EDGAR 10-K Filing

Company CIK: 1825480
Filing Year: 2021
Filename: 1825480_10-K_2021_0001564590-21-014879.json

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ITEM 1. BUSINESS
Item 1. Business.
Overview
Our mission is to put people at the heart of commerce, empowering everyone to thrive.
We are a social marketplace that combines the human connection of a physical shopping experience with the scale, reach, ease, and selection benefits of eCommerce. In doing so, we bring the power of community to buying and selling online. We created Poshmark in 2011 to make buying and selling simple, social, and fun. Pairing technology with the inherent human desire to socialize, our marketplace creates passion and personal connections among users. We dynamically curate our marketplace into lifestyle categories that our users love, including apparel, accessories, footwear, home, beauty, and pets. Powered by our proprietary technology, our social marketplace is purpose-built to enable simple transactions, seamless logistics, and an engaging experience at scale. As of December 31, 2020, we had 6.5 million Active Buyers.
We empower people to sell a few items or to become successful entrepreneurs by providing them with end-to-end seller tools. We refer to this as “making selling a superpower.” Our comprehensive infrastructure makes it easy for sellers, from casual consumers to professional sellers, brands, and retailers, to build their businesses with seamless listing, merchandising, promotion, pricing, and shipping. Sellers use content, inventory selection, and social interactions to monetize their listings. Our transparent fee structure aligns our success with the success of our sellers. Our fee is 20% of the final price for sales $15 and over, or a flat rate of $2.95 for sales under $15. We attract, engage, and retain sellers by creating a vibrant community where sellers can use their personal passion for economic empowerment. We do not own or manage inventory as all products are listed, managed, sold, and shipped by our sellers, utilizing our transaction tools that makes the selling process seamless and easy. This asset-light model creates scalability and favorable working capital dynamics.
Our social features make the discovery and purchase process simple and enticing for buyers, fostering high engagement and retention. We enable buyers to discover, connect, and curate their network and news feed with that of other users who share similar styles and personal preferences, creating a fun shopping experience. Our marketplace is vast, with sellers listing millions of secondhand and new items across multiple categories. We use data-driven personalization to customize each user’s feed to feature the most relevant listings and make it easy to quickly search for and find products of interest. Furthermore, sellers list a variety of items across all price points, with the added benefit of being able to negotiate offers directly with buyers seeking to optimize their budget, allowing sellers to manage their listings to achieve their individual objectives. Because our marketplace features a massive selection of secondhand items, buyers are also able to support their personal style while minimizing their environmental impact.
The scale of our community of users, buyers, and sellers creates network effects that drive growth in our social marketplace. We make it easy for buyers and sellers to build and deepen relationships through a variety of social mechanisms designed to foster social interactions, create community, and drive engagement. As users join our community, they interact with one another and build personal networks through likes, comments, shares, follows, offers, and purchases. This engagement attracts new sellers who, in turn, increase the breadth and depth on our marketplace, and ultimately attract more buyers. Buyers often convert to becoming sellers after experiencing the ease and value of selling on our marketplace. At any time, a user may be a buyer, a seller, or both. This high velocity flywheel of community engagement drives strong monetization potential and an attractive business model with efficient user acquisition dynamics.
Proprietary technology and data underpin our community, social marketplace, logistics, and payments. Our eCommerce technology allows seamless, secure transaction capabilities in a highly distributed network across millions of buyers and sellers, without having to touch or own physical inventory. We rely on data science to personalize every user’s feed while offering powerful, easy to use tools to drive seller success. The result is a unique ecosystem built for social commerce, which leverages social tools to humanize the online shopping experience and harnesses community engagement, while providing an integrated end-to-end system across the transaction cycle, from shopping to shipping.
Future of Online Shopping is Social
While eCommerce offers substantial improvements to buyers over in-person shopping, namely the unparalleled scale and diversity of brands, styles, and price points, the personalization element remains a challenge. The sheer scale of online inventory can often overwhelm potential customers. Despite some advances in personalization, the online buyer experience is still largely one-way and transactional.
In the offline shopping experience, product discovery is inherently social. Shoppers are seeking the same in the digital world and increasingly turn to one another for recommendations and validation online. Social technology platforms take a central role in facilitating personal, meaningful interactions at scale through photos and discovery-based content. In addition, consumers increasingly favor resale shopping, fueled by the desire for sustainable consumption and increased orientation towards value. From the seller perspective, people continue to find ways to pursue their passions with a digital “side-hustle” or as digital entrepreneurs. The growing demand for social shopping online creates a meaningful opportunity for sellers to expand their potential customer base from local to global, with the data-driven ability to reach, acquire, and retain buyers.
The Poshmark Solution
Poshmark makes buying and selling simple, social, and fun.
Benefits to Buyers
Social and fun. Our shopping experience flourishes because of authentic human connection. We enable our buyers to grow their personal networks on our marketplace, driving positive social feedback, long-term engagement, and repeat purchases. Our community builds relationships through a variety of social actions and encourages sellers to style and promote each other’s items. Through Likes, Posh Parties, conversations, styling “Bundles,” and negotiations, we have brought the benefits of the real-world shopping experience online.
Simple and personalized. Our marketplace makes shopping and buying easy and accessible. Users access our marketplace on numerous devices, with a simple payment and shipping process and a consistent buying experience across the platform. Buyers can benefit from personalized experiences with sellers who understand their individual style, sizing, and fit. Our sellers offer a vast assortment of items and we offer the data-driven ability to sift through all of it and personalize the experience for each user. Sellers often send personal, handwritten notes to buyers along with their item, while buyers often write digital “love notes,” commenting on the purchase or seller experience.
Value shopping with breadth and depth. Our marketplace allows buyers to optimize the best value for them. Sellers offer a vast assortment of secondhand and new items at value price points enabling shoppers to easily find and purchase any style, including everyday items as well as hard-to-find items.
Win-win for environment and enduring style. Shopping on our marketplace allows members of our community to support their commitment to environmental sustainability across multiple products and brands that fit their personal style. We believe this trend will grow, in particular as the next generation of consumers age and have growing disposable income.
Benefits to Sellers
Easy and simple to rotate a closet or build and grow a business. End-to-end tools make selling a superpower through robust listing, fulfillment, and customer support capabilities. Underpinned by our proprietary technology, our millions of sellers can easily list their inventory in real time and connect with buyers. We offer an integrated stack for running a full-scale online shop from a mobile phone, supported by end-to-end marketplace tools for order fulfillment. The simplicity of this selling experience makes it possible for anyone to engage with buyers and sell on our marketplace, whether it is individuals cleaning out their closets, professional sellers building their own brands, local boutiques expanding online, merchants engaging other merchants, or brands and retailers building their online social store presence.
Ability to build a personal brand and loyal customers. Sellers use their personal passion to feature content, select and style inventory, and engage in social interactions to monetize their listings and drive the growth of their businesses. Sellers can create a personal brand and ongoing relationships with buyers on our marketplace, and this
social feedback helps keep sellers engaged. This is a powerful feature of our marketplace and has enabled entrepreneurial sellers to launch their businesses and build their own brands quickly and cost effectively, while empowering brands and retailers to deepen their interaction and engagement with our loyal customer base.
