SEC Filing | ThredUp Inc.

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tdup-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

______________________

(Mark One)


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

For the quarterly period ended March 31, 2021


☐			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 001-40249

______________________

ThredUp Inc.

______________________

(Exact name of registrant as specified in its charter)

Delaware

26-4009181

(State or other jurisdiction of incorporation or organization)

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

969 Broadway, Suite 200

Oakland, CA

94607

(Address of Principal Executive Offices)

(Zip Code)

(415) 402-5202

Registrant's telephone number, including area code

______________________

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.0001 par value per share	TDUP	The Nasdaq Stock Market LLC

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☒

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

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

The registrant had 15,022,873 shares of Class A common stock, $0.0001 par value per share, and 79,183,025 shares of Class B common stock, $0.0001 par value per share, outstanding as of April 30, 2021.

TABLE OF CONTENTS


		Page
	PART I. FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity	3
	Condensed Consolidated Statement of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion a nd Analysis o f Financial Condition a nd Results o f Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28
	PART II. OTHER INFORMATION	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 6.	Exhibits	70
	Signatures	72

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•our future financial performance, including our revenue, cost of revenue and operating expenses and our ability to achieve and maintain future profitability;

•the sufficiency of our cash, cash equivalents and capital resources to meet our liquidity needs;

•our ability to effectively manage or sustain our growth and to effectively expand our operations;

•our strategies, plans, objectives and goals, including our expectations regarding future infrastructure investments;

•our ability to attract and retain buyers and sellers and the continued impact of network effects as we scale our platform;

•trends in our key financial and operating metrics;

•our estimated market opportunity;

•economic and industry trends, projected growth or trend analysis;

•our ability to comply with laws and regulations;

•the effect of uncertainties related to the global COVID-19 pandemic and recovery therefrom on U.S. and global economies, our business, results of operations, financial condition, demand for secondhand items, sales cycles and buyer and seller retention;

•our ability to remediate our material weakness in our internal control over financial reporting; and

•the increased expenses associated with being a public company.

You should not rely upon forward-looking statements as predictions of future events. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

***

Unless otherwise indicated or unless the context requires otherwise, all references in this document to “thredUP”, “the Company”, “we”, “us”, “our”, or similar references are to ThredUp Inc.

thredUP is one of the world’s largest online resale platforms for women’s and kids’ apparel, shoes and accessories, based primarily on items processed, items sold and the capacity of our distribution centers.

The “estimated retail price” of an item is based on the estimated original retail price of a comparable item of the same quality, construction and material offered elsewhere in new condition. Our estimated original retail prices are set by our team of merchants who periodically monitor market prices for the brands and styles that we offer on our marketplace.

iii

PART I. FINANCIAL INFORMATION.

Item 1. Financial Statements (Unaudited)

ThredUp Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)


	March 31,		December 31,
	2021		2020

Assets
Current assets
Cash and cash equivalents	$	246,514	$	64,485
Accounts receivable, net	1,726		1,823
Inventory, net	3,482		3,519
Other current assets	3,168		5,332
Total current assets	254,890		75,159
Operating lease right-of-use assets	22,338		23,656
Property and equipment, net	43,562		41,131
Other assets	2,980		2,965
Total assets	$	323,770	$	142,911
Liabilities, Convertible Preferred Stock and Stockholders’ Equity
Current liabilities
Accounts payable	$	14,540	$	9,386
Accrued and other current liabilities	37,720		32,541
Seller payable	15,194		13,724
Operating lease liabilities, current	3,095		3,643
Current portion of long-term debt	5,736		3,270
Total current liabilities	76,285		62,564
Operating lease liabilities, non-current	20,811		21,574
Long-term debt	33,320		31,190
Other non-current liabilities	1,927		2,719
Total liabilities	132,343		118,047
Commitments and contingencies (Note 10)
Convertible preferred stock: $0.0001 par value; 100,000,000 and 68,139,958 shares authorized as of March 31, 2021 and December 31, 2020, respectively; 0 and 65,970,938 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	—		247,041
Stockholders’ equity:
Class A and B common stock, $0.0001 par value; 1,120,000,000 and 110,000,000 shares authorized as of March 31, 2021 and December 31, 2020, respectively; 94,143,694 and 12,889,760 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	9		1
Additional paid-in capital	459,756		29,989
Accumulated deficit	(268,338)		(252,167)
Total stockholders’ equity (deficit)	191,427		(222,177)
Total liabilities, convertible preferred stock and stockholders’ equity	$	323,770	$	142,911

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

ThredUp Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

(unaudited)


	Three months ended March 31,

	2021		2020

Revenue:
Consignment	$	44,688	$	35,314
Product	10,992		13,001
Total revenue	55,680		48,315
Cost of revenue:
Consignment	10,832		8,816
Product	5,130		6,873
Total cost of revenue	15,962		15,689
Gross profit	39,718		32,626
Operating expenses:
Operations, product and technology	28,312		25,475
Marketing	15,446		13,001
Sales, general and administrative	10,638		7,433
Total operating expenses	54,396		45,909
Operating loss	(14,678)		(13,283)
Interest and other (expense) income, net	(1,466)		68
Loss before provision for income taxes	(16,144)		(13,215)
Provision for income taxes	27		—
Net loss and total comprehensive loss	$	(16,171)	$	(13,215)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.86)	$	(1.23)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	18,701,108		10,763,234

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

ThredUp Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)


	Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance as of December 31, 2020	65,970,938	$	247,041	12,889,760	$	1	$	29,989	$	(252,167)	$	(222,177)
Preferred stock conversion to Class B common stock	(65,970,938)	(247,041)		65,970,938	7		247,034		—		247,041
Sale of Class A common stock upon initial public offering, net of issuance costs	—	—		13,800,000	1		175,533		—		175,534
Conversion of convertible preferred stock warrants to Class B common stock warrants	—	—		—	—		1,827		—		1,827
Cashless exercise of common stock warrant to Class B common stock	—	—		24,837	—		—		—		—
Exercise of stock options	—	—		1,458,159	—		1,875		—		1,875
Stock-based compensation	—	—		—	—		3,498		—		3,498
Net loss	—	—		—	—		—		(16,171)		(16,171)
Balance as of March 31, 2021	—	$	—	94,143,694	$	9	$	459,756	$	(268,338)	$	191,427

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

ThredUp Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)


	Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance as of December 31, 2019	65,928,261	$	246,905	10,647,380	$	1	$	20,483	$	(203,725)	$	(183,241)
ASC 842 adoption (eff. January 1, 2020)	—	—		—	—		—		(565)		(565)
Exercise of stock options	—	—		118,685	—		10		—		10
Stock-based compensation	—	—		—	—		1,442		—		1,442
Net loss	—	—		—	—		—		(13,215)		(13,215)
Balance as of March 31, 2020	65,928,261	$	246,905	10,766,065	$	1	$	21,935	$	(217,505)	$	(195,569)

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

ThredUp Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Three months ended March 31,
	2021		2020

Cash flows from operating activities
Net loss	$	(16,171)	$	(13,215)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	2,038		1,245
Stock-based compensation expense	3,498		1,442
Reduction in the carrying amount of right-of-use assets	1,318		873
Changes in fair value of convertible preferred stock warrants and others	1,048		(126)
Changes in operating assets and liabilities:
Accounts receivable, net	97		(338)
Inventory, net	37		51
Other current and non-current assets	(457)		(1,977)
Accounts payable	4,722		1,122
Accrued and other current liabilities	4,784		1,791
Seller payable	1,470		1,218
Operating lease liabilities	(1,311)		(1,186)
Other non-current liabilities	4		(2)
Net cash provided by (used in) operating activities	1,077		(9,102)
Cash flows from investing activities
Purchase of property and equipment	(4,099)		(4,673)
Net cash used in investing activities	(4,099)		(4,673)
Cash flows from financing activities
Proceeds from debt issuance, net of issuance costs	4,625		—
Repayment of debt	—		(714)
Proceeds from issuance of Class A common stock upon initial public offering, net of underwriting discounts and commissions	180,284		—
Proceeds from exercise of common stock options	1,875		10
Payment of costs for the initial public offering	(1,733)		(81)
Net cash provided by (used in) financing activities	185,051		(785)
Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents	182,029		(14,560)

Cash, cash equivalents and restricted cash and cash equivalents
Beginning of period	67,539		87,853
End of period	$	249,568	$	73,293

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

ThredUp Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.Organization and Description of Business

ThredUp Inc. (“ThredUp” or “Company”) was formed as a corporation in the State of Delaware in January 2009. ThredUp is a large resale platform that enables consumers to buy and sell secondhand women’s and kid’s apparel, shoes and accessories. The Company conducts its marketing and administrative functions from Oakland, California and Scottsdale, Arizona and operates its fulfillment centers in Pennsylvania, Illinois, Georgia, and Arizona.

Initial Public Offering

The Company’s registration statement on Form S-1 related to its initial public offering (“IPO”) was declared effective on March 25, 2021 by the Securities and Exchange Commission (“SEC”), and the Company’s Class A common stock began trading on the Nasdaq Global Select Market on March 26, 2021. Upon the closing of the IPO, the Company sold 13,800,000 shares of Class A common stock (which included 1,800,000 shares that were offered and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares) to the public at a price of $14.00 per share. The aggregate net proceeds were $175.5 million after deducting offering costs, underwriting discounts and commissions of $17.7 million.

