ThredUp Inc.: Form 10-Q for the period ended Sep 30, 2024

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with other information, including our condensed consolidated financial statements and related notes included in Part I, Item 1, Financial Statements*, of this Quarterly Report on Form 10-Q; Part I, Item 1A,* Risk Factors*, of this Quarterly Report on Form 10-Q; and our consolidated financial statements and related notes appearing in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “*2023 10-K”). 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 operates one of the world’s largest online resale platforms for apparel, shoes and accessories. Our mission is to inspire the world to think secondhand first. We believe in a sustainable fashion future and we are proud that our business model creates a positive impact to the benefit of our buyers, sellers, clients, employees, investors and the environment. Our custom-built operating platform consists of distributed processing infrastructure, proprietary software and systems and data science expertise. This platform is powering the rapidly emerging resale economy, one of the fastest growing sectors in retail, according to a GlobalData market survey conducted in January 2023.

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 marketplaces we have built enable buyers in the U.S. and in Europe to browse and purchase resale items for primarily apparel, shoes and accessories across a wide range of price points. Buyers enjoy shopping value, premium and luxury brands all in one place, at up to 90% off estimated retail price. Sellers enjoy 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. ThredUp’s 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. Aside from Clean Out Kits, ThredUp also sources inventory from a variety of supply channels, such as wholesale supply in Europe.

In addition to our core marketplace, some of the world’s leading brands and retailers are taking advantage of our RaaS offering, which allows them to conveniently offer a scalable closet clean out service and/or resale shop to their customers. We believe RaaS will accelerate the growth of this emerging category and form the backbone of the modern resale experience domestically and internationally.

Recent Business Developments

Remix

In the third quarter of 2024, we announced that, following a review of our European operations, we intend to exit the European market and are evaluating strategic alternatives for our Remix business. The decision to exit the European market, coupled with the decline in our market capitalization, were identified as qualitative indicators of potential impairment of long-lived assets and goodwill. Consequently, in connection with the preparation of our financial statements for the quarterly period ended September 30, 2024, we performed long-lived assets and goodwill impairment assessments 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 was no impairment recognized on goodwill as its fair value exceeded its carrying amount as of the valuation date. See Note 2. Significant Accounting Policies and Note 3. Financial Instruments and Fair Value Measurements, for further discussion of these impairment assessments.

Estimating fair values is a subjective process involving numerous variables associated with the assumptions and estimates used in assessing the appropriate valuation for our long-lived assets and goodwill impairment. This could result in future impairment charges, which may adversely affect our business, financial condition and results of operations.

Overview of Third Quarter Results

Revenue: Total revenue was $73.0 million, representing a decrease of 11.0% year over year.

Gross Profit and Margin: Gross profit totaled $52.0 million, representing a decrease of 8.2% year over year. Gross margin was 71.2%, an increase of 220 basis points from 69.0% in the comparable quarter last year.

Net Loss: Net loss was $24.8 million, or a negative 33.9% of revenue, for the third quarter of 2024, compared to a net loss of $18.1 million, or a negative 22.0% of revenue, for the third quarter of 2023. Net loss for the third quarter of 2024 included an impairment of long-lived assets related to our European operations of $9.8 million.

Non-GAAP Adjusted EBITDA Loss: Non-GAAP Adjusted EBITDA loss was $2.5 million, or a negative 3.4% of revenue, for the third quarter of 2024, compared to Non-GAAP Adjusted EBITDA loss of $3.6 million, or a negative 4.4% of revenue, for the third quarter of 2023. Non-GAAP Adjusted EBITDA loss and Non-GAAP Adjusted EBITDA loss margin are non-GAAP measures, which may not be comparable to similarly-titled measures used by other companies. See below for a reconciliation of Non-GAAP Adjusted EBITDA loss to net loss.

Active Buyers and Orders: Active Buyers totaled 1.6 million and Orders totaled 1.6 million in the third quarter of 2024, representing decreases of 7.4% and 13.9%, respectively, compared to the third quarter of 2023.

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.