Built-in demand based on community scale and engagement. As our business has grown, we have invested in new technology and capabilities to allow our sellers to reach and engage with more users and buyers. We market and enable sellers to market their items through social tools so that sellers do not need to spend money on marketing to drive traffic to their listings.
Transparent business model and pricing. Our business model is simple. We make money when our sellers make money on our marketplace. We charge a transparent fee based on the final sale price of an item: 20% of the final price for sales $15 and over, or a flat rate of $2.95 for sales under $15. There are no other fees that the seller pays to sell on our marketplace.
Our Competitive Strengths
We believe that we have a number of competitive advantages that will enable us to maintain and expand our position as a leading social marketplace, including:
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Diverse, highly engaged, and loyal community built on genuine human connection. Our community is diverse and spans age and geography in the United States, Canada and Australia. Our users live in big cities and small towns and engage with each other across geographies to discover, list, buy, and sell items across all price points.
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Vast, curated social marketplace. By making it easy for anyone to sell, our marketplace can offer a vast and diverse collection of resale and new items. Our sellers offer a wide variety of items and provide a uniquely curated, constantly refreshed selection that they share with our community. Our algorithms personalize each user’s feed to feature the most relevant listings. Buyers can also quickly and easily search for specific items or categories. The dynamic nature of the product listings on our marketplace and the freshness of the curated assortments by our sellers further increase engagement on our marketplace.
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End-to-end social marketplace services provide a seamless buying and selling experience. Our end-to-end solutions are designed to connect buyers with sellers, promote listings, enable easy shipping, and grow sales. We provide buyers with the ability to meaningfully engage with sellers via socially curated content, video sharing capabilities, personal styling, and price negotiation. We also offer comprehensive marketplace services that make it seamless for sellers to grow their businesses on our marketplace. New listing creation, a simple and transparent fee structure, marketing and merchandising support, shipping management, sales reporting, and order management tools provide important value to our sellers, particularly those who seek to grow a successful small business on our marketplace.
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Proprietary technology and data platform designed to enable social interactions and transactions at scale. We have built our proprietary technology and data platform from the ground up and designed it to enable social interactions and transactions at scale, across iOS, Android, and on the web. We have built a complex social graph that helps power each user’s experience on our marketplace. Additionally, our technology allows for real-time updates, with the Poshmark feed refreshing in real time throughout the day with the new products, social updates, and recent deals.
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Supports sustainability. We believe that our marketplace can be a force for social good and drive more sustainable consumption. Consumers, in particular younger generations, are increasingly focused on sustainability. We deliver on this desire for sustainability by promoting resale, while also helping consumers to make and save money and fuel small business entrepreneurship.
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Visionary, founder-driven management team with complementary strengths. Poshmark is a social marketplace built on love and community. Since day one, this has been the vision of our founders and management team and remains the core tenant of our brand. Furthermore, we prioritize diversity of experience, thought, and background throughout our entire team, to ensure a breadth of complementary skill sets.
Our Growth Strategy
Community is the engine of our business, and our main priority is ensuring that this community continues to grow and transact. Our community provides both the supply and the demand on our social marketplace, which is critical to our success. We are therefore focused on expanding the community and fostering the best environment possible for a seamless and enjoyable shopping experience. We focus on the following elements of our strategy to drive our growth:
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Grow our community of Active Users. New users bring incremental social engagement, listings, and transactions to all users, which leads to a virtuous cycle-the more Active Users on our platform, the more powerful the network effect. Not only are we focused on growing the community in number, but also in diversity which directly feeds into the breadth of products and social interactions offered on our marketplace.
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Add new product categories. We organize all of the products on our marketplace into distinct, shoppable categories. Women’s was our first category, followed by our launch of Men’s and Kid’s in 2016. Plus and Petite Sizes were added in 2018 and 2019, respectively. In 2019, we added the Home category, in 2020, we added the Beauty and Toys categories, and in 2021, we added the Pets category. We anticipate adding new categories to expand our product offering and continue to serve demand from our diverse community.
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Drive innovation to increase engagement and enhance the marketplace. There is a strong correlation between the overall level of engagement on our platform and the frequency of transactions. As a result, we are focused on increasing engagement on our marketplace by adding new discovery elements and continuing to make social interaction with other users simple, useful, and fun. We plan to continue to innovate to increase engagement and make selling easier on our marketplace.
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Expand internationally. The more people we can reach, the greater the benefit to our users. We have designed our global infrastructure to serve a multitude of countries with minimal local support. We believe our marketplace can be successful in additional geographies outside of the United States and Canada, and we plan to strategically expand globally in the future. In 2021, we expanded our operations to Australia.
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Offer high impact enterprise seller services. Sellers are drawn to our social marketplace because we empower them to succeed. The more we invest in our marketplace, the more we enable our sellers to grow and scale their businesses efficiently, reaching a vast and diverse user base. We intend to enhance our enterprise selling services and continue to attract professional sellers, brands, and retailers to participate on our social marketplace.
The Poshmark Social Marketplace
Our User Experience-Driving Engagement Through Social Interactions
We believe that commerce on our marketplace is fundamentally driven by the engagement of our community. To harness this engagement, we have built a set of tools and features that are designed to drive broad user reach, while enabling our users to interact and engage with each other in meaningful ways throughout our platform.
Key social features on our app include:
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Share. Sharing a listing is a way to feature an item to a broad audience within the community. Users can share their own listings and those of other Poshmark users, spreading engagement exponentially.
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Like. A user is able to like any listing in our marketplace. When a user likes an item, the seller is notified of their interest and the like is archived so that the user can review or revisit the item at any point in time.
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Follow. Users can follow each other in our marketplace to expand their presence and network.
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Comment. Users can leave comments for sellers on their listings. This enables sellers to promptly respond to customer inquiries, which builds community engagement and drives conversion.
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Offer. Offers are a common way for buyers and sellers to negotiate the purchase price of an item and are a critical tool for price discovery. Both buyers and sellers have the ability to make an offer and it is a core engagement mechanism to draw users back to our marketplace.
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Posh Parties. Posh Parties are time and category-focused virtual events for our community, organized by Poshmark, where curated and relevant listings are shared.
Our Seller Services-Making Selling a Superpower
We believe that anyone can become a successful seller on our marketplace. We have built a broad set of tools that make selling simple and seamless, because we think selling should be a superpower. These tools harness the massive reach and engagement of our community and support selling end-to-end, from the listing process and marketing to fulfillment and customer support.
End-to-end marketing and selling features for sellers include:
Storefront Services: Our seller services help professionalize all sellers with their own unique storefronts.
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Listing. Sellers can list items for sale in a quick, simple, and free process that only takes a few minutes. Sellers upload images of an item and can include listing information around size, color, condition, brand, and pricing. The listing is broadcasted to all of the seller’s followers and can be connected directly to other social platforms and search engines, increasing user reach and engagement.
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Pricing. Sellers control the pricing of their listings and manage buyer negotiations. Sellers have the option to offer dynamic pricing or targeted discounts.
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Wholesale. We provide sellers the opportunity to purchase inventory in bulk for sale in their stores via Posh Wholesale.
