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 | |||||
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
| For the transition period from _________ to __________ | |||||
Commission file number 333-256188
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of Principal Executive Offices) | (Zip Code) | |||||||
(212 ) 627-3927
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 | ||||||
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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | o | Accelerated filer | o | ||||||||
x | 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of October 31, 2022, the registrant had 38,930,769 shares of common stock, $0.01 par value per share outstanding.
TABLE OF CONTENTS
| Pages | ||||||||
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “can,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “target,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the information expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
•our future financial performance, including our expectations regarding our net revenue, cost of revenue, operating expenses, and our ability to achieve and maintain future profitability;
•our ability to effectively manage or sustain our growth and to effectively expand our operations;
•our strategies, plans, objectives and goals;
•the market demand for the products offered on our online marketplace, including vintage, antique, and contemporary furniture, home décor, jewelry, watches, art, and fashion, new and authenticated luxury design products in general, and the online market for these products;
•our ability to compete with existing and new competitors in existing and new markets;
•our ability to attract and retain sellers and buyers;
•our ability to increase the supply of luxury design products offered through our online marketplace;
•our ability to timely and effectively scale our operations;
•our ability to successfully operate in and enter international markets;
•our ability to successfully implement, launch, and achieve market acceptance of our non-fungible token (“NFT”) platform and to anticipate and manage the risks associated therewith;
•our ability to develop and protect our brand;
•our ability to comply with laws and regulations;
•our expectations regarding outstanding litigation;
•our expectations and management of future growth;
•our expectations concerning relationships with third parties;
•economic and industry trends, projected growth, or trend analysis;
•our estimated market opportunity;
•our ability to add capacity, capabilities, and automation to our operations;
•the increased expenses associated with being a public company;
•our anticipated uses of net proceeds from our initial public offering (“IPO”);
•the effects of the COVID-19 pandemic and geopolitical risks on our business and operations;
•our ability to maintain, protect, and enhance our intellectual property rights;
•the availability of capital to grow our business;
•our ability to successfully defend any future litigation brought against us;
•our ability to implement, maintain, and improve effective internal controls;
•potential changes in laws and regulations applicable to us or our sellers, or our sellers’ ability to comply therewith; and
•the amount of time for which we expect our cash balances and other available financial resources to be sufficient to fund our operations.
These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Quarterly Report on Form 10-Q and are subject to risks and uncertainties. You should refer to the section titled “Risk Factors” included under Part II, Item 1A below and elsewhere in this Quarterly Report on Form 10-Q, as well as in our other filings with the Securities and Exchange Commission (the “SEC”), for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on them.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Such forward-looking statements relate only to events as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.
You should read this Quarterly Report on Form 10-Q and the documents that we reference and have filed as exhibits with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Quarterly Report on Form 10-Q by these cautionary statements.
RISK FACTOR SUMMARY
The following risk factor summary should be read together with the more detailed discussion of risks and uncertainties set forth in the “Risk Factors” section of this report.
•Our history of operating losses and ability to achieve or maintain profitability in the future, which could negatively impact our financial condition and our stock price;
•Fluctuations in our quarterly and annual net revenue and results of operations, which could cause our stock price to fluctuate and the value of your investment to decline;
•Our historical growth, which may not be indicative of our future growth;
•The COVID-19 pandemic, which has impacted, and may continue to impact, our business, key metrics, and results of operations in volatile and unpredictable ways;
•Our ability to generate a sufficient volume of listings of luxury design products on our online marketplace or to accurately vet the authenticity of these products, which could impact our business, brand, and reputation;
•Our ability to maintain the authenticity of the items listed and sold through our online marketplace, which could cause our business, brand, and reputation to suffer;
•Risks associated with claims that items listed on our online marketplace are counterfeit, infringing, hazardous, or illegal, or otherwise subject to regulation or cultural patrimony considerations;
•Risks associated with liability for fraudulent or unlawful activities of sellers who list items on our online marketplace, which could cause our business, brand, and reputation to suffer;
•Our ability to attract and maintain an active community of sellers and buyers, which could impact our growth;
•Our reliance, in part, on sellers to provide a positive experience to buyers;
•Our ability to compete effectively;
•Real or perceived inaccuracies in our metrics and market estimates used to evaluate our performance, which may harm our reputation and negatively affect our business;
•Our ability to successfully expand our business model to encompass additional categories of luxury design products in a timely and cost-effective manner;
•Risks associated with our recently launched NFT platform, including the regulatory, legal, reputational, commercial, technical, marketing, operational, and other risks related to successfully launching and profitably operating our NFT platform;
•Our ability to maintain and promote our brand and reputation, which could impact our business, market position, and future growth;
•Risks related to acquisitions, which may divert management’s attention and/or prove to be unsuccessful;
•Risks related to our operations in, and further expansion into, markets outside of the United States;
•Our ability to successfully protect our intellectual property;
•Risks associated with the disclosure of sensitive information about our sellers and buyers or other third parties with whom we transact business, or cyber-attacks against us or our third-party providers, which could result in curtailed use of our online marketplace, exposure to liability, and reputational damage;
•Risks related to regulatory matters and litigation;
•Risks related to the impact of and focus on Environmental, Social, and Governance (“ESG”) matters;
•Risks related to our operations as a public company;
•Risks related to our internal control over financial reporting and our disclosure controls and procedures; and
•Risks related to our common stock, including that an active trading market for our common stock may not develop or be sustained and that the price of our common stock may be volatile.