(in thousands, except percentages)

(1) Non-GAAP Adjusted EBITDA loss and Non-GAAP Adjusted EBITDA loss margin are non-GAAP measures, which may not be comparable to similarly-titled measures used by other companies. See below for a reconciliation of Non-GAAP Adjusted EBITDA loss 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 and purchased in our marketplaces, including through our RaaS clients, and is identified by a unique email address. 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 marketplaces.

Orders

Orders means the total number of orders placed by buyers across our marketplaces, including through our RaaS clients, in a given period, net of cancellations.

Non-GAAP Financial Metrics

Non-GAAP Adjusted EBITDA Loss and Non-GAAP Adjusted EBITDA Loss Margin

Non-GAAP Adjusted EBITDA loss means net loss adjusted to exclude, where applicable in a given period, stock-based compensation expense, impairment of long-lived assets, depreciation and amortization, severance and other reorganization costs, interest expense, and provision for income taxes. Non-GAAP Adjusted EBITDA loss margin represents Non-GAAP Adjusted EBITDA loss divided by Total revenue. We use Non-GAAP Adjusted EBITDA loss and Non-GAAP Adjusted EBITDA loss margin as non-GAAP measures to evaluate and assess our operating performance and the operating leverage in our business, and for internal planning and forecasting purposes. We believe that Non-GAAP Adjusted EBITDA loss and Non-GAAP Adjusted EBITDA loss margin, when taken collectively with our GAAP results, may be helpful to investors because they provide consistency and comparability with past financial performance and assist 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 Non-GAAP Adjusted EBITDA loss:

(in thousands)

23

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Revenue

(in thousands, except percentages)

Total revenue decreased $9.0 million, or 11.0%, for the three months ended September 30, 2024 as compared to the same period in 2023. This decline was driven by a $11.0 million or 45.6% decrease in product revenue, partially offset by a $2.0 million or 3.5% increase in consignment revenue. The shift reflects our strategic decision to transition our RaaS clients from a product to a consignment model, as well as the introduction of the consignment model to our European operations in the third quarter of 2023. Additionally, the decline reflects a shift in focus, with fewer resources allocated to the European business as we evaluate strategic alternatives for that market. The overall decrease in total revenue was mainly due to a 7.4% decrease in Active Buyers and a 13.9% decrease in Orders. This was partially offset by a 14.0% increase in the average order value.

Total revenue decreased $8.3 million, or 3.4%, for the nine months ended September 30, 2024 as compared to the same period in 2023. This decline was driven by a $35.5 million or 42.8% decrease in product revenue, partially offset by a $27.2 million or 17.2% increase in consignment revenue. The shift reflects our strategic decision to transition our RaaS clients from a product to a consignment model, as well as the introduction of the consignment model to our European operations in the third quarter of 2023. Additionally, the decline reflects a shift in focus, with fewer resources allocated to the European business as we evaluate strategic alternatives for that market. The overall decrease in total revenue was mainly due to a 7.4% decrease in Active Buyers and a 4.2% decrease in Orders. This was partially offset by a 11.2% increase in the average order value.

Gross Margin

(in thousands, except percentages)

Consignment revenue is recognized net of seller payouts. Seller payouts related to product revenue are included as a component of cost of product revenue. As such, product revenue has a lower gross margin than consignment revenue.

Gross margin was 71.2% and 69.0% for the three months ended September 30, 2024 and 2023, respectively, or an increase of 220 basis points.

Gross margin was 70.3% and 67.9% for the nine months ended September 30, 2024 and 2023, respectively, or an increase of 240 basis points.

The increase in gross margin for the three and nine months ended September 30, 2024 as compared to the same periods in 2023 was primarily driven by a significantly higher proportion of revenue from the consignment model, which has a higher gross margin than the product model. The transition of our RaaS clients to consignment model and the introduction of the consignment model to our European operations in the third quarter of 2023 contributed to the growth in our consignment revenue, positively impacting our gross margin.