Social Marketing Services: Sellers can engage with users and promote their listings through our Social Marketing Services. These services add a deeply personal element to the online shopping experience, leveraging social actions to deepen engagement and ultimately drive transactions.
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Posh Stories. Posh Stories enable sellers to showcase and sell their listings in short videos and photos that disappear in 48 hours.
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Bundles. Sellers can create a storewide seller discount to entice buyers to buy more than one item.
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Drops Soon. Sellers can pre-market items with Drops Soon, a tool that allows sellers to list items that are not yet available for purchase.
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Reposh. With the Reposh feature, sellers have a simple, one-click way to resell items bought on our marketplace.
Logistics and Payment Services: We provide a full range of logistics and payment support services, including shipping, payment, and authentication to ensure that both buying and selling are seamless.
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Shipping. Through Posh Post, sellers have an easy and fast shipping solution to fulfill a transaction. Buyers pay a flat fee to ship any item with the United States Postal Service, or the USPS, up to five pounds, regardless of size, price, or location. Sellers receive a pre-paid, pre-populated shipping label directly from Poshmark when an item is sold to facilitate shipping.
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Payment. We provide users with transaction processing, offering buyers a variety of payment methods, including credit card and Posh Credits, and providing sellers with payment remittance as quickly as 2-3 days.
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Authentication. We facilitate trust on our marketplace through features such as Posh Protect, where buyers can request refunds if an item is not as described, and Posh Authenticate, a physical authentication service offered at no charge for each item sold at $500 or more.
Customer Support Services: We provide ongoing customer support through our Community Services team, whether it is before or after a transaction. Our support services include dispute management, credit services, post order communication, and overweight package management.
Heart and Hustle Community Fund: Our recently announced Heart and Hustle Community Fund is one way we will recognize Poshmark sellers who are looking to grow their businesses on our social marketplace.
Competition
We face competition for both our buyers and our sellers from a wide range of competitors, which include both online or offline retailers, such as large marketplaces, national retail chains, local consignment and vintage stores and other venues or marketplaces. These competitors include, but are not limited to, Amazon, eBay, Etsy, Facebook, Mercari, Shopify, T.J.Maxx, and Walmart. We believe that our competition falls into two categories:
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Buying and Selling Merchandise. We compete for shopping market share across both new and resale merchandise. New merchandise consists of both items sold directly by manufacturers and retailers and examples of competitors include online and offline general retailers and specialty retailers. Resale merchandise consists of items that have been previously purchased and used and examples of competition include online and offline specialty retailers dedicated to resale merchandise, and informal, peer-to-peer venues for selling used items.
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Discovery and Engagement. We also face competition from social media sites and commerce enablement companies that provide other outlets for engagement time spent. For instance, social media sites that are not specifically dedicated to commerce, as well as offline gatherings that are focused on shopping.
We believe that we are well-positioned to compete effectively based on the experience and tools that we provide to sellers and buyers, awareness of our brand, and the social nature of our marketplace.
Intellectual Property
Our commercial success depends in part on our ability to obtain and maintain intellectual property protection for our brand and technology, defend and enforce our intellectual property rights, preserve the confidentiality of our trade secrets, operate our business without infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of third parties and prevent third parties from infringing, misappropriating or otherwise violating our intellectual property rights. We rely on a combination of patent, copyright and trade secret laws in the United States and other jurisdictions to protect our proprietary technology. We also rely on a number of international and domestic registered, pending and common law trademarks to protect our brand and, as of December 31, 2020, we own trademark registrations for “Poshmark” and the Poshmark logo in the United States and in certain foreign jurisdictions.
As of December 31, 2020, we own three issued patents in the United States, which are expected to expire as early as 2035, in each case assuming payment of all appropriate maintenance, renewal, annuity, or other governmental fees. We additionally own two pending U.S. non-provisional patent applications. These pending U.S. patent applications, if issued, are expected to expire as early as 2038, in each case without taking into account any possible patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees.
In addition to patents, we rely upon unpatented trade secrets and know-how and continuing technological innovation to develop and maintain our competitive position. However, trade secrets and know-how can be difficult to protect. We seek to protect our proprietary information, in part, by entering into confidentiality and proprietary rights agreements with our employees and independent contractors. Our employees are also generally subject to invention assignment agreements. We cannot guarantee, however, that we have executed such agreements with all applicable counterparties, such agreements will not be breached, or that these agreements will afford us adequate protection of our intellectual property and proprietary rights. See “Risk Factors-Risks Related to Our Business and Operations.”
Human Capital
Employees
Our human capital resources objective is to build amazing teams and foster a culture that is anchored by our values of focusing on people, leading with love, growing together, and embracing our weirdness.
As of December 31, 2020, we had 558 full-time employees of which 179 were in research and development, 62 were in marketing, 254 were in operations and support, and 63 were in general and administrative. None of our employees are represented by a labor union.
Compensation & Benefits
Our reward programs are designed to attract, motivate and retain great people who are passionate about our mission, drive our business forward, and create value for our stakeholders. We provide employees with competitive compensation packages that include base salary, short-term incentives and long-term incentives that are reviewed on an annual basis. Our comprehensive benefits package also includes medical, dental, vision, life and disability plans, as well as lifestyle benefits such as parental leave.
Employee Safety and Wellness
We are committed to promoting the health and wellbeing of our employees. As a result of the COVID-19 pandemic, we temporarily closed our corporate offices and transitioned the majority of our employees to remote work. To support the remote working environment, we implemented a program where employees have a monthly allowance that can be used to cover certain expenses related to health, wellness, and productivity. For our facilities that remain open, we have implemented safety standards based on guidance from public health authorities. For those who can work remotely, we will continue to offer work location flexibility throughout the 2021 year as the COVID-19 situation remains in flux. We will continue to monitor the evolving situation of COVID-19 and take all necessary precautions to ensure the health and safety of our employees, operations, and community.
Diversity and Inclusion
We are committed to building a diverse and inclusive workforce that is reflective of the community we serve. We strive to build a strong talent pipeline to create more opportunities for workplace diversity and support greater representation with our company. In 2020, we launched our Employee Resource Groups (ERG) program that empowers our employees to build internal communities, champion inclusion and belonging, and create development opportunities. We also developed more robust demographic data to measure progress in the hiring and development of underrepresented communities and historically marginalized groups.
Corporate and Available Information
We were incorporated in 2011 as GoshPosh, Inc., a Delaware corporation, and changed our name to Poshmark, Inc. in 2011. Our principal executive offices are located at 203 Redwood Shores Parkway, 8th Floor, Redwood City, California 94065, and our telephone number is (650) 262-4771. Our website is www.poshmark.com and our investor relations website is https://investors.poshmark.com.