Immediately prior to the completion of the IPO, the Company filed its Amended and Restated Certificate of Incorporation, which authorized a total of 1,000,000,000 shares of Class A common stock, 120,000,000 shares of Class B common stock and 100,000,000 shares of undesignated preferred stock.

Immediately prior to the completion of the IPO, 65,970,938 shares of the convertible preferred stock then outstanding were converted into an equivalent number of shares of Class B common stock. The Company reclassified the convertible preferred stock to Class B common stock and additional paid-in capital upon the conversion in the three months ended March 31, 2021. 12,889,760 shares of the outstanding historical common stock were reclassified into an equivalent number of shares of Class B common stock. 164,973 shares of the convertible preferred stock warrants were converted to an equivalent number of shares of Class B common stock warrants.

2. Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany account balances and transactions have been eliminated upon consolidation. The unaudited condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information and with the instructions to Form 10‑Q and Article 10 of Regulation S-X. As permitted under those rules, certain footnotes or other financial information can be condensed or omitted.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and the related disclosures. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include, but are not limited to, the useful lives of property and equipment, allowance for sales returns, allowance for bad debts, breakage on loyalty points and rewards, valuation of inventory, warrants, stock-based compensation, valuation of right-of-use assets and income taxes. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal and recurring adjustments necessary to present fairly the financial position of the Company as of March 31, 2021, and the results of operations and cash flows for the interim periods presented.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2020 included in the final prospectus for the IPO dated March 25, 2021.

ThredUp Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Concentrations of Credit Risks

As of March 31, 2021 and December 31, 2020, there were no customers that represented 10% or more of the Company’s accounts receivable balance. There were no customers that individually exceeded 10% of the Company’s revenue for the three months ended March 31, 2021 and 2020, respectively.

Revenue Recognition

Revenue from Loyalty Reward Redemption or Expiration

For the three months ended March 31, 2021 and 2020, the Company recognized $3.3 million and $0.2 million, respectively, of revenue from loyalty reward redemption or expiration.

Cash, Cash Equivalents and Restricted Cash and Cash Equivalents

The following table provides a reconciliation of cash, cash equivalents and restricted cash and cash equivalents reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows (in thousands):


	March 31,		December 31,
	2021		2020
Cash and cash equivalents	$	246,514	$	64,485
Restricted cash and cash equivalents, current and non-current	3,054		3,054
Total cash, cash equivalents and restricted cash and cash equivalents	$	249,568	$	67,539

Restricted cash and cash equivalents, non-current of $2.7 million is included in the other assets in the condensed consolidated balance sheets statements as of March 31, 2021 and December 31, 2020.

Net Loss Per Share Attributable to Common Stockholders

The Company follows the two-class method when computing net loss per common share when shares issued meet the definition of participating securities. The rights, including the liquidation and dividend rights and sharing of losses, of the Class A common stock and Class B common stock are identical, other than voting rights. As the liquidation and dividend rights and sharing of losses are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share attributed to common stockholders will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis.

For periods in which the Company reports net losses, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Accounting Pronouncements Recently Adopted

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The Company adopted ASU 2018-15 as of January 1, 2021. The adoption of ASU 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivative and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The Company adopted ASU 2020-06 on January 1, 2021. The adoption of this ASU did not have any impact on the Company’s condensed consolidated financial statements.

ThredUp Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

New Accounting Pronouncements Recently Issued But Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, ASU 2020-02, and ASU 2020-03, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

3.Fair Value Measurements

The following tables provide the financial instruments measured at fair value for each of the respective periods (in thousands):


	March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market fund	$	224,268	$	—	$	—	$	224,268
Total cash equivalents	$	224,268	$	—	$	—	$	224,268


	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market fund	$	43,460	$	—	$	—	$	43,460
Total cash equivalents	$	43,460	$	—	$	—	$	43,460

Liabilities
Convertible preferred stock warrant liability	$	—	$	—	$	805	$	805
Total liabilities	$	—	$	—	$	805	$	805

There were no transfers in or out of Level 1 or 2 during the periods presented in the tables above.

The Company’s money market funds are classified as Level 1 because they are valued using quoted market prices.

As of March 31, 2021 and December 31, 2020, the amortized cost of the Company’s financial assets and liabilities approximate their estimated fair values. As such, there are no unrealized gains or losses related to the Company’s financial assets and liabilities.

ThredUp Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

4.Property and Equipment, Net

Property and equipment, net consists of the following (in thousands):


	March 31,		December 31,
	2021		2020

Property and equipment	$	59,283	$	55,221
Less: accumulated depreciation and amortization	(15,721)		(14,090)
Property and equipment, net	$	43,562	$	41,131

For the three months ended March 31, 2021 and 2020, the Company capitalized $0.5 million and $0.3 million of costs associated with internal-use software, respectively. For the three months ended March 31, 2021 and 2020, the Company capitalized $0.1 million and $0.1 million, respectively, out of $0.6 million and $0.3 million total interest costs incurred for each respective period. Depreciation and amortization expense of property and equipment was $2.0 million and $1.2 million for the three months ended March 31, 2021 and 2020, respectively.

5.Other Balance Sheet Details

Accrued and other current liabilities consist of the following (in thousands):


	March 31,		December 31,
	2021		2020

Gift card and site credit liabilities	$	9,633	$	9,362
Deferred revenue	4,949		5,094
Allowance for returns	4,604		3,389
Accrued taxes	4,595		4,594
Accrued compensation	4,409		3,443
Accrued vendor liabilities	4,288		3,407
Accrued marketing	3,976		1,648
Accrued other	1,266		1,604
	$	37,720	$	32,541

ThredUp Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

6.Lease Agreements

For the three months ended March 31, 2021 and 2020, the Company’s operating lease expense was $2.1 million and $1.4 million, respectively.

Maturities of operating lease liabilities were as follows as of March 31, 2021 (in thousands):


	Amount
Remainder of 2021	$	3,456
2022	4,519
2023	4,508
2024	4,156
2025	2,760
Thereafter	12,292
Total lease payments	31,691
Less: imputed interest	7,785
Total lease liabilities	23,906
Less: current lease liabilities	3,095
Total non-current lease liabilities	$	20,811

7.Long-term Debt and Convertible Preferred Stock Warrants

The Company entered into a loan and security agreement (“Term Loan”) with Western Alliance Bank (“Bank”) for an aggregate amount up to $40.0 million to refinance its Loan and Security Agreement with Silicon Valley Bank (“SVB”) in February 2019. The Term Loan was amended three times before December 31, 2020.

In February 2021, the Company amended and restated the loan and security agreement (“Fourth Amendment”) with the Bank to reflect all waivers and amendments to date. Subsequently, the Company borrowed an additional $5.0 million for an aggregate principal amount of $40.0 million. In connection with the additional $5.0 million draw, the Company issued additional warrant shares for Series E-1 preferred stock in the amount of 15,979 or (i) two percent of the additional advance amount drawn under the Term A Loans, divided by (ii) the applicable exercise price at the time the warrant is exercised.

As of March 31, 2021, the nominal interest rate was 5.75% and the effective interest rate was 6.84%. The Company is in compliance with the covenants as of March 31, 2021.

The maturities of the loan agreement as of March 31, 2021 are as follows (in thousands):


	Amount
Remainder of 2021	$	4,000
2022	8,000
2023	8,000
2024	20,000
Thereafter	—
Total future principal	40,000
Less: unamortized debt discount	944
Less: current portion of long-term debt	5,736
Noncurrent portion of long-term debt	$	33,320

ThredUp Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Warrants Issued with Loan and Security Agreement

The Company issued various preferred stock warrants under its loan and security agreements with SVB and the Bank. Immediately prior to the conversion upon IPO and as of December 31, 2020, the following preferred stock warrant liabilities were outstanding.


Description	Issuance Date	Expiration Date	Balance Sheet Classification	Exercise Price Per Share		Immediately Prior to the Completion of IPO	December 31, 2020

Series D	1/22/2015	1/22/2025	Liability	$	2.2600	13,382	13,382
Series D	4/20/2015	1/22/2025	Liability	$	2.2600	13,382	13,382
Series E-1	2/7/2019	5/29/2030	Liability	$	6.2581	63,917	63,917
Series F	5/29/2020	5/29/2030	Liability	$	6.8839	10,376	10,376
Series E-1	8/14/2020	5/29/2030	Liability	$	6.2581	31,958	31,958
Series E-1	11/25/2020	5/29/2030	Liability	$	6.2581	15,979	15,979
Series E-1	2/8/2021	5/29/2030	Liability	$	6.2581	15,979	—
						164,973	148,994

The convertible preferred stock warrant liability of $0.8 million was included in other non-current liabilities in the consolidated balance sheet as of December 31, 2020.

Immediately prior to the completion of IPO in March 2021, all 164,973 shares of the convertible preferred stock warrant were remeasured to fair value and converted to equivalent number of Class B common stock warrants. The Company reclassified the convertible preferred stock warrant liability to additional paid-in capital upon the conversion. Refer to Note 8. Common Stock and Common Stock Warrants for more details on common stock warrants.