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited)
1STDIBS.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
(Unaudited)
| September 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance for doubtful accounts of $ | |||||||||||
| Prepaid expenses | |||||||||||
| Receivables from payment processors | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Payables due to sellers | |||||||||||
| Accrued expenses | |||||||||||
| Operating lease liabilities, current | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Operating lease liabilities, non-current | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies (Note 13) | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
7
1STDIBS.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| Technology development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Provision for transaction losses | |||||||||||||||||||||||
| Gain on sale of Design Manager | ( | ||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense), net: | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other, net | |||||||||||||||||||||||
| Total other income (expense), net | |||||||||||||||||||||||
| Net loss before income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net loss | ( | ( | ( | ( | |||||||||||||||||||
| Accretion of redeemable convertible preferred stock to redemption value | ( | ||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss per share attributable to common stockholders—basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted average common shares outstanding—basic and diluted | |||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
8
1STDIBS.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||
Foreign currency translation adjustment, net of tax of $ | ( | ( | ( | ( | |||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
9
1STDIBS.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(Amounts in thousands, except share amounts)
(Unaudited)
Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid - In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balances as of June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Issuance of common stock for exercise of stock options | — | — | ||||||||||||||||||||||||||||||||||||
| Vested restricted stock units converted to common stock | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
Balances as of September 30, 2022 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid - In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balances as of December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Issuance of common stock for exercise of stock options | — | — | ||||||||||||||||||||||||||||||||||||
| Vested restricted stock units converted to common stock | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
Balances as of September 30, 2022 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid - In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||
| Balances as of June 30, 2021 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Issuance of common stock for exercise of stock options | — | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
Balances as of September 30, 2021 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
10
Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable Convertible Preferred Stock | Common Stock | Additional Paid - In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
Balances as of December 31, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||
| Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering | ( | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with initial public offering, net of issuance costs of $ | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Accretion of redeemable convertible preferred stock to redemption value | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for acquisition of Design Manager | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for exercise of stock options | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cashless exercise of warrants | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
Balances as of September 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
11
1STDIBS.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation expense | |||||||||||
| Change in fair value of deferred acquisition consideration | |||||||||||
| Provision for transaction losses and eCommerce returns | |||||||||||
| Amortization of costs to obtain revenue contracts | |||||||||||
| Amortization of operating lease right-of-use assets | |||||||||||
| Deferred rent | ( | ||||||||||
| Gain on sale of Design Manager | ( | ||||||||||
| Other, net | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Receivables from payment processors | ( | ( | |||||||||
| Other assets | ( | ( | |||||||||
| Accounts payable and accrued expenses | ( | ||||||||||
| Payables due to sellers | ( | ||||||||||
| Operating lease liabilities | ( | ||||||||||
| Other current liabilities and other liabilities | ( | ( | |||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Development of internal-use software | ( | ( | |||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from sale of Design Manager | |||||||||||
| Other, net | ( | ( | |||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuance of common stock in initial public offering, net of underwriting discounts and commissions | |||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Payment of deferred acquisition consideration | ( | ||||||||||
| Payment of deferred offering costs | ( | ||||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | ( | ( | |||||||||
| Net (decrease) increase in cash, cash equivalents, and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash at beginning of the period | |||||||||||
| Cash, cash equivalents, and restricted cash at end of the period | $ | $ | |||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Supplemental disclosure of non-cash activities: | |||||||||||
| Accretion of redeemable convertible preferred stock to redemption value | $ | $ | |||||||||
| Conversion of redeemable convertible preferred stock in connection with initial public offering | |||||||||||
| Change in deferred offering costs included in accounts payable and accrued expenses | ( | ||||||||||
| Issuance of common stock for Design Manager acquisition | |||||||||||
See accompanying notes to the condensed consolidated financial statements.