We file or furnish electronically with the U.S. Securities and Exchange Commission (the “SEC”) annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. Such reports and other information filed or furnished by us with the SEC are available free of charge on our investor relations website as soon as reasonably practicable after we file or furnish them with the SEC. The SEC maintains a website at www.sec.gov that contains reports and other information regarding Poshmark and other companies that file electronically with the SEC. Information contained on or accessible through our websites is not incorporated into, and does not constitute part of, this Annual Report or any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Summary of Risk Factors
You should consider and read carefully all of the risks and uncertainties described below, as well as other information included in this Annual Report on Form 10-K, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this Annual Report on Form 10-K. We cannot assure you that the risk factors described below or elsewhere in our reports address all potential risks that we may face. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be not material could materially and adversely affect our business, results of operations or financial condition. In such case, the trading price of our common stock could decline. This Annual Report on Form 10-K also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described in this section. The principal risk factors are:
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Our continued growth depends on attracting new users and converting users into Active Buyers and Active Sellers. We must continue to encourage sellers to list items for sale and use our services. We must also encourage Active Buyers to return to our platform and frequently purchase items on our marketplace.
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We only recently became profitable and have experienced net losses. We may not be able to sustain our profitability and our revenue growth rate may decline. We experienced net losses of $14.5 million and $48.7 million in the years ended December 31, 2018 and 2019, respectively. We achieved our first quarter of profitability for the three months ended June 30, 2020. We cannot assure you that we will maintain our profitability in future periods, and we may incur significant losses in future periods.
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The COVID-19 pandemic has impacted, and will continue to impact, our business, results of operations, and financial condition. The extent to which the COVID-19 pandemic will continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted at this time.
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Our advertising activity may fail to efficiently drive growth in users, buyers, and sellers, which may not yield increased revenue, and the efficacy of these activities will depend on a number of factors.
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If we fail to manage growth effectively, our business, results of operations, and financial condition could be harmed.
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We rely, in part, on Internet search engines and social networking sites to help drive traffic to our apps and website. If we fail to appear prominently in the search results or fail to drive traffic through paid advertising, our traffic would decline and our business, results of operations, and financial condition would be adversely affected.
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If we fail to engage our users or innovate, improve and enhance our platform in a manner that responds to our users’ evolving needs, our business, results of operations, and financial condition may be adversely affected.
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The vibrancy of our community and trustworthiness of our marketplace are important to our success. If we are unable to maintain them, our ability to attract, engage and retain users could suffer.
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If sellers fail to provide a fulfilling experience to buyers, our reputation, business and the strength of our community could be harmed. If sellers fail to provide quality items that are consistent with current fashion trends or the likes of our community, our user growth, retention, and engagement may decline, and our reputation, business, and the strength of our community could be harmed.
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Shipping is a critical part of our business. We currently rely on the United States Postal Service, or the USPS, for our U.S. business and any changes in our shipping arrangements with the USPS or any interruptions in shipping could adversely affect our results of operations. In addition, shipping costs are rising faster than the rate of inflation, which could have an adverse impact on our business, results of operations, and financial condition.
If we are unable to adequately address these and other risks we face, our business, results of operations, financial condition, and prospects may be adversely affected.
Risks Related to Our Business and Operations
We have a short operating history in an evolving industry. As a result, our past results may not be indicative of future operating performance.
We have a short operating history in a rapidly evolving industry that may not develop in a manner favorable to our business. Our relatively short operating history makes it difficult to assess our future performance. You should consider our business and prospects in light of the risks and difficulties we may encounter.
Our future success will depend in large part upon our ability to, among other things:
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cost-effectively acquire new users;
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engage with our users and increase the number of Active Buyers and Active Sellers;
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foster and grow the Poshmark community of users;
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effectively manage our growth;
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develop new features to enhance the experience of our users;
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increase awareness of our brand;
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successfully expand the offering of items on our marketplace and the market categories we serve;
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adapt to rapidly evolving trends in the ways consumers interact with technology;
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compete effectively;
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hire, integrate, and retain talented people at all levels of our organization;
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maintain effective relationships with third parties, such as the USPS, Amazon Web Services, or AWS, and Braintree Payment Solutions, a subsidiary of PayPal;
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further develop our data analytics capabilities;
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maintain the quality and security of our technology infrastructure; and
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avoid interruptions in our business from information technology downtime and cybersecurity attacks and data breaches.
If we fail to address the risks and difficulties that we face, including those associated with the challenges listed above and those described elsewhere in this “Risk Factors” section, our business and our results of operations will be adversely affected.
Our continued growth depends on attracting new users and converting users into Active Buyers and Active Sellers.
In order to increase revenue and to maintain profitability, we must attract new users and convert Active Users into Active Buyers and Active Sellers in a cost-effective manner. We must continue to encourage sellers to list items for sale and use our services. We must also encourage Active Buyers to return to our platform and frequently purchase items on our marketplace. To increase the number of users, we must appeal to, and engage with, individuals who have historically used other means to sell or purchase apparel, footwear, and accessories, such as traditional brick-and-mortar apparel retailers or the apps or websites of our competitors. We reach new users through paid marketing, referral programs, organic word-of-mouth, and other methods of discovery, such as mentions in the press or Internet search engine results. If existing users are dissatisfied with their experience on our platform or do not find our platform appealing, whether because of a negative experience, unfulfilling social interactions, lack of user-friendly features, declining interest in the nature of the goods listed on our marketplace, or other factors, they may list fewer items or stop listing items on our marketplace or make fewer purchases, and they may stop referring others to us. In addition, consumer shopping preferences may also change from time to time, and if users do not
continue to list items on our marketplace that other users find appealing, our user base and user engagement may decline. Additionally, if we are not able to address user concerns regarding the safety and security of our platform, if we are unable to successfully prevent abusive or other hostile behavior on our platform, or if we fail to address the use of programs or other forms of automation to participate on our platform, the size of our user base and user engagement may also decline. For example, the use of such programs (commonly referred to as “bots”) to artificially inflate the popularity of users or their goods (including through liking, sharing, and following), or the perception that these programs are being used, could diminish the user experience on our platform. Although such programs are prohibited by our Terms of Service, or TOS, a small number of users have nonetheless made use of them in the past and may continue to do so in the future. Under these circumstances, we may have difficulty attracting and engaging users and converting them into Active Buyers or Active Sellers without incurring additional marketing expense.
Additionally, we anticipate that our growth rate will decline over time. To the extent that our growth rate slows, our business performance will become increasingly dependent on our ability to retain existing users, convert those existing users into Active Buyers and Active Sellers, and increase engagement of those Active Buyers and Active Sellers.
We only recently became profitable and have experienced net losses. We may not be able to sustain our profitability, and our revenue growth rate may decline.
We experienced net losses of $14.5 million and $48.7 million in the years ended December 31, 2018 and 2019, respectively. We achieved our first quarter of profitability for the three months ended June 30, 2020. We cannot assure you that we will maintain our profitability in future periods, and we may incur significant losses in future periods.
We cannot assure you that we will generate sufficient revenue to offset the cost of maintaining our platform and maintaining and growing our business in the future. We cannot assure you that our revenue will continue to grow or will not decline. Our revenue growth rate may decline in the future because of a variety of factors, including increased competition and the maturation of our business. You should not consider our historical revenue growth or operating expenses as indicative of our future performance. If our revenue growth rate declines or our operating expenses exceed our expectations, our financial performance will be adversely affected. We will need to generate and sustain increased revenue levels in future periods in order to maintain or increase our level of profitability.