8.Common Stock and Common Stock Warrants

Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible at any time into one share of Class A common stock.

Immediately prior to the completion of the IPO, 65,970,938 shares of the convertible preferred stock converted to an equivalent number of shares of Class B common stock and 164,973 shares of the convertible preferred stock warrants were converted to an equivalent number of Class B common stock warrants.

During the three months ended March 31, 2021, the Company issued 24,837 shares of Class B common stock through a cashless net exercise of 26,764 shares of Class B common stock warrants. 138,209 shares of Class B common stock warrants were outstanding as of March 31, 2021.

The table below summarizes the Class A common stock and Class B common stock issued and outstanding as of March 31, 2021.

ThredUp Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)


	As of March 31, 2021

	Authorized	Issued and Outstanding
Common stock Class A	1,000,000,000	13,800,000
Common stock Class B	120,000,000	80,343,694
Total common stock	1,120,000,000	94,143,694

9.Stock-Based Compensation Plans

2021 Stock Option and Incentive Plan

In February 2021, in connection with the IPO, the Company’s board of directors adopted the 2021 Stock Option and Incentive Plan (“2021 Plan”) to replace the Second Amended and Restated 2010 Stock Plan (“2010 Plan”), which was subsequently approved by the Company’s stockholders in March 2021. The 2021 Plan became effective on March 24, 2021.

As of March 31, 2021, no stock options were granted under the 2021 Plan. As of March 31, 2021, 96,426 restricted stock units were granted under the 2021 Plan.

2021 Employee Stock Purchase Plan

In February 2021, the Company’s board of directors adopted the Employee Stock Purchase Plan (“ESPP”), which was subsequently approved by the stockholders in March 2021. The ESPP became effective on March 24, 2021. The first offering period began on March 25, 2021, and there was no stock-based compensation related to the ESPP for the three months ended March 31, 2021.

IPO Options Under the 2010 Plan

In August 2020, the Company’s board of directors approved stock options for 3,588,535 common shares to be granted to certain officers and employees with an exercise price of $2.05 per share. 50% of the options granted vest over a four-year period commencing on the effective date of the IPO. The remaining 50% of the options granted vest over a four-year period commencing on the one-year anniversary of the IPO. As these stock options vest upon the satisfaction of both a time-based condition and a performance condition, the fair value of these stock options of $6.7 million, in aggregate, will be recognized as compensation expense over the requisite service period using the accelerated attribution method. In the three months ended in March 31, 2021, $1.6 million was recognized as compensation expense from such stock options subject to these performance conditions.

Stock-based Compensation

Total stock-based compensation expense by department is as follows (in thousands):


	Three months ended March 31,
	2021		2020

Operations, product and technology	$	1,350	$	714
Marketing	437		174
Sales, general and administrative	1,711		554
Total stock-based compensation expense	$	3,498	$	1,442

As of March 31, 2021, there was approximately $20.1 million of total unrecognized stock-based compensation expense related to unvested options granted to employees under the Company’s stock option plan that is expected to be recognized over a weighted average period of 1.56 years.

ThredUp Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

10.Commitments and Contingencies

Legal Contingencies

The Company is subject to litigation claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows.

Indemnifications

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but that have not yet been made.

11.Income Taxes

The quarterly income tax provision reflects an estimate of the corresponding quarter’s state taxes in the United States. The provision for income tax expense for the three months ended March 31, 2021 and 2020 was determined based upon estimates of the Company’s annual effective tax rate for the years ending December 31, 2021 and 2020 respectively. Since the company is in a full valuation allowance position, due to losses incurred since inception, the provision for taxes consist solely of state minimum taxes. The Company has no uncertain tax positions or any unrecognized tax benefits.

12.Net Loss Per Share Attributable to Common Stockholders

The following participating 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):


	As of March 31,
	2021	2020

Outstanding stock options	22,067,610	19,886,677
Outstanding Class B common stock warrants	138,209	—
Restricted stock units	96,426	—
Convertible preferred stock	—	65,928,261
Outstanding convertible preferred stock warrants	—	170,975
Total	22,302,245	85,985,913

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our final prospectus (“Prospectus”), dated March 25, 2021, filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (“Securities Act”). The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full calendar year or any other period.

Overview

thredUP is one of the world’s largest online resale platforms for women’s and kids’ apparel, shoes and accessories. Our custom-built operating platform is powering the rapidly emerging resale economy, the fastest growing sector in retail. thredUP’s platform consists of distributed processing infrastructure, proprietary software and systems and data science expertise. Since our founding in 2009, we have processed over 100 million unique secondhand items from 35,000 brands across 100 categories, saving our buyers an estimated $3.3 billion off estimated retail price. We estimate that we have positively impacted the environment by saving 1.0 billion pounds of CO2 emissions, 2.0 billion kWh of energy and 4.4 billion gallons of water simply by empowering consumers to buy and sell secondhand.

thredUP’s proprietary operating platform is the foundation for our managed marketplace, where we have bridged online and offline technology to make the buying and selling of tens of millions of unique items easy and fun. The marketplace we have built enables buyers to browse and purchase resale items for women’s and kids’ apparel, shoes and accessories across a wide range of price points. Buyers love shopping value, premium and luxury brands all in one place, at up to 90% off estimated retail price. Sellers love thredUP because we make it easy to clean out their closets and unlock value for themselves or for the charity of their choice while doing good for the planet. Sellers order a Clean Out Kit, fill it and return it to us using our prepaid label. We take it from there and do the work to make those items available for resale. In 2018, based on our success with consumers directly, we extended our platform to enable brands and retailers to participate in the resale economy. A number of the world’s leading brands and retailers are already taking advantage of our Resale-as-a-Service (“RaaS”) offering.

Recent Business Developments

Initial Public Offering

Historically, we have financed our operations primarily through private sales of equity securities and debt. Our registration statement related to the initial public offering (the “IPO”) was declared effective on March 25, 2021 by the Securities and Exchange Commission (the “SEC”), and our Class A common stock began trading on the Nasdaq Global Select Market (“Nasdaq”) on March 26, 2021. Upon the completion of our IPO, we sold 13,800,000 shares of Class A common stock (which included 1,800,000 shares that were offered and sold pursuant to the full exercise of the IPO underwriters’ option to purchase additional shares) at a price to the public of $14.00 per share. Including the option exercise, we received aggregate net proceeds of $175.5 million after deducting offering costs, underwriting discounts and commissions of $17.7 million.

Immediately prior to the completion of the IPO, we filed the amended and restated certificate of incorporation, which authorized a total of 1,000,000,000 shares of Class A common stock, 120,000,000

shares of Class B common stock and 100,000,000 shares of undesignated preferred stock. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share.

Immediately prior to the completion of the IPO, 65,970,938 shares of convertible preferred stock then outstanding were converted into an equivalent number of shares of Class B common stock and 12,889,760 shares of the outstanding existing common stock were re-classed into an equivalent number of shares of Class B common stock. 164,973 shares of the convertible preferred stock warrants were converted to an equivalent number of shares of Class B common stock warrants.

COVID-19 Impact

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

To help control the spread of the virus and protect the health and safety of our employees, we modified certain operational protocols in our distribution centers. We implemented and maintained numerous health and safety measures in our distribution centers, including mandatory temperature checks, increased paid time off for illness, distribution of personal protective equipment to employees, regular facility cleanings and comprehensive contact tracing. We have enabled social distancing by reconfiguring workstations and break rooms and staggering shifts. In March 2020, we shifted all of our corporate employees and contract engineers to a remote work model and implemented additional measures to better enable remote work. As of March 31, 2021 our remote work model remains in place.

Financial Impact

In the first quarter of 2020, we temporarily reduced marketing spend to take time to better understand the impact of COVID-19 on consumer demand. Later, as advertising auctions stabilized, we gradually scaled up acquisition marketing spend towards normal levels. Also, beginning in the second quarter of 2020, we chose to strategically increase discounts and incentives to encourage our existing buyer base to shop with us, as consumers generally prioritize value in times of economic uncertainty. This increase negatively impacted our year-over-year revenue growth in the second, third and fourth quarters of 2020, as discounts and incentives remained at elevated levels relative to pre-pandemic levels.

Further, in 2020, we also implemented several cost saving measures to address challenges presented by the COVID-19 pandemic. For example, in April 2020, we reduced salaries by 20% for the vast majority of corporate employees and, in June 2020, we laid off staff at our three small retail stores and permanently closed our retail stores during 2020. We have since granted stock options to the corporate employees affected by the salary reductions in an amount proportional to the respective employee’s salary reduction. Beginning in January 2021, we restored full salaries for corporate employees.

In the three months ended March 31, 2021, we saw increased demand, which we believe was partly related to COVID-19 recovery and re-opening efforts such as the vaccine roll out, easing of social distancing restrictions and federal stimulus legislation. We also saw increased operating expenses due to increased processing to support the increased demand experienced to date and in anticipation of accelerating demand. The growth in net loss is primarily related to the growth in operating expenses.