Consignment Gross Margin

(in thousands, except percentages)

Consignment gross margin was 81.0% and 82.5% for the three months ended September 30, 2024 and 2023, respectively, or a decrease of 150 basis points. Consignment gross margin was 81.5% and 81.7% for the nine months ended September 30, 2024 and 2023, respectively, or a decrease of 20 basis points. The decrease in consignment gross margin for the three and nine months ended September 30, 2024 as compared to the same periods in 2023 was primarily due to an increase in outbound shipping and packaging costs.

Product Gross Margin

(in thousands, except percentages)

Product gross margin was 26.5% and 36.8% for the three months ended September 30, 2024 and 2023, respectively, or a decrease of 1,030 basis points. The decrease in product gross margin for the three months ended September 30, 2024 as compared to the same period in 2023 was primarily due to a 1,200 basis point increase in product inventory costs, mainly driven by our European operations. This decrease was partially offset by a 170 basis point decrease in shipping, labor, and packaging costs.

Product gross margin was 26.6% and 41.8% for the nine months ended September 30, 2024 and 2023, respectively, or a decrease of 1,520 basis points. The decrease in product gross margin for the nine months ended September 30, 2024 as compared to the same period in 2023 was due to a 1,740 increase in product inventory costs, mainly driven by our European operations, partially offset by a 220 basis point decrease in shipping, labor, and packaging costs.

Operations, Product, and Technology

(in thousands, except percentages)

Operations, product, and technology expenses decreased $3.2 million, or 7.8% for the three months ended September 30, 2024 as compared to the same period in 2023. The decrease was due to a $2.0 million decrease in personnel-related costs following our workforce reorganization in March 2024 and a $1.2 million decrease in facilities, technology, and other costs. The increase in operations, product, and technology expenses as a percentage of total revenue was primarily due to the decline in total revenue.

Operations, product, and technology expenses decreased $1.3 million, or 1.1% for the nine months ended September 30, 2024 as compared to the same period in 2023. The decrease was primarily due to a $5.1 million decrease in personnel-related costs, primarily due to our workforce reorganization in March 2024. This decrease was partially offset by a $2.1 million increase in inbound shipping related to consignment revenue, an $0.8 million increase in facilities, technology, and other costs, as well as an $0.8 million increase in severance costs as a result of our workforce reorganization. The increase in operations, product, and technology expenses as a percentage of total revenue was primarily due to the decline in total revenue.

Marketing

(in thousands, except percentages)

Marketing expenses decreased $4.1 million, or 21.2%, for the three months ended September 30, 2024 as compared to the same period in 2023. The decrease was due to a $2.4 million decrease in personnel-related costs, of which $1.1 million was related to stock-based compensation expense, primarily due to our workforce reorganization in March 2024 as well as a $2.0 million decrease in advertising costs. This decrease was partially offset by a $0.3 million increase in facilities, technology and other costs. The decrease in marketing expenses as a percentage of total revenue was due to a decrease in marketing spend coupled with a decline in total revenue.

Marketing expenses decreased $10.2 million, or 18.5%, for the nine months ended September 30, 2024 as compared to the same period in 2023. The decrease was primarily due to a $5.2 million decrease in personnel-related costs, of which $2.9 million was related to stock-based compensation expense, primarily due to our workforce reorganization in March 2024, as well as a $4.8 million decrease in advertising costs. The decrease in marketing expenses as a percentage of total revenue was due to a decrease in marketing spend coupled with a decline in total revenue.

Sales, General and Administrative

(in thousands, except percentages)

Sales, general, and administrative expenses decreased $0.5 million, or 3.4%, for the three months ended September 30, 2024 as compared to the same period in 2023. The decrease was due to a $1.4 million decrease in personnel-related costs following our workforce reorganization in March 2024, of which $0.6 million was related to stock-based compensation expense. This decrease was partially offset by a $0.5 million increase in professional services, primarily related to strategic review costs for Remix, and a $0.4 million increase in facilities, technology and other costs. The increase in sales, general, and administrative expenses as a percentage of total revenue was primarily due to the decline in total revenue.