Additionally, we also expect our costs to increase in future periods, which could negatively affect our future results of operations. We expect to continue to expend substantial financial and other resources on acquiring and retaining users, our technology infrastructure, research and development (including investments in our research and development team and the development of new features), expansion into new markets, marketing, and general administration (including expenses related to being a public company). These investments may not result in increased revenue or growth in our business. If we cannot successfully grow our revenue at a rate that exceeds the increases in costs associated with our business, we will not be able to maintain profitability or generate positive cash flow on a sustained basis.
The COVID-19 pandemic has impacted, and will continue to impact, our business, results of operations, and financial condition.
The impact of the ongoing COVID-19 pandemic is severe, widespread, and continues to evolve. The extent to which the COVID-19 pandemic will continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted at this time, including:
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the duration and spread of the pandemic, including any additional resurgences;
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governmental, business, and individuals’ actions that have been and continue to be taken in response to the pandemic, including voluntary or government mandated business closures and shelter in-place guidelines;
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the impact of the pandemic on national and global economic activity, unemployment levels, and capital and financial markets, including the possibility of a national or global recession;
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potential shipping difficulties, including delays in sellers shipping products, as well as delays in delivery services;
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the severity of travel restrictions imposed by geographic areas in which we operate;
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other business disruptions that affect our workforce; and
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actions taken throughout the world, including in markets in which we operate, to contain the COVID-19 pandemic or treat its impact.
The COVID-19 pandemic has resulted in a widespread global health crisis and adversely affected global economies and financial markets, and similar public health threats could do so in the future. Such events have impacted, and could in the future impact, demand for products sold on our platform, which in turn could adversely affect our revenue and results of operations. Further, the preventative and protective measures currently in place, or which may be instituted or re-instituted in the future, such as quarantines, closures, and travel restrictions, have interfered with the ability of our sellers to deliver products to our buyers. If delivery services are delayed or shut-down, or if they are perceived as unreliable, our GMV and revenue could be negatively impacted in the future.
The COVID-19 pandemic has had a variety of impacts on our business to date. In the initial weeks of the pandemic in the United States, we experienced a significant decrease in GMV. In the month of March 2020, we had negative 13% year-over-year GMV growth which in turn impacted the year-over-year GMV growth for the quarter ended March 31, 2020, which was 9%. Subsequently, in the quarter ended June 30, 2020, the year-over-year GMV growth rebounded to 42% as buyer and seller activity resumed. However, such trends may not continue and could be reversed. In particular, to the extent that federal and state governmental aid programs initiated in connection with the pandemic are reduced or terminated, consumer discretionary spending would likely decrease, which would have a negative impact on our business. In addition, although the COVID-19 pandemic has accelerated the trend toward eCommerce, it has negatively affected demand for apparel and fashion as retail categories. Responses to the COVID-19 pandemic such as prolonged work-from-home policies, quarantines, closures, and travel restrictions could continue to depress demand for the products sold on our platform. Even if a virus or other disease does not spread significantly and such measures are not implemented, the perceived risk of infection or significant health risk may adversely affect our business, results of operations, and financial condition.
In response to the COVID-19 pandemic, we have been required to temporarily close our corporate offices and the majority of our employees are currently working remotely, which impacts productivity and has otherwise disrupted our business operations, including by adding administrative complexity to our everyday human resources and employee technology functions. The remote working environment may also create increased vulnerability to cybersecurity incidents, including breaches of information systems security, which could damage our reputation and commercial relationships, disrupt operations, increase costs and/or decrease net revenue, and expose us to claims from users, suppliers, financial institutions, regulators, payment card associations, employees and others, any of which could have a material adverse effect on our business, results of operations, and financial condition.
To the extent the COVID-19 pandemic or a similar public health threat has an impact on our business, results of operations, and financial condition, it is likely to also have the effect of heightening many of the other risks described in this “Risk Factors” section.
Our advertising activity may not be effective, or may fail to efficiently drive growth in users, buyers, and sellers.
Our future growth and profitability depend in large part upon the effectiveness and efficiency of our advertising, promotion, public relations, and marketing programs, and we are investing heavily in these activities. These brand promotion activities may not yield increased revenue, and the efficacy of these activities will depend on a number of factors, including our ability to do the following:
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determine the effective creative message and media mix for advertising, marketing, and promotional expenditures;
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select the right markets, media, and specific media vehicles in which to advertise;
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identify the most effective and efficient level of spending in each market, media, and specific media vehicle; and
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effectively manage marketing costs, including creative and media expenses, to maintain acceptable user acquisition costs.
In response to the COVID-19 pandemic, we substantially reduced our advertising spend in 2020. While this reduction has not resulted in a commensurate reduction in revenue growth to date due to other factors related to the pandemic, you should not expect that a similar level of advertising spend in the future will be able to drive similar growth. We, therefore, plan to increase advertising spend in future periods to continue driving our growth. We also expect that the cost of advertising is likely to increase as we emerge from the pandemic and competition for advertising returns to normal levels. Additionally, increases in the pricing of one or more of our marketing and advertising channels could increase our marketing and advertising expenses or cause us to choose less expensive but possibly less effective marketing and advertising channels.
We also may incur marketing and advertising expenses significantly in advance of the time we anticipate recognizing revenue associated with such expenses, and our marketing and advertising expenditures may not generate sufficient levels of brand awareness or result in increased revenue. Even if our marketing and advertising expenses result in increased sales, the increase might not offset our related expenditures. If we are unable to maintain our marketing and advertising channels on cost-effective terms or replace or supplement existing marketing and advertising channels with similarly or more effective channels, our marketing and advertising expenses could increase substantially, our seller and buyer base could be adversely affected, and our business, results of operations, financial condition, and brand could suffer.
If we fail to manage growth effectively, our business, results of operations, and financial condition could be harmed.
We have experienced, and may continue to experience, rapid growth in our headcount, business, and operations, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. For example, our headcount grew from 343 full-time employees as of December 31, 2018 to 558 full-time employees as of December 31, 2020. In addition, our cumulative GMV grew at a 33% compound annual growth rate, or CAGR, from $807 million as of December 31, 2018 to $1.4 billion as of December 31, 2020.
We continue to increase the breadth and scope of our platform and our operations, and the growth we have experienced in our business places significant demands on our operational infrastructure. For example, our growth in 2017 put a significant strain on our Community Services team, which we believe led to a temporary decrease in user satisfaction.
The scalability and flexibility of our platform depends on the functionality of our technology and network infrastructure and its ability to handle increased traffic and demand. The growth in the number of users using our platform and the number of transactions processed through our platform has increased the amount of data and requests that we process. Any problems with the transmission of increased data and requests could result in harm to our brand or reputation. Moreover, as our business grows, we will need to devote additional resources to improving our operational infrastructure and continuing to enhance its scalability in order to maintain the performance of our platform. These efforts may require substantial financial expenditures, commitments of resources, developments of our processes, and other investments and innovations. Any investments we make will occur in advance of experiencing the benefits from such investments, making it difficult to determine in a timely manner if we are efficiently allocating our resources. These efforts may also involve hiring additional personnel, and we cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel in the future.
