ThredUp Inc

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

ThredUp Inc. (“ThredUp” or the “Company”) was formed as a corporation in the State of Delaware in January 2009. ThredUp operates a large resale platform that enables consumers to buy and sell primarily secondhand apparel, shoes, and accessories.

2. Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying unaudited 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 the United States (“U.S.”) Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Quarterly Report on Form 10‑Q and Article 10 of Regulation S-X. As permitted under those rules, certain footnotes or other financial information may be condensed or omitted.

The preparation of consolidated financial statements in accordance 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 and intangibles, allowance for sales returns, breakage on loyalty points and rewards and gift cards, valuation of inventory, stock-based compensation, lease liabilities, goodwill and acquired intangible assets, and impairment of long-lived assets.

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 September 30, 2024 and 2023, and the results of operations and cash flows for the interim periods presented.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 10-K”).

Recently Adopted Accounting Pronouncements

There were no accounting pronouncements adopted during the three and nine months ended September 30, 2024.

Accounting Pronouncements Not Yet Effective

In October 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative,” to amend certain disclosure and presentation requirements for a variety of topics within the Accounting Standards Codification (the “ASC”). These amendments align the requirements in the ASC to the removal of certain disclosure requirements set out in Regulation S-X and Regulation S-K, announced by the SEC. The effective date for each amended topic in the ASC is either the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the requirements by that date. Early adoption is prohibited. The Company does not expect that the application of this standard will have an impact on its consolidated financial statements and disclosures.

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures. This new guidance is designed to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. Early adoption is permitted. The ASU does not affect the recognition, measurement, or financial statement presentation of segments. The Company is reviewing its segment disclosures to determine the impact, if any, to the notes to its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires additional quantitative and qualitative income tax disclosures to enable financial statements users to better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. For public business entities, ASU 2023-09 is effective for annual periods beginning after December 15, 2024, which will be the fiscal year ending December 31, 2025 for the Company. The Company expects the adoption to result in enhanced income tax disclosures.

Revenue from Loyalty Reward Redemption and Expiration

The Company has a customer loyalty program, which allows end-customers to earn and accumulate points with each qualifying purchase. Earned points can be redeemed for loyalty rewards, such as non-cashoutable shopping credit, free shipping, or waived restocking fee, which can be applied to future purchases or returns. Unredeemed points expire after one year from the date the points were earned. Reward coupons expiresix months from the date the reward is claimed. Points earned on purchases are a material right, representing a separate performance obligation.

The allocated consideration for the points earned through qualifying purchase transactions is deferred based on the standalone selling price of the points, adjusted for expected breakage in proportion to the pattern of redemption, and recorded within deferred revenue under accrued and other current liabilities within the Company’s condensed consolidated balance sheets. Revenue is recognized for these performance obligations at a point in time when rewards are redeemed by the end customer or expired.

As of September 30, 2024 and December 31, 2023, the Company had a deferred revenue liability of $2.4 million and $3.1 million, respectively, related to its customer loyalty program, which is included in accrued and other current liabilities within the Company’s condensed consolidated balance sheets. The Company recognized revenue from loyalty reward redemption and expiration of $2.8 million and $2.1 million for the three months ended September 30, 2024 and 2023, respectively, and $10.3 million and $6.7 million for the nine months ended September 30, 2024 and 2023, respectively. Beginning October 1, 2024, customers will no longer earn loyalty points and may redeem any accumulated points until expiration but no later than January 15, 2025. As a result, revenue attributable to any remaining performance obligation is expected to be recognized by January 15, 2025.

Gift Cards and Site Credits

The Company sells ThredUp gift cards on its e-commerce website and may also convert seller payables and site credits to ThredUp gift cards beginning afterone year at the discretion of the Company. ThredUp gift cards do not expire or lose value over periods of inactivity. The Company accounts for gift cards by recognizing a gift card liability at the time a gift card is delivered to the customer. As of September 30, 2024 and December 31, 2023, $5.9 million and $6.6 million, respectively, of gift card liability was included in accrued and other current liabilities within the Company’s condensed consolidated balance sheets. Revenue from redemption of gift cards amounted to $0.3 million and $0.5 million for the three months ended September 30, 2024 and 2023, respectively, and $0.8 million and $1.7 million for the nine months ended September 30, 2024 and 2023, respectively.