12
1STDIBS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
1stdibs.com, Inc. (“1stDibs” or the “Company”) is one of the world’s leading online marketplaces for connecting design lovers with many of the best sellers and makers of vintage, antique, and contemporary furniture, home décor, jewelry, watches, art, and fashion. The Company’s thoroughly vetted seller base, in-depth editorial content, and custom-built technology platform create trust in the Company’s brand and facilitate high-consideration purchases of luxury design products online. By disrupting the way these items are bought and sold, 1stDibs is both expanding access to, and growing the market for, luxury design products.
The Company was incorporated in the state of Delaware on March 10, 2000 and is headquartered in New York, NY with additional office space in Wyboston, United Kingdom.
Basis of Presentation
The accompanying condensed consolidated financial statements are prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries, 1stdibs.com, Ltd. and 1stdibs Design Manager, Inc. (“Design Manager”). The Company sold its equity interest in Design Manager on June 29, 2022, therefore, the condensed consolidated statements of operations include activity relating to Design Manager through the sale date. The condensed consolidated balance sheet as of September 30, 2022 no longer includes the assets, liabilities, and equity amounts associated with Design Manager. See section “Sale of Design Manager” for further details. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K (the “Form 10-K”) for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on March 3, 2022.
The condensed consolidated balance sheet as of December 31, 2021, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis.
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of its financial position and its results of operations, changes in redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for the interim periods. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending December 31, 2022.
There have been no material changes to the Company's significant accounting policies as described in the Form 10-K except for the recently adopted accounting pronouncements discussed below.
Restructuring Charges
In September 2022, the Company announced and implemented a restructuring plan to reduce operational costs and realign investment priorities involving the reduction of approximately 10 % of the Company’s workforce. As a result of the reduction, the Company incurred approximately $0.6 million in non-recurring restructuring charges in the three months ended September 30, 2022, consisting primarily of employee severance and benefits costs. As of September 30, 2022, no amounts have been paid and the $0.6 million is included in accrued expenses on the Company’s condensed consolidated balance sheet. As of September 30, 2022, the restructuring plan was completed and no additional amounts are expected to be recognized. The expense is
13
1STDIBS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
included within the respective financial statement line items on the condensed consolidated statement of operations as shown in the table below for three and nine months ended September 30, 2022.
| (in thousands) | Three and Nine Months Ended September 30, 2022 | ||||
| Cost of revenue | $ | ||||
| Sales and marketing | |||||
| Technology development | |||||
| General and administrative | |||||
| Total | $ | ||||
Sale of Design Manager
On May 2, 2019, the Company acquired 100 % of the outstanding equity of Franklin Potter Associates, Inc. and its subsidiary, doing business as Design Manager, for a total purchase consideration of $4.2 million. As a result, Design Manager became a wholly-owned subsidiary of the Company. On June 29, 2022, the Company sold 100 % of its equity interest in Design Manager for a purchase price of $14.8 million. The Company received net cash proceeds of $14.6 million, of which $1.5 million will be held in a joint escrow account for 12 months from the date of the sale and is recorded as restricted cash in other current assets. Additionally, a net gain on the sale of $9.7 million was recognized during the nine months ended September 30, 2022, and is included in loss from operations on the condensed consolidated statement of operations.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, revenue recognition, provision for transaction losses, determination of useful lives of property and equipment, impairment assessment of goodwill, capitalization of internal-use software and determination of useful lives, stock option valuations, the incremental borrowing rate associated with lease liabilities, and income taxes. The Company evaluates its estimates and assumptions on an ongoing basis. Actual results could differ from those estimates and such differences may be material to the condensed consolidated financial statements.