Furthermore, we believe that an important contributor to our success has been our corporate culture, which we believe fosters innovation, teamwork, passion for our users, and a focus on attractive designs and technologically advanced software. As we continue to grow, or acquire other companies, we must effectively integrate, develop, and motivate a growing number of new employees. As a result, we may find it difficult to maintain our corporate culture, which could limit our ability to innovate and operate effectively. Any failure to preserve our culture could
also negatively affect our ability to retain and recruit personnel, continue to perform at current levels, or execute on our business strategy.
If we fail to engage our users or innovate, improve, and enhance our platform in a manner that responds to our users’ evolving needs, our business, results of operations, and financial condition may be adversely affected.
The markets in which we compete are characterized by constant change and innovation, and we expect them to continue to evolve rapidly. Our success has been based on our ability to identify and anticipate the needs of our users and design a platform that provides them with the tools they want and need to engage and transact. Our ability to attract new users, retain existing users, and increase engagement of both new and existing users will depend in large part on our ability to continue to innovate and enhance the functionality, performance, reliability, design, security, and scalability of our platform.
We may experience difficulties with software development that could delay or prevent the development, introduction, or implementation of new features and enhancements. We must also continually update, test, and enhance our software platform. The continual improvement and enhancement of our platform requires significant investment, and we may not have the resources to make such investment. To the extent we are not able to improve and enhance the functionality, performance, reliability, design, security, and scalability of our platform in a manner that responds to our users’ evolving needs, our business, results of operations, and financial condition will be adversely affected.
The vibrancy of our community and trustworthiness of our marketplace are important to our success. If we are unable to maintain them, our ability to attract, engage, and retain users could suffer.
The vibrancy of our community and trustworthiness of our marketplace are the cornerstones of our business. The social interactions on our platform contribute significantly to our ability to attract, engage, and retain users. Many things could undermine these cornerstones, such as:
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declines in social activity on our platform or any negative sentiment or degradation in the nature of the social activity on our platform;
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complaints or negative publicity about us, our marketplace, or our policies and guidelines, even if factually incorrect or based on isolated incidents;
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an inability to gain the trust of prospective users;
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actions of, or online behavior by, users that are perceived to be hostile or inappropriate by other users;
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the use of programs or other forms of automation (such as “bots”) to participate on our platform;
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issues associated with the quality and authenticity of items listed on our marketplace;
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disruptions or defects on our marketplace, such as authenticity issues, privacy or data security breaches, site outages, payment disruptions, or other incidents that impact the reliability of our marketplace; and
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the failure of our sellers to deliver the items sold in our marketplace in a timely manner or at all.
If we are unable to maintain a vibrant community and trustworthy marketplace, then our ability to attract, engage, and retain users could be impaired and our reputation, business, results of operations, and financial condition would be adversely affected.
Our user metrics and other estimates are subject to inherent challenges in measurement, and inaccuracies in those metrics could have an adverse impact on our business, results of operations, and financial condition.
We regularly review metrics, including our Active Users, Active Buyers, and Active Sellers, to evaluate growth trends, measure our performance, and make strategic decisions. These metrics are calculated using internal company data and have not been validated by an independent third party. While these numbers are based on what we believe to be reasonable estimates of our user base for the applicable period of measurement, there are inherent
challenges in measuring how our platform is used. Errors or inaccuracies in our metrics or data could result in incorrect business decisions and inefficiencies.
For example, there are individuals who have multiple accounts on our platform. A user is separately identified on our marketplace by a unique email address; a single person could have multiple accounts and can count as multiple distinct users. If a significant understatement or overstatement of Active Users were to occur, we may expend resources to implement unnecessary business measures or fail to take required actions to attract a sufficient number of users to satisfy our growth strategies.
Further, certain of the other information we collect from users, including users’ dates of birth, and other demographic information, are self-reported and may differ from our users’ actual ages or other demographics. The age and other demographic information we report may be inaccurate if our users provide us with incorrect or incomplete information regarding their age or other attributes, or choose not to report this information. If we discover material inaccuracies in our user demographic metrics, we may inefficiently allocate our marketing budget or resources, which could seriously harm our business.
If sellers fail to provide a fulfilling experience to buyers, our reputation, business, and the strength of our community could be harmed.
We are dependent on our sellers to provide the vast and diverse merchandise that is available on our marketplace. If sellers fail to provide quality items that are consistent with current fashion trends or the likes of our community, our user growth, retention, and engagement may decline, and our reputation, business, and the strength of our community could be harmed.
A small portion of users have complained to us about their experience with our marketplace. For example, buyers have reported to us in the past that they have not received the items that they purchased, that the items received were not as represented by a seller, or that a seller has not been responsive to their questions. Sellers from time to time disagree with us when we resolve a dispute in favor of a buyer. Negative publicity and user sentiment generated as a result of these types of complaints could reduce our ability to attract new users, retain our current users, or damage our reputation. A perception that our levels of responsiveness and member support are inadequate could have similar results. In some situations, we may choose to reimburse buyers for their purchases to help avoid harm to our reputation, but we may not be able to recover the funds we expend for those reimbursements.
We face significant competition and may be unsuccessful in competing against current and future competitors. If our competitors are more successful in offering compelling products or in attracting and retaining buyers and sellers than we are, our revenue and growth rates could decline.
The retail industry is intensely competitive. Online retail, including on mobile devices and tablets, is rapidly evolving and is subject to changing technology, shifting consumer preferences and tastes, and frequent introductions of new products and services. To be successful, we need to attract and retain both buyers and sellers, who have a variety of choices when it comes to shopping and selling, both online and offline. We face competition for both our buyers and our sellers from a wide range of competitors, which include both online or offline retailers, such as large marketplaces, national retail chains, local consignment, and vintage stores and other venues or marketplaces. These competitors include, but are not limited to, Amazon, eBay, Etsy, Facebook, Mercari, Shopify, T.J.Maxx, and Walmart. Many of these competitors offer low-cost or free shipping, fast shipping times, favorable return policies, and other features that may be difficult for sellers to match, or may be a reason buyers choose not to buy items on our marketplace.
We compete with retailers of new and used goods, including big box retailers, specialty retailers, direct-to-consumer retailers, discount chains, independent retail stores, the online offerings of these traditional retail competitors, resale players focused on multiple, niche or single categories, as well as technology-enabled marketplaces or platforms that may offer the same or similar goods and services that we offer. We also face competition from social media sites and commerce enablement companies. Additionally, large retailers seeking to establish an online presence in the fashion industry may be able to devote substantially more resources to attracting users and exert more leverage over the supply chain for products than we can. Larger competitors may also be better capitalized to opportunistically acquire, invest in, or partner with other domestic and international businesses. We
believe that companies with a combination of technical expertise, brand recognition, financial resources, and eCommerce experience also pose a significant threat. In particular, if known incumbents in the eCommerce space choose to offer competing services, they may devote greater resources than we have available, have a more accelerated time frame for deployment, and leverage their existing user base and proprietary technologies to provide services or a user experience that consumers may view as superior.