The Company recognizes breakage revenue when it determines that the redemption of gift cards is remote. Breakage revenue was $1.3 million and $3.9 million for the three and nine months ended September 30, 2024, respectively. Breakage revenue was $1.9 million and $2.3 million for the three and nine months ended September 30, 2023.

The Company issues site credits for returns, which can be applied toward future charges but may not be converted into cash. Site credits may also be converted to ThredUp gift cards beginning afterone year at the discretion of the Company. These credits are recognized as revenue when used. As of September 30, 2024 and December 31, 2023, $5.1 million and $4.8 million, respectively, of such customer site credits were included in accrued and other current liabilities within the Company’s condensed consolidated balance sheets. Revenue recognized from the redemption of site credits was $10.5 million and $10.2 million for the three months ended September 30, 2024 and 2023, respectively, and $32.6 million and $30.1 million for the nine months ended September 30, 2024 and 2023, respectively.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company’s condensed consolidated balance sheets that sum to the total of the same such amounts shown in the Company’s condensed consolidated statements of cash flows:

Fair Value Measurements

The Company applies the provisions of FASB ASC Topic 820, Fair Value Measurements and Disclosures, for its financial and non-financial assets and liabilities. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

•Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•Level 3 inputs are unobservable inputs for the asset or liability.

The Company measures certain assets and liabilities at fair value as discussed throughout the notes to its condensed consolidated financial statements. As of September 30, 2024 and December 31, 2023, the carrying amounts of the Company’s accounts receivable, other current assets, other assets, accounts payable, seller payable and accrued and other current liabilities approximated their estimated fair values due to their relatively short maturities. Management believes the terms of its long-term variable-rate debt reflect current market conditions for an instrument with similar terms and maturity, and as such, the carrying value of the Company’s long-term debt approximated its fair value as of September 30, 2024 and December 31, 2023.

Long-Lived Assets and Goodwill

The Company reviews its long-lived assets, consisting of property and equipment, operating lease right-of-use assets, and intangible assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset or asset group to the future net undiscounted cash flows expected to be generated from the use of the asset or asset group and its eventual disposition. If such review indicates that the carrying amount of the asset or asset group is not recoverable, the carrying amount of such assets or asset group is reduced to its fair value.

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

3. Financial Instruments and Fair Value Measurements

Fair Value Measurements - Recurring Basis

The following tables provide information about the Company’s financial instruments that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such values as of September 30, 2024 and December 31, 2023:

As of September 30, 2024 and December 31, 2023, the Company’s cash equivalents and marketable securities approximated their estimated fair value. As such, the unrealized gains or losses related to the Company’s cash equivalents and marketable securities were not material.

For the Company’s marketable securities, which were all classified as available-for-sale, the Company utilizes third-party pricing services to obtain fair value. Third-party pricing methodologies incorporate bond terms and conditions, current performance data, proprietary pricing models, real-time quotes from contributing dealers, trade prices and other market data. The Company determined that the declines in the fair value of its marketable securities were not driven by credit-related factors. During the three and nine months ended September 30, 2024 and 2023, the Company did not recognize any losses on its marketable securities due to credit-related factors.

As of September 30, 2024, the Company’s money market funds were valued using Level 1 inputs because they were valued using quoted prices in active markets. The Company’s U.S. treasury securities, commercial paper and U.S. government agency bonds were valued using Level 2 inputs because they were valued using quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

There were no transfers into or out of Level 3 during the three and nine months ended September 30, 2024. As of September 30, 2024, all of the $11.6 million carrying amount of marketable securities had a contractual maturity date of less than one year.

Fair Value Measurements - Nonrecurring Basis

The Company measures the fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying value of the asset or asset group may not be recoverable.

In the third quarter of 2024, the Company announced its decision to exit the European market and initiated a strategic review of its Remix Global EAD (“Remix”) business. The decision to exit the European market, coupled with the decline in the Company’s market capitalization, were identified as qualitative indicators of potential impairment of long-lived assets and goodwill. Consequently, the Company performed long-lived assets and goodwill impairment assessments during the third quarter of 2024 and recognized an impairment of long-lived assets of $9.8 million, of which $5.6 million related to certain property and equipment and $4.2 million related to intangible assets. There wasno impairment recognized on goodwill as its fair value exceeded its carrying amount as of the valuation date. See Note 3. Financial Instruments and Fair Value Measurements, for further discussion of fair value measurements.