Cash, Cash Equivalents, and Restricted Cash
The following represents the Company’s cash, cash equivalents, and restricted cash as of the periods presented:
| (in thousands) | September 30, 2022 | September 30, 2021 | |||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | |||||||||
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in ASU 2016-02 supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the condensed consolidated statements of operations. An entity may adopt the guidance either (1) retrospectively to each prior reporting period presented in the financial statements with a cumulative-effect adjustment recognized at the beginning of the earliest comparative period presented or (2) retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The guidance is effective
14
1STDIBS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
for fiscal years and interim periods beginning after December 15, 2018 for public business entities, and for fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, for all other entities.
The Company adopted this standard on January 1, 2022, which resulted in the Company recording $24.5 million of operating lease right-of-use assets, and $2.7 million and $24.4 million of operating lease liabilities, classified as current and non-current, respectively, on its balance sheet. The adoption did not have a material effect on the statement of operations. The Company utilized the modified retrospective adoption approach, whereby all prior periods continue to be reported under previous lease accounting guidance. The Company elected the package of practical expedients to not reassess prior conclusions related to lease identification, classification and initial direct costs, and did not elect the hindsight practical expedient which would have permitted the use of hindsight in determining the lease term and assessing impairment. See Note 7, "Leases" for further discussion on the Company's accounting for leases under ASC 842.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions with ASC 740, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. This guidance is effective for fiscal years and interim periods beginning after December 15, 2020 for public business entities and for fiscal years beginning after December 15, 2021 for all other entities. The Company adopted this standard on January 1, 2022, which did not have a material impact on the Company's condensed consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
2. Fair Value of Financial Instruments
Certain assets and liabilities are carried at fair value in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
•Level 1—Quoted prices in active markets for identical assets or liabilities.
•Level 2—Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies, and similar techniques.
The carrying values of cash and cash equivalents, accounts receivable, net, prepaid expenses, receivables from payment processors, accounts payable, payables due to sellers, accrued expenses, and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities.
There were no transfers between Level 1, Level 2, or Level 3 during the three and nine months ended September 30, 2022, and 2021.
15
1STDIBS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Revenue Recognition
The following table summarizes the Company’s net revenue by type of service for the periods presented:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Seller marketplace services | $ | $ | $ | $ | |||||||||||||||||||
| Other services | |||||||||||||||||||||||
| Total net revenue | $ | $ | $ | $ | |||||||||||||||||||
The Company generates revenue from seller marketplace services and other services. Seller marketplace services primarily consist of marketplace transaction, subscription, and listing fees. Other services primarily consist of advertising revenues generated from displaying ads on the Company’s online marketplace and software services revenue related to Design Manager, typically used by interior designers. Design Manger was sold on June 29, 2022; therefore, no related net revenue for software services was recognized in the three months ended September 30, 2022.
Contract Balances from Contracts with Customers
The following table provides a rollforward of the deferred revenue amounts as follows (in thousands):
Balance as of December 31, 2021 | $ | ||||
| Billings | |||||
| Net revenue recognized | ( | ||||
| Reduction resulting from the sale of Design Manager | ( | ||||
Balance as of September 30, 2022 | $ | ||||
The amount of net revenue recognized during the nine months ended September 30, 2022 that was included in the deferred revenue balance at January 1, 2022 was $0.5 million.