Online retail companies and marketplaces, including emerging start-ups, may be able to innovate and provide products and services faster than we can. In addition, traditional brick-and-mortar based retailers offer consumers the ability to handle and examine products in person and offer a more convenient means of returning and exchanging purchased products. If our competitors are more successful in offering compelling products or in attracting and retaining buyers and sellers than we are, our revenue and growth rates could decline. If we are unable to compete for buyers and sellers successfully, or if competing successfully requires us to expend significant resources in response to our competitors’ actions, our business, results of operations, and financial condition could be adversely affected.
We derive all of our revenue from our marketplace. Failure of our marketplace to satisfy user demands or to achieve increased market acceptance could adversely affect our business, results of operations, and financial condition.
We derive and expect to continue to derive all of our revenue from transaction fees arising from sales by sellers to buyers on our marketplace. As such, the market acceptance of our marketplace is critical to our continued success. If we are unable to continue to meet user demands or to achieve more widespread market penetration of our marketplace, our business, results of operations, and financial condition will be adversely affected.
We launched Posh Remit in 2019, an automated service to collect sales tax for taxable items sold on our marketplace. This sales tax collection increased the costs our buyers pay for offerings on our marketplace and caused a negative impact on our GMV, and could adversely affect our business, results of operations, and financial condition.
On June 21, 2018, the U.S. Supreme Court held in South Dakota v. Wayfair, Inc. that states could impose sales tax collection obligations on out-of-state retailers even if those retailers lack any physical presence within the state. As a result of this decision, states have begun to enact marketplace collection laws that require marketplaces to collect sales tax on behalf of retailers. Based on these new laws, in April 2019, we implemented sales tax in 46 states that collect state or local sales tax, ahead of expected change in tax legislation. As a result, we saw a decrease in GMV growth, with the highest impact in higher-tax states. The sales tax adversely impacted the growth rate of our GMV and financial results in the quarter ended June 30, 2019 through the quarter ended March 31, 2020. We may also experience higher than historical growth for the next several quarters given the comparison to lower performing historical periods, and you should not assume that such growth will continue in future periods. The application of sales tax and other indirect taxes on cross-border sales by remote sellers is continuing to change and evolve. If one or more states increase their sales tax rates, or if we determine to collect sales tax in additional jurisdictions, including as a result of subsequent changes in marketplace collection laws, our platform could be less attractive to users, and we could experience further declines in GMV growth and in other key metrics. Posh Remit has created additional administrative burdens for us and put us at a competitive disadvantage with respect to our competitors that do not collect sales tax. In addition, the requirement to collect additional sales tax could result in liabilities related to improper or incorrect collecting and remitting of sales tax, and subject us to potential lawsuits or litigation related to such collection.
We may have to decrease our fees, which could adversely affect our results of operations.
We have limited experience with respect to determining the fee for sales on our platform, and we may need to change our pricing model from time to time. Currently, our fee is 20% of the final price for sales $15 and over, or a flat rate of $2.95 for sales under $15. In the future, we may be unable to attract new sellers or retain current sellers at these fee levels, as they may choose to sell their merchandise on other platforms with lower fees. Furthermore, pricing pressures and increased competition generally could result in having to decrease fees, which could cause reduced revenues, reduced margins, or losses, any of which would harm our business, results of operations, and financial condition.
Our expansion into new markets may be unsuccessful.
We intend to expand by entering into new markets. Our efforts to expand into new markets could fail for many reasons, including lack of acceptance of new offerings on our platform by existing or new users, our failure to promote the new markets effectively, or negative publicity about us or our new markets.
Expanding into new markets involves significant risk. For example, these initiatives may not drive increases in revenue, may require substantial investment and planning, and may bring us more directly into competition with companies that are better established or have greater resources than we do. Expanding into new categories may have a dilutive effect. It will require additional investment of time and resources of our management and personnel. If we are unable to cost-effectively expand into new markets, then our growth prospects and competitive position may be harmed and our business, results of operations, and financial condition may be adversely affected.
Our business depends on a strong and trusted brand, and we may not be able to maintain, protect, and enhance our brand and reputation.
We believe that maintaining our brand and reputation is critical to driving user engagement and attracting new users. Building our brand will depend largely on our sellers’ ability to continue to provide our users with a wide variety of high-quality merchandise, which they may not do successfully. User complaints or negative publicity about our platform, marketplace, merchandise, delivery times, or client support, especially on social media platforms, could harm our reputation and diminish the number of users that use our services.
Our brand depends in part on effective customer support, which requires significant personnel expense. Failure to manage or train our customer support representatives properly or inability to handle customer complaints effectively could adversely affect our brand, reputation, business, results of operations, and financial condition.
In addition, harm to our brand can arise from many other sources, including inadequate protection of sensitive information by us or our third-party partners, litigation and other claims, seller or buyer misconduct, and employee misconduct. If we do not successfully maintain a strong and trusted brand, our business, results of operations, and financial condition would be adversely affected.
If we are unable to successfully execute on our business strategy or if our strategy proves to be ineffective, our financial and business performance and growth could be adversely affected.
Our ability to execute on our strategy is dependent on a number of factors, including the ability of our senior management team and key leaders to execute the strategy, our ability to meet the changing needs of our sellers and buyers, and the ability of our employees to perform at a high level. If we are unable to execute on our strategy, if our strategy does not drive the growth that we anticipate, or if the public perception is that we are not executing on our strategy it could adversely affect our business, financial performance and growth.
Our security measures have in the past been, and may in the future be, compromised. Compromises of our data security could cause us to incur unexpected expenses and may adversely affect our reputation, business, results of operations, and financial condition.
In the ordinary course of our business, we and our third-party service providers collect, process, and store certain personal information and other data relating to individuals, such as our users and employees, including users’ names, email addresses, physical addresses, and transaction data. Our third-party service providers also store payment card information. We rely substantially on commercially available systems, software, tools, and monitoring to provide security for our processing, transmission, and storage of personal information and other confidential information. There can be no assurance, however, that we or our vendors will not suffer a data compromise, that hackers or other unauthorized parties will not gain access to personal information or other data, including payment card data or confidential business information, or that any such data compromise or access will be discovered on a timely basis. We have experienced a data breach and other security incidents in the past and any future failure to adequately maintain security and prevent unauthorized access to electronic and other confidential information could result in an additional data breach or security incident which could materially adversely affect our reputation, business, results of operations, and financial condition. The techniques used to obtain unauthorized access or to
sabotage systems change frequently and generally are not identified until they are launched against a target, and we and our third-party service providers may be unable to anticipate these techniques or to implement adequate preventative measures. For example, in 2017 we experienced an incident in which hackers targeted our systems and used stolen usernames and passwords obtained from data breaches of third parties to steal funds from our users, resulting in several thousand active accounts being compromised. In response to this incident, we implemented several changes, including engaging a third-party fraud vendor to monitor login events and requiring multi-factor authentication for key account changes, such as password changes, email, or redemption details. In addition, we reimbursed our users for any funds that were stolen; the aggregate amount of such reimbursements were not material. In addition, our employees, contractors, or other third parties with whom we do business may attempt to circumvent security measures in order to misappropriate such personal or other confidential information or other data or may inadvertently release or compromise such data.