Impact on Processing at our Distribution Centers

The onset of the COVID-19 pandemic led to a significant reduction in our ability to process Clean Out Kits. As a result of the pandemic, we took actions to protect our business and our employees, which impacted our distribution center productivity, staffing and processing capacity. The existing configuration of our distribution centers pre-pandemic enabled us to implement social distancing protocols, including the reconfiguring of workstations for the safety of our employees, without reducing the total steady-state

throughput capacity of our facilities, however, macro-developments such as shelter-in-place orders and the federal unemployment stimulus negatively affected the rate of hiring and retention for our distribution center workforce, which impacted throughput in the first three quarters of 2020. Since those events have abated somewhat, we have seen increases in our supply throughput, which began to increase in the fourth quarter of 2020. Our supply throughput continued to improve in the first quarter of 2021, however, we still face challenges in retaining employees and have implemented compensation and benefits programs to enhance retention, which has contributed to higher costs in our Operations, Product and Technology line.

As a consequence of these constraints, the number of unprocessed Clean Out Kits in our distribution centers has been elevated since March 2020, which also impacted listings of product on our marketplace. Starting in July 2020, we took measures to reduce the number of unprocessed Clean Out Kits, and also temporarily limited the number of Clean Out Kits available for sellers. As a result of this processing delay, our 2020 growth rates were negatively impacted by a lesser number of new listings on our marketplace. In the fourth quarter of 2020, the average number of unprocessed Clean Out Kits began to normalize to pre-pandemic levels, although they remain slightly elevated. During the three months ended March 31, 2021, the number of unprocessed Clean Out Kits continued to decline, when compared to the three months ended December 31, 2020, due to increased processing and as a result we added a higher volume of new listings to support the growth in orders.

We have been monitoring and continue to monitor the impact of COVID-19 on our business and operations. We expect the evolving COVID-19 pandemic to continue to have an adverse impact on our business, results of operations and financial condition, including our revenue and cash flows, for at least the remainder of 2021. Due to the unknown duration and unprecedented impact of the COVID-19 pandemic and the range of national, state and local responses thereto, the related financial impact on our business could change and cannot be accurately predicted at this time. See the section titled “Risk Factors—Risks Relating to our Business and Industry—The global COVID-19 pandemic has had and may continue to have an adverse impact on our business, results of operations and financial condition.”

Current Period Highlights

Revenue: Total revenue was a record at $55.7 million, an increase of 15% year-over-year.

Gross Profit and Margin: Gross profit totaled $39.7 million representing growth of 22% year-over-year. Gross margin expanded to 71% from 68% in the comparable quarter last year.

Net Loss: GAAP net loss was $16.2 million for the first quarter 2021, compared to a GAAP net loss of $13.2 million for the first quarter 2020.

Adjusted EBITDA: The Adjusted EBITDA loss was $9.1 million, which was a negative 16% of revenue.

Active Buyers and Orders: Total first quarter Active Buyers of 1.29 million and Orders of 1.13 million grew 14% and 18%, respectively, over the comparable quarter last year.

Key Financial and Operating Metrics

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


	Three months ended March 31,
	2021		2020

	(in thousands)
Active Buyers (as of period end)	1,290		1,135

Orders	1,128		956







Net loss	$	(16,171)	$	(13,215)
Adjusted EBITDA(1)	$	(9,119)	$	(10,427)

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

Active Buyers

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

Orders

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

Adjusted EBITDA

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

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


	Three months ended March 31,
	2021		2020
Adjusted EBITDA Reconciliation:
Net loss	$	(16,171)	$	(13,215)
Depreciation and amortization	2,038		1,245
Stock-based compensation expense	3,498		1,442
Interest expense	559		273
Change in fair value of convertible preferred stock warrant liability	930		(172)
Provision for income taxes	27		—
Adjusted EBITDA	$	(9,119)	$	(10,427)

Results of Operations

The following table sets forth our results of operations for the periods presented:


	Three months ended March 31,
	2021		2020

Revenue:	(in thousands)
Consignment	$	44,688	$	35,314
Product	10,992		13,001
Total revenue	55,680		48,315
Cost of revenue:
Consignment	10,832		8,816
Product	5,130		6,873
Total cost of revenue	15,962		15,689
Gross profit	39,718		32,626
Operating expenses:
Operations, product and technology	28,312		25,475
Marketing	15,446		13,001
Sales, general and administrative	10,638		7,433
Total operating expenses	54,396		45,909
Operating loss	(14,678)		(13,283)
Interest and other (expense) income, net	(1,466)		68
Loss before provision for income taxes	(16,144)		(13,215)
Provision for income taxes	27		—
Net loss	$	(16,171)	$	(13,215)

Comparison of the Three Months Ended March 31, 2021 and 2020

Revenue


	Three months ended March 31,						Change

	2021			2020			Amount		%

	(in thousands, except percentages)
Consignment revenue	$	44,688		$	35,314		$	9,374	27	%
Product revenue	10,992			13,001			(2,009)		(15)	%
Total revenue	$	55,680		$	48,315		$	7,365	15	%
Consignment revenue as a % of total revenue	80		%	73		%			7	%
Product revenue as a % of total revenue	20		%	27		%			(7)	%

The $7.4 million represents a 15% increase in total revenue for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020. This increase was primarily attributable to an 18% increase in Orders, which was primarily driven by growth in Active Buyers of 14%, and partially offset by a 2% decrease in revenue per Order over the same period. The decrease in revenue per Order was due primarily to a higher concentration of consignment sales.

Consignment sales result in higher gross profit margin than product sales because revenue for consignment sales is recognized net of seller payouts, whereas, for product sales, seller payouts are recognized as a component of cost of revenue, leading to different gross margin profiles between consignment sales and product sales.

Consignment Revenue

The $9.4 million represents a 27% increase in consignment revenue for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020. This increase was primarily attributable to the mix shift from product to consignment sales, which resulted in consignment sales representing 80% of our total revenue mix, up from 73% in the three months ended March 31, 2020, as well as an 18% increase in overall Orders.

Product Revenue

The $2.0 million, or 15%, decrease in product revenue for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, was primarily attributable to the mix shift from product to consignment sales.

Cost of Revenue


	Three months ended March 31,						Change

	2021			2020			Amount		%

	(in thousands, except percentages)
Cost of consignment revenue	$	10,832		$	8,816		$	2,016	23	%
Cost of product revenue	5,130			6,873			(1,743)		(25)	%
Total cost of revenue	$	15,962		$	15,689		$	273	2	%
Gross profit	$	39,718		$	32,626		$	7,092	22	%
Gross profit margin	71		%	68		%			3	%
Cost of revenue as a % of total revenue	29		%	32		%			(3)	%
Cost of consignment revenue as a % of total cost of revenue	68		%	56		%			12	%
Cost of product revenue as a % of total cost of revenue	32		%	44		%			(12)	%

Total cost of revenue as a percentage of total revenue, decreased 300 basis points from 32% for the three months ended March 31, 2020 to 29% for the three months ended March 31, 2021. The mix shift from product to consignment sales resulted in a decreased costs of revenue as a percent of revenue as consignment revenue has a higher gross margin profile than product sales due to the treatment of payout cost in cost of goods sold for product revenue.

Cost of Consignment Revenue


	Three months ended March 31,						Change

	2021			2020			Amount		%

	(in thousands, except percentages)
Cost of consignment revenue	$	10,832		$	8,816		$	2,016	23	%
As a percent of consignment revenue	24		%	25		%			(1)	%
Consignment gross margin	76		%	75		%			1	%

The $2.0 million represents a 23% increase in the cost of consignment revenue for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This increase was primarily driven by the increase in consignment revenue and increased costs listed in the below table. Consignment gross margin remained relatively consistent at 76% for the three months ended March 31, 2021 compared to 75% for the three months ended March 31, 2020.


	Three months ended March 31,				Change
	2021		2020		Amount		%

	(in thousands, except percentages)
Outbound shipping	$	8,117	$	6,428	$	1,689	26	%
Direct labor	1,865		1,713		152		9	%
Packaging	913		494		419		85	%
Other	(63)		181		(244)		(135)	%
Total change in consignment costs	$	10,832	$	8,816	$	2,016	23	%

Cost of Product Revenue


	Three months ended March 31,						Change

	2021			2020			Amount		%

	(in thousands, except percentages)
Cost of product revenue	$	5,130		$	6,873		$	(1,743)	(25)	%
As a percent of product revenue	47		%	53		%			(6)	%
Product gross margin	53		%	47		%			6	%

The $1.7 million represents a 25% decrease in the cost of product revenue for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This decrease was primarily driven by the decrease in product revenue and decreased costs listed in the below table. Product gross margin increased from 47% to 53%, primarily due to higher average selling prices per item

and, to a lesser extent, lower direct labor costs and lower product cost due to lower outbound shipping costs.


	Three months ended March 31,				Change

	2021		2020		Amount		%

	(in thousands, except percentages)
Inventory costs	$	2,826	$	3,830	$	(1,004)	(26)	%
Outbound shipping	1,708		2,261		(553)		(24)	%
Direct labor	392		606		(214)		(35)	%
Packaging	204		176		28		16	%
Total change in product costs	$	5,130	$	6,873	$	(1,743)	(25)	%

We believe that our gross profit margin will remain relatively flat in the second quarter of 2021.

