-looking statements, you should not regard these statements
as a representation or warranty by us or any other person that we
will achieve our objectives and plans in any specified time frame,
or at all. Except as required by applicable law, we do not plan to
publicly update or revise any forward-looking statements
contained in this Quarterly Report on Form 10-Q, whether as a
result of any new information, future events or
otherwise.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
THE REALREAL, INC.
Condensed Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
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September 30,
2022 |
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December 31,
2021 |
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Assets |
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Current assets |
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Cash and cash equivalents |
$ |
300,439 |
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$ |
418,171 |
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Accounts receivable, net |
8,753 |
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7,767 |
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Inventory, net |
62,974 |
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71,015 |
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Prepaid expenses and other current assets |
27,095 |
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20,859 |
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Total current assets |
399,261 |
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517,812 |
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|
Property and equipment, net |
99,506 |
|
|
89,286 |
|
|
Operating lease right-of-use assets |
132,869 |
|
|
145,311 |
|
|
Other assets |
2,780 |
|
|
2,535 |
|
|
Total assets |
$ |
634,416 |
|
|
$ |
754,944 |
|
|
Liabilities and Stockholders’ Equity (Deficit) |
|
|
|
|
Current liabilities |
|
|
|
|
Accounts payable |
$ |
9,900 |
|
|
$ |
4,503 |
|
|
Accrued consignor payable |
71,771 |
|
|
71,042 |
|
|
Operating lease liabilities, current portion |
20,444 |
|
|
18,253 |
|
|
Other accrued and current liabilities |
91,974 |
|
|
94,188 |
|
|
Total current liabilities |
194,089 |
|
|
187,986 |
|
|
Operating lease liabilities, net of current portion |
130,050 |
|
|
143,159 |
|
|
Convertible senior notes, net |
448,954 |
|
|
348,380 |
|
|
Other noncurrent liabilities |
2,578 |
|
|
2,291 |
|
|
Total liabilities |
775,671 |
|
|
681,816 |
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
Stockholders’ equity (deficit): |
|
|
|
|
Common stock, $0.00001 par value; 500,000,000 shares authorized as
of September 30, 2022 and December 31, 2021; 97,927,443
and 92,960,066 shares issued and outstanding as of
September 30, 2022 and December 31, 2021,
respectively
|
1 |
|
|
1 |
|
|
Additional paid-in capital |
771,287 |
|
|
841,255 |
|
|
|
|
|
|
Accumulated deficit |
(912,543) |
|
|
(768,128) |
|
|
Total stockholders’ equity (deficit) |
(141,255) |
|
|
73,128 |
|
|
Total liabilities and stockholders’ equity (deficit) |
$ |
634,416 |
|
|
$ |
754,944 |
|
The accompanying notes are an integral part of these unaudited
condensed financial statements.
THE REALREAL, INC.
Condensed Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Revenue: |
|
|
|
|
|
|
|
|
Consignment revenue |
$ |
93,874 |
|
|
$ |
78,373 |
|
|
$ |
274,780 |
|
|
$ |
215,712 |
|
|
Direct revenue |
34,005 |
|
|
29,387 |
|
|
125,474 |
|
|
75,582 |
|
|
Shipping services revenue |
14,824 |
|
|
11,078 |
|
|
43,584 |
|
|
31,273 |
|
|
Total revenue |
142,703 |
|
|
118,838 |
|
|
443,838 |
|
|
322,567 |
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
Cost of consignment revenue |
15,206 |
|
|
10,162 |
|
|
43,193 |
|
|
29,872 |
|
|
Cost of direct revenue |
28,721 |
|
|
25,025 |
|
|
105,415 |
|
|
65,365 |
|
|
Cost of shipping services revenue |
12,999 |
|
|
12,552 |
|
|
43,149 |
|
|
34,480 |
|
|
Total cost of revenue |
56,926 |
|
|
47,739 |
|
|
191,757 |
|
|
129,717 |
|
|
Gross profit |
85,777 |
|
|
71,099 |
|
|
252,081 |
|
|
192,850 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Marketing |
13,511 |
|
|
15,708 |
|
|
48,469 |
|
|
44,378 |
|
|
Operations and technology |
70,782 |
|
|
61,135 |
|
|
207,311 |
|
|
172,906 |
|
|
Selling, general and administrative |
46,860 |
|
|
44,912 |
|
|
147,063 |
|
|
132,504 |
|
|
Legal settlement |
152 |
|
|
500 |
|
|
456 |
|
|
11,788 |
|
|
Total operating expenses |
131,305 |
|
|
122,255 |
|
|
403,299 |
|
|
361,576 |
|
|
Loss from operations |
(45,528) |
|
|
(51,156) |
|
|
(151,218) |
|
|
(168,726) |
|
|
Interest income |
1,002 |
|
|
55 |
|
|
1,360 |
|
|
249 |
|
|
Interest expense |
(2,675) |
|
|
(6,072) |
|
|
(8,014) |
|
|
(15,374) |
|
|
Other income, net |
6 |
|
|
5 |
|
|
133 |
|
|
22 |
|
|
Loss before provision for income taxes |
(47,195) |
|
|
(57,168) |
|
|
(157,739) |
|
|
(183,829) |
|
|
Provision for income taxes |
63 |
|
|
28 |
|
|
96 |
|
|
83 |
|
|
Net loss attributable to common stockholders |
$ |
(47,258) |
|
|
$ |
(57,196) |
|
|
$ |
(157,835) |
|
|
$ |
(183,912) |
|
|
Net loss per share attributable to common stockholders, basic and
diluted |
$ |
(0.49) |
|
|
$ |
(0.62) |
|
|
$ |
(1.66) |
|
|
$ |
(2.02) |
|
|
Shares used to compute net loss per share attributable to common
stockholders, basic and diluted |
96,696,417 |
|
|
91,859,603 |
|
|
95,036,618 |
|
|
90,995,285 |
|
The accompanying notes are an integral part of these unaudited
condensed financial statements.
THE REALREAL, INC.
Condensed Statements of Comprehensive Loss
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Net loss |
$ |
(47,258) |
|
|
$ |
(57,196) |
|
|
$ |
(157,835) |
|
|
$ |
(183,912) |
|
|
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
Unrealized loss on investments |
— |
|
|
— |
|
|
— |
|
|
(11) |
|
|
Comprehensive loss |
$ |
(47,258) |
|
|
$ |
(57,196) |
|
|
$ |
(157,835) |
|
|
$ |
(183,923) |
|
The accompanying notes are an integral part of these unaudited
condensed financial statements.
THE REALREAL, INC.
Condensed Statements of Stockholders’ Equity (Deficit)
(In thousands, except share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional
Paid-in
Capital |
|
Accumulated
Deficit |
|
Total
Stockholders’
Equity (Deficit) |
|
Shares |
|
Amount |
|
|
|
Balance as of December 31, 2021 |
92,960,066 |
|
|
$ |
1 |
|
|
$ |
841,255 |
|
|
$ |
(768,128) |
|
|
$ |
73,128 |
|
|
Cumulative effect adjustment due to adoption of ASU 2020-06 (Note
2) |
— |
|
|
— |
|
|
(112,052) |
|
|
13,420 |
|
|
(98,632) |
|
|
Issuance of common stock upon exercise of options |
417,428 |
|
|
— |
|
|
637 |
|
|
— |
|
|
637 |
|
|
Issuance of common stock upon vesting of restricted stock units,
net of shares withheld for employee taxes |
922,610 |
|
|
— |
|
|
(2) |
|
|
— |
|
|
(2) |
|
|
Stock-based compensation expense |
— |
|
|
— |
|
|
12,964 |
|
|
— |
|
|
12,964 |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
(57,412) |
|
|
(57,412) |
|
|
Balance as of March 31, 2022 |
94,300,104 |
|
|
$ |
1 |
|
|
$ |
742,802 |
|
|
$ |
(812,120) |
|
|
$ |
(69,317) |
|
|
Issuance of common stock upon exercise of options |
94,601 |
|
|
— |
|
|
328 |
|
|
— |
|
|
328 |
|
|
Issuance of common stock upon vesting of restricted stock units,
net of shares withheld for employee taxes |
848,646 |
|
|
— |
|
|
(23) |
|
|
— |
|
|
(23) |
|
|
Issuance of common stock for exercises under ESPP |
282,226 |
|
|
— |
|
|
900 |
|
|
— |
|
|
900 |
|
|
Stock-based compensation expense |
— |
|
|
— |
|
|
14,164 |
|
|
— |
|
|
14,164 |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
(53,165) |
|
|
(53,165) |
|
|
Balance as of June 30, 2022 |
95,525,577 |
|
|
$ |
1 |
|
|
$ |
758,171 |
|
|
$ |
(865,285) |
|
|
$ |
(107,113) |
|
|
Issuance of common stock upon exercise of options |
1,416,611 |
|
|
— |
|
|
1,941 |
|
|
— |
|
|
1,941 |
|
|
Issuance of common stock upon vesting of restricted stock units,
net of shares withheld for employee taxes |
985,255 |
|
|
— |
|
|
(6) |
|
|
— |
|
|
(6) |
|
|
Stock-based compensation expense |
— |
|
|
— |
|
|
11,181 |
|
|
— |
|
|
11,181 |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
(47,258) |
|
|
(47,258) |
|
|
Balance as of September 30, 2022 |
97,927,443 |
|
|
$ |
1 |
|
|
$ |
771,287 |
|
|
$ |
(912,543) |
|
|
$ |
(141,255) |
|
The accompanying notes are an integral part of these unaudited
condensed financial statements.
THE REALREAL, INC.
Condensed Statements of Stockholders’ Equity (Deficit)
(In thousands, except share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional
Paid-in
Capital |
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
Accumulated
Deficit |
|
Total
Stockholders’
Equity |
|
Shares |
|
Amount |
|
|
Balance as of December 31, 2020 |
89,301,664 |
|
|
$ |
1 |
|
|
$ |
723,302 |
|
|
$ |
11 |
|
|
$ |
(532,021) |
|
|
$ |
191,293 |
|
|
Issuance of common stock upon exercise of options |
543,963 |
|
|
— |
|
|
3,973 |
|
|
— |
|
|
— |
|
|
3,973 |
|
|
Issuance of common stock upon vesting of restricted stock units,
net of shares withheld for employee taxes |
829,641 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Stock-based compensation expense |
— |
|
|
— |
|
|
11,278 |
|
|
— |
|
|
— |
|
|
11,278 |
|
|
Purchase of capped calls |
— |
|
|
— |
|
|
(33,666) |
|
|
— |
|
|
— |
|
|
(33,666) |
|
|
Equity component of convertible senior notes, net of issuance costs
of $3,131
|
— |
|
|
— |
|
|
93,031 |
|
|
— |
|
|
— |
|
|
93,031 |
|
|
Other comprehensive loss |
— |
|
|
— |
|
|
— |
|
|
(11) |
|
|
— |
|
|
(11) |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(55,993) |
|
|
(55,993) |
|
|
Balance as of March 31, 2021 |
90,675,268 |
|
|
$ |
1 |
|
|
$ |
797,918 |
|
|
$ |
— |
|
|
$ |
(588,014) |
|
|
$ |
209,905 |
|
|
Issuance of common stock upon exercise of options |
153,414 |
|
|
— |
|
|
786 |
|
|
— |
|
|
— |
|
|
786 |
|
|
Issuance of common stock upon vesting of restricted stock units,
net of shares withheld for employee taxes |
532,468 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Issuance of common stock for exercises under ESPP |
98,355 |
|
|
— |
|
|
1,092 |
|
|
— |
|
|
— |
|
|
1,092 |
|
|
Stock-based compensation expense |
— |
|
|
— |
|
|
13,219 |
|
|
— |
|
|
— |
|
|
13,219 |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(70,723) |
|
|
(70,723) |
|
|
Balance as of June 30, 2021 |
91,459,505 |
|
|
$ |
1 |
|
|
$ |
813,015 |
|
|
$ |
— |
|
|
$ |
(658,737) |
|
|
$ |
154,279 |
|
|
Issuance of common stock upon exercise of options |
145,217 |
|
|
— |
|
|
693 |
|
|
— |
|
|
— |
|
|
693 |
|
|
Issuance of common stock upon vesting of restricted stock units,
net of shares withheld for employee taxes |
685,077 |
|
|
— |
|
|
(7) |
|
|
— |
|
|
— |
|
|
(7) |
|
|
Stock-based compensation expense |
— |
|
|
— |
|
|
12,948 |
|
|
— |
|
|
— |
|
|
12,948 |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(57,196) |
|
|
(57,196) |
|
|
Balance as of September 30, 2021 |
92,289,799 |
|
|
$ |
1 |
|
|
$ |
826,649 |
|
|
$ |
— |
|
|
$ |
(715,933) |
|
|
$ |
110,717 |
|
The accompanying notes are an integral part of these unaudited
condensed financial statements.
THE REALREAL, INC.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
Cash flows from operating activities: |
|
|
|
|
Net loss |
$ |
(157,835) |
|
|
$ |
(183,912) |
|
|
Adjustments to reconcile net loss to cash used in operating
activities: |
|
|
|
|
Depreciation and amortization |
20,255 |
|
|
17,840 |
|
|
Stock-based compensation expense |
37,020 |
|
|
36,324 |
|
|
Reduction of operating lease right-of-use assets |
14,598 |
|
|
14,765 |
|
|
Bad debt expense |
1,133 |
|
|
637 |
|
|
Accrued interest on convertible notes |
575 |
|
|
1,525 |
|
|
Accretion of debt discounts and issuance costs |
1,942 |
|
|
9,854 |
|
|
Loss on disposal/sale of property and equipment and impairment of
capitalized proprietary software |
432 |
|
|
404 |
|
|
Other adjustments |
— |
|
|
10 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable, net |
(2,119) |
|
|
(194) |
|
|
Inventory, net |
8,041 |
|
|
(21,555) |
|
|
Prepaid expenses and other current assets |
(6,543) |
|
|
(5,330) |
|
|
Other assets |
(391) |
|
|
(807) |
|
|
Operating lease liability |
(13,074) |
|
|
(12,548) |
|
|
Accounts payable |
4,067 |
|
|
(6,220) |
|
|
Accrued consignor payable |
729 |
|
|
3,313 |
|
|
Other accrued and current liabilities |
(4,494) |
|
|
21,951 |
|
|
Other noncurrent liabilities |
409 |
|
|
556 |
|
|
Net cash used in operating activities |
(95,255) |
|
|
(123,387) |
|
|
Cash flow from investing activities: |
|
|
|
|
Proceeds from maturities of short-term investments |
— |
|
|
4,000 |
|
|
Capitalized proprietary software development costs |
(9,847) |
|
|
(7,455) |
|
|
Purchases of property and equipment |
(16,408) |
|
|
(30,303) |
|
|
Net cash used in investing activities |
(26,255) |
|
|
(33,758) |
|
|
Cash flow from financing activities: |
|
|
|
|
Proceeds from issuance of 2028 convertible senior notes, net of
issuance costs |
— |
|
|
278,234 |
|
|
Purchase of capped calls in conjunction with the issuance of the
2028 convertible senior notes |
— |
|
|
(33,666) |
|
|
Proceeds from exercise of stock options |
2,906 |
|
|
5,452 |
|
|
|
|
|
|
Proceeds from issuance of stock in connection with the Employee
Stock Purchase Program |
900 |
|
|
1,092 |
|
|
Taxes paid related to restricted stock vesting |
(28) |
|
|
(4) |
|
|
Net cash provided by financing activities |
3,778 |
|
|
251,108 |
|
|
Net increase (decrease) in cash and cash equivalents |
(117,732) |
|
|
93,963 |
|
|
Cash and cash equivalents |
|
|
|
|
Beginning of period |
418,171 |
|
|
350,846 |
|
|
End of period |
$ |
300,439 |
|
|
$ |
444,809 |
|
THE REALREAL, INC.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
Supplemental disclosures of cash flow information |
|
|
|
|
Cash paid for interest |
$ |
5,496 |
|
|
$ |
3,988 |
|
|
Cash paid for income taxes |
256 |
|
94 |
|
|
Supplemental disclosures of non-cash investing and financing
activities |
|
|
|
|
Property and equipment additions not yet paid in cash |
4,487 |
|
|
1,425 |
|
|
Capitalized proprietary software development costs additions not
yet paid in cash |
2,159 |
|
|
1,247 |
|
|
Stock-based compensation capitalized to proprietary software
development costs |
1,289 |
|
|
1,121 |
|
The accompanying notes are an integral part of these unaudited
condensed financial statements.