In conducting the long-lived assets and goodwill impairment assessments in the third quarter of 2024, the Company determined fair values using a combination of a market approach, which incorporated valuation multiples of comparable public companies and transactions, and an income approach based on projected discounted cash flows (the “DCF” model). The significant assumptions used in the DCF model included estimates of future revenues and operating expenses, long-term growth rates, working capital requirements, and discount rates, which are considered unobservable inputs and are classified as Level 3 within the fair value hierarchy. Estimating the fair value of a business was a subjective process that involved assumptions market participants would use in determining fair value, along with other estimates and judgments, particularly related to future cash flows, which are inherently uncertain.

See Note 2. Significant Accounting Policies for further discussion of the Company’s accounting policies on long-lived assets and goodwill impairment assessments.

4. Property and Equipment, Net

Property and equipment, net consisted of the following:

Depreciation and amortization expense of property and equipment was $4.0 million and $4.7 million for the three months ended September 30, 2024 and 2023, and $12.5 million and $11.9 million for the nine months ended September 30, 2024 and 2023, respectively.

Based on the result of its long-lived asset impairment assessment, the Company recognized an impairment of certain property and equipment of $5.6 million for the three and nine months ended September 30, 2024, which reduced the cost basis. See Note 3. Financial Instruments and Fair Value Measurements for further discussion of the Company’s long-lived assets impairment assessment conducted during the third quarter of 2024.

5. Goodwill and Other Intangible Assets

Goodwill is primarily attributable to the planned growth in the combined business after the acquisition of Remix in 2021.

Goodwill was $12.1 million and $12.0 million as of September 30, 2024 and December 31, 2023, respectively. The change in goodwill during the nine months ended September 30, 2024 was due to foreign currency translation adjustments. Based on the result of its goodwill impairment assessment, the Company didnot recognize any impairment of goodwill in the three and nine months ended September 30, 2024 as its fair value exceeded its carrying amount as of the valuation date. To date, there has beenno impairment of goodwill. See Note 3. Financial Instruments and Fair Value Measurements for further discussion of the Company’s goodwill impairment assessment conducted during the third quarter of 2024.

The gross carrying amounts and accumulated amortization of the Company’s intangible assets with determinable lives as of September 30, 2024 and December 31, 2023 were as follows:

Based on the result of its long-lived asset impairment assessment, the Company recognized an impairment of intangible assets of $4.2 million for the three and nine months ended September 30, 2024, which reduced the gross carrying amount. See Note 3. Financial Instruments and Fair Value Measurements for further discussion of the Company’s long-lived assets impairment assessment conducted during the third quarter of 2024.

Amortization expense related to developed technology, customer relationships, and trademarks is recorded within operations, product, and technology; sales, general, and administrative; and marketing expense, respectively, within the Company’s condensed consolidated statements of operations. Amortization expense of intangible assets with determinable lives was $0.7 million for each of the three months ended September 30, 2024 and 2023, and $2.0 million for each of the nine months ended September 30, 2024 and 2023.

6. Balance Sheet Components

Inventory consisted of the following:

Accrued and other current liabilities consisted of the following:

7. Long-Term Debt

In February 2019, the Company entered into a loan and security agreement (“Term Loan”) with Western Alliance Bank for an aggregate amount of up to $40.0 million.

The Term Loan was subsequently amended several times, with the most recent amendment taking place in December 2023. As amended, the Term Loan matures on July 14, 2027 and provides for an aggregate borrowing amount of up to $48.8 million, of which $22.5 million is designated for the purchase of certain equipment. The Term Loan bears interest at the prime rate published in the Wall Street Journal plus a margin of 1.25%, with a floor of 4.75%.