Sales, general, and administrative expenses increased $0.4 million, or 0.9%, for the nine months ended September 30, 2024 as compared to the same period in 2023. The increase was primarily due to a $1.3 million increase in severance costs as a result of our workforce reorganization in March 2024 and a $0.3 million increase in facilities, technology and other costs. This increase was partially offset by a $1.2 million decrease in personnel-related costs following our workforce reorganization in March 2024, of which $0.5 million was related to stock-based compensation expense. The increase in sales, general, and administrative expenses as a percentage of total revenue was primarily due to the decline in total revenue.

Impairment of Long-lived Assets

(in thousands, except percentages)

During the third quarter of 2024, we conducted long-lived assets and goodwill impairment assessments in connection with our decision to exit the European market, coupled with the decline in our market capitalization. As a result, we 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. See Notes 2. Significant Accounting Policies and 3*. Financial Instruments and Fair Value Measurements* for further discussion of our impairment policy and assessments, respectively.

Interest Expense

(in thousands, except percentages)

Interest expense for the three months ended September 30, 2024 as compared to the same period in 2023, slightly decreased due to a lower outstanding debt balance.

Interest expense increased $0.4 million for the nine months ended September 30, 2024 as compared to the same period in 2023. This increase was primarily due to the capitalization of interest costs in the first quarter of 2023 in conjunction with the build-out of our distribution centers. We did not capitalize any interest in the same period in 2024.

Other Income, Net

(in thousands, except percentages)

Other income, net for the three months ended September 30, 2024 as compared to the same period in 2023 slightly decreased due to a lower cash equivalents balance.

Other income, net increased $0.6 million for the nine months ended September 30, 2024 as compared to the same period in 2023. The increase was primarily due to an increase in interest income from our marketable securities due to a higher interest rate environment.

Liquidity and Capital Resources

We have historically generated negative cash flows from operations and have primarily financed our operations through private and public sales of equity securities and debt. As of September 30, 2024, we had cash, cash equivalents and short-term marketable securities of $55.3 million. Additionally, we have a term loan facility (“Term Loan”) under which $22.5 million remained available to be drawn as of September 30, 2024 for the purchase of certain equipment, and we were in full compliance with our debt covenants under the Term Loan as of that date. See Note 7. Long-Term Debt, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for a further discussion on our Term Loan.

We expect operating losses to continue in 2024 as we continue to invest in growing our business and our infrastructure. Our primary sources of liquidity are cash flows generated from operations, cash on hand and borrowings available under the Term Loan. Our primary use of cash includes product inventory costs and seller payouts, operating costs such as distribution network spend, 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, expansion and/or automation of our distribution network. Based upon our current operating plans, we believe that our existing cash, cash equivalents and short-term marketable securities will be sufficient for at least the next 12 months and beyond to meet our short- and long-term capital requirements, and we do not anticipate expanding our distribution network to include additional locations in the near term. Our cash flow forecast 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 any future 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 clients, the continuing growth of our marketplaces and overall economic conditions. However, we expect that our capital expenditures will not be material in the remainder of 2024 as we have completed the first phase of our new distribution center in Texas. See the section titled “Risk Factors—Risks Relating to Our Indebtedness and Liquidity—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” within the 2023 10-K.

Cash Flows

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

(in thousands)

Changes in Cash Flows from Operating Activities

Net cash used in operating activities was $0.2 million during the nine months ended September 30, 2024, compared to net cash used of $14.6 million during the nine months ended September 30, 2023. The $14.4 million decrease in operating cash outflows was primarily due to an $1.4 million decrease in our net loss, adjusted by a $5.3 million increase in non-cash charges, and $7.7 million of favorable changes in operating assets and liabilities. The change in operating assets and liabilities was primarily due to a $9.2 million reduction in inventory, mainly driven by decreased upfront inventory purchases as we transitioned our RaaS clients and introduced our European operations to the consignment model in the third quarter of 2023, a $3.5 million reduction in accounts receivable due to timing in payment processing, and a $2.2 million increase in accrued and other liabilities due to timing of vendor payments. This was partially offset by a $7.1 million decrease in seller payable, primarily due to timing of seller credit cash-outs or redemptions and conversions to gift cards.