THE REALREAL, INC.
Notes to Unaudited Condensed Financial Statements
Note 1. Description of Business and Basis of
Presentation
Organization and Description of Business
The RealReal, Inc. (the “Company”) is an online marketplace for
authenticated, consigned luxury goods across multiple categories,
including women’s, men’s, kids’, jewelry and watches, and home and
art. The Company was incorporated in the state of Delaware on
March 29, 2011 and is headquartered in San Francisco,
California.
Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”) and the requirements of the U.S. Securities and
Exchange Commission (the “SEC”) for interim reporting. The
Company’s functional and reporting currency is the
U.S. dollar.
The condensed balance sheet as of December 31, 2021 included herein
was derived from the audited financial statements as of that date.
The accompanying unaudited condensed financial statements have been
prepared on the same basis as the annual financial statements and,
in the opinion of management, reflect all adjustments, which
include only normal recurring adjustments, necessary to state
fairly the Company’s financial position, results of operations,
comprehensive loss, and stockholders’ equity, and cash flows for
the periods presented. The Company had a change in accounting
policy from those disclosed in the audited financial statements and
related notes for the year ended December 31, 2021 related to
shipping services revenue. Changes to reclassify amounts in the
prior periods have been made to conform to the current period
presentation, as described in Note 2 “Change in Accounting
Principle” below.
These unaudited condensed financial statements should be read in
conjunction with the Company’s financial statements and notes
included in our Annual Report on Form 10-K filed with the SEC on
February 28, 2022.
Note 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial
statements and the reported amounts of expenses during the
reporting period. Significant items subject to such estimates and
assumptions include those related to revenue recognition, including
the returns reserve, valuation of inventory, software development
costs, stock-based compensation, incremental borrowing rates
related to lease liability, valuation of deferred taxes, and other
contingencies. The Company evaluates its estimates and assumptions
on an ongoing basis using historical experience and other factors
and adjusts those estimates and assumptions when facts and
circumstances dictate. Actual results could differ from those
estimates.
Net Loss per Share Attributable to Common Stockholders
The Company follows the two-class method when computing net
loss per common share when shares are issued that meet the
definition of participating securities. The two-class method
determines net loss per common share for each class of common stock
and participating securities according to dividends declared or
accumulated and participation rights in undistributed earnings. The
two-class method requires income (loss) available or attributable
to common stockholders for the period to be allocated between
common stock and participating securities based upon their
respective rights to receive dividends as if all income for the
period had been distributed.
The Company’s convertible senior notes are participating securities
as they give the holders the right to receive dividends if
dividends or distributions declared to the common stockholders is
equal to or greater than the last reported sale price of the
Company’s common stock on the trading day immediately preceding the
ex-dividend date for such dividend or distribution as if the
instruments had been converted into shares of common stock. No
undistributed earnings were allocated to the participating
securities as the contingent event is not satisfied as of the
reporting date.
For periods in which the Company reports net losses, diluted net
loss per common share attributable to common stockholders is the
same as basic net loss per common share attributable to common
stockholders, because potentially dilutive common shares and
assumed conversion of the convertible senior notes are not assumed
to have been issued within the calculation, if their effect
is anti-dilutive.
Revenue Recognition
The Company generates revenue from the sale of pre-owned luxury
goods through its online marketplace and retail stores. Revenue is
recognized upon transfer of control of promised products or
services to customers in an amount that reflects the consideration
the Company expects to receive in exchange for those products or
services. The Company enters into contracts that include products
and services that are capable of being distinct and accounted for
as separate performance obligations as described below. The
transaction price requires an allocation across consignment
services, sales of Company-owned inventory, and shipping services.
Estimation is required in the determination of the services
stand-alone selling price ("SSP").
Consignment Revenue
The Company provides a service to sell pre-owned luxury goods on
behalf of consignors to buyers through its online marketplace and
retail stores. The Company retains a percentage of the proceeds
received as payment for its consignment service, which the Company
refers to as its take rate. SSP is estimated using observable
stand-alone consignment sales which are conducted without shipping
services. The Company reports consignment revenue on a net
basis as an agent and not the gross amount collected from the
buyer. Title to the consigned goods remains with the consignor
until transferred to the buyer upon purchase of the consigned goods
and expiration of the allotted return period. The Company does not
take title of consigned goods at any time except in certain cases
where returned goods become Company-owned inventory.
The Company recognizes consignment revenue upon purchase of the
consigned good by the buyer as its performance obligation of
providing consignment services to the consignor is satisfied at
that point. Consignment revenue is recognized net of estimated
returns, cancellations, buyer incentives and adjustments. The
Company recognizes a returns reserve based on historical
experience, which is recorded in other accrued and current
liabilities on the condensed balance sheets (see Note 5). Sales tax
assessed by governmental authorities is excluded from
revenue.
Certain transactions provide consignors with a material right
resulting from the tiered consignor commission plan. Under this
plan, the amount an individual consignor receives for future sales
of consigned goods may be dependent on previous consignment sales
for that consignor within his/her consignment period. Accordingly,
in certain consignment transactions, a small portion of the
Company’s consignment revenue is allocated to such material right
using the portfolio method and recorded as deferred revenue, which
is recorded in other accrued and current liabilities on the
condensed balance sheets. The impact of the deferral has not been
material to the financial statements.
The Company also generates subscription revenue from monthly
memberships allowing buyers early access to shop for luxury goods.
The buyers receive the early access and other benefits over the
term of the subscription period, which represents a single
stand-ready performance obligation. Therefore, the subscription
fees paid by the buyer are recognized over the monthly subscription
period. Subscription revenue was not material in the three and nine
months ended September 30, 2022 and 2021.
Direct Revenue
The Company generates direct revenue from the sale of Company-owned
inventory. The Company recognizes direct revenue on a gross basis
upon shipment of the purchased good to the buyer as the Company
acts as the principal in the transaction. SSP is estimated using
observable stand-alone sales of Company-owned inventory which are
conducted without shipping services, when available, or a market
assessment approach. Direct revenue is recognized net of estimated
returns, buyer incentives and adjustments. Sales tax assessed by
governmental authorities is excluded from revenue. Cost of direct
revenue is also recognized upon shipment to the buyer in an amount
equal to that paid to the consignor from the original consignment
sale, an amount equal to that paid as a direct purchase from a
third party, or the lower of cost of the inventory purchased and
its net realizable value.
Shipping Services Revenue
The Company provides a service to ship purchased items to buyers
and a service to ship items from buyers back to the Company. The
Company determines itself to be the principal in this arrangement.
The Company charges a fee to buyers for this service and has
elected to treat shipping and handling activities performed as a
separate performance obligation. For shipping services revenue, the
Company's SSP is estimated using a market approach considering
external and internal data points on the stand-alone sales price of
the shipping service. All outbound shipping and handling costs for
buyers are accounted for as cost of shipping services and
recognized as the shipping activity occurs.
The Company also generates shipping services revenue
from
the shipping fees for consigned products returned by buyers to the
Company within policy.
The Company recognizes shipping revenue over time as the shipping
activity occurs, which is generally one to three days after
shipment.
Incentives
Incentives, which include platform-wide discounts and buyer
incentives, may periodically be offered to buyers. Platform-wide
discounts are made available to all buyers on the online
marketplace. Buyer incentives apply to specific buyers and consist
of coupons or promotions that offer credits in connection with
purchases on the Company’s platform, and do not impact the
commissions paid to consignors. These are treated as a reduction of
consignment revenue and direct revenue. Additionally, the Company
periodically offers commission exceptions to the standard
consignment rates to consignors to optimize its supply. These are
treated as a reduction of consignment revenue at the time of sale.
The Company may offer a certain type of buyer incentive in the form
of site credits to buyers on current transactions to be applied
towards future transactions, which are included in other accrued
and current liabilities on the condensed balance
sheets.
Contract Liabilities
The Company’s contractual liabilities primarily consist of deferred
revenue for material rights primarily related to the tiered
consignor commission plan, which are recognized as revenue using a
portfolio approach based on the pattern of exercise, and certain
unredeemed site credits, which were immaterial as of
September 30, 2022 and December 31, 2021. Contract
liabilities are recorded in other accrued and current liabilities
on the balance sheets and are generally expected to be recognized
within one year. Contract liabilities were immaterial as of
September 30, 2022 and December 31, 2021.
Cost of Revenue
Cost of consignment revenue consist of credit card fees, packaging,
customer service personnel-related costs, website hosting services,
and consignor inventory adjustments relating to lost or damaged
products. Cost of direct revenue consists of the cost of goods
sold, credit card fees, packaging, customer service
personnel-related costs, website hosting services, and inventory
adjustments. Cost of shipping services revenue consists of the
outbound shipping and handling costs to deliver purchased items to
buyers, the shipping costs for consigned products returned by
buyers to the Company within policy, and an allocation of the
credit card fees associated with the shipping fee
charged.
Stock-based Compensation
The Company incurs stock-based compensation expense from stock
options, restricted stock units (“RSUs”), performance based
restricted stock units (“PSUs”), and employee stock purchase plan
(“ESPP”) purchase rights. Stock-based compensation expense related
to employees and nonemployees is measured based on the grant-date
fair value of the awards. Compensation expense is recognized in the
statements of operations over the period during which the employee
is required to perform services in exchange for the award (the
vesting period of the applicable award) using the straight-line
method for awards with only a service condition and on a tranche by
tranche basis for PSUs. The Company estimates the fair value of
stock options granted and the purchase rights issued under the ESPP
using the Black-Scholes option pricing model. The fair value of
RSUs is estimated based on the fair market value of the Company’s
common stock on the date of grant, which is determined based on the
closing price of the Company’s common stock. The PSUs are measured
using the fair market value of the Company’s common stock on the
date of grant. The stock-based compensation expense for PSUs is
recognized based on the estimated number of shares that the Company
expects will vest and is adjusted on a quarterly basis using the
estimated achievement of financial performance targets. The Company
accounts for forfeitures as they occur.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
original maturities of three months or less from the purchase date
to be cash equivalents. Cash equivalents primarily consist of
investments in short-term money market funds.
Inventory, Net
Inventory consists of finished goods arising from goods returned
after the title has transferred from the buyer to the Company as
well as finished goods from direct purchases from vendors and
consignors. The cost of inventory is an amount equal to that
paid to the consignor or vendors. Inventory is valued at the
lower of cost or net realizable value using the specific
identification method and the Company records provisions, as
appropriate, to write down obsolete and excess inventory
to estimated net realizable value. After the inventory value
is reduced, adjustments are not made to increase it from the
estimated net realizable value. Our provisions to write down
obsolete and excess inventory to net realizable value were not
material for the three and nine months ended September 30,
2022 and 2021.
Return reserves, which reduce revenue and cost of sales, are
estimated using historical experience. Liabilities for return
allowances are included in other accrued and current liabilities on
the condensed balance sheets and were $21.2 million and $23.6
million as of September 30, 2022 and December 31, 2021,
respectively. Included in inventory on the Company’s condensed
balance sheets are assets totaling $5.9 million and $9.1 million as
of September 30, 2022 and December 31, 2021,
respectively, for the rights to recover products from customers
associated with its liabilities for return reserves.
Software Development Costs
Proprietary software includes the costs of developing the Company’s
internal proprietary business platform and automation projects. The
Company capitalizes qualifying proprietary software development
costs that are incurred during the application development stage.
Capitalization of costs begins when two criteria are met: (1) the
preliminary project stage is completed and (2) it is probable
that the software will be completed and used for its intended
function. Such costs are capitalized in the period incurred.
Capitalization ceases and amortization begins when the software is
substantially complete and ready for its intended use, including
the completion of all significant testing. Costs related to
preliminary project activities and post-implementation operating
activities are expensed as incurred.
Leases
Contracts that have been determined to convey the right to use an
identified asset are evaluated for classification as an operating
or finance lease. For the Company’s operating leases, the Company
records a lease liability based on the present value of the lease
payments at lease inception, using the applicable incremental
borrowing rate. The Company estimates the incremental borrowing
rate by developing its own synthetic credit rating, corresponding
yield curve, and the terms of each lease at the lease commencement
date. The corresponding right-of-use asset is recorded based on the
corresponding lease liability at lease inception, adjusted for
payments made to the lessor at or before the commencement date,
initial direct costs incurred and any tenant incentives allowed for
under the lease. The Company does not include optional renewal
terms or early termination provisions unless the Company is
reasonably certain such options would be exercised at the inception
of the lease. Operating lease right-of-use assets, current portion
of operating lease liabilities, and operating lease liabilities,
net of current portion are included on the Company’s condensed
balance sheets.
The Company has elected the practical expedients that allows for
the combination of lease components and non-lease components and to
record short-term leases as lease expense on a straight-line basis
on the condensed statements of operations. Variable lease payments
are recorded as expense as they are incurred.
The Company has finance leases for vehicles and equipment, and the
amounts of finance lease right-of-use assets and finance lease
liabilities have been immaterial to date.
Convertible Senior Notes, Net
Prior to the adoption of ASU 2020-06 on January 1, 2022,
convertible debt instruments that may be settled in cash or other
assets, or partially in cash, upon conversion, were separately
accounted for as long-term debt and equity components (or
conversion feature). The debt component represented the Company’s
contractual obligation to pay principal and interest and the equity
component represented the Company’s option to convert the debt
security into equity of the Company or the equivalent amount of
cash. Upon issuance, the Company allocated the debt component on
the basis of the estimated fair value of a similar liability that
does not have an associated convertible feature and the remaining
proceeds are allocated to the equity component. The bifurcation of
the debt and equity components resulted in a debt discount for the
aforementioned notes. The Company uses the effective interest
method to amortize the debt discount to interest expense over the
amortization period which is the expected life of the debt.
Following the adoption of ASU 2020-06, there is no bifurcation of
the liability and equity components of the Notes, and the entire
principal of the Notes are accounted for as long-term
debt.
Capped Call Transactions
In June 2020 and March 2021, in connection with the issuance of its
convertible senior notes, the Company entered into Capped Call
Transactions (see Note 7). The Capped Call Transactions are
expected generally to reduce the potential dilution to the holders
of the Company’s common stock upon any conversion of the
convertible senior notes and/or offset any cash payments the
Company is required to make in excess of the principal amount of
converted convertible senior notes, with such reduction and/or
offset subject to a cap based on the cap price. The capped calls
are classified in stockholders’ equity as a reduction to additional
paid-in capital and are not subsequently remeasured as long as the
conditions for equity classification continue to be
met.