Operating Expenses


	Three months ended March 31,						Change

	2021			2020			Amount		%

	(in thousands, except percentages)
Operations, product and technology	$	28,312		$	25,475		$	2,837	11	%
Marketing	15,446			13,001			2,445		19	%
Sales, general and administrative	10,638			7,433			3,205		43	%
Total operating expenses	$	54,396		$	45,909		$	8,487	18	%
Operations, product and technology as a % of total revenue	51		%	53		%			(2)	%
Marketing as a % of total revenue	28		%	27		%			1	%
Sales, general and administrative as a % of total revenue	19		%	15		%			4	%

Operating expenses increased $8.5 million and 18% for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, compared to $7.1 million and 22% gross profit growth in the same period. We compare operating expense growth to gross profit growth as a measure of our operating leverage given the shift in revenue mix towards primarily consignment since mid-2019. Results by operating expenses line item are discussed below.

Operations, Product and Technology


	Three months ended March 31,				Change
	2021		2020		Amount		%

	(in thousands, except percentages)
Personnel-related costs	$	18,679	$	14,813	$	3,866	26	%
Facilities and other allocated costs	6,020		6,009		11		—	%
Inbound shipping	3,555		4,344		(789)		(18)	%
Other	58		309		(251)		(81)	%
Total change in operations, product and technology expenses	$	28,312	$	25,475	$	2,837	11	%

Operations, product and technology expense represented 51% of total revenue for the three months ended March 31, 2021, a 200 basis points decrease, compared to 53% for the three months ended March 31, 2020. Operations, product and technology expense increased 11% in the same period, compared to 22% gross profit growth demonstrating the leverage of our business model.

Personnel-related costs increased by 26% from $14.8 million for the three months ended March 31, 2020 to $18.7 million for the three months ended March 31, 2021. The increase was due to investments to support growth in our distribution center operations and increases in headcount in our corporate functions.

Facilities and other allocated costs remained relatively flat at $6.0 million for both the three months ended March 31, 2020 and March 31, 2021.

Inbound shipping costs decreased by 18% from $4.3 million for the three months ended March 31, 2020 compared to $3.6 million for the three months ended March 31, 2021. The decrease was due to fewer Clean Out Kits received in the three months ended March 31, 2020 compared to the three months ended March 31, 2021, as we maintained restrictions on the ability of sellers to order Clean Out Kits until the end of February 2021.

Marketing


	Three months ended March 31,				Change
	2021		2020		Amount		%

	(in thousands, except percentages)
Marketing and advertising costs	$	13,220	$	11,327	$	1,893	17	%
Other	2,226		1,674		552		33	%
Total change in marketing expense	$	15,446	$	13,001	$	2,445	19	%

Marketing represented 28% of revenue for the three months ended March 31, 2021, a 100 basis points increase compared to 27% for the three months ended March 31, 2020. Marketing expense increased by 19% for the period, compared to 22% gross profit growth demonstrating the leverage of our business model.

Marketing and advertising costs increased by 17% from $11.3 million for the three months ended March 31, 2020, compared to $13.2 million for the three months ended March 31, 2021 due to increased efforts to attract new buyers for our marketplace. Marketing and advertising costs increased by 17%, compared to a 22% increase in gross profit.

Sales, General and Administrative


	Three months ended March 31,				Change
	2021		2020		Amount		%

	(in thousands, except percentages)
Personnel-related costs	$	5,536	$	3,438	$	2,098	61	%
Professional services	1,835		1,375		460		33	%
Payment processing fees	1,797		1,732		65		4	%
Other	1,470		888		582		66	%
Total change in sales, general and administrative costs	$	10,638	$	7,433	$	3,205	43	%

Sales, general and administrative represented 19% of total revenue for the three months ended March 31, 2021, a 400 basis points increase, compared to 15% for the three months ended March 31, 2020. Sales, general and administrative expense increased 43% in the period, compared to 22% gross profit growth. This increase was mainly the result of investments, primarily personnel and professional services costs, made towards scaling our business and improving our processes as we became a public company.

Personnel-related costs increased from $3.4 million for the three months ended March 31, 2020, compared to $5.5 million for the three months ended March 31, 2021. The increase was primarily due to increased headcount by 10% over the same period to support growth in our corporate functions and increased stock-based compensation of $1.2 million.

Professional services costs increased from $1.4 million for the three months ended March 31, 2020 compared to $1.8 million for the three months ended March 31, 2021. The increase was mainly due to an increase in accounting and consulting fees as we became a public company.

We believe that our expenses in operations, product and technology, marketing, and sales, general and administrative will continue to increase in absolute dollars in the second quarter of 2021 as revenue grows and as we continue to make investments for our future growth and expand our business and infrastructure to support being a public company.

Liquidity and Capital Resources

As of March 31, 2021, we had cash and cash equivalents of $246.5 million and an accumulated deficit of $268.3 million. Since our founding, we have generated negative cash flows from operations and have primarily financed our operations through private sales of equity securities and debt. Additionally, we currently have a term loan facility with Western Alliance Bank. In March 2021, we completed our IPO for aggregate net proceeds of $175.5 million, net of offering costs, underwriter discounts and commissions of $17.7 million.

We expect operating losses and negative cash flows from operations to continue into the foreseeable future as we continue to invest in growing our business and expanding our infrastructure. Our primary use of cash includes operating costs such as distribution center operating costs and product and technology expenses, marketing expenses, personnel expenses and other expenditures necessary to support our operations and our growth. Additionally, our primary capital expenditures are related to the set-up, automation and expansion of our distribution centers. Based upon our current operating plans, we believe that our existing cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months. Our forecast of the period of time through which our financial resources will be adequate

to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

Our future capital requirements will depend on many factors, including, but not limited to the timing of our increased distribution center automation and expansion plans to support planned revenue growth, the expansion of sales and marketing activities, the potential introduction of new offerings and new RaaS partnerships, the continuing growth of our marketplace and overall economic conditions. We may seek additional equity or debt financing. If we raise equity financing, our stockholders may experience significant dilution of their ownership interests. If we conduct an additional debt financing, the terms of such debt financing may be similar or more restrictive than our current term loan facility and we would have additional debt service obligations. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations could be harmed. See the section titled “Risk Factors—Risks Relating to Our Business and Industry—We may require additional capital to support business growth, and this capital might not be available or may be available only by diluting existing stockholders.”

Cash Flows

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


	Three months ended March 31,
	2021		2020

	(in thousands)
Net cash provided by (used in):
Operating activities	$	1,077	$	(9,102)
Investing activities	(4,099)		(4,673)
Financing activities	185,051		(785)
Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents	$	182,029	$	(14,560)

Changes in Cash Flow from Operating Activities

For the three months ended March 31, 2021, net cash provided by operating activities was $1.1 million, which consisted of non-cash charges of $7.9 million and a net change of $9.3 million in our operating assets and liabilities, partially offset by a net loss of $16.2 million. The change in operating assets and liabilities is primarily due to a $4.8 million increase in accrued and other current liabilities, a $4.7 million increase in accounts payable due to the timing of payments and increased operating expenses as we grow our business, and a $1.5 million increase in seller payable due to the timing of payments, partially offset by a reduction in operating lease liabilities of $1.3 million.

The $4.8 million increase in accrued and other current liabilities is primarily due to an increase in accrued marketing of $2.3 million, an increase in allowance for returns of $1.2 million, and an increase in accrued compensation of $1.0 million.

For the three months ended March 31, 2020, net cash used in operating activities was $9.1 million, which consisted of a net loss of $13.2 million, partially offset by non-cash adjustment of $3.4 million and a net change of $0.7 million in our operating assets and liabilities.

The net change of $0.7 million in our operating assets and liabilities is largely driven by an increase of $1.8 million in accrued and other current liabilities due to the timing of vendor payables, a $1.2 million increase in seller payables, and a $1.1 million increase in accounts payable, partially offset by a

$2.0 million increase in other current and non-current assets, primarily due to $1.0 million increase in non-trade receivables, and a $1.2 million decrease in operating lease liabilities.

Changes in Cash Flow from Investing Activities

For the three months ended March 31, 2021, net cash used in investing activities was $4.1 million, which is attributable to purchases of property and equipment, primarily for automation assets for DC06 in Georgia, our newest distribution center.

For the three months ended March 31, 2020, net cash used in investing activities was $4.7 million, which consisted of additional purchases of property and equipment.

Changes in Cash Flow from Financing Activities

For the three months ended March 31, 2021, net cash provided by financing activities was $185.1 million, which consisted mainly of $180.3 million in proceeds from the sale of Class A common stock in the IPO, net of underwriting discounts and commissions, $4.6 million in debt financing proceeds, net of issuance costs, and $1.9 million in proceeds from the exercise of common stock options, partially offset by $1.7 million in connection with the payment of offering costs for the IPO.

For the three months ended March 31, 2020, net cash used in financing activities was $0.8 million, which was mainly driven by $0.7 million repayment of debt.

Contractual Obligations and Commitments

Other than the additional $5.0 million term loan borrowed from Western Alliance Bank in February 2021, there have been no material changes to our contractual obligations as of March 31, 2021, as compared to those disclosed as of December 31, 2020 in the Prospectus.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including any entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions.

There have been no significant changes to our critical accounting policies since December 31, 2020. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements, refer to the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Prospectus.