4. Other Current Assets
As of September 30, 2022 and December 31, 2021, other current assets consisted of the following:
| (in thousands) | September 30, 2022 | December 31, 2021 | |||||||||
| Restricted cash | $ | $ | |||||||||
| Costs to obtain revenue contracts | |||||||||||
| Other current assets | |||||||||||
| Total other current assets | $ | $ | |||||||||
5. Property and Equipment, net
As of September 30, 2022 and December 31, 2021, property and equipment, net consisted of the following:
| (in thousands) | September 30, 2022 | December 31, 2021 | |||||||||
| Internal-use software | $ | $ | |||||||||
| Leasehold improvements | |||||||||||
| Furniture and fixtures | |||||||||||
| Computer equipment and software | |||||||||||
| Construction in progress | |||||||||||
| Total property and equipment, gross | |||||||||||
| Less: Accumulated depreciation and amortization | ( | ( | |||||||||
| Total property and equipment, net | $ | $ | |||||||||
16
1STDIBS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Accrued Expenses
As of September 30, 2022 and December 31, 2021, accrued expenses consisted of the following:
| (in thousands) | September 30, 2022 | December 31, 2021 | |||||||||
| Shipping | $ | $ | |||||||||
| Salaries & benefits | |||||||||||
| Sales & use tax payable | |||||||||||
| Allowance for transaction losses | |||||||||||
| Payment processor fees | |||||||||||
| Allowance for eCommerce returns | |||||||||||
| Restructuring charges | |||||||||||
| Other | |||||||||||
| Total accrued expenses | $ | $ | |||||||||
7. Leases
The Company enters into contracts in the normal course of business and assesses whether any such contracts contain a lease. The Company determines if an arrangement is a lease at inception if it conveys the right to control the identified asset for a period of time in exchange for consideration. The Company classifies leases as operating or financing in nature, and records the associated right-of-use asset and lease liability on its consolidated balance sheet. The lease liability represents the present value of future lease payments, net of lease incentives, discounted using an incremental borrowing rate, which is a management estimate based on the information available at the commencement date of a lease arrangement.
The Company accounts for lease and non-lease components related to operating leases as a single lease component. The Company has elected that costs associated with leases having an initial term of 12 months or less ("short-term leases") are recognized in the consolidated statement of operations on a straight-line basis over the lease term and are not recorded on the balance sheet.
Effective January 1, 2022, the Company adopted ASU 2016-02, utilizing the modified retrospective adoption approach. Prior to adoption, during the fiscal years ended December 31, 2021 and prior, the Company accounted for leases under ASC 840, whereby rent expense associated with operating leases was recognized on a straight-line basis over the lease term. Under ASC 842, lease expense is recognized as a single lease cost on a straight-line basis over the lease term. The lease term consists of non-cancelable periods and may include options, including those to extend or terminate, if it is reasonably certain they will be exercised.
As of September 30, 2022, the Company had $22.6 million of operating lease right-of-use assets, $2.7 million and $22.4 million of current and non-current operating lease liabilities, respectively, and no finance leases on its condensed consolidated balance sheet. These operating lease arrangements included in the measurement of lease liabilities had a weighted-average remaining lease term of 7.2 years, a weighted-average discount rate of 5.9 %, and do not reflect options to extend or terminate, as management does not consider the exercise of these options to be reasonably certain. During the three and nine months ended September 30, 2022, the Company paid $1.1 million and $3.2 million, respectively, for amounts included in the measurement of lease liabilities. The Company did not enter into any new lease arrangements during the nine months ended September 30, 2022.
17
1STDIBS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| (in thousands) | Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||||
| Operating lease expense | $ | $ | |||||||||
| Short-term lease expense | |||||||||||
| Variable lease expense | |||||||||||
| Total lease expense | $ | $ | |||||||||
As of September 30, 2022, the total remaining operating lease payments included in the measurement of lease liabilities was as follows (in thousands):
| Fiscal Year Ending December 31, | Operating Lease Payments | ||||
2022 (remaining) | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total operating lease payments | |||||
| Less: imputed interest | ( | ||||
| Total lease liabilities | $ | ||||
8. Other Current Liabilities
As of September 30, 2022 and December 31, 2021, other current liabilities consisted of the following:
| (in thousands) | September 30, 2022 | December 31, 2021 | |||||||||
| Deferred rent | $ | $ | |||||||||
| Sales and use tax contingencies | |||||||||||
| Buyer deposits | |||||||||||
| Deferred revenue | |||||||||||
| Total other current liabilities | $ | $ | |||||||||
9. Equity
As of September 30, 2022 and December 31, 2021, the Company had reserved shares of common stock for issuance in connection with the following:
| September 30, 2022 | December 31, 2021 | ||||||||||
| Options to purchase common stock | |||||||||||
| Restricted stock units | |||||||||||
| Shares available for future grant under the 2021 Plan | |||||||||||
| Shares available for future grant under the ESPP | |||||||||||
| Total | |||||||||||
Preferred Stock
Effective June 14, 2021, in connection with the closing of the Company’s IPO, the Company’s board of directors (“Board”) is authorized to issue up to 10,000,000 shares of preferred stock, $0.01 par value per share, in one or more series. The Company's Board has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. As of September 30, 2022 and December 31, 2021, no
Common Stock
18
1STDIBS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Stock-based compensation
2011 Option Plan
The Company adopted the 2011 Stock Option and Grant Plan (the “2011 Plan”) on September 2, 2011 and amended and restated the plan on December 14, 2011. The 2011 Plan provided for the Company to grant incentive stock options or nonqualified stock options, restricted stock awards, and other stock-based awards to its employees, directors, officers, outside advisors, and non-employee consultants. At the time of grant, the options issued to new employees pursuant to the 2011 Plan expire ten years from the date of grant and generally vest over four years , with 25 % vesting on the first anniversary and the balance vesting ratably over the remaining 36 months. Additional options issued to current employees, current outside advisors, and non-employee consultants pursuant to the 2011 Plan expire ten years from the date of grant and generally vest ratably over 48 months.