Debt Issuance Costs
Debt issuance costs are amortized to interest expense over the
estimated life of the related debt based on the effective interest
method. The Company presents debt issuance costs on the condensed
balance sheets as a direct deduction from the associated debt.
Prior to the adoption of ASU 2020-06 on January 1, 2022, a portion
of debt issuance costs incurred in connection with the convertible
senior notes issued in June 2020 and March 2021 was related to the
equity component and was recorded as a reduction to additional paid
in capital and was not amortized to interest expense over the
estimated life of the related debt. Following the adoption of ASU
2020-06, the debt issuance costs previously allocated to the equity
component of both the 2025 and 2028 Notes were reclassified to
debt. As such, all of the debt issuance costs are recorded as a
direct deduction from the related principal debt amounts on the
balance sheet, and are all amortized to interest expense over the
estimated remaining life of the related debt.
Concentrations of Credit Risks
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents,
and accounts receivable. At times, such amount may exceed
federally-insured limits. The Company reduces credit risk by
placing its cash and cash equivalents, and investments with major
financial institutions within the United States.
As of September 30, 2022 and December 31, 2021, there
were no customers that represented 10% or more of the Company’s
accounts receivable balance and there were no customers that
individually exceeded 10% of the Company’s total revenue for
each of the nine months ended September 30, 2022 and
2021.
Change in Accounting Principle
During the three months ended June 30, 2022, the Company changed
its method of accounting for shipping and handling activities from
applying the policy election to account for shipping services as
fulfillment activities to recognizing shipping services as a
promised service to customers which the Company determined to be a
separate performance obligation to its customers. The Company
believes that this change in accounting method is preferable, as it
results in a disaggregation of revenue and related costs that
provides more transparency to users of its financial statements and
is more consistent with the nature of the Company's promises made
in arrangements with its customers. The effects of this change to
the disaggregation and presentation of revenue and costs of revenue
have been retroactively applied to all periods presented. This
change had an immaterial impact to the Company's loss from
operations and as such the Company did not retroactively adjust
prior periods for these immaterial effects.
Certain financial statement line items included in the Statement of
Operations for the three and nine month periods ended
September 30, 2022 and September 30, 2021, respectively
were adjusted as follows (in thousands):
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|
|
|
|
|
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Three Months Ended September 30, 2022 |
|
As Computed Under Previous Method |
|
Effect of Change |
|
As Reported Under Preferable Method |
|
Revenue: |
|
|
|
|
|
|
Consignment revenue |
$ |
108,698 |
|
|
$ |
(14,824) |
|
|
$ |
93,874 |
|
|
Shipping services revenue |
— |
|
|
14,824 |
|
|
14,824 |
|
|
Cost of revenue: |
|
|
|
|
|
|
Cost of consignment revenue |
28,205 |
|
|
(12,999) |
|
|
15,206 |
|
|
Cost of shipping services revenue |
— |
|
|
12,999 |
|
|
12,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2022 |
|
As Computed Under Previous Method |
|
Effect of Change |
|
As Reported Under Preferable Method |
|
Revenue: |
|
|
|
|
|
|
Consignment revenue |
$ |
318,364 |
|
|
$ |
(43,584) |
|
|
$ |
274,780 |
|
|
Shipping services revenue |
— |
|
|
43,584 |
|
|
43,584 |
|
|
Cost of revenue: |
|
|
|
|
|
|
Cost of consignment revenue |
86,342 |
|
|
(43,149) |
|
|
43,193 |
|
|
Cost of shipping services revenue |
— |
|
|
43,149 |
|
|
43,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021 |
|
As Previously Reported |
|
Effect of Change |
|
As Reported Under Preferable Method |
|
Revenue: |
|
|
|
|
|
|
Consignment revenue |
$ |
89,451 |
|
|
$ |
(11,078) |
|
|
$ |
78,373 |
|
|
Shipping services revenue |
— |
|
|
11,078 |
|
|
11,078 |
|
|
Cost of revenue: |
|
|
|
|
|
|
Cost of consignment revenue |
22,714 |
|
|
(12,552) |
|
|
10,162 |
|
|
Cost of shipping services revenue |
— |
|
|
12,552 |
|
|
12,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021 |
|
As Previously Reported |
|
Effect of Change |
|
As Reported Under Preferable Method |
|
Revenue: |
|
|
|
|
|
|
Consignment revenue |
$ |
246,985 |
|
|
$ |
(31,273) |
|
|
$ |
215,712 |
|
|
Shipping services revenue |
— |
|
|
31,273 |
|
|
31,273 |
|
|
Cost of revenue: |
|
|
|
|
|
|
Cost of consignment revenue |
64,352 |
|
|
(34,480) |
|
|
29,872 |
|
|
Cost of shipping services revenue |
— |
|
|
34,480 |
|
|
34,480 |
|
Recently Adopted Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB")
issued ASU 2020-6,
Debt – Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity,
which simplifies accounting for convertible instruments. The
Company adopted this guidance as of January 1, 2022 using the
modified retrospective method. As a result of the adoption, the
Convertible Senior Notes due 2025 (the "2025 Notes") and the
Convertible Senior Notes due 2028 (the "2028 Notes" and together
with the 2025 Notes, the "Notes") are no longer bifurcated into
separate liability and equity components, but rather are classified
as a single liability in the condensed balance sheets.
Upon adoption, the Company recorded a cumulative effect of $13.4
million as a reduction to accumulated deficit and a reduction to
additional paid in capital of $112.1 million related to amounts
attributable to the value of the conversion options that had
previously been recorded in equity. Additionally, the Company
recorded an increase to its convertible notes balance by an
aggregate amount of $98.6 million as a result of the reversal of
the separation of the convertible debt between debt and equity. As
a result of the adoption, there was a net increase in deferred tax
assets of $27.7 million and a corresponding increase of
$27.7 million in the offsetting valuation
allowance.
The Company also reclassified the issuance costs previously
allocated to the conversion feature to debt, so that all issuance
costs are now presented as a direct deduction of the long-term debt
line on the condensed balance sheet. The adoption of this standard
also significantly decreased the amount of non-cash interest
expense to be recognized in future periods as a result of
eliminating the discount on debt associated with the conversion
feature. The adoption did not affect the Company's condensed
statements of cash flows. When calculating net loss per share
attributable to common stockholders, the Company uses the
if-converted method as required under ASU 2020-06 to determine the
dilutive effect of the Notes; however there was no impact because
including the assumed conversion of the convertible debt would have
been anti-dilutive.
Note 3. Cash and Cash Equivalents
The following tables summarize the estimated value of the Company’s
cash and cash equivalents (in thousands):
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|
September 30, 2022 |
|
Amortized
Cost |
|
Unrealized
Gain |
|
Unrealized
Loss |
|
Fair
Value |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Cash |
$ |
282,515 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
282,515 |
|
|
Money market funds |
17,924 |
|
|
— |
|
|
— |
|
|
17,924 |
|
|
Total cash and cash equivalents |
$ |
300,439 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
300,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
Amortized
Cost |
|
Unrealized
Gain |
|
Unrealized
Loss |
|
Fair
Value |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Cash |
$ |
278,769 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
278,769 |
|
|
Money market funds |
139,402 |
|
|
— |
|
|
— |
|
|
139,402 |
|
|
Total cash and cash equivalents |
$ |
418,171 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
418,171 |
|
Note 4. Fair Value Measurement
Assets and liabilities recorded at fair value on a recurring basis
on the condensed balance sheets are categorized based upon the
level of judgment associated with the inputs used to measure their
fair values. Fair value is defined as the exchange price that would
be received for an asset or an exit price that would be paid to
transfer a liability in the principal or most advantageous market
for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to
measure fair value must maximize the use of observable inputs and
minimize the use of unobservable inputs. The authoritative guidance
on fair value measurements establishes a three-tier fair value
hierarchy for disclosure of fair value measurements as
follows:
Level 1—Observable inputs such as unadjusted, quoted prices in
active markets for identical assets or liabilities at the
measurement date.
Level 2—Inputs (other than quoted prices included in Level 1)
are either directly or indirectly observable for the asset or
liability. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not
active.
Level 3—Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the
assets or liabilities.
There were no transfers between Level 1, Level 2 or
Level 3 of the fair value hierarchy during the periods
presented.
Assets and Liabilities Measured at Fair Value on a Recurring
Basis
As of September 30, 2022 and December 31, 2021, the
Company’s cash equivalents solely consisted of money market funds,
which amounted to $17.9 million and $139.4 million, respectively.
Money market funds are measured at net asset value per share and
are excluded from the fair value hierarchy.
Fair Value Measurements of Other Financial Instruments
The following table presents the carrying amounts and estimated
fair values of the financial instruments that are not recorded at
fair value on the condensed balance sheets (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
Net Carrying Amount |
|
Estimated Fair Value |
|
2025 Convertible senior notes |
$ |
168.7 |
|
|
$ |
139.4 |
|
|
2028 Convertible senior notes |
$ |
280.2 |
|
|
$ |
194.1 |
|
The principal amounts of the 2025 convertible senior notes and the
2028 convertible senior notes are $172.5 million and $287.5
million, respectively. The difference between the principal amounts
of the convertible senior notes and their respective net carrying
amounts are the unamortized debt issuance costs (See Note
7).
As of September 30, 2022, the fair value of the 2025
convertible senior notes and the 2028 convertible senior notes,
which differs from their carrying value is determined by prices for
the convertible senior notes observed in market trading. The market
for trading of the convertible senior notes is not considered to be
an active market and therefore the estimate of fair value is based
on Level 2 inputs, such as interest rates based on the market price
on the last trading day for the period.
Note 5. Condensed Balance Sheet Components
Property and Equipment, Net
Property and equipment, net is recorded at cost less accumulated
depreciation and amortization. Depreciation and amortization are
recorded on a straight-line basis over the estimated useful lives
of the respective assets. Property and equipment, net consists of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
|
Proprietary software |
$ |
37,384 |
|
|
$ |
31,799 |
|
|
Furniture and equipment |
47,409 |
|
|
40,176 |
|
|
Automobiles |
2,020 |
|
|
1,505 |
|
|
Leasehold improvements |
71,679 |
|
|
66,154 |
|
|
Property and equipment, gross |
158,492 |
|
|
139,634 |
|
|
Less: accumulated depreciation and amortization |
(58,986) |
|
|
(50,348) |
|
|
Property and equipment, net |
$ |
99,506 |
|
|
$ |
89,286 |
|
Depreciation and amortization expense on property and equipment was
$6.6 million and $6.0 million for the three months ended
September 30, 2022 and 2021, respectively, and $19.7 million
and $17.8 million for the nine months ended September 30,
2022 and 2021, respectively.
Other Accrued and Current Liabilities
Other accrued and current liabilities consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
|
Returns reserve |
$ |
21,187 |
|
|
$ |
23,577 |
|
|
Accrued compensation |
22,941 |
|
|
14,258 |
|
|
Accrued legal |
1,460 |
|
|
14,417 |
|
|
Accrued sales tax and other taxes |
7,926 |
|
|
8,935 |
|
|
Site credit liability |
11,313 |
|
|
8,738 |
|
|
Accrued marketing and outside services |
7,960 |
|
|
7,897 |
|
|
Accrued inventory |
1,887 |
|
|
3,513 |
|
|
Accrued shipping |
3,623 |
|
|
2,006 |
|
|
Deferred revenue |
3,698 |
|
|
3,387 |
|
|
Accrued interest |
1,741 |
|
|
1,166 |
|
|
Other |
8,238 |
|
|
6,294 |
|
|
Other accrued and current liabilities |
$ |
91,974 |
|
|
$ |
94,188 |
|
Note 6. Debt
Revolving Credit Agreement
In April 2021, the Company entered into a loan and security
agreement ("Revolving Credit Agreement") with a lender, to provide
a revolving line of credit of up to $50 million. Advances on
the line of credit bear interest payable monthly at a variable
annual rate equal to the greater of the prime rate plus 0.50% or
4.25%. The credit facility expires in April 2023. The Revolving
Credit Agreement contains affirmative, negative and financial
covenants, including covenants that require maintaining minimum
cash and investment balances over specified periods of time and
covenants that restrict, among other things, the Company’s ability
to change its name, business, management, ownership or business
locations, enter into mergers or acquisitions or incur additional
indebtedness. As of September 30, 2022 (unaudited), the
Company was in compliance with all covenants.
As of September 30, 2022, $0 had been drawn on the Revolving
Credit Agreement.
Note 7. Convertible Senior Notes, Net
2025 Convertible Senior Notes
In June 2020, the Company issued an aggregate principal of $172.5
million of its 3.00% Convertible Senior Notes due 2025, pursuant to
an indenture between the Company and U.S. Bank National
Association, as trustee, in a private offering to qualified
institutional buyers pursuant to Rule 144A under the Securities Act
of 1933, as amended (the “Securities Act”). The 2025 Notes include
$22.5 million in aggregate principal amount of the 2025 Notes sold
to the initial purchasers resulting from the exercise in full of
their option to purchase additional Notes. The 2025 Notes will
mature on June 15, 2025, unless earlier redeemed or repurchased by
the Company or converted.
The Company received net proceeds from the 2025 Notes offering of
approximately $165.8 million, after deducting the initial
purchasers’ discount and commission and offering expenses. The
Company used approximately $22.5 million of the net proceeds from
the 2025 Notes offering to fund the net cost of entering into the
capped call transactions described below. The Company intends to
use the remainder of the net proceeds for general corporate
purposes.
The 2025 Notes accrue interest at a rate of 3.00% per annum,
payable semi-annually in arrears on June 15 and December 15 of each
year, beginning on December 15, 2020. The initial conversion rate
applicable to the 2025 Notes is 56.2635 shares of common stock per
$1,000 principal amount of 2025 Notes (which is equivalent to an
initial conversion price of approximately $17.77 per share of the
Company’s common stock). The conversion rate is subject to
adjustment upon the occurrence of certain specified events but will
not be adjusted for accrued and unpaid interest. In addition, upon
the occurrence of a corporate event, the Company will, in certain
circumstances, increase the conversion rate by a number of
additional shares for a holder that elects to convert its 2025
Notes in connection with such corporate event.
The 2025 Notes will be redeemable, in whole or in part, at the
Company’s option at any time, and from time to time, on or after
June 20, 2023 if the last reported sale price per share of the
Company’s common stock exceeds 130% of the
conversion price then in effect for at least 20 trading days
(whether or not consecutive), including the trading day immediately
preceding the date on which the Company provides notice of
redemption, during any 30 consecutive trading day period ending on,
and including, the trading day immediately before the date the
Company sends the related redemption notice. In addition, calling
any Note for redemption will constitute a make-whole fundamental
change with respect to that Note, in which case the conversion rate
applicable to the conversion of that Note will be increased in
certain circumstances if it is converted after it is called for
redemption.
Prior to March 15, 2025, the 2025 Notes will be convertible only
under the following circumstances:
•During
any calendar quarter (and only during such calendar quarter)
beginning after September 30, 2020, if, the last reported sale
price per share of the Company’s common stock exceeds 130% of the
applicable conversion price on each applicable trading day for at
least 20 trading days (whether or not consecutive) in the period of
the 30 consecutive trading day period ending on, and including, the
last trading day of the immediately preceding calendar
quarter;
•During
the five business day period after any five consecutive trading day
period in which, for each day of that period, the trading price per
$1,000 principal amount of Notes for such trading day was less than
98% of the product of the last reported sale price of the Company’s
common stock and the applicable conversion rate on such trading
day;
•Upon
the occurrence of specified corporate transactions; or
•If
the Company calls any notes for redemption.