Recent Accounting Pronouncements

For information on recently issued accounting pronouncements, refer to Note 2 titled “Significant Accounting Policies” to our unaudited condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

JOBS Act Accounting Election

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily include:

Interest Rate Risk

As of March 31, 2021, we had unrestricted cash and cash equivalents of $246.5 million, consisting primarily of money market funds, which carry a degree of interest rate risk. Fluctuations in interest rates have not been significant to date. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. Fluctuations in interest rates have not been significant to date.

Interest rates under our loan and security agreement with Western Alliance Bank are tied to the prime rate with a floor of 5.75% and therefore carry interest rate risk. As of March 31, 2021, we had borrowed $40.0 million under our loan and security agreement, with $40.0 million principal outstanding as of such date, at an interest rate of 5.75%. Fluctuations in interest rates have not been significant to date.

A hypothetical 100 basis point change in interest rates would not have a material impact on our financial condition or results of operations for the periods presented.

Inflation Risk

We do not believe that inflation has had a material effect on our business, results of operations or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, results of operations or financial condition.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of the end of the period covered by this report. The term “disclosure controls and procedures,” as defined under the Exchange Act, means controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Because of the material weakness in our internal control over financial reporting discussed below, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2021, our disclosure controls and procedures were not effective. In light of this fact, our management, including our Chief Executive Officer and Chief Financial Officer, has performed additional reconciliations and other post-closing procedures and has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the unaudited interim condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

Previously Reported Material Weaknesses in Internal Control Over Financial Reporting

As previously disclosed in the Prospectus, in connection with the audit of our financial statements for the fiscal years ended December 31, 2020, 2019 and 2018 we and our independent registered public accounting firm identified certain control deficiencies in the design and implementation of our internal control over financial reporting that in the aggregate constituted a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

Our material weakness related to the following control deficiencies:

We did not design and maintain effective control over our accounting and proprietary data systems used in our financial reporting process. These systems lacked controls over user access, program change management, computer operation and data validation to ensure that IT program and data changes affecting financial accounting applications and underlying accounting records are identified, tested, authorized and implemented appropriately.

We did not design and maintain adequate controls over the preparation and review of certain account reconciliations and journal entries. Specifically, we did not design and maintain controls and we did not maintain a sufficient complement of accounting personnel to ensure (i) the appropriate segregation of duties in the preparation and review of account reconciliations and journal entries and (ii) account reconciliations were prepared and reviewed at the appropriate level of precision on a consistent and timely basis.

The deficiencies described above, if not remediated, could result in a misstatement of one or more account balances or disclosures in our annual or interim consolidated financial statements that would not

be prevented or detected, and, accordingly, we determined that these control deficiencies constitute a material weakness.

Remediation Plans

To address our material weakness, we have added accounting, finance and information technology personnel and implemented new financial accounting processes. We are continuing to take steps to remediate the material weakness described above through implementing enhancements and controls within our accounting and proprietary systems, hiring additional qualified accounting, finance and information technology resources and further evolving our accounting and quarterly close processes. We will not be able to fully remediate these control deficiencies until these steps have been completed and the controls have been operating effectively for a sufficient period of time.

Changes in Internal Control over Financial Reporting

We are taking actions to remediate the material weaknesses relating to our internal control over financial reporting, as described above. Except as described above, there was not any change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite our employees working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

PART II. OTHER INFORMATION.

Item 1. Legal Proceedings

We are not a party to any material pending legal proceedings. From time to time, we may be subject to legal proceedings and claims arising in the ordinary course of business.

Item 1A. Risk Factors

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated financial statements and related notes. Our business, results of operations, financial condition, and prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe to be material. If any of the risks actually occur, our business, results of operations, financial condition and prospects could be harmed. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.

Risk Factor Summary

Our business is subject to numerous risks and uncertainties, including those highlighted in this section titled “Risk Factors” and summarized below. We have various categories of risks, including risks relating to our business and industry, risks relating to information technology, intellectual property, data security and privacy, risks relating to legal, regulatory, accounting and tax matters, risks relating to our indebtedness and liquidity and risks relating to ownership of our Class A common stock, which are discussed more fully below. As a result, this risk factor summary does not contain all of the information that may be important to you, and you should read this risk factor summary together with the more detailed discussion of risks and uncertainties set forth following this section under the heading “Risk Factors,” as well as elsewhere in this Quarterly Report on Form 10-Q. Additional risks, beyond those summarized below or discussed elsewhere in this Quarterly Report on Form 10-Q, may apply to our business, activities or operations as currently conducted or as we may conduct them in the future or in the markets in which we operate or may in the future operate. These risks include, but are not limited to, the following:

•Our continued growth depends on attracting new, and retaining existing, buyers.

•If we fail to generate a sufficient amount of new and recurring high-quality secondhand items by attracting new sellers and retaining existing sellers, our business, results of operations and financial condition could be harmed.

•Our business, including our costs and supply of secondhand items, is subject to risks associated with sourcing, itemizing, warehousing and shipping.

•We have experienced rapid growth in many of our recent periods and those growth rates may not be indicative of our future growth. If we fail to manage our growth effectively, we may be unable to execute our business plan and our business, results of operations and financial condition could be harmed.

•We have a limited operating history in an evolving industry, which makes it difficult to forecast our revenue, plan our expenses and evaluate our business and future prospects.

•We have a history of losses, we anticipate increasing operating expenses in the future and we may not be able to achieve and, if achieved, maintain profitability.

•We may experience quarterly fluctuations in our results of operations due to a number of factors that make our future results difficult to predict and could cause our results of operations to fall below analyst or investor expectations.

•We may not be able to expand our distribution center operations, attract and retain personnel to efficiently and effectively manage the operations required to process, itemize, list, sell, pack and ship secondhand items or identify and lease distribution centers in geographic regions that enable us to effectively scale our operations.

•Material weaknesses in our internal control over financial reporting may cause us to fail to timely and accurately report our financial results or result in a material misstatement of our consolidated financial statements.

•The global COVID-19 pandemic has had and may continue to have an adverse impact on our business, results of operations and financial condition.

•Compromises of our data security could cause us to incur unexpected expenses and may materially harm our reputation and results of operations.

•We may require additional capital to support business growth, and this capital might not be available or may be available only by diluting existing stockholders.

•The market price of our Class A common stock may be volatile or may decline regardless of our operating performance. You may lose all or part of your investment.

•The dual-class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to our IPO, including our directors, executive officers and their respective affiliates. This ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transactions requiring stockholder approval, and that may depress the trading price of our Class A common stock.

Risks Relating to Our Business and Industry

Our continued growth depends on attracting new, and retaining existing, buyers.

To expand our buyer base, we must appeal to and attract buyers who do not typically purchase secondhand items, who have historically purchased only new retail items or who used other means to purchase secondhand items, such as traditional brick-and-mortar thrift stores or the websites of other secondary marketplaces. We reach new buyers through paid search, social media, influencers, television and digital advertising, other paid marketing, press coverage, retail locations, our RaaS partnership programs, referral programs, organic word of mouth and other methods of discovery, such as converting sellers to buyers. We expect to continue investing heavily in these and other marketing channels in the future and cannot be certain that these efforts will enable us to attract and retain more buyers, result in increased purchase frequency or order sizes from our buyers or be cost-effective. Our ability to attract and retain buyers also depends on our ability to offer a broad selection of desirable and high-quality secondhand items on our marketplace, the reliability of our shipping and delivery estimates, our ability to consistently provide high-quality customer experiences, our ability to promote and position our brand and marketplace and the success of our marketing efforts. Our investments in marketing may not effectively reach potential buyers and existing buyers, potential buyers or existing buyers may decide not to buy through us or the spend of buyers that purchase from us may not yield the intended return on investment, any of which could negatively affect our results of operations. Moreover, consumer preferences may change, and buyers may not purchase through our marketplace as frequently or spend as much with us as historically has been the case. As a result, the revenue generated from buyer transactions in the future may not be as high as the revenue generated from transactions historically. Relatedly, an inability to attract and retain buyers could harm our ability to attract and retain sellers, who may decide to resell their items through alternative platforms or marketplaces. Consequently, failure to attract new buyers and to retain existing buyers could harm our business, results of operations and financial condition.

If we fail to generate a sufficient amount of new and recurring high-quality secondhand items by attracting new sellers and retaining existing sellers, our business, results of operations and financial condition could be harmed.