Following the completion of the Company’s IPO in June 2021, no additional awards and no shares of the Company’s common stock remain available for future issuance under the 2011 Plan. However, the 2011 Plan will continue to govern the terms and conditions of the outstanding awards previously granted thereunder.
2021 Stock Incentive Plan
In May 2021, the Company's Board adopted, and its stockholders approved, the 2021 Stock Incentive Plan (the “2021 Plan”), which became effective upon the SEC declaring the Company’s IPO registration statement effective. The 2021 Plan provides for the grant of incentive stock options (“ISOs”), nonstatutory stock options, restricted share awards, stock unit awards, stock appreciation rights, cash-based awards, and performance-based stock awards, or collectively, stock awards. ISOs may be granted only to the Company’s employees, including officers, and the employees of its parent or subsidiaries. All other stock awards may be granted to the Company’s employees, officers, non-employee directors, and consultants and the employees and consultants of its parent, subsidiaries, and affiliates.
The aggregate number of shares of the Company’s common stock that may be issued pursuant to stock awards under the 2021 Plan will not exceed the sum of (x) 4,333,333 shares (as adjusted for stock splits, stock dividends, combinations, and the like), plus (y) the sum of (1) the number of reserved shares not issued or subject to outstanding awards under the 2011 Plan on the effective date of the 2021 Plan and (2) the number of shares subject to outstanding stock awards granted under the 2011 Plan and that, following the effective date of the 2021 Plan, (A) are subsequently forfeited or terminated for any reason before being exercised or settled, (B) are not issued because such stock award is settled in cash, (C) are subject to vesting restrictions and are subsequently forfeited, (D) are withheld or reacquired to satisfy the applicable exercise, strike, or purchase price, or (E) are withheld or reacquired to satisfy a tax withholding obligation, plus (z) an annual increase on the first day of each fiscal year, for a period of not more than 10 years, beginning on January 1, 2022 and ending on, and including, January 1, 2031, in an amount equal to the lesser of (i) 5 % of the outstanding shares on the last day of the immediately preceding fiscal year or (ii) such lesser amount that the Compensation Committee of the Board determines for purposes of the annual increase for that fiscal year.
As of September 30, 2022, 3,608,206 shares were available for future grants of the Company’s common stock.
19
1STDIBS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock Option Valuation
The following table presents, on a weighted-average basis, the assumptions used in the Black Scholes option-pricing model to determine the grant date fair value to the Company’s employees:
| Nine Months Ended September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Expected term in years | ||||||||||||||
| Expected stock price volatility | ||||||||||||||
| Risk-free interest rate | ||||||||||||||
| Expected dividend yield | ||||||||||||||
No stock options were granted during the three months ended September 30, 2022 and 2021.
Stock Options
The following table summarizes the Company’s stock option activity since December 31, 2021:
| Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
Outstanding as of December 31, 2021 | $ | $ | |||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Exercised | $ | ||||||||||||||||||||||
| Cancelled | $ | ||||||||||||||||||||||
Outstanding as of September 30, 2022 | $ | $ | |||||||||||||||||||||
Options exercisable as of September 30, 2022 | $ | $ | |||||||||||||||||||||
Options vested and expected to vest as of September 30, 2022 | $ | $ | |||||||||||||||||||||
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for all stock options that had exercise prices lower than the fair value of the Company’s common stock.