On and after March 15, 2025, until the close of business on the
scheduled trading day immediately preceding the maturity date,
holders may convert all or a portion of their 2025 Notes, in
multiples of $1,000 principal amount, at any time, regardless of
the foregoing circumstances. Upon conversion, the 2025 Notes will
be settled, at the Company’s election, in cash, shares of the
Company’s common stock, or a combination of cash and shares of the
Company’s common stock.
It is the Company’s current intent to settle conversions of
the
2025 Notes
through combination settlement, which involves repayment of the
principal portion in cash and any excess of the conversion value
over the principal amount in shares of its common stock. The
conditions allowing holders of the 2025 Notes to convert were not
met as of September 30, 2022.
The 2025 Notes are unsecured and unsubordinated obligations of the
Company and will rank senior in right of payment to any of future
indebtedness of the Company that is expressly subordinated in right
of payment to the 2025 Notes; rank equal in right of payment to any
existing and future unsecured indebtedness of the Company that is
not so subordinated; be effectively subordinated in right of
payment to any secured indebtedness of the Company to the extent of
the value of the assets securing such indebtedness; and be
structurally subordinated to all existing and future indebtedness
and other liabilities and obligations incurred by future
subsidiaries of the Company.
If bankruptcy, insolvency, or reorganization occurs with respect to
the Company (and not solely with respect to a significant
subsidiary of the Company), then the principal amount of, and all
accrued and unpaid interest on, all of the 2025 Notes then
outstanding will immediately become due and payable without any
further action or notice by any person. If an event of default
(other than bankruptcy, insolvency, or reorganization with respect
to the Company and not solely with respect to a significant
subsidiary of the Company) occurs and is continuing, then, with the
exception of certain reporting events of default, the trustee, by
notice to the Company, or noteholders of at least 25% of the
aggregate principal amount of notes then outstanding, by notice to
us and the trustee, may declare the principal amount of, and all
accrued and unpaid interest on, all of the 2025 Notes then
outstanding to become due and payable immediately.
Prior to the adoption of ASU 2020-06 on January 1, 2022 and in
accounting for the issuance of the 2025 Notes, the Company
separately accounted for the liability and equity components of the
2025 Notes by allocating the proceeds between the liability
component and the embedded conversion options, or equity component,
due to Company’s ability to settle the 2025 Notes in cash, its
common stock, or a combination of cash and common stock at
Company’s option. The allocation was done by first estimating the
fair value of the liability component and the residual value was
assigned to the equity component. The value of the liability
component was calculated by measuring the fair value of a similar
liability that does not have an associated convertible feature. The
allocation was performed in a manner that reflected the Company's
non-convertible debt borrowing rate for similar debt. The interest
rate of 5.67% was used to compute the initial fair value of the
liability component of $152.7 million, with a corresponding amount
recorded as a discount on the initial issuance of the 2025 Notes of
approximately $19.8 million. The debt discount was recorded to
equity and was amortized to the debt liability over the life of the
Notes using the effective interest method. The equity component was
not remeasured as long as it continued to meet the conditions for
equity classification.
In connection with the issuance of the 2025 Notes, the Company
incurred approximately $6.7 million of debt issuance costs, which
primarily consisted of initial purchasers’ discounts and legal and
other professional fees. Prior to the adoption of ASU 2020-06 on
January 1, 2022, the Company allocated these costs to the liability
and equity components based on the allocation of the proceeds. The
portion of these costs allocated to the equity component totaling
approximately $0.8 million was recorded as a reduction to
additional paid-in capital. The portion of these costs initially
allocated to the liability component totaling approximately $5.9
million was recorded as a reduction in the carrying value of the
debt on the condensed balance sheets and was amortized to interest
expense using the effective interest method over the expected life
of the 2025 Notes or approximately its five-year term. The
effective interest rate on the liability component of the 2025
Notes for the period from the date of issuance through December 31,
2021 was 6.4%.
On January 1, 2022, the Company adopted ASU 2020-06 based on a
modified retrospective transition method. Under such transition,
prior period information for both the 2025 and 2028 Notes has not
been retrospectively adjusted.
In accounting for the 2025 Notes after the adoption of ASU 2020-06,
the 2025 Notes are accounted for as a single liability, and the
carrying amount of the Notes is $168.7 million as of September
30, 2022, with principal of $172.5 million, net of unamortized
issuance costs of $3.8 million. The 2025 Notes were classified
as long term liabilities as of September 30, 2022. The issuance
costs related to the 2025 Notes are being amortized to interest
expense over the expected life of the 2025 Notes or approximately
its five-year term at an effective interest rate of
3.74%.
The net carrying amount of the liability component of the 2025
Notes was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
|
Principal |
$ |
172,500 |
|
|
$ |
172,500 |
|
|
Unamortized debt discount
(1)
|
— |
|
|
(14,350) |
|
|
Unamortized debt issuance costs |
(3,775) |
|
|
(4,286) |
|
|
Net carrying amount |
$ |
168,725 |
|
|
$ |
153,864 |
|
(1)
Upon adoption of ASU 2020-06 as of January 1, 2022, the unamortized
debt discount balance was derecognized, as described in "Note 2—
Summary of Significant Accounting Policies—Recently Adopted
Accounting Pronouncements."
As discussed above, upon the adoption of ASU 2020-06, the Company
reversed the separation of the debt and equity components of the
Notes, and accounted for the Notes wholly as debt. Additionally,
the issuance costs of the Notes were accounted for as debt issuance
costs in its entirety. The net carrying amount of the equity
component of the 2025 Notes as of December 31, 2021 was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
2021 |
|
Proceeds allocated to the conversion options (debt
discount) |
|
|
$ |
19,787 |
|
|
Issuance costs |
|
|
(767) |
|
|
Net carrying amount |
|
|
$ |
19,020 |
|
The following table sets forth the amounts recorded in interest
expense related to the 2025 Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Contractual interest expense |
$ |
1,293 |
|
|
$ |
1,294 |
|
|
$ |
3,881 |
|
|
$ |
3,881 |
|
|
Amortization of debt discount |
— |
|
|
900 |
|
|
— |
|
|
2,669 |
|
|
Amortization of debt issuance costs |
326 |
|
|
271 |
|
|
978 |
|
|
803 |
|
|
Total interest and amortization expense |
$ |
1,619 |
|
|
$ |
2,465 |
|
|
$ |
4,859 |
|
|
$ |
7,353 |
|
Future minimum payments under the 2025 Notes as of
September 30, 2022, are as follows:
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
Amount |
|
Remainder of 2022 |
|
$ |
2,587 |
|
|
2023 |
|
5,175 |
|
|
2024 |
|
5,175 |
|
|
2025 |
|
175,088 |
|
|
Total future payments |
|
188,025 |
|
|
Less amounts representing interest |
|
(15,525) |
|
|
Total principal amount |
|
$ |
172,500 |
|
2028 Convertible Senior Notes
In March 2021, the Company issued an aggregate principal of $287.5
million of its 1.00% Convertible Senior Notes due 2028, pursuant to
an indenture between the Company and U.S. Bank National
Association, as trustee, in a private offering to qualified
institutional buyers pursuant to Rule 144A under the Securities
Act. The 2028 Notes issued in the Note Offering include $37.5
million in aggregate principal amount of the 2028 Notes sold to the
initial purchasers resulting from the exercise in full of their
option to purchase additional Notes. The 2028 Notes will mature on
March 1, 2028, unless earlier redeemed or repurchased by the
Company or converted.
The Company received net proceeds from the 2028 Notes offering of
approximately $278.1 million, after deducting the initial
purchasers’ discount and commission and offering expenses. The
Company used approximately $33.7 million of the net proceeds from
the 2028 Notes offering to fund the net cost of entering into the
capped call transactions described below. The Company intends to
use the remainder of the net proceeds for general corporate
purposes.
The 2028 Notes accrue interest at a rate of 1.00% per annum,
payable semi-annually in arrears on March 1 and September 1 of each
year, beginning on September 1, 2021. The initial conversion rate
applicable to the 2028 Notes is 31.4465 shares of common stock per
$1,000 principal amount of 2028 Notes (which is equivalent to an
initial conversion price of approximately $31.80 per share of the
Company’s common stock). The conversion rate is subject to
adjustment upon the occurrence of certain specified events but will
not be adjusted for accrued and unpaid interest. In addition, upon
the occurrence of a corporate event, the Company will, in certain
circumstances, increase the conversion rate by a number of
additional shares for a holder that elects to convert its 2028
Notes in connection with such corporate event.
The 2028 Notes will be redeemable, in whole or in part, at the
Company’s option at any time, and from time to time, on or after
March 5, 2025 if the last reported sale price per share of the
Company’s common stock exceeds 130% of the conversion price then in
effect for at least 20 trading days (whether or not consecutive),
including the trading day immediately preceding the date on which
the Company provides notice of redemption, during any 30
consecutive trading day period ending on, and including, the
trading day immediately before the date the Company sends the
related redemption notice. In addition, calling any Note for
redemption will constitute a make-whole fundamental change with
respect to that Note, in which case the conversion rate applicable
to the conversion of that Note will be increased in certain
circumstances if it is converted after it is called for
redemption.
Prior to December 1, 2027, the 2028 Notes will be convertible only
under the following circumstances:
•During
any calendar quarter (and only during such calendar quarter)
beginning after June 30, 2021, if, the last reported sale price per
share of the Company’s common stock exceeds 130% of the applicable
conversion price on each applicable trading day for at least 20
trading days (whether or not consecutive) in the period of the 30
consecutive trading day period ending on, and including, the last
trading day of the immediately preceding calendar
quarter;
•During
the five business day period after any five consecutive trading day
period in which, for each day of that period, the trading price per
$1,000 principal amount of Notes for such trading day was less than
98% of the product of the last reported sale price of the Company’s
common stock and the applicable conversion rate on such trading
day;
•Upon
the occurrence of specified corporate transactions; or
•If
the Company calls any notes for redemption.
On and after December 1, 2027, until the close of business on the
scheduled trading day immediately preceding the maturity date,
holders may convert all or a portion of their 2028 Notes, in
multiples of $1,000 principal amount, at any time, regardless of
the foregoing circumstances. Upon conversion, the 2028 Notes will
be settled, at the Company’s election, in cash, shares of the
Company’s common stock, or a combination of cash and shares of the
Company’s common stock.
It is the Company’s current intent to settle conversions of
the
2028 Notes
through combination settlement, which involves repayment of the
principal portion in cash and any excess of the conversion value
over the principal amount in shares of its common stock. The
conditions allowing holders of the 2028 Notes to convert were not
met as of September 30, 2022.
The 2028 Notes are unsecured and unsubordinated obligations of the
Company and will rank senior in right of payment to any of future
indebtedness of the Company that is expressly subordinated in right
of payment to the 2028 Notes; rank equal in right of payment to any
existing and future unsecured indebtedness of the Company that is
not so subordinated; be effectively subordinated in right of
payment to any secured indebtedness of the Company to the extent of
the value of the assets securing such indebtedness; and be
structurally subordinated to all existing and future indebtedness
and other liabilities and obligations incurred by future
subsidiaries of the Company.
If bankruptcy, insolvency, or reorganization occurs with respect to
the Company (and not solely with respect to a significant
subsidiary of the Company), then the principal amount of, and all
accrued and unpaid interest on, all of the 2028 Notes then
outstanding will immediately become due and payable without any
further action or notice by any person. If an event of default
(other than bankruptcy, insolvency, or reorganization with respect
to the Company and not solely with respect to a significant
subsidiary of the Company) occurs and is continuing, then, with the
exception of certain reporting events of default, the trustee, by
notice to the Company, or noteholders of at least 25% of the
aggregate principal amount of notes then outstanding, by notice to
us and the trustee, may declare the principal amount of, and all
accrued and unpaid interest on, all of the 2028 Notes then
outstanding to become due and payable immediately.
Prior to the adoption of ASU 2020-06 on January 1, 2022 and in
accounting for the issuance of the 2028 Notes, the Company
separately accounted for the liability and equity components of the
2028 Notes by allocating the proceeds between the liability
component and the embedded conversion options, or equity component,
due to Company’s ability to settle the 2028 Notes in cash, its
common stock, or a combination of cash and common stock at
Company’s option. The allocation was done by first estimating the
fair value of the liability component and the residual value was
assigned to the equity component. The value of the liability
component was calculated by measuring the fair value of a similar
liability that does not have an associated convertible feature. The
allocation was performed in a manner that reflected the Company’s
non-convertible debt borrowing rate for similar debt. The interest
rate of 7.18% was used to compute the initial fair value of the
liability component of $191.3 million, with a corresponding amount
recorded as a discount on the initial issuance of the 2028 Notes of
approximately $96.2 million. The debt discount was recorded to
equity and was amortized to the debt liability over the life of the
Notes using the effective interest method. The equity component was
not remeasured as long as it continued to meet the conditions for
equity classification.
In connection with the issuance of the 2028 Notes, the Company
incurred approximately $9.4 million of debt issuance costs, which
primarily consisted of initial purchasers’ discounts and legal and
other professional fees. The Company allocated these costs to the
liability and equity components based on the allocation of the
proceeds. The portion of these costs allocated to the equity
component totaling approximately $3.1 million was recorded as a
reduction to additional paid-in capital. The portion of these costs
allocated to the liability component totaling approximately $6.3
million was recorded as a reduction in the carrying value of the
debt on the condensed balance sheets and was amortized to interest
expense using the effective interest method over the expected life
of the 2028 Notes or approximately its seven-year term. The
effective interest rate on the liability component of the 2028
Notes for the period from the date of issuance through December 31,
2021 was 7.5%.
In accounting for the 2028 Notes after the adoption of ASU 2020-06,
the 2028 Notes are accounted for as a single liability, and the
carrying amount of the Notes is $280.2 million as of
September 30, 2022, with principal of $287.5 million, net
of unamortized issuance costs of $7.3 million. The 2028 Notes
were classified as long term liabilities as of September 30,
2022. The issuance costs related to the 2028 Notes are being
amortized to interest expense over the expected life of the 2028
Notes or approximately its seven-year term at an effective interest
rate of 1.45%.
The net carrying amount of the liability component of the 2028
Notes was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
|
Principal |
$ |
287,500 |
|
|
$ |
287,500 |
|
|
Unamortized debt discount
(1)
|
— |
|
|
(87,403) |
|
|
Unamortized debt issuance costs |
(7,271) |
|
|
(5,581) |
|
|
Net carrying amount |
$ |
280,229 |
|
|
$ |
194,516 |
|
(1)
Upon adoption of ASU 2020-06 as of January 1, 2022, the unamortized
debt discount balance was derecognized, as described in "Note 2—
Summary of Significant Accounting Policies—Recently Adopted
Accounting Pronouncements."