The Term Loan requires the Company to comply with certain financial covenants, including, among other things, liquidity requirements, minimum cash deposits with Western Alliance Bank, performance metrics, and a debt service coverage ratio. The Term Loan also contains affirmative and negative covenants customary for financings of this type, including, among other things, limitations or prohibitions on repurchasing common shares, declaring and paying dividends and other distributions, redeeming and repurchasing certain other indebtedness, loans and investments, additional indebtedness, liens, mergers, asset sales and transactions with affiliates. In addition, the Term Loan contains customary events of default. As of September 30, 2024, the Company was in compliance with its debt covenants under the Term Loan.

The Term Loan is payable in consecutive monthly installments. Interest is due monthly on amounts outstanding under the Term Loan. The Company is permitted to make voluntary prepayments without penalty or premium at any time.

As of September 30, 2024 and December 31, 2023, the effective interest rate for borrowings under the Term Loan was 10.22% and 10.73%, respectively.

During the nine months ended September 30, 2024 and 2023, the Company didnot make any borrowings under the Term Loan and repaid a total of $3.0 million in each of the periods on amounts outstanding under the Term Loan. As of September 30, 2024 and December 31, 2023, the amounts outstanding under the Term Loan were $23.3 million and $26.3 million, respectively.

The Company incurred $0.6 million and $0.7 million of interest costs relating to the Term Loan during the three months ended September 30, 2024 and 2023, respectively. There wasno capitalized interest during the three months ended September 30, 2024 and 2023.

The Company incurred $2.0 million of interest costs relating to the Term Loan during each of the nine months ended September 30, 2024 and 2023. There wasno capitalized interest during the nine months ended September 30, 2024, and $0.6 million was capitalized as part of an asset for the nine months ended September 30, 2023.

As of September 30, 2024, the future annual principal payments of the Term Loan were as follows:

8. Common Stock and Stockholders’ Equity

Each share of Class A common stock is entitled toone vote per share. Each share of Class B common stock is entitled toten votes per share and is convertible at any time intoone share of Class A common stock.

The table below summarizes the Class A common stock and Class B common stock authorized, issued and outstanding as of September 30, 2024 and December 31, 2023:

9. Stock-Based Compensation

The Company has stock-based compensation plans, which are more fully described in Note 10, Stock-Based Compensation Plans, to the Consolidated Financial Statements included in the 2023 10-K. During the nine months ended September 30, 2024, the Company granted restricted stock units subject to service conditions.

Stock-Based Compensation Expense

The following table provides information about stock-based compensation expense by financial statement line item:

Stock-based compensation expense capitalized in internal use software wasnot material for the three and nine months ended September 30, 2024 and 2023.

Stock Options

The following table summarizes the activities for all stock options under the Company’s stock-based compensation plans for the nine months ended September 30, 2024:

(1)The intrinsic value is the amount by which the current market value of the underlying stock exceeds the exercise price of the stock awards.

As of September 30, 2024, the total unrecognized compensation cost related to all nonvested stock options wasnot material.

Restricted Stock Units

The following table summarizes the activities for all restricted stock units (“RSUs”) under the Company’s stock-based compensation plans for the nine months ended September 30, 2024:

The fair value of RSUs as of the vesting date was $9.5 million and $24.6 million during the nine months ended September 30, 2024 and 2023, respectively.

During the three months ended March 31, 2023, the Company modified the vesting schedule of substantially all RSUs outstanding as of December 31, 2022 from 4 years to 3 years and recognized compensation expense of $2.4 million related to the acceleration of the vesting schedule.

As of September 30, 2024, the total unrecognized compensation cost related to all nonvested RSUs was $25.8 million and the related weighted-average period over which it is expected to be recognized was approximatelytwo years.

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 limited and customary indemnification obligations. 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 U.S. The provision for income tax expense for the three and nine months ended September 30, 2024 and 2023 was determined based upon estimates of the Company’s annual effective tax rate for the years ending December 31, 2024 and 2023, respectively. Since the Company is in a full valuation allowance position due to losses incurred since inception, the provision for taxes consists solely of certain state income taxes.

12. Loss Per Share

The following participating securities have been excluded from the computation of diluted loss per share for the periods presented because including them would have been anti-dilutive:

13. Subsequent Event

In October 2024, the Company signed a non-binding term sheet, outlining the terms for a buyout of Remix by the Remix management team. Under the proposed terms, the Company is expected to retain a minority interest in the Remix business. Both parties are working toward the closing of this transaction by the end of 2024.