Our success depends on our ability to cost-effectively attract high-quality secondhand items by attracting new sellers and retaining existing sellers, such that they choose thredUP to list their items. Numerous factors, however, may impede our ability to attract new sellers and retain existing sellers with high-quality secondhand items. To expand our base of secondhand items for resale, as well as our base of sellers, we must appeal to and engage individuals new to selling secondhand items or who have sold secondhand items through traditional brick-and-mortar shops but are unfamiliar with our business. We find new sellers by converting buyers using our marketplace, our RaaS partnership programs, referral programs, organic word-of-mouth and other methods of discovery, such as mentions in the press. We cannot be certain that these efforts will result in more supply of high-quality secondhand items or sellers or that these efforts will be cost-effective. Our ability to attract new and recurring high-quality secondhand items from new sellers and existing sellers depends on other factors, such as our ability to enhance and improve our marketplace, our ability to process the items sent to us by sellers in a timely manner, sellers’ perceptions of whether payouts they are receiving are adequate and timely compensation for their items and the perceived quality of the items sold and purchased on our marketplace. If we are unable to meet seller standards and drive repeat supply, our existing sellers may not choose to send us secondhand items for resale to the same extent, in terms of quality, value or volume, in the future. Further, failure to generate sufficient high-quality secondhand items and attract new sellers and retain existing sellers could harm our business, results of operations and financial condition. For instance, if our sellers send lower quality secondhand items that we are unable to resell in our marketplace, then we will incur expense to sort and process such lower quality secondhand items and detract resources from processing re-sellable secondhand items. Additionally, if sellers substantially increase the initial price of their items that we list on our marketplace and subsequently reclaim these items if they do not sell within the listing window, our business could be harmed because these activities may negatively affect sell-through rates and gross margin.

Our business, including our costs and supply of secondhand items, is subject to risks associated with sourcing, itemizing, warehousing and shipping.

Nearly all of the secondhand items we offer through our marketplace are initially sourced from sellers who are individuals. As a result, we may be subject to periodic fluctuations in the number, brands and quality of secondhand items sold through our marketplace. Our results of operations could be negatively impacted by these fluctuations. In addition, as we expand into new categories of secondhand items, our payments to our sellers may rise relative to our existing categories, which could adversely affect our results of operations.

We can make no assurance that secondhand items we receive from sellers will be of sufficient quality or free from damage, or that such secondhand items will not be damaged during shipping, while in one of our distribution centers or when shipped to buyers. While we conduct inspections of secondhand items sent by sellers for resale and inspect secondhand items returned by buyers, we cannot control items while they are out of our possession or prevent all damage while in our distribution centers. For example, we have in the past and may in the future experience contamination, such as mold, bacteria, insects and other pests, in the secondhand items shipped to us by our sellers, which may cause contamination of the secondhand items in our distribution centers or while shipping to buyers. If we are unable to detect and quarantine such contaminants at the time such secondhand items are initially received in our distribution centers, some or all of the secondhand items in such facilities could be contaminated. We may incur additional expenses and our reputation could be harmed if the secondhand items we offer are damaged or contain contaminants.

We have experienced rapid growth in many of our recent periods and those growth rates may not be indicative of our future growth. If we fail to manage our growth effectively, we may be unable to

execute our business plan and our business, results of operations and financial condition could be harmed.

We have experienced, and may continue to experience, rapid growth in certain recent periods, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. We have also experienced significant growth in the number of buyers and sellers using our platform in certain periods, despite a reduction in Active Sellers during 2020 and growth rates that were impacted by the COVID-19 pandemic. Additionally, our organizational structure is becoming more complex as we scale our operational, financial and management controls as well as our reporting systems and procedures. For example, our headcount has grown from 1,076 employees and professional contractors as of December 31, 2018 to 1,862 as of December 31, 2020, as we have scaled our business. We define an “Active Seller” as a thredUP seller who has sold at least one item on our marketplace in the last 12 months. A thredUP seller is a customer who has created an account and has listed an item in our marketplace. A thredUP seller is identified by a unique email address and a single person could have multiple thredUP seller accounts and count as multiple Active Sellers.

To manage growth in our operations and the growth in the number of buyers and sellers on our platform, we will need to continue to grow and improve our operational, financial and management controls and our reporting systems and procedures. We will need to maintain or increase the automation of our distribution centers and continue to improve how we apply data science to our operations. Our expansion has placed, and our expected future growth will continue to place, a significant strain on our management, marketing, operations, administrative, financial, customer support, engineering and other resources. If we fail to manage our anticipated growth and change in a manner that preserves the key aspects of our corporate culture, our employee morale, productivity and retention could suffer, which could negatively affect our brand and reputation and harm our ability to attract new buyers and sellers and to grow our business. In addition, future growth, such as the potential expansion of our operations internationally or expansion into new categories of offerings, either organically or through acquisitions, would require significant capital expenditures, which could adversely affect our results of operations, and the allocation of valuable management resources to grow and change in these areas.

Our revenue was $129.6 million, $163.8 million and $186.0 million for the years ended December 31, 2018, 2019 and 2020, respectively, representing annual growth of 26% and 14%, respectively. In future periods, we may not be able to sustain or increase revenue growth rates consistent with recent history, or at all. Our revenue growth has been and may continue to be affected by the COVID-19 pandemic. We believe our success and revenue growth depends on a number of factors, including, but not limited to, our ability to:

•attract and retain new and existing buyers and sellers and grow our supply of high-quality secondhand items for resale through our marketplace;

•scale our revenue and achieve the operating efficiencies necessary to achieve and maintain profitability;

•increase buyer and seller awareness of our brand;

•anticipate and respond to changing buyer and seller preferences;

•manage and improve our business processes in response to changing business needs;

•process Clean Out Kits from sellers on a timely basis;

•improve, expand and further automate our distribution center operations and information systems;

•anticipate and respond to macroeconomic changes generally, including changes in the markets for both new and secondhand retail items;

•successfully compete against established companies and new market entrants, including national retailers and brands and traditional brick-and-mortar thrift stores;

•effectively scale our operations while maintaining high-quality service and buyer and seller satisfaction;

•hire and retain talented employees and professional contractors at all levels of our business;

•avoid or manage interruptions in our business from information technology downtime, cybersecurity breaches and other factors that could affect our physical and digital infrastructure;

•fulfill and deliver Orders in a timely manner and in accordance with customer expectations, which may change over time;

•maintain a high level of customer service and satisfaction;

•adapt to changing conditions in our industry and related to the COVID-19 pandemic and measures implemented to contain its spread; and

•comply with regulations applicable to our business.

If we are unable to accomplish any of these tasks, our revenue growth will be harmed. We also expect our operating expenses to increase in future periods, and if our revenue growth does not increase to offset these anticipated increases in our operating expenses, our business, results of operations and financial condition will be harmed, and we may not be able to achieve or maintain profitability.

We have a history of losses, we anticipate increasing operating expenses in the future and we may not be able to achieve and, if achieved, maintain profitability.

We experienced net losses of $34.2 million, $38.2 million and $47.9 million in the years ended December 31, 2018, 2019 and 2020, respectively. We expect to continue to incur net losses for the foreseeable future and we may not achieve or maintain profitability in the future. We believe there is a significant market opportunity for our business, and we intend to invest aggressively to capitalize on this opportunity. Because the market for secondhand items is evolving, particularly the online resale of secondhand items, it is difficult for us to predict our future results of operations or the limits of our market opportunity. We expect our operating expenses to significantly increase as we expand our operations and infrastructure, make significant investments in our marketing initiatives, develop and introduce new technologies and automation and hire additional personnel. These efforts may be more costly than we expect and may not result in revenue growth or increased efficiency. In addition, as we grow and comply with rules and regulations of being a public company, we will incur additional significant legal, accounting and other expenses that we did not incur as a private company. If our revenue does not increase to offset these expected increases in our operating expenses, we will not be profitable in future periods. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving or maintaining profitability or positive cash flow on a consistent basis. If we are unable to successfully address these risks and challenges as we encounter them, our business, results of operations and financial condition could be adversely affected. We cannot assure you that we will ever achieve or sustain profitability and may continue to incur significant losses going forward. Any failure by us to achieve or sustain profitability on a consistent basis could cause the value of our Class A common stock to decline.

We have a limited operating history in an evolving industry, which makes it difficult to forecast our revenue, plan our expenses and evaluate our business and future prospects.

We have a limited operating history in a rapidly evolving industry that may not develop in a manner favorable to our business. Our marketplace represents a substantial departure from the traditional thrift store market for secondhand items. While our business has grown rapidly, and much of that growth has occurred in recent periods, the resale market for secondhand items may not continue to develop in a

manner that we expect or that otherwise would be favorable to our business. As a result of our limited operating history, ongoing changes in our new and evolving industry, our ability to forecast our future results of operations and plan for and model future growth is limited and subject to a number of uncertainties. We have encountered and expect to continue to encounter risks and uncertainties frequently experienced by growing companies in rapidly evolving industries, such as the risks and uncertainties described herein. Accordingly, we may be unable to prepare accurate internal financial forecasts or replace anticipated revenue that we do not receive as a result of delays arising from these factors, and our results of operations in future reporting periods may be below the expectations of investors or analysts. If we do not address these risks successfully, our results of operations could differ materially from our estimates and forecasts or the expectations of investors or analysts, causing our business to suffer and our Class A common stock price to decline.

We may experience quarterly fluctuations in our results of operations due to a number of factors that make our future results difficult to predict and could cause our results of operations to fall below analyst or investor expectations.