As discussed above, upon the adoption of ASU 2020-06, the Company
reversed the separation of the debt and equity components of the
Notes, and accounted for the Notes wholly as debt. Additionally,
the issuance costs of the Notes were accounted for as debt issuance
costs in its entirety. The net carrying amount of the equity
component of the 2028 Notes as of December 31, 2021 was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2021 |
|
Proceeds allocated to the conversion options (debt
discount) |
|
|
$ |
96,162 |
|
|
Issuance costs |
|
|
(3,131) |
|
|
Net carrying amount |
|
|
$ |
93,031 |
|
The following table sets forth the amounts recorded in interest
expense related to the 2028 Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Contractual interest expense |
$ |
718 |
|
|
$ |
719 |
|
|
$ |
2,156 |
|
|
$ |
1,613 |
|
|
Amortization of debt discount |
— |
|
|
2,709 |
|
|
— |
|
|
6,003 |
|
|
Amortization of debt issuance costs |
323 |
|
|
171 |
|
|
964 |
|
|
380 |
|
|
Total interest and amortization expense |
$ |
1,041 |
|
|
$ |
3,599 |
|
|
$ |
3,120 |
|
|
$ |
7,996 |
|
Future minimum payments under the 2028 Notes as of
September 30, 2022, are as follows:
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
Amount |
|
2023 |
|
$ |
2,875 |
|
|
2024 |
|
2,875 |
|
|
2025 |
|
2,875 |
|
|
2026 |
|
2,875 |
|
|
2027 |
|
2,875 |
|
|
2028 |
|
288,937 |
|
|
Total future payments |
|
303,312 |
|
|
Less amounts representing interest |
|
(15,812) |
|
|
Total principal amount |
|
$ |
287,500 |
|
Capped Call Transactions with Respect to the 2025 and 2028
Notes
In connection with the issuance of the 2025 Notes and 2028 Notes,
including the initial purchasers’ exercise of the option to
purchase additional Notes, the Company entered into capped call
transactions with respect to its common stock with certain
financial institutions (collectively, the “Counterparties”). The
Company paid an aggregate amount of approximately $22.5 million to
the Counterparties in connection with the 2025 capped call
transactions (the "2025 Capped Calls") and $33.7 million to the
Counterparties in connection with the 2028 capped call transactions
and (the "2028 Capped Calls" and, together with the 2025 Capped
Calls, the "Capped Calls"). The 2025 Capped Calls and 2028 Capped
Calls cover approximately 9,705,454 shares and 9,040,869 shares of
the Company’s common stock at a strike price that corresponds to
the initial conversion price of the 2025 Notes and the 2028 Notes,
respectively. The 2025 Capped Calls and the 2028 Capped Calls
are
subject to anti-dilution adjustments that are intended to be
substantially identical to those in the 2025 Notes and the 2028
Notes, as applicable, and are exercisable upon conversion of the
2025 Notes or the 2028 Notes, as applicable. The Capped Calls are
subject to adjustment upon the occurrence of specified
extraordinary events affecting the Company, including merger
events, tender offer and announcement events. In addition, the
Capped Calls are subject to certain specified additional disruption
events that may give rise to a termination of the Capped Calls,
including nationalization, insolvency or delisting, changes in law,
failures to deliver, insolvency filings and hedging disruptions.
The 2025 Capped Calls settle in components commencing on April 16,
2025 with the last component scheduled to expire on June 12,
2025. The 2028 Capped Calls settle in components commencing on
December 31, 2027 with the last component scheduled to expire on
February 28, 2028.
The cap price of the 2025 Capped Call is initially $27.88 per
share, which represents a premium of 100.0% over the closing price
of the Company’s common stock of $13.94 per share on June 10, 2020,
and is subject to certain adjustments under the terms of the capped
call transactions. The cap price of the 2028 Capped Call is
initially $48.00 per share, which represents a premium of 100.0%
over the closing price of the Company’s common stock of $24.00 per
share on March 3, 2021, and is subject to certain adjustments under
the terms of the capped call transactions. The Company expects to
receive from the Counterparties a number of shares of the Company’s
common stock or, at the Company’s election (subject to certain
conditions), cash, with an aggregate market value (or, in the case
of cash settlement, in an amount) approximately equal to the
product of such excess times the number of shares of the Company’s
common stock relating to the 2025 and 2028 Capped Calls being
exercised.
These Capped Call instruments meet the conditions outlined in ASC
815-40 to be classified in stockholders’ equity, are not accounted
for as derivatives, and are not subsequently remeasured as long as
the conditions for equity classification continue to be met. The
Company recorded a reduction to additional paid-in capital of
approximately $22.5 million and $33.7 million related to the
premium payments for the 2025 and 2028 Capped Call
transactions.
Note 8. Share-based Compensation Plans
2011 Equity Incentive Plan
In 2011, the Company adopted the Equity Incentive Plan (2011 Plan)
authorizing the granting of incentive stock options (ISOs) and
non-statutory stock options (NSOs) to eligible participants for up
to 12,987,255 shares of common stock. Under the 2011 Plan,
incentive stock options and non-statutory stock options are to be
granted at an exercise price that is no less than 100% of the fair
value of the stock at the date of grant. Options generally vest
over 4 years and are exercisable for up to 10 years after the date
of grant. Incentive stock options granted to stockholders who own
more than 10% of the outstanding stock of the Company at the time
of grant must be issued at an exercise price no less than 110% of
the fair value of the stock on the date of grant. The 2011 Plan has
been replaced by the Company’s 2019 Plan as defined below with
respect to future equity awards.
2019 Equity Incentive Plan
In connection with the Company’s initial public offering, the
Company adopted the 2019 Equity Incentive Plan (the “2019 Plan”).
The 2019 Plan allows the Company to grant stock options, stock
appreciation rights, restricted stock, restricted stock units and
performance awards to participants. Subject to the terms and
conditions of the 2019 Plan, the initial number of shares
authorized for grants under the 2019 Plan is 8,000,000. These
available shares increase annually by an amount equal to the lesser
of 8,000,000 shares, 5% of the number of shares of the Company’s
common stock outstanding on the immediately preceding December 31,
or the number of shares determined by the Company’s board of
directors. On August 4, 2020, the Company’s board of directors
approved an increase of shares available for grant under the 2019
Plan by 4,293,616 shares. On May 5, 2021, the Company’s board of
directors approved an increase of shares available for grant under
the 2019 Plan by 4,465,083 shares. On February 23, 2022, the
Company’s board of directors approved an increase of shares
available for grant under the 2019 Plan by 4,648,003
shares.
In February 2022, the Company granted PSUs with financial
performance targets to certain employees of the Company. The number
of units issued will depend on the achievement of financial metrics
relative to the approved performance targets, and can range from 0%
to 150% of the target amount. The PSUs are subject to continuous
service with the Company and will vest after approximately three
years. The PSUs are measured using the fair value at the date of
grant. The compensation expense associated with PSUs is recognized
based on the estimated number of shares that the Company expects
will vest and may be adjusted based on interim estimates of
performance against the performance condition.
During the three and nine months ended September 30, 2022, the
Company recorded stock-based compensation expense for the number of
PSUs considered probable of vesting based on the attainment of the
performance targets.
As of September 30, 2022, total unrecognized compensation
expense of approximately $0.8 million related to options and $97.7
million was related to RSUs and PSUs, which will be recognized over
the remaining weighted-average vesting period of approximately 0.6
years and 2.9 years, respectively.
Employee Stock Purchase Plan
In connection with the Company’s initial public offering, the
Company adopted the Employee Stock Purchase Plan (ESPP). The
Employee Stock Purchase Plan permits employees to purchase shares
of common stock during six-month offering periods at a purchase
price equal to the lesser of (1) 85% of the fair market value
of a share of common stock on the first business day of such
offering period and (2) 85% of the fair market value of a share of
common stock on the last business day of such offering period. The
plan is considered compensatory and, as such, the purchase discount
from market price purchased by employees will be recorded as
compensation expense. The initial number of shares of common stock
that could be issued under the employee stock purchase plan was
1,750,000 shares. These available shares increase by an amount
equal to the lesser of 1,750,000 shares, 1% of the number of shares
of common stock outstanding on the immediately preceding
December 31, or the number of shares determined by the
Company’s board of directors. On August 4, 2020, the Company’s
board of directors approved an increase in the shares available for
grant under the ESPP by 858,723 shares. On May 5, 2021, the
Company's board of directors approved an increase in the shares
available for grant under the ESPP by 893,016 shares. On February
23, 2022, the Company’s board of directors approved an increase of
shares available for grant under the ESPP by 929,601
shares.
There were 282,226 shares and 98,355 shares purchased by employees
under the ESPP during the nine months ended September 30, 2022
and 2021, respectively. There were no shares purchased by employees
under the ESPP during the three months ended September 30,
2022 and 2021, respectively.
As of September 30, 2022, total unrecognized compensation
costs related to the 2019 ESPP was $0.1 million which will be
amortized over the remaining weighted-average vesting period of
approximately 0.12 years.
Total stock-based compensation expense by function was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
Marketing |
$ |
567 |
|
|
$ |
628 |
|
|
$ |
1,774 |
|
|
$ |
1,924 |
|
|
|
|
|
|
Operations and technology |
5,038 |
|
|
5,543 |
|
|
15,903 |
|
|
15,789 |
|
|
|
|
|
|
Selling, general and administrative |
5,236 |
|
|
6,421 |
|
|
19,343 |
|
|
18,611 |
|
|
|
|
|
|
Total |
$ |
10,841 |
|
|
$ |
12,592 |
|
|
$ |
37,020 |
|
|
$ |
36,324 |
|
|
|
|
|
During the nine months ended September 30, 2022, the Company
recognized compensation expense of $1.0 million within
selling, general and administrative associated with the
modification of certain outstanding equity awards pursuant to the
terms of the transition and separation agreement the Company
entered into with its founder, Julie Wainwright, in connection with
her resignation as Chief Executive Officer on June 6,
2022.
During each of the three months ended September 30, 2022 and
2021, the Company capitalized $0.4 million of stock-based
compensation expense to proprietary software. During the nine
months ended September 30, 2022 and 2021, the Company
capitalized $1.3 million and $1.1 million of stock-based
compensation expense to proprietary software,
respectively.
Note 9. Leases
The Company leases its corporate offices, retail spaces and
authentication centers under various noncancelable operating leases
with terms ranging from one year to fifteen years.
The Company recorded operating lease costs of $7.2 million and $7.5
million for the three months ended September 30, 2022 and
2021, respectively, and $21.7 million and $22.4 million
for the nine months ended September 30, 2022 and 2021,
respectively. The Company also incurred $1.5 million and $1.3
million of variable lease costs for the three months ended
September 30, 2022 and 2021, respectively, and
$4.3 million and $4.0 million of variable lease costs for
the nine months ended September 30, 2022 and 2021,
respectively. The variable lease costs are comprised primarily of
the Company’s proportionate share of operating expenses, property
taxes and insurance.
Maturities of operating lease liabilities by fiscal year for the
Company’s operating leases are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
Amount |
|
Remainder of 2022 |
|
$ |
7,237 |
|
|
2023 |
|
28,797 |
|
|
2024 |
|
28,587 |
|
|
2025 |
|
29,261 |
|
|
2026 |
|
28,456 |
|
|
Thereafter |
|
59,483 |
|
|
Total future minimum payments |
|
$ |
181,821 |
|
|
Less: Imputed interest |
|
(31,327) |
|
|
Present value of operating lease liabilities |
|
$ |
150,494 |
|
Supplemental cash flow information related to the Company’s
operating leases are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
Operating cash flows used for operating leases |
$ |
20,138 |
|
|
$ |
22,399 |
|
|
Operating lease assets obtained in exchange for operating lease
liabilities |
$ |
2,156 |
|
|
$ |
43,481 |
|
The weighted average remaining lease term and discount rate for the
Company’s operating leases are as follows:
|
|
|
|
|
|
|
September 30, 2022 |
|
Weighted average remaining lease term |
6.4 years |
|
Weighted average discount rate |
6.2 |
% |
The Company has leases for certain vehicles and equipment that are
classified as finance leases. The finance lease right-of-use asset
and finance lease liabilities for these vehicle and equipment
leases are immaterial as of September 30, 2022 and
December 31, 2021.
Note 10. Commitments and Contingencies
Noncancelable Purchase Commitments
The Company has commitments for cloud services and other services
in the ordinary course of business with varying expiration terms
through 2025. As of
September 30, 2022, there were no material changes to the
Company's noncancelable purchase commitments disclosed in the
financial statements in the Annual Report on Form 10-K other than
in
the three months ended September 30, 2022, the Company entered into
an agreement with a term of two years for a total purchase
commitment of $10.4 million.
Contingencies
From time to time, the Company is subject to, and it is presently
involved in, litigation and other legal proceedings and from time
to time, the Company receives inquiries from government agencies.
Accounting for contingencies requires the Company to use judgment
related to both the likelihood of a loss and the estimate of the
amount or range of loss. The Company records a loss contingency
when it is probable that a liability has been incurred and the
amount of the loss can be reasonably estimated. The Company
discloses material contingencies when a loss is not probable but
reasonably possible.
On November 14, 2018, Chanel, Inc. sued the Company in the U.S.
District Court for the Southern District of New York. The Complaint
alleged federal and state law claims of trademark infringement,
unfair competition, and false advertising. On February 1, 2019,
Chanel, Inc. filed its First Amended Complaint that included
substantially similar claims against the Company. On March 4, 2019,
the Company filed a Motion to Dismiss the First Amended Complaint,
which was granted in part and dismissed in part on March 30, 2020.
The surviving claims against the Company include trademark
infringement under 15 U.S.C. § 1114, false advertising under 15
U.S.C. § 1125, and unfair competition under New York common law. On
May 29, 2020, the Company filed its Answer to the Amended
Complaint. On October 30, 2020, the Company sought leave to amend
its Answer to assert counterclaims against Chanel, Inc. for
violations of the Sherman Act, 15 U.S.C. §§ 1 & 2, the Donnelly
Act, N.Y. Gen. Bus. Law. § 340, and New York common law. The motion
for leave to amend was granted on February 24, 2021.
Chanel, Inc. moved to dismiss the Company’s counterclaims; the
motion to dismiss remains pending. The parties agreed to a stay in
April 2021 to engage in settlement discussions. After several
mediation sessions, the parties were unable to reach a resolution,
and the stay was lifted in November 2021. Chanel then sought a
partial stay of discovery on the Company's counterclaims and
unclean hands defense while Chanel's motion to dismiss and strike
those claims are pending, and on March 10, 2022, the Court granted
Chanel's request. The parties continue to engage in fact discovery
regarding Chanel's counterfeiting and false advertising claims
against the Company. Fact discovery is currently scheduled to be
completed by February 15, 2023, and all depositions will be
completed by no later than May 15, 2023. The final outcome of this
litigation, including our liability, if any, with respect to
Chanel’s claims, is uncertain. An unfavorable outcome in this or
similar litigation could adversely affect our business and could
lead to other similar lawsuits.
On September 10, 2019, a purported shareholder class action
complaint was filed against the Company, its officers and directors
and the underwriters of its IPO in the Superior Court of the State
of California in the County of San Mateo. Three additional
purported class actions, also alleging claims arising from the IPO
were subsequently filed in Marin County and San Francisco County
Superior Courts. The San Mateo case was voluntarily dismissed,
refiled in Marin County Superior Court and consolidated with the
cases there. On January 10, 2020, the Marin County plaintiffs filed
a consolidated amended complaint. The plaintiffs in the San
Francisco Superior Court case have filed a request for dismissal.