Changes in Cash Flows from Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2024 was $8.4 million as compared to net cash provided by investing activities of $48.4 million for the same period in 2023. The $56.8 million increase in cash outflows was primarily due to a $50.4 million decrease in maturities of marketable securities and a $14.8 million increase in purchases of marketable securities, partially offset by a $8.4 million decrease in purchases of property and equipment.

Changes in Cash Flows from Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2024 increased $0.9 million as compared to the same period in 2023 primarily due to a $1.7 million decrease in proceeds from issuance of stock-based awards, partially offset by a $0.7 million decrease in payroll taxes paid on stock-based award activity.

Critical Accounting Policies and Estimates

U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses. Actual results could differ from those estimates.

There have been no material changes to our critical accounting policies since the 2023 10-K. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our condensed consolidated financial statements, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the 2023 10-K.

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 condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

New Accounting Pronouncements

See discussion under Note 2, Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for information on new accounting pronouncements.

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

Interest Rate Risk

As of September 30, 2024, we had cash and cash equivalents of $43.7 million and marketable securities of $11.6 million, consisting primarily of money market funds, commercial paper, U.S. treasury securities and U.S. government agency bonds, which carry a degree of interest rate risk. 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- to intermediate-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to fluctuations in interest rates.

The Term Loan bears variable interest rates tied to the prime rate, with a floor of 4.75%, and therefore carries interest rate risk. If interest rates were to increase or decrease by 1% for the year and our borrowing amounts on the Term Loan remained constant, the increase or decrease to our annual interest expense would not be material.

Inflation Risk

As of September 30, 2024, inflation remains at elevated levels in the U.S. and overseas where we conduct our business, resulting in rising interest rates and fuel, labor and processing, freight and other costs that have affected our gross margin and operating expenses. We believe these increases have negatively impacted our business, and although difficult to quantify, inflation is potentially having an adverse effect on our customers’ ability to purchase in our marketplaces, resulting in slowing revenue and Order growth. If we are unable to increase our prices to sufficiently offset the rising costs of doing business, our profitability and financial position could be adversely impacted.

Foreign Currency Exchange Rate Risk

We transact business in Europe through Remix in multiple currencies. As a result, our operating results, cash flows and net investment in Remix are subject to fluctuations due to changes in foreign currency exchange rates. As of September 30, 2024, our most significant currency exposure was the Bulgarian lev. We manage our foreign currency exchange rate risks through natural hedges including foreign currency revenue and costs matching, as well as foreign currency assets offsetting liabilities. We have not entered into any hedging arrangements with respect to foreign currency risk, but we may do so in the future if our exposure to foreign currency becomes more significant.

Assets and liabilities of our foreign operations are translated into dollars at period-end rates, while income and expenses are translated using the average exchange rate during the period in which the transactions occurred. The related translation adjustments were reflected as an immaterial favorable foreign currency translation adjustment during the nine months ended September 30, 2024, which was recognized in accumulated other comprehensive loss within our condensed consolidated balance sheet.

A hypothetical 10% change in foreign currency exchange rates would not have had a material impact on our financial condition or results of operations during any of the periods presented.

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 Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2024. 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, not absolute, assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent quarter ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designated and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

The Company is supplementing the risk factors previously disclosed in the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on March 5, 2024 (our “Fiscal 2023 10-K”) and in the section titled “Risk Factors” in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarters ended March 31, 2024 and June 30, 2024, filed with the SEC on May 6, 2024 and August 5, 2024 (our “First Quarter 2024 10-Q” and “Second Quarter 2024 10-Q”), to include the following risk factors, which should be read in conjunction with the other risk factors presented in our Fiscal 2023 10-K, First Quarter 2024 10-Q and Second Quarter 2024 10-Q.

New Risk Factors

The price of our Class A common stock currently does not meet the requirements for continued listing on Nasdaq. If we fail to regain and maintain compliance with the minimum listing requirements, our Class A common stock may be delisted, which could materially adversely affect the liquidity of our Class A common stock.