Our quarterly results of operations may fluctuate from quarter to quarter as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including, but not limited to:

•the level of demand for secondhand items;

•fluctuations in the levels or quality of secondhand items on our marketplace;

•fluctuations in capacity as we expand our operations;

•our success in engaging existing buyers and sellers and attracting new buyers and sellers;

•our ability to meet the expectations of sellers that we will process their Clean Out Kits in a timely manner;

•the amount and timing of our operating expenses;

•the timing of expenses and recognition of revenue;

•the timing and success of new partnerships, retail offerings and referral programs;

•the impact of competitive developments and our response to those developments;

•our ability to manage our existing business and future growth;

•actual or reported disruptions or defects in our online marketplace, such as actual or perceived privacy or data security breaches;

•economic and market conditions, particularly those affecting our industry;

•the impact of market volatility and economic downturn, including those caused by outbreaks of disease, such as the COVID-19 pandemic, on our business;

•adverse litigation judgments, other dispute-related settlement payments or other litigation-related costs;

•regulatory fines;

•changes in, and continuing uncertainty in relation to, the legislative or regulatory environment;

•legal and regulatory compliance costs;

•the number of new employees and professional contractors added;

•the timing of the grant or vesting of equity awards to employees, directors, contractors or consultants;

•pricing pressure as a result of competition, economic conditions or otherwise, including as a result of the effects of the COVID-19 pandemic;

•costs and timing of expenses related to the acquisition of talent, technologies, intellectual property or businesses, including potentially significant amortization costs and possible write-downs;

•public health crises, including the COVID-19 pandemic; and

•general economic conditions, including geopolitical uncertainty and instability.

Any one or more of the factors above may result in significant fluctuations in our quarterly results of operations. You should not rely on our past results as an indicator of our future performance.

The variability and unpredictability of our quarterly results of operations or other operating metrics could result in our failure to meet our expectations or those of analysts that cover us or investors with respect to revenue or other key metrics for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our Class A common stock could fall, and we could face costly lawsuits, including securities class action suits.

We may not be able to expand our distribution center operations, attract and retain personnel to efficiently and effectively manage the operations required to process, itemize, list, sell, pack and ship secondhand items or identify and lease distribution centers in geographic regions that enable us to effectively scale our operations.

We lease facilities to store and accommodate the logistics infrastructure required to process, itemize, list, sell, pack and ship the secondhand items we sell through our marketplace and related channels of distribution, including our RaaS partnerships. To grow our business, we must continue to improve and expand our distribution center operations, proprietary software and systems, and personnel in the geographic regions that have the resources necessary to effectively operate our business. The operation of our business is complex and requires the coordination of multiple functions that are highly dependent on numerous employees and personnel. Each item that we offer through our marketplace is unique and requires multiple touch points, including inspection, evaluation, photography, pricing, application of a unique SKU, and fulfillment. This process is complex and, from time to time, we may have more Clean Out Kits coming in from sellers than we can timely process. For instance, due to restrictions in our distribution centers as a result of COVID-19 safety precautions, governmental requirements and other COVID-19-related impacts, we currently have an elevated number of unprocessed Clean Out Kits containing secondhand items from sellers. We have also rapidly increased our operations employee headcount in recent years to support the growth of our business. The number of employees in our distribution centers increased to 1,570 as of December 31, 2020 from 835 as of December 31, 2018. While we experienced a temporary decrease in the number of employees in our distribution centers in the second quarter of 2020 due to the effects of COVID-19, we have restored and continued to grow our distribution center headcount. We expect that the number of employees in our distribution centers will increase significantly in the near term, particularly as and when concerns and restrictions due to COVID-19 abate. The market for these employees is increasingly competitive and is highly dependent on geographic location. We could be required to raise wages or introduce other compensation incentives to remain competitive, which could increase our costs and harm our results of operations. If we fail to effectively locate, hire and retain such personnel, our operations could be negatively impacted, which could harm our business, results of operations and financial condition.

Further, the success of our business depends on our ability to maintain our current distribution centers and secure additional distribution centers that meet our business needs and are also in geographic locations with access to a large, qualified talent pool. We have distribution centers across

three strategic locations: Arizona, Georgia and Pennsylvania. Space in well-positioned geographic locations is becoming increasingly scarce, and where it is available, the lease terms offered by landlords are increasingly competitive, particularly in geographic locations with access to the large, qualified talent pools required for us to run our logistics infrastructure. Incentives currently offered by local, state and federal entities to offset operating expenses may be reduced or become unavailable. Companies who have more financial resources and negotiating leverage than us may be more attractive tenants and, as a result, may outbid us for the facilities we seek. Due to the competitive nature of the real estate market in the locations where we currently operate, we may be unable to renew our existing leases or renew them on satisfactory terms. Failure to identify and secure adequate new distribution centers in optimal geographic locations or maintain our current distribution centers could harm our business, results of operations and financial condition.

If we are unable to successfully leverage technology to automate and drive efficiencies in our operations, our business, results of operations and financial condition could be harmed.

We are continuing to build automation, machine learning and other capabilities to drive efficiencies in our distribution center operations, including our newest distribution center in Suwanee, Georgia. As we continue to enhance automation and add capabilities, our operations may become increasingly complex. While we expect these technologies to improve productivity in many of our merchandising operations, including processing, itemizing, listing and selling, any flaws, bugs or failures of such technologies could cause interruptions in and delays to our operations, which may harm our business. We are increasing our investment in technology, software and systems to support these efforts, but such investments may not increase productivity, maintain or improve the experience for buyers and sellers or result in more efficient operations. While we have created our own proprietary technology to operate our business, we also rely on technology from third parties. For example, to run our inbound operations, we leverage third-party machine learning software that analyzes data that we use in our proprietary algorithms for determining the optimal list price. We have also integrated third-party software to help operate our automated carousels and conveyors in our distribution centers. If these technologies do not increase our operational efficiency in accordance with our expectations, third parties change the terms and conditions that govern their relationships with us, or if competition increases for the technology and services provided by third parties, our business may be harmed. If we are no longer able to rely on such third parties, we would be required to either seek licenses to technologies or services from other third parties and redesign aspects of business and operations to function with such technologies or services or develop such technologies ourselves, either of which would result in increased costs and could result in operational delays until equivalent technologies can be licensed or developed and integrated into our business and operations. In addition, if we are unable to enhance automation to our operations, we may be unable to reduce the costs of processing supply and fulfilling orders, which could cause delays in buyers receiving their purchases and sellers receiving their payouts. As a result, our reputation and our relationships with our buyers and sellers could be harmed, which could harm our business, results of operations and financial condition.

We rely on consumer discretionary spending and have been and may continue to be adversely affected by economic downturns and other macroeconomic conditions or trends.

Our business and results of operations are subject to global economic conditions and their impact on consumer discretionary spending, particularly in the retail market. Some of the factors that may negatively influence consumer spending on retail items include high levels of unemployment, high consumer debt levels, fluctuating interest rates and credit availability, fluctuating fuel and other energy costs, fluctuating commodity prices and general uncertainty regarding the overall future political and economic environment. Economic conditions in particular regions may also be affected by natural disasters, such as earthquakes, hurricanes and wildfires; unforeseen public health crises, such as pandemics and epidemics, including the COVID-19 pandemic; political crises, such as terrorist attacks, war and other incidents of political instability, including the recent presidential election in the United States; or other catastrophic events, whether occurring in the United States or internationally. Traditionally, consumer purchases of new retail items have declined during periods of economic uncertainty, when disposable income is reduced or when there is a reduction in consumer confidence. Such economic uncertainty and

decrease in the rate of retail purchases in the primary market may slow the rate at which individuals choose to supply their secondhand items to us, which could result in a decrease of items available in our marketplace, and may also slow the rate at which individuals choose to buy secondhand items on our marketplace. For instance, from the beginning of the COVID-19 pandemic and throughout 2020, we experienced an increase in the supply of Clean Out Kits with secondhand items from sellers. Additionally, at the onset of the COVID-19 pandemic, we experienced a reduction in operations productivity at our distribution centers as we were unable to process Clean Out Kits at our normal rate. In March 2020, we experienced a 10% reduction in average monthly Orders through our site, as compared to February 2020, which we attribute to the general economic uncertainty at the beginning of the COVID-19 pandemic. The presence or absence of government stimulus funding programs has had and may continue to have an impact on consumer discretionary spending and, consequently, purchases through our marketplace site. Further, we cannot guarantee that buyers will continue to buy at current rates if the economy worsens. Adverse economic changes could reduce consumer confidence, and thereby negatively affect our results of operations.

The market in which we participate is competitive and rapidly changing, and if we do not compete effectively with established companies as well as new market entrants or maintain and develop strategic relationships with third parties, our business, results of operations and financial condition could be harmed.

The markets for resale and secondhand items are highly competitive. We compete with vendors of new and secondhand items, including branded goods stores, local, national and global department stores, traditional brick-and-mortar consignment and thrift stores, specialty retailers, direct-to-consumer, retailers, discount chains, independent retail stores, the online offerings of traditional retail competitors, resale players focused on niche or single categories, as well as technology-enabled marketplaces that may offer the same or similar goods and services that we offer. Competitors offering the same or similar goods or services include secondhand marketplaces, such as eBay Inc., Mercari, Inc., Poshmark, Inc. and The RealReal, Inc.; large online retailers, such as Amazon.com, Inc., Kohl’s Corporation and Walmart Inc.; and off-price retailers, such as Burlington Stores, Inc., Ross Stores, Inc. and The TJX Companies, Inc. We believe our ability to compete depends on many factors, many of which are beyond our control, including:

•attracting and retaining buyers and sellers and increasing the volume of secondhand items they buy and sell;