Separately an additional purported class action was filed in the
United States District Court for the Northern District of
California on November 25, 2019. On February 12, 2020, a lead
plaintiff was appointed in the federal action and an Amended
Consolidated Complaint was filed on March 31, 2020. Defendants
filed a demurrer and motion to strike in the state court action on
March 13, 2020 and filed a motion to stay the proceedings in favor
of the federal action on May 1, 2020. On August 4, 2020, the court
granted defendants’ motion to stay the state court action and
deferred ruling on the demurrer and motion to strike pending the
outcome of the federal court action. A motion to dismiss the
federal court action was filed on May 15, 2020. On March 31, 2021,
the court entered an order on the motion to dismiss, dismissing the
Securities Exchange Act of 1934 (the “Exchange Act”) claims and
some of the claims alleged under the Securities Act of 1933 (the
“Securities Act”). The court provided plaintiffs with an
opportunity to amend the complaint and, on April 30, 2021,
plaintiffs filed a Second Amended Complaint in federal court. The
state court complaint, and the Second Amended Complaint in federal
court each allege claims under the Securities Act of 1933 on behalf
of a purported class of shareholders who acquired the Company’s
stock pursuant to or traceable to the registration statement for
the Company’s IPO. The federal complaint also alleges claims under
the Exchange Act on behalf of a purported class of shareholders who
purchased the Company’s stock from June 27, 2019 through November
20, 2019. The complaints seek, among other things, damages and
interest, rescission, and attorneys’ fees and costs. On July 27,
2021, the Company reached an agreement in principle to settle this
shareholder class action. On November 5, 2021, plaintiff filed the
executed stipulation of settlement and motion for preliminary
approval of the settlement with the federal court. On March 24,
2022, the court entered an order preliminarily approving the
settlement. On July 28, 2022, the court entered an order finally
approving the settlement and dismissing the case. The financial
terms of the stipulation of settlement provide that the Company
will pay $11.0 million within thirty (30) days of the later of
preliminary approval of the settlement or plaintiff’s counsel
providing payment instructions. The Company paid the settlement
amount on March 29, 2022 with available resources and recorded
approximately $11.0 million for the year ended December 31,
2021 under our Operating expenses as a Legal settlement.
One of the plaintiffs in the state court action opted out of the
settlement. The stay of the state court case has been lifted, and
the opt out plaintiff filed an amended complaint on October 31,
2022 alleging putative class claims under the Securities Act on
behalf of the two shareholders who opted out of the settlement and
those who purchased stock from November 21, 2019 through March 9,
2020.
On September 10, 2020 and December 7, 2020, purported shareholders
filed putative derivative actions in the United States District
Court for the District of Delaware. The derivative complaints
allege factual allegations largely tracking the above referenced
purported shareholder class actions. The two derivative cases have
been consolidated. On September 13, 2021, the parties reached a
settlement in principle of the derivative case. The settlement in
principle provides for certain corporate governance reforms in
exchange for a release and dismissal of the lawsuit. On October 21,
2021, the parties reached agreement to pay up to $0.5 million
in attorneys’ fees and costs to plaintiffs’ counsel in the
derivative case. On November 5, 2021, the parties entered into a
stipulation of settlement, and on February 11, 2022, the court
entered an order and final judgment approving the settlement. In
connection with the derivative settlement, the Company recorded
approximately $0.5 million for the year ended December 31,
2021 under our Operating expenses as a Legal settlement. The
stipulation of settlement was preliminarily approved on December 8,
2021, and the $0.5 million was paid within thirty (30) days of
the preliminary approval, or on January 7, 2022, with available
resources.
Indemnifications
In the ordinary course of business, the Company may provide
indemnifications of varying scope and terms to vendors, directors,
officers and other parties with respect to certain matters
including, but not limited to, losses arising out of the breach of
such agreements, intellectual property infringement claims made by
third parties and other liabilities relating to or arising from the
Company's various services, or its acts or omissions. The Company
has not incurred any material costs as a result of such
indemnifications and have not accrued any liabilities related to
such obligations in its financial statements.
Note 11. Income Taxes
The Company's provisions for income taxes were immaterial during
the three and nine months ended September 30, 2022 and
2021.
Although the Company does not update its deferred tax assets during
interim periods, the Company adjusted deferred tax assets and
corresponding valuation allowance for the adoption of ASU 2020-06
in the first quarter and the true up of the US return filing in the
third quarter.
Prior to the adoption of ASU 2020-06, the difference between the
book and tax treatment of the conversion option and debt issuance
costs of the 2025 and 2028 Notes resulted in a difference between
the carrying amount and tax basis of the 2025 and 2028 Notes. This
taxable temporary difference resulted in the recognition of a net
$26.5 million deferred tax liability, net of $4.6 million
of amortized interest expense. As of January 1, 2022, the
unamortized balance of this deferred tax liability was $27.5
million, which was derecognized upon the adoption of ASU 2020-06,
and $0.2 million of deferred tax assets were recognized, resulting
in a $27.7 million increase to the net deferred tax assets.
Both the reduction to the deferred tax liability and increase to
the deferred tax asset were offset with an increase to our
valuation allowance of $27.7 million.
The Company maintained a full valuation allowance against its gross
deferred tax assets which were $253.2 million at September 30,
2022. The deferred tax assets were primarily comprised of federal
and state tax net operating loss carryforwards. Utilization of the
net operating loss carryforwards may be subject to annual
limitation due to historical or future ownership percentage change
rules provided by the Internal Revenue Code of 1986, and similar
state provisions. The annual limitation may result in the
expiration of certain net operating loss carryforwards before their
utilization.
As of September 30, 2022, the Company had unrecognized tax
benefits under ASC 740 Income Taxes of approximately $0 and
applicable interest of $0. The total amount of unrecognized tax
benefits that would affect our effective tax rate, if recognized,
is $0. Our policy is to account for interest and penalties related
to uncertain tax positions as a component of income tax provision.
The Company does not anticipate that the amount of unrecognized tax
benefits will significantly increase or decrease within the next
twelve months. Due to historical losses, all years are open to
examination and adjustment by the taxing authorities.
Note 12. Net Loss Per Share Attributable to Common
Stockholders
A reconciliation of the numerator and denominator used in the
calculation of the basic and diluted net loss per share
attributable to common stockholders is as follows (in thousands,
except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Numerator |
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders |
$ |
(47,258) |
|
|
$ |
(57,196) |
|
|
$ |
(157,835) |
|
|
$ |
(183,912) |
|
|
Denominator |
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding used to calculate net
loss per share attributable to common stockholders, basic and
diluted
|
96,696,417 |
|
|
91,859,603 |
|
|
95,036,618 |
|
|
90,995,285 |
|
|
Net loss per share attributable to common stockholders, basic and
diluted
|
$ |
(0.49) |
|
|
$ |
(0.62) |
|
|
$ |
(1.66) |
|
|
$ |
(2.02) |
|
The following securities were excluded from the computation of
diluted net loss per share attributable to common stockholders for
the periods presented, because including them would have been
anti-dilutive (on an as-converted basis):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
2022 |
|
2021 |
|
Options to purchase common stock |
1,862,110 |
|
|
4,294,593 |
|
|
Restricted stock units |
12,429,858 |
|
|
6,135,786 |
|
|
Estimated shares issuable under the Employee Stock Purchase
Plan |
478,406 |
|
|
130,945 |
|
|
Assumed conversion of the Convertible Senior Notes |
18,746,323 |
|
|
18,746,323 |
|
|
Total |
33,516,697 |
|
|
29,307,647 |
|
The Convertible Senior Notes issued in June 2020 and in March 2021
are convertible, based on the applicable conversion rate, into
cash, shares of the Company’s common stock or a combination
thereof, at the Company’s election. The impact of the assumed
conversion to diluted net loss per share is computed on an
as-converted basis.
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion of our financial condition and results of
operations should be read together with our condensed financial
statements and related notes thereto included elsewhere in this
Quarterly Report on Form 10-Q and our audited financial statements
and related notes and our Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 28, 2022. The
following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. See the discussion under
“Note Regarding Forward-Looking Statements” elsewhere in this
Quarterly Report on Form 10-Q for more information. Our actual
results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute
to these differences include those discussed below and particularly
in the section titled “Risk Factors” and elsewhere in this
Quarterly Report on Form 10-Q. 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
We are the world’s largest online marketplace for the resale of
authenticated luxury goods. We are revolutionizing luxury resale by
providing an end-to-end service that unlocks supply from consignors
and creates a trusted, curated online marketplace for buyers
globally. Since our inception in 2011, we have cultivated a loyal
and engaged consignor and buyer base through our investments in our
technology platform, logistics infrastructure and people. We offer
a wide selection of authenticated, primarily pre-owned luxury goods
on our online marketplace bearing the brands of thousands of luxury
and premium designers. We offer products across multiple categories
including women’s and men’s fashion, fine jewelry and watches, and
home and art. We have built a vibrant online marketplace that we
believe expands the overall luxury market, promotes the
recirculation of luxury goods and contributes to a more sustainable
world.
We have transformed the luxury consignment experience by removing
the friction and pain points inherent in the traditional
consignment model. For consignors, we offer concierge at-home
consultation and pickup, subject to safety requirements related to
the COVID-19 pandemic, and meetings with consignors via online
face-to-face platforms, or virtual consultations. Consignors may
also drop off items at our luxury consignment offices. Our larger
footprint flagship retail stores, or Flagship stores, and smaller
footprint neighborhood retail stores, or Neighborhood stores,
provide an alternative location to drop off consigned items and an
opportunity to interact with our experts. Consignors may also
utilize our complimentary shipping directly to our authentication
centers. We leverage our proprietary transactional database and
market insights from approximately 28.8 million item sales
since inception to deliver optimal pricing and rapid sell-through.
For buyers, we offer highly coveted and exclusive authenticated
pre-owned luxury goods at attractive values, as well as a
high-quality experience befitting the products we offer. Our online
marketplace is powered by our proprietary technology platform,
including consumer facing applications and purpose-built software
that supports our complex, single-SKU inventory management
system.
The substantial majority of our revenue is generated by consignment
sales. We also generate revenue from other services and direct
sales.
•Consignment
revenue.
When we sell goods through our online marketplace or retail stores
on behalf of our consignors, we retain a percentage of the
proceeds, which we refer to as our take rate. Take rates vary
depending on the total value of goods sold through our online
marketplace on behalf of a particular consignor as well as the
category and price point of the items. In the three months ended
September 30, 2022 and 2021, our overall take rate on
consigned goods was 36.0% and 34.9%, respectively. The increase in
our take rate was due to the larger sales mix of higher take rate
categories such as women's apparel. Additionally, we earn revenue
from our subscription program,
First Look,
in which we offer buyers early access to the items we sell in
exchange for a monthly fee.
•Direct
revenue.
When we accept out of policy returns from buyers, or when we make
direct purchases from businesses and consignors, we take ownership
of goods and retain 100% of the proceeds when the goods
subsequently sell through our online marketplace or retail
stores.
•Shipping
services revenue.
When we deliver purchased items to our buyers, we charge shipping
fees to buyers for the outbound shipping and handling services. We
also generate shipping services revenue from the shipping fees for
consigned products returned by our buyers to us within policy.
Shipping services revenue excludes the effect of buyer incentives
and sales tax.
We generate revenue from orders processed through our website,
mobile app and 19 retail locations. Our omni-channel experience
enables buyers to purchase anytime and anywhere. We have a global
base of more than 30.2 million members as of
September 30, 2022. We count as a member any user who has
registered an email address on our website or downloaded our mobile
app, thereby agreeing to our terms of service.
Through September 30, 2022, we have cumulatively paid more
than $3.0 billion in commissions to our consignors. Our GMV
increased by 20% to $440.7 million from $367.9 million in the three
months ended September 30, 2022 and 2021, respectively. Our
GMV increased by 27% to $1,323.0 million from $1,045.3 million in
the nine months ended September 30, 2022 and 2021,
respectively. Additionally, NMV increased by 19% to $325.1 million
from $273.4 million in the three months ended September 30,
2022 and 2021 and by 25% to $968.1 million from $774.1 million in
the nine months ended September 30, 2022 and 2021 due to GMV
growth. Our total revenue increased by 20% to $142.7 million from
$118.8 million in the three months ended September 30, 2022
and 2021, respectively, and increased by 38% to $443.8 million
from $322.6 million in the nine months ended September 30,
2022 and 2021, respectively. In the three months ended
September 30, 2022 and 2021, our gross profit was $85.8
million and $71.1 million, respectively, representing an increase
of 21%. In the nine months ended September 30, 2022 and 2021,
our gross profit was $252.1 million and $192.9 million,
respectively, representing an increase of 31%. See “—Impact of
COVID-19 on our Business” below.
Impact of COVID-19 and Geopolitical Instability on Our
Business
The ongoing impact of the COVID-19 pandemic continues to affect our
business and results of operations, although to a lesser extent
than the prior years. Throughout the pandemic, our top priority has
been to protect the health and safety of our employees and our
customers. We have experienced difficulty hiring employees in our
authentication centers due to labor shortages affecting retail
businesses and increased competition for e-commerce fulfillment and
authentication center employees. In addition, geopolitical
instability has and may in the future impact the macroeconomic
environment we operate in. Macroeconomic uncertainty and
inflationary pressure have and may in the future drive lower demand
for the end customer
and increase costs of labor and shipping.
Other Factors Affecting Our Performance
Other key business and marketplace factors, independent of the
health and economic impact of the COVID-19 pandemic and the impact
of geopolitical instability, impact our business. To analyze our
business performance, determine financial forecasts and help
develop long-term strategic plans, we focus on the factors
described below. While each of these factors presents significant
opportunity for our business, collectively, they also pose
important challenges that we must successfully address in order to
sustain our growth, improve our operating results and achieve and
maintain our profitability.
Consignors and Buyers
Consignor growth and retention.
We grow our sales by increasing the supply of luxury goods offered
through our consignment online marketplace. We grow our supply both
by attracting new consignors and by creating lasting engagement
with existing consignors. We generate leads for new consignors
principally through our advertising activity. We convert those
leads into active consignors through the activities of our sales
professionals, who are trained and incentivized to identify and
source high-quality, coveted luxury goods from consignors. Our
sales professionals form a consultative relationship with
consignors and deliver a high-quality, rapid consigning experience.
Our existing relationships with consignors allow us to unlock
valuable supply across multiple categories within the home,
including women’s, men’s, kids’, jewelry and watches, and home and
art. We leverage our proprietary transactional database and market
insights based on more than 28.8 million item sales since
inception to deliver consignors optimal pricing and rapid
sell-through.
Our growth has been driven in significant part by repeat sales by
existing consignors concurrent with growth of our consignor base.
The percentage of GMV from repeat consignors in the three months
ended September 30, 2022 was 80% as compared to 84% for the
three months ended September 30, 2021.
Buyer growth and retention.
We grow our business by attracting and retaining buyers. We attract
and retain buyers by offering highly coveted, authenticated,
pre-owned luxury goods at attractive values and delivering a
high-quality, luxury experience. We measure our success in
attracting and retaining buyers by tracking buyer satisfaction and
purchasing activity over time. We have experienced high buyer
satisfaction, as evidenced by our buyer net promoter score of 62 in
2021, and compared to our online shopping industry average of 40
according to NICE Satmetrix U.S. Consumer 2021 data. If we fail to
continue to attract and retain our buyer base to our online
marketplace, our operating results would be adversely
affected.