Our Class A common stock currently trades on the Nasdaq Stock Market LLC (“Nasdaq”). Nasdaq has requirements that a company must meet in order to remain listed on Nasdaq. For example, Nasdaq Listing Rule 5450(a)(1) requires listed securities to maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”) and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the Minimum Bid Price Requirement exists if the deficiency continues for a period of 30 consecutive trading days. Our Class A common stock is also listed on The Long Term

Stock Exchange (“LTSE”), which has a similar Minimum Bid Price Requirement.

On September 24, 2024, we received written notice (the “Notice”) from the Listing Qualifications Department of Nasdaq (the “Nasdaq Listing Department”) notifying us that, based on the closing bid price of our Class A common stock for the last 34 consecutive trading days, we no longer comply with the Minimum Bid Price Requirement. The Notice had no immediate effect on the listing of our Class A common stock on The Nasdaq Global Select Market. Pursuant to the Nasdaq Listing Rules, we have been provided an initial compliance period of 180 calendar days from the Notice to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the closing bid price of our Class A common stock must be at least $1.00 per share for a minimum of 10 consecutive trading days prior to March 24, 2025, and we must otherwise satisfy The Nasdaq Global Select Market’s requirements for listing. If we do not regain compliance within the compliance period(s), including any extensions that may be granted by Nasdaq, our Class A common stock will be subject to delisting. Pursuant to the LTSE Listing Rules, we have been given 180 calendar days, or until March 26, 2025, to regain compliance with the LTSE Minimum Bid Price Requirement. We intend to monitor the closing bid price of our Class A common stock and consider our available options to resolve the noncompliance with the applicable Minimum Bid Price Requirements. There can be no assurance that we will be able to regain compliance with Nasdaq’s or LTSE’s continued listing requirements or that Nasdaq or LTSE will grant us a further extension of time to regain compliance, if applicable. If our Class A common stock were to be delisted, the liquidity of our Class A common stock would be adversely affected, and the market price of our Class A common stock could decrease.

We have recorded, and may be required to record in the future, significant charges if our long-lived assets and goodwill become impaired.

We test long-lived assets and goodwill for impairment if changes in circumstances or the occurrence of events suggest impairment exists. In the third quarter of 2024, we announced our decision to exit the European market and initiated a strategic review of our 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. As a result, we performed a long-lived assets impairment assessment as well as a quantitative goodwill impairment assessment on our one reporting unit, in connection with the preparation of the Company’s financial statements for the quarterly period ended September 30, 2024.

Based on this assessment, we 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. The quantitative impairment assessment indicated that there was no impairment of goodwill related to our one reporting unit. In conducting the long-lived assets and goodwill impairment assessments, we estimated fair value 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 that included significant assumptions related to estimates of future revenues and operating expenses, long-term growth rates, working capital requirements, and discount rates.

It is possible that changes in circumstances, many of which are outside of our control, or in the numerous variables associated with the assumptions and estimates used in assessing the appropriate valuation of our long-lived assets and goodwill, could in the future result in other impairment charges, which could adversely affect our business, financial condition and results of operations.

Modified Risk Factors

Our efforts to identify and consummate a strategic alternative for our European operations conducted through our Remix subsidiary may not be successful.

Following a strategic review, we have determined to seek strategic alternatives for the Remix business with the intention to exit our existing European markets. Efforts to identify and consummate a strategic alternative may require significant management time and resources and have the potential to divert our attention from our ongoing business. We may need to make substantial investments of resources, including ongoing cash infusions to support the Remix business while we seek a strategic alternative, whether or not any strategic alternative is ultimately consummated. We also face risks associated with obtaining necessary regulatory approval for a strategic alternative, which could cause us to incur unanticipated liabilities and harm our business generally. We may be unsuccessful in identifying and consummating a strategic alternative for our European operations and any such alternative may not have the anticipated benefits, any of which could harm our business, results of operations and financial condition.