The aggregate intrinsic value of stock options exercised was $0.2 million and $1.1 million during the three and nine months ended September 30, 2022, respectively, and $0.7 million and $3.6 million during the three and nine months ended September 30, 2021, respectively. The weighted-average grant-date fair value per share of stock options granted was $4.43 and $6.17 during the nine months ended September 30, 2022 and 2021, respectively. No stock options were granted during the three months ended September 30, 2022 and 2021.
The total fair value of stock options vested was $0.8 million and $3.4 million during the three and nine months ended September 30, 2022, respectively, and $0.4 million and $1.1 million during the three and nine months ended September 30, 2021 respectively.
The stock options granted during the fiscal year ended December 31, 2021 included 615,997 stock options granted to executive officers that include a performance condition related to a sale event or initial public offering occurring before December 31, 2021 in addition to the standard service condition. These options will vest over four years , with approximately 21 % vested on January 1, 2022, and the balance vesting ratably over the remaining 38 months. Stock-based compensation expense of $0.2 million and $0.6 million was recognized for options having a performance condition during the three and nine months ended September 30, 2022, respectively, and $0.2 million and $0.5 million during the three and nine months ended September 30, 2021, respectively.
Restricted Stock Units
20
1STDIBS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| Outstanding Restricted Stock Units | Weighted- Average Grant Date Fair Value | ||||||||||
Outstanding as of December 31, 2021 | $ | ||||||||||
| Granted | |||||||||||
| Vested | |||||||||||
| Cancelled | |||||||||||
Outstanding as of September 30, 2022 | $ | ||||||||||
The estimated weighted-average grant date fair value of restricted stock units granted was $7.23 and $7.61 per share for the three and nine months ended September 30, 2022, respectively. The total grant date fair value of restricted stock units vested was $2.1 million and $4.3 million for the three and nine months ended September 30, 2022.
Employee Stock Purchase Plan
In May 2021, the Company's Board adopted, and its stockholders approved, the Company's 2021 Employee Stock Purchase Plan (the "ESPP"). A total of 1,179,902 shares of the Company's authorized but unissued or reacquired shares of its common stock (as adjusted for stock splits, stock dividends, combinations, and the like) are available for issuance under the ESPP. The number of shares of the Company's common stock that will be available for issuance under the ESPP also includes an annual increase on the first day of each fiscal year, for a period of not more than 10 years, beginning on January 1, 2022, equal to the least of: (i) 1 % of the outstanding shares of the Company’s common stock on such date, (ii) 400,000 shares (as adjusted for stock splits, stock dividends, combinations, and the like) or (iii) a lesser amount determined by the Compensation Committee or the Company’s Board.
During regularly scheduled “offerings” under the ESPP, participants may purchase the Company’s common stock through payroll deductions, up to a maximum of 15 % of their eligible compensation, or such lower limit as may be determined by the Compensation Committee from time to time. Participants will be able to withdraw their accumulated payroll deductions prior to the end of the offering period in accordance with the terms of the offering. Participation in the ESPP will end automatically on termination of employment. The purchase price will be specified pursuant to the offering, but cannot, under the terms of the ESPP, be less than 85 % of the fair market value per share of the Company’s common stock on either the offering date or on the purchase date, whichever is less. The fair market value of the Company’s common stock for this purpose will generally be the closing price on Nasdaq (or such other exchange as the Company’s common stock may be traded at the relevant time) for the date in question, or if such date is not a trading day, for the last trading day before the date in question. As of September 30, 2022, an initial offering period has not commenced, and for the three and nine months ended September 30, 2022, no shares of common stock were purchased under the ESPP.
Stock-Based Compensation
The following table summarizes the classification of the Company’s stock-based compensation in the condensed consolidated statements of operations:
| (in thousands) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| Technology development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | |||||||||||||||||||
As of September 30, 2022, total unrecognized compensation expense related to unvested stock-based awards was $31.7 million, which is expected to be recognized over a weighted-average period of 3.1 years.
11. Income Taxes
21
1STDIBS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12.