We believe there is substantial opportunity to grow our business by
having buyers also become consignors and vice versa. During the
three months ended September 30, 2022, we updated the way we
measure buyers who have become consignors and vice versa to include
the last 12 months of activity, where previously we had measured
using only the last quarter. As of September 30, 2022, 15% of
our buyers during the last twelve months had become consignors at
any point in that time, and 50% of our consignors during the last
twelve months had also been buyers at any point in that time. We
believe our updated method of measuring buyers who have become
consignors and vice versa more accurately reflects the flywheel
that
enhances the network effect of our online marketplace. If we fail
to continue to attract and retain our buyer base to our online
marketplace, our operating results would be adversely
affected.
Scaling operations and technology.
To support the future growth of our business, we are expanding our
capacity through investments in physical infrastructure, talent and
technology. We principally conduct our intake, authentication,
merchandising and fulfillment operations in our four leased
authentication centers located in Arizona and New Jersey comprising
an aggregate of approximately 1.4 million square feet of
space. In October 2020, we secured a lease in Arizona for an
additional authentication center and moved operations from our
former Brisbane authentication center in June 2021. We operate
flagship retail stores in New York, Los Angeles, San Francisco, and
Chicago. We operate neighborhood stores in New York, Palo Alto,
Newport Beach, Greenwich, Dallas, Austin, Atlanta, Marin County,
Manhasset, and Palm Beach. Additionally, we opened a neighborhood
store in Brentwood, California during the nine months ended
September 30, 2022. In addition to scaling our physical
infrastructure, growing our single-SKU business operations requires
that we attract, train and retain highly-skilled personnel for
purposes of authentication, copywriting, merchandising, pricing and
fulfilling orders. We have invested substantially in technology to
automate our operations and support growth, including proprietary
machine learning technology to support efficiency and quality. We
continue to strategically invest in technology, as innovation
positions us to scale and support growth into the
future.
Seasonality.
Historically, we have observed trends in seasonality of supply and
demand in our business. Specifically, our supply increases in the
third and fourth quarters, and our demand increases in the fourth
quarter. As a result of this seasonality, we typically see stronger
AOV and more rapid sell-through in the fourth quarter. We also
incur higher operating expenses in the last four months of the year
as we increase advertising spend to attract consignors and buyers
and increase headcount in sales and operations to handle the higher
volumes.
Key Financial and Operating Metrics
The key operating and financial metrics that we use to assess the
performance of our business are set forth below for the three and
nine months ended September 30, 2022 and 2021.
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Three Months Ended September 30, |
|
Nine Months Ended September 30, |
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|
2022 |
|
2021 |
|
2022 |
|
2021 |
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|
(In thousands, except AOV and percentages) |
|
GMV |
$ |
440,659 |
|
|
$ |
367,925 |
|
|
$ |
1,323,028 |
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$ |
1,045,253 |
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NMV |
$ |
325,105 |
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$ |
273,417 |
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|
$ |
968,124 |
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$ |
774,088 |
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|
Consignment revenue |
$ |
93,874 |
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|
$ |
78,373 |
|
|
$ |
274,780 |
|
|
$ |
215,712 |
|
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|
Direct revenue |
$ |
34,005 |
|
|
$ |
29,387 |
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|
$ |
125,474 |
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$ |
75,582 |
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|
Shipping services revenue |
$ |
14,824 |
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$ |
11,078 |
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$ |
43,584 |
|
|
$ |
31,273 |
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Number of orders |
952 |
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|
757 |
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|
2,764 |
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|
2,119 |
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|
Take rate |
36.0 |
% |
|
34.9 |
% |
|
36.0 |
% |
|
34.6 |
% |
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|
Active buyers |
950 |
|
|
772 |
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|
950 |
|
|
772 |
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|
AOV |
$ |
463 |
|
|
$ |
486 |
|
|
$ |
479 |
|
|
$ |
494 |
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|
|
% of GMV from repeat buyers |
84.2 |
% |
|
84.1 |
% |
|
84.6 |
% |
|
84.0 |
% |
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|
GMV
Gross merchandise value (“GMV”) represents the total amount paid
for goods across our online marketplace in a given period. We do
not reduce GMV to reflect product returns or order cancellations.
GMV includes amounts paid for both consigned goods and our
inventory net of platform-wide discounts and excludes the effect of
buyer incentives, shipping fees and sales tax. Platform-wide
discounts are made available to all buyers on the online
marketplace, and impact commissions paid to consignors. Buyer
incentives apply to specific buyers and consist of coupons or
promotions that offer credits in connection with purchases on our
platform. In addition to revenue, we believe this is an important
measure of the scale and growth of our online marketplace and a key
indicator of the health of our consignor ecosystem. We monitor
trends in GMV to inform budgeting and operational decisions to
support and promote growth in our business and to monitor our
success in adapting our business to meet the needs of our
consignors and buyers. While GMV is the primary driver of our
revenue, it is not a proxy for
revenue or revenue growth. See Note 2—Summary of Significant
Accounting Policies—Revenue Recognition—Consignment
Revenue.
NMV
Net merchandise value (“NMV”) represents the value of sales from
both consigned goods and our inventory net of platform-wide
discounts less product returns and order cancellations and excludes
the effect of buyer incentives, shipping fees and sales tax. We
believe NMV is a supplemental measure of the scale and growth of
our online marketplace. Like GMV, NMV is not a proxy for revenue or
revenue growth.
Consignment Revenue
Consignment revenue is generated from the sale of pre-owned luxury
goods through our online marketplace and retail stores on behalf of
consignors. We retain a portion of the proceeds received, which we
refer to as our take rate. We recognize consignment revenue, net of
allowances for product returns, order cancellations, buyer
incentives and adjustments. We also generate revenue from
subscription fees paid by buyers for early access to
products.
Direct Revenue
Direct revenue is generated from the sales of company-owned
inventory. We recognize direct revenue upon shipment of the goods
sold, based on the gross purchase price net of allowances for
product returns, buyer incentives and adjustments.
Shipping Services Revenue
Shipping services revenue is generated from shipping fees we charge
to buyers for outbound shipping and handling activities related to
delivering purchased items to our buyers.
We also generate shipping services revenue from
the shipping fees for consigned products returned by our buyers to
us within policy.
We recognize shipping services revenue over time as the shipping
activity occurs. Shipping services revenue excludes the effect of
buyer incentives and sales tax.
Number of Orders
Number of orders means the total number of orders placed across our
online marketplace and retail stores in a given period. We do not
reduce number of orders to reflect product returns or order
cancellations.
Take Rate
Take rate is a key driver of our revenue and provides comparability
to other marketplaces. The numerator used to calculate our take
rate is equal to net consignment sales and the denominator is equal
to the numerator plus consignor commissions. Net consignment
sales represent the value of sales from consigned goods net of
platform-wide discounts less consignor commission, product returns
and order cancellations. We exclude direct revenue from our
calculation of take rate because direct revenue represents the sale
of inventory owned by us, which costs are included in cost of
direct revenue. Our take rate reflects
the high level of service that we provide to our consignors across
multiple touch points and the consistently high velocity of sales
for their goods. Subsequent to our third quarter, in November 2022,
we updated our take rate structure with the goals of increasing
supply of higher value items, limiting consignment of lower value
items, and optimizing take rate. Previously, our take rate was
primarily based on a tiered commission structure for consignors,
where the more they sell the higher percent commission they earn.
Consignors typically started at a 55% commission (which equals a
45% take rate for us) and could earn up to a 70% commission. In
addition, there were commission exceptions from the tiered
commission structure based on category and price point of the
items.
Beginning in November 2022, the take rate structure is primarily
based on the category and the price point of the sold items. For
example, under the updated take rate structure, consignors can earn
20% commission on all sold items under $100, and 85% commission on
watches sold for over $7,500.
We launched a pricing tool for our consignors that provides detail
on commission rates for specific categories and other aspects of
the take rate structure. Consignors
are eligible to receive additional commissions based on total net
sales under an added tiered commission structure. Management
assesses changes in take rates by monitoring the volume of GMV and
take rate across each discrete commission grouping,
encompassing
commission tiers and exceptions.
Active Buyers
Active buyers include buyers who purchased goods through our online
marketplace during the 12 months ended on the last day of the
period presented, irrespective of returns or cancellations. We
believe this metric reflects scale, brand awareness, buyer
acquisition and engagement.
Average Order Value (“AOV”)
Average order value (“AOV”) means the average value of all orders
placed across our online marketplace and retail stores, excluding
the effect of buyer incentives, shipping fees and sales taxes. Our
focus on luxury goods across multiple categories drives a
consistently strong AOV. Our AOV reflects both the average price of
items sold as well as the number of items per order. Our AOV is a
key driver of our operating leverage.
Percent of GMV from Repeat Buyers
Repeat buyers represents buyers who made a purchase in the months
subsequent to the month they made their initial purchase across our
online marketplace and retail stores. GMV from repeat buyers
reflects purchases made after their initial purchase
month.
Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is a key performance measure that our management
uses to assess our operating performance. Because Adjusted EBITDA
facilitates internal comparisons of our historical operating
performance on a more consistent basis, we use this measure as an
overall assessment of our performance, to evaluate the
effectiveness of our business strategies and for business planning
purposes. Adjusted EBITDA may not be comparable to similarly titled
metrics of other companies.
Adjusted EBITDA means net loss before interest income, interest
expense, other (income) expense net, provision for income taxes,
and depreciation and amortization, further adjusted to exclude
stock-based compensation, payroll taxes on employee stock
transactions, restructuring charges, CEO transition costs, and
certain one-time expenses. Adjusted EBITDA provides a basis for
comparison of our business operations between current, past and
future periods by excluding items that we believe are not
indicative of our core operating performance. Adjusted EBITDA is a
non-GAAP measure. Adjusted EBITDA has certain limitations as the
measure excludes the impact of certain expenses that are included
in our statements of operations that are necessary to run our
business and should not be considered as an alternative to net loss
or any other measure of financial performance calculated and
presented in accordance with GAAP.
The following table provides a reconciliation of net loss to
Adjusted EBITDA (in thousands):
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|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
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2022 |
|
2021 |
|
2022 |
|
2021 |
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|
Adjusted EBITDA Reconciliation: |
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Net loss |
$ |
(47,258) |
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|
$ |
(57,196) |
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|
$ |
(157,835) |
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$ |
(183,912) |
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|
Depreciation and amortization |
7,195 |
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|
6,034 |
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|
20,255 |
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|
17,840 |
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|
|
Stock-based compensation
(1)
|
10,841 |
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|
12,592 |
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|
37,020 |
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|
36,324 |
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|
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|
|
CEO separation benefits
(2)
|
— |
|
|
— |
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|
902 |
|
|
— |
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|
|
CEO transition costs
(3)
|
452 |
|
|
— |
|
|
1,018 |
|
|
— |
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|
|
|
|
Payroll taxes expense on employee stock transactions |
137 |
|
|
245 |
|
|
412 |
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|
967 |
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|
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|
|
Legal fees reimbursement benefit
(4)
|
(1,400) |
|
|
(500) |
|
|
(1,400) |
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|
(500) |
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|
|
|
|
|
Legal settlement
(5)
|
152 |
|
|
500 |
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|
456 |
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|
11,788 |
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|
|
|
|
Restructuring charges
(6)
|
— |
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|
811 |
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|
275 |
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|
2,314 |
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|
Interest income |
(1,002) |
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|
(55) |
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|
(1,360) |
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|
(249) |
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|
Interest expense |
2,675 |
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|
6,072 |
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|
8,014 |
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|
15,374 |
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|
|
Other (income) expense, net |
(6) |
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|
(5) |
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|
(133) |
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|
(22) |
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|
|
Provision for income taxes |
63 |
|
|
28 |
|
|
96 |
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|
83 |
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|
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|
|
Adjusted EBITDA |
$ |
(28,151) |
|
|
$ |
(31,474) |
|
|
$ |
(92,280) |
|
|
$ |
(99,993) |
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|
|
(1) The stock-based compensation expense for the nine months ended
September 30, 2022 includes a one-time charge of $1.0M related
to the modification of certain equity awards pursuant to the terms
of the transition and separation agreement entered into with our
founder, Julie Wainwright, in connection with her resignation as
Chief Executive Officer ("CEO") on June 6, 2022 (the "Separation
Agreement").
(2) The separation benefit charges for the nine months ended
September 30, 2022 consists of base salary, bonus and benefits
for the 2022 fiscal year, as well as an additional twelve months of
base salary and benefits payable to Julie Wainwright pursuant to
the Separation Agreement. In addition, see footnote 1 for
disclosure regarding the incremental stock-based compensation
expense incurred in connection with the Separation
Agreement.
(3) The CEO transition charges for the three and nine months ended
September 30, 2022 consist of general and administrative fees,
including legal and recruiting expenses, as well as retention
bonuses for certain executives incurred in connection with our
founder's resignation on June 6, 2022.
(4) During the three and nine months ended September 30, 2022,
we received insurance reimbursement of $1.4 million related to a
legal settlement expense.
(5) The legal settlement charges for the nine months ended
September 30, 2021 reflects legal settlement expenses arising from
the settlement of a putative shareholder class action and
derivative case.
(6) The restructuring charges for the nine months ended
September 30, 2022 consists of employee severance payments and
benefits. The restructuring charges for the three and nine months
ended September 30, 2021 consist of the costs to transition
operations from the Brisbane warehouse to our new Phoenix
warehouse.
Components of our Operating Results
Revenue
Our revenue is comprised of consignment revenue, direct revenue and
shipping services revenue.
•Consignment
revenue.
We generate the substantial majority of our revenue from the sale
of pre-owned luxury goods through our online marketplace and retail
stores on behalf of consignors. For consignment sales, we retain a
percentage of the proceeds received, which we refer to as our take
rate. We recognize consignment revenue, net of allowances for
product returns, order cancellations, buyer incentives and
adjustments. Additionally, we generate service revenue from
subscription fees paid by buyers for early access to products, but
to date our subscription revenue has not been
material.
•Direct
revenue.
We generate direct revenue from the sale of items that we own,
which we refer to as our inventory. We generally acquire inventory
when we accept out of policy returns from buyers, and when we make
direct purchases from businesses and consignors. We recognize
direct revenue upon shipment based on
the gross purchase price paid by buyers for goods, net of
allowances for product returns, buyer incentives and
adjustments.
•Shipping
services revenue.
We generate shipping services revenue from the outbound shipping
and handling fees we charge when delivering purchased items to our
buyers. We also generate shipping services revenue from
the shipping fees for consigned products returned by our buyers to
us within policy.
We recognize shipping services revenue over time as the shipping
activity
occurs. Shipping services revenue excludes the effect of buyer
incentives and sales tax.
Cost of Revenue
Cost of consignment revenue consists of credit card fees,
packaging, customer service personnel-related costs, website
hosting services, and consignor inventory adjustments related to
lost or damaged products. Cost of direct revenue consists of the
cost of goods sold, credit card fees, packaging, customer service
personnel-related costs, website hosting services, and inventory
adjustments for lower of cost or net realizable value provisions
and for lost or damaged products. Cost of shipping services revenue
consists of the outbound shipping and handling costs to deliver
purchased items to our buyers, the shipping costs for consigned
products returned by our buyers to us within policy, and an
allocation of the credit card fees associated with the shipping fee
charged.
Marketing
Marketing expense comprises the cost of acquiring and retaining
consignors and buyers, including the cost of television, digital
and direct mail advertising. Marketing expense also includes
personnel-related costs for employees engaged in these activities.
We expect these expenses to continue to decrease as a percentage of
revenue.
Operations and Technology
Operations and technology expense principally includes
personnel-related costs for employees involved with the
authentication, merchandising and fulfillment of goods sold through
our online marketplace and retail stores, as well as our general
information technology expense. Operations and technology expense
also includes allocated facility and overhead costs, costs related
to our retail stores, facility supplies, inbound consignment
shipping costs, and depreciation of hardware and
equipment, as well as research and development expense for
technology associated with managing and improving our operations.
We capitalize a portion of our proprietary software and technology
development costs. As such, operations and technology expense also
includes amortization of capitalized technology development costs.
We expect operations and technology expense to increase in future
periods to support our growth, including continuing to invest in
automation and other technology improvements to support and drive
efficiency in our operations. These expenses may vary from year to
year as a percentage of revenue, depending primarily upon when we
choose to make more significant investments. We expect these
expenses to continue to decrease as a percentage of
revenue.
Selling, General and Administrative
Selling, general and administrative expense is principally
comprised of personnel-related costs for our sales professionals
and employees involved in finance and administration. Selling,
general and administrative expense also includes allocated
facilities and overhead costs and professional services, including
accounting and legal advisors. We expect these expenses to continue
to decrease as a percentage of revenue.
Legal Settlement
Legal settlement expense primarily includes actual or estimated
losses related to legal settlements when they become probable and
estimable.
Provision for Income Taxes
Our provision for income taxes consists primarily of state minimum
taxes in the United States. We have a full valuation allowance for
our net deferred tax assets primarily consisting of net operating
loss carryforwards, accruals and reserves, stock-based
compensation, fixed assets, and other book-to-tax timing
differences. We expect to maintain this full valuation allowance
for the foreseeable future.
Results of Operations
The following tables set forth our results of operations (in
thousands) and such data as a percentage of revenue for the periods
presented:
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|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Revenue: |
|
|
|
|
|
|
|
|
Consignment revenue |
$ |
93,874 |
|
|
$ |
78,373 |
|
|
$ |
274,780 |
|
|
$ |
215,712 |
|
|
Direct revenue |
34,005 |
|
|
29,387 |
|
|
125,474 |
|
|
75,582 |
|
|
Shipping services revenue |
14,824 |
|
|
11,078 |
|
|
43,584 |
|
|
31,273 |
|
|
Total revenue |
142,703 |
|
|
118,838 |
|
|
443,838 |
|
|
322,567 |
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
Cost of consignment revenue |
15,206 |
|
|
10,162 |
|
|
43,193 |
|
|
29,872 |
|
|
Cost of direct revenue |
28,721 |
|
|
25,025 |
|
|
105,415 |
|
|
65,365 |
|
|
Cost of shipping services revenue |
12,999 |
|
|
12,552 |
|
|
43,149 |
|
|
34,480 |
|
|
Total cost of revenue |
56,926 |
|
|
47,739 |
|
|
191,757 |
|
|
129,717 |
|
|
Gross profit |
85,777 |
|
|
71,099 |
|
|
252,081 |
|
|
192,850 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Marketing |
13,511 |
|
|
15,708 |
|
|
48,469 |
|
|
44,378 |
|
|
Operations and technology |
70,782 |
|
|
61,135 |
|
|
207,311 |
|
|
172,906 |
|
|
Selling, general and administrative |
46,860 |
|
|
44,912 |
|
|
147,063 |
|
|
132,504 |
|
|
Legal settlement |
152 |
|
|
500 |
|
|
456 |
|
|
11,788 |
|
|
Total operating expenses |
131,305 |
|
|
122,255 |
|
|
403,299 |
|
|
361,576 |
|
|
Loss from operations |
(45,528) |
|
|
(51,156) |
|
|
(151,218) |
|
|
(168,726) |
|
|
Interest income |
1,002 |
|
|
55 |
|
|
1,360 |
|
|
249 |
|
|
Interest expense |
(2,675) |
|
|
(6,072) |
|
|
(8,014) |
|
|
(15,374) |
|
|
Other income, net |
6 |
|
|
5 |
|
|
133 |
|
|
22 |
|
|
Loss before provision for income taxes |
(47,195) |
|
|
(57,168) |
|
|
(157,739) |
|
|
(183,829) |
|
|
Provision for income taxes |
63 |
|
|
28 |
|
|
96 |
|
|
83 |
|
|
Net loss |
$ |
(47,258) |
|
|
$ |
(57,196) |
|
|
$ |
(157,835) |
|
|
$ |
(183,912) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Revenue: |
|
|
|
|
|
|
|
|
Consignment revenue |
66 |
% |
|
66 |
% |
|
62 |
% |
|
67 |
% |
|
Direct revenue |
24 |
|
|
25 |
|
|
28 |
|
|
23 |
|
|
Shipping services revenue |
10 |
|
|
9 |
|
|
10 |
|
|
10 |
|
|
Total revenue |
100 |
|
|
100 |
|
|
100 |
|
|
100 |
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
Cost of consignment revenue |
11 |
|
|
9 |
|
|
10 |
|
|
9 |
|
|
Cost of direct revenue |
20 |
|
|
21 |
|
|
24 |
|
|
20 |
|
|
Cost of shipping services revenue |
9 |
|
|
10 |
|
|
9 |
|
|
11 |
|
|
Total cost of revenue |
40 |
|
|
40 |
|
|
43 |
|
|
40 |
|
|
Gross profit |
60 |
|
|
60 |
|
|
57 |
|
|
60 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Marketing |
9 |
|
|
14 |
|
|
11 |
|
|
14 |
|
|
Operations and technology |
50 |
|
|
51 |
|
|
47 |
|
|
53 |
|
|
Selling, general and administrative |
33 |
|
|
38 |
|
|
33 |
|
|
41 |
|
|
Legal settlement |
— |
|
|
— |
|
|
— |
|
|
4 |
|
|
Total operating expenses |
92 |
|
|
103 |
|
|
91 |
|
|
112 |
|
|
Loss from operations |
(32) |
|
|
(43) |
|
|
(34) |
|
|
(52) |
|
|
Interest income |
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
Interest expense |
(2) |
|
|
(5) |
|
|
(2) |
|
|
(5) |
|
|
Other income, net |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Loss before provision for income taxes |
(33) |
|
|
(48) |
|
|
(36) |
|
|
(57) |
|
|
Provision for income taxes |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net loss |
(33) |
% |
|
(48) |
% |
|
(36) |
% |
|
(57) |
% |
Comparison of the Three Months Ended September 30, 2022 and
2021
Consignment Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Consignment revenue |
$ |
93,874 |
|
|
$ |
78,373 |
|
|
$ |
15,501 |
|
|
20 |
% |
Consignment revenue increased by $15.5 million, or 20%, in the
three months ended September 30, 2022 compared to the three
months ended September 30, 2021. The increase in revenue was
driven primarily by a 20% increase in GMV during the three months
ended September 30, 2022, and improvement in our take rate
during the three months ended September 30, 2022. GMV growth
during the three months ended September 30, 2022 was driven by
a 26% increase in orders, partially offset by a 5% decrease in AOV.
We believe the GMV growth is driven by heightened interest in
luxury resale due to increasing consumer desire for more
affordable, accessible luxury goods in a sustainable circular
economy.
Returns and cancellations as a percentage of GMV for the three
months ended September 30, 2022 was 26.2% compared to 25.7%
for the three months ended September 30, 2021. Our take rate
increased to 36.0% from 34.9% during the three months ended
September 30, 2022 compared to the three months ended
September 30, 2021 due to an increased contribution from
higher take rate products such as women's apparel.
Direct Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Direct revenue |
$ |
34,005 |
|
|
$ |
29,387 |
|
|
$ |
4,618 |
|
|
16 |
% |
Direct revenue increased by $4.6 million, or 16%, in the three
months ended September 30, 2022 compared to the three months
ended September 30, 2021. The increase was primarily driven by
the sell-through of company owned inventory from previous direct
purchases from businesses and consignors. We recognize direct
revenue on a gross basis upon shipment of the purchased good to the
buyer. Direct revenue decreased as a percentage of total revenue
compared to the same three month period last year as we have acted
to limit the amount of direct purchases from businesses and plan to
continue to do so in the future. Direct revenue as a percentage of
total revenue may vary from period to period primarily based on the
growth of consignment revenue, as well as the amount of
company-owned inventory we acquire. We anticipate direct revenue to
decrease as a percentage of total revenue over the longer
term.
Shipping Services Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Shipping services revenue |
$ |
14,824 |
|
|
$ |
11,078 |
|
|
$ |
3,746 |
|
|
34 |
% |
Shipping services revenue increased by $3.7 million, or 34%, in the
three months ended September 30, 2022 compared to the three
months ended September 30, 2021 primarily due to increased
shipping rates charged to buyers for outbound and return shipments
and the fulfillment of a larger number of orders, which increased
26% in the three months ended September 30, 2022 compared to
the three months ended September 30, 2021.
Cost of Consignment Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Cost of consignment revenue |
$ |
15,206 |
|
|
$ |
10,162 |
|
|
$ |
5,044 |
|
|
50 |
% |
Cost of consignment revenue increased by $5.0 million, or 50%, in
the three months ended September 30, 2022 compared to the
three months ended September 30, 2021.
The increases are primarily attributable to higher credit card fees
and overhead costs driven by growth in our business.
Consignment revenue gross margin decreased by 3 percentage points
in the three months ended September 30, 2022 compared to the
three months ended September 30, 2021.
This decrease was primarily attributable to higher credit card fees
and overhead costs associated with consignment revenue
transactions.
Cost of Direct Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Cost of direct revenue |
$ |
28,721 |
|
|
$ |
25,025 |
|
|
$ |
3,696 |
|
|
15 |
% |
Cost of direct revenue increased by $3.7 million, or 15%, in the
three months ended September 30, 2022 compared to the three
months ended September 30, 2021.
Direct revenue gross margin increased by 1 percentage point for the
three months ended September 30, 2022, primarily driven by
lower credit card fees and overhead costs associated with direct
revenue transactions.
The margin profile of our direct revenue is lower than consignment
revenue. While direct revenue gross margin increased, our total
gross margin remained flat in the three months ended
September 30, 2022 compared to the three months ended
September 30, 2021. Gross margin may vary from period to
period.
Cost of Shipping Services Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Cost of shipping services revenue |
$ |
12,999 |
|
|
$ |
12,552 |
|
|
$ |
447 |
|
|
4 |
% |
Cost of shipping services revenue increased by $0.4 million, or 4%,
in the three months ended September 30, 2022 compared to the
three months ended September 30, 2021, primarily due to the
increase in orders and higher shipping fees.
The shipping services revenue gross margin increased by 26
percentage points for the three months ended September 30,
2022, primarily due to increased shipping rates charged to buyers
for outbound and return shipments.
Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Marketing |
$ |
13,511 |
|
|
$ |
15,708 |
|
|
$ |
(2,197) |
|
|
-14 |
% |
Marketing expense decreased by $2.2 million, or 14%, in the three
months ended September 30, 2022, compared to the three months
ended September 30, 2021. The decrease was primarily due to
decreased advertising costs as we gain more efficiency in our buyer
acquisition costs.
As a percent of revenue, marketing expense decreased to 9% from 14%
in the three months ended September 30, 2022 and 2021,
respectively. These expenses may vary from period to period as a
percentage of revenue, depending primarily upon our marketing
investments. We expect these expenses to decrease as a percentage
of revenue over the longer term.
Operations and Technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Operations and technology |
$ |
70,782 |
|
|
$ |
61,135 |
|
|
$ |
9,647 |
|
|
16 |
% |
Operations and technology expense increased by $9.6 million, or
16%, in the three months ended September 30, 2022 compared to
the three months ended September 30, 2021. The increase was
primarily due to higher employee compensation related expenses due
to an increase
in headcount
and higher inbound consignment shipping costs.
As a percent of revenue, operations and technology expense
decreased to 50% from 51% in the three months ended
September 30, 2022 and 2021, respectively. These expenses may
vary from period to period as a percentage of revenue, depending
primarily upon when we choose to make more significant investments.
We expect these expenses to decrease as a percentage of revenue
over the longer term.
Selling, General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Selling, general and administrative |
$ |
46,860 |
|
|
$ |
44,912 |
|
|
$ |
1,948 |
|
|
4 |
% |
Selling, general and administrative expense increased by $1.9
million, or 4%, in the three months ended September 30, 2022
compared to the three months ended September 30, 2021. The
increase was driven by higher employee compensation expenses,
including stock-based compensation expense due to increased
headcount, in addition to an increase in software
fees.
As a percent of revenue, selling, general and administrative
expense decreased to 33% from 38% in the three months ended
September 30, 2022 and 2021, respectively. These expenses may
vary from period to period as a percentage of revenue. We
expect these expenses to decrease as a percentage of revenue over
the longer term.
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Interest income |
$ |
1,002 |
|
|
$ |
55 |
|
|
$ |
947 |
|
|
1,722 |
% |
Interest income increased by $0.9 million, or over 100%, for the
three months ended September 30, 2022 as compared to the three
months ended September 30, 2021. The increase was primarily
driven by higher average interest rates.
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Interest expense |
$ |
(2,675) |
|
|
$ |
(6,072) |
|
|
$ |
3,397 |
|
|
-56 |
% |
Interest expense decreased by $3.4 million, or 56%, for the three
months ended September 30, 2022 compared to the three months
ended September 30, 2021. The decrease was primarily due to
the adoption of ASU 2020-06 on January 1, 2022, which eliminated
the debt discount related to both the 3.00% convertible senior
notes issued in June 2020 and the 1.00% convertible senior notes
issued in March 2021.
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Other income, net |
$ |
6 |
|
|
$ |
5 |
|
|
$ |
1 |
|
|
0 |
% |
Other income remained flat in the three months ended
September 30, 2022 as compared to the three months ended
September 30, 2021.
Legal Settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Legal settlement |
$ |
152 |
|
|
$ |
500 |
|
|
$ |
(348) |
|
|
-70 |
% |
Legal settlement expense decreased by $0.3 million, or 70%, during
the three months ended September 30, 2022 compared to the
three months ended September 30, 2021.
Comparison of the Nine Months Ended September 30, 2022 and
2021
Consignment Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
Change |
|
2022 |
|
2021 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
(In thousands, except percentage) |
|
Consignment revenue, net |
$ |
274,780 |
|
|
$ |
215,712 |
|
|
$ |
59,068 |
|
|
27 |
% |
Consignment revenue increased by $59.1 million, or 27%, in the nine
months ended September 30, 2022 compared to the nine months
ended September 30, 2021. The increase in revenue was driven
primarily by a 27% increase in GMV during the nine months ended
September 30, 2022, and improvement in our take rate during
the nine months ended September 30, 2022. GMV growth during
the nine months ended September 30, 2022 was driven by a 30%
increase in orders, due to an increased market demand for online
luxury goods, partially offset by a 3% decrease in AOV. We believe
GMV growth is driven
by heightened interest in luxury resale due to increasing consumer
desire for more affordable, accessible luxury goods in a
sustainable circular economy.
Returns and cancellations as a percentage of GMV for the nine
months ended September 30, 2022 was 26.8% compared to 25.9%
for the nine months ended September 30, 2021. Our take rate
increased to 36.0% from 34.6% during the nine months ended
September 30, 2022 compared to the same period last year due
to an increased contribution from higher take rate products such as
women's apparel.