As we gain greater public visibility, we may face a higher risk of being targeted by cyber-attacks. Although we rely on a variety of security measures, including commercially available systems, software, tools, and monitoring to provide security for our processing, transmission, and storage of personal information and other confidential information, we cannot assure you that such measures will provide absolute security, particularly given the increasingly sophisticated tools and methods used by hackers and cyber terrorists.
We are also reliant on the security practices of our third-party service providers, which may be outside of our direct control. Additionally, some of our third-party service providers, such as payment processing providers, regularly have access to some confidential and sensitive user data. If these third parties fail to adhere to adequate security practices, or experience a breach of their networks, our users’ data may be improperly accessed, used, or disclosed.
Compromise of our data security, failure to prevent or mitigate the loss of personal or business information and delays in detecting or providing prompt notice of any such compromise or loss could disrupt our operations, damage our reputation, and subject us to litigation, government action, or other additional costs and liabilities that could adversely affect our business, results of operations, and financial condition. For example, in August 2019 we announced a security breach where data from our users was acquired by an unauthorized third party, resulting in several million accounts being compromised. The data acquired contained information such as username, first and last name, gender, city, email address, and size preferences. We took numerous preventive measures, including forcing password changes and if another breach was to occur again, we may have to take additional measures that could be more costly in the future.
We may be unable to establish, maintain, protect, and enforce our intellectual property and proprietary rights or prevent third parties from making unauthorized use of our technology.
Our intellectual property is an essential asset of our business. We rely on trademark, copyright, patent, trade secret, and domain-name-protection laws, in addition to confidentiality agreements and other practices to protect our brands, proprietary information, technologies, and processes.
Our most material trademark asset is the registered trademark “Poshmark.” Our trademarks are valuable assets that support our brand and consumers’ perception of our services and merchandise. We also hold the rights to the “poshmark.com” internet domain name and various other related domain names, which are subject to internet regulatory bodies and trademark and other related laws of each applicable jurisdiction. If we are unable to protect our trademarks or domain names in the United States or in other jurisdictions in which we may ultimately operate, our brand recognition and reputation would suffer, we would incur significant rebranding expenses, and our results of operations could be adversely impacted. Our issued patents and those that may be issued in the future may not provide us with competitive advantages, may be of limited territorial reach, and may be held invalid or unenforceable if successfully challenged by third parties, and our patent applications may never be granted. Even if issued, there can be no assurance that these patents will adequately protect our intellectual property or survive a legal challenge, as the legal standards relating to the validity, enforceability, and scope of protection of patent and other intellectual property rights are uncertain. Our limited patent protection may restrict our ability to protect our technologies and processes from competition.
We primarily rely on trade secret laws and confidentiality agreements with our employees, collaborators, contractors, advisors, consultants, and other third parties, and invention assignment agreements with our employees, to protect our technologies and processes, including the algorithms we use throughout our business. The confidentiality agreements are designed to protect our proprietary information and, in the case of agreements or clauses containing invention assignment, to grant us ownership of technologies that are developed through a relationship with employees or third parties. We cannot guarantee that we have entered into such agreements with each party that has or may have had access to our trade secrets or proprietary information. Additionally, despite these efforts, no assurance can be given that the confidentiality agreements we enter into will be effective in controlling access to such proprietary information and trade secrets. The confidentiality agreements on which we rely to protect certain technologies may be breached, may not be adequate to protect our confidential information, trade secrets, and proprietary technologies, and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, trade secrets, or proprietary technology. Further, these agreements do not prevent our competitors or others from independently developing the same or similar technologies and processes, which may allow them to provide a service similar or superior to ours, which could harm our competitive position.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay the introduction and implementation of new technologies, impair the functionality of our marketplace, result in our substituting inferior or more costly technologies into our software, or injure our reputation. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Moreover, policing unauthorized use of our technologies, trade secrets, and intellectual property may be difficult, expensive, and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual property rights may be weak. If we fail to meaningfully establish, maintain, protect, and enforce our intellectual property and proprietary rights, our business, results of operations, and financial condition could be adversely affected.
We may be subject to intellectual property claims, which are extremely costly to defend, could require us to pay significant damages, and could limit our ability to use certain technologies in the future.
Companies in the internet and technology industries are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights. We periodically receive communications that claim we have infringed, misappropriated, or misused others’ intellectual property rights. To the extent we gain greater public recognition, we may face a higher risk of being the subject of intellectual property claims. Third parties may have intellectual property rights that cover significant aspects of our technologies or business methods and prevent us from expanding our offerings. Third parties may also allege a company is secondarily liable for intellectual property infringement, or that it is a joint infringer with another party. Any intellectual property claim against us, with or without merit, could be time consuming and expensive to settle or litigate and could divert the attention of our management. Litigation regarding intellectual property rights is inherently uncertain due to the complex issues involved, and we may not be successful in defending ourselves in such matters. In addition, some of our competitors have extensive portfolios of issued patents. Many potential litigants, including some of our competitors and patent holding companies, have the ability to dedicate substantial resources to enforcing their intellectual property rights. Any claims successfully brought against us could subject us to significant liability for damages, and we may be required to stop using technology or other intellectual property alleged to be in violation of a third party’s rights in one or more jurisdictions where we do business. We also might be required to seek a license for third-party intellectual property. Even if a license is available, we could be required to pay significant royalties or submit to unreasonable terms, which would increase our operating expenses. We may also be required to develop alternative non-infringing technology, which could require significant time and expense. If we cannot license or develop technology for any allegedly infringing aspect of our business, we would be forced to limit our service and may be unable to compete effectively. Any of these results could adversely affect our business, results of operations, and financial condition.
We may be subject to claims that items listed on our marketplace are counterfeit, infringing, or illegal which could be costly to defend and require us to pay damages.
Our success depends on our ability to accurately and cost-effectively determine whether an item offered through our marketplace is an authentic product. As the sophistication of counterfeiters increases, it may be increasingly difficult to identify counterfeit products. Additionally, we may be subject to allegations that a luxury item sold on our platform is not authentic despite our confirmed authentication of such item. Such controversy could negatively impact our reputation and brand and harm our business, results of operations, and financial condition.
When a luxury item with a value of $500 or greater is purchased on our marketplace, it is shipped directly to our headquarters for authentication. One of our trained employees on our authentication team then reviews the item for authenticity and either sends the item on to the buyer or refunds the purchase price to the buyer. If our employees fail to properly identify authentic goods or fail to identify counterfeit items, we could be subject to several risks including negative publicity and sentiment resulting from fraudulent or deceptive conduct by sellers as well as the threat of litigation from brands, including luxury brands, who believe counterfeit goods are being sold on our marketplace.
Our policies promote legal business practices, and our TOS permit us to take down a seller’s listing if we become aware of such illegal use. We do not proactively monitor or review the appropriateness of the content of our users’ activities, and we do not have control over users’ activities. The safeguards we have in place may not be sufficient for us to avoid litigation or liability, which could adversely affect our business, results of operations, and financial condition.
In addition, we periodically receive communications from brands claiming items sold on our marketplace violate third-party copyrights, trademarks, or other intellectual property rights. Our procedures may not effectively reduce or eliminate our liability. In particular, we may be subject to civil or criminal liability for activities carried out by sellers on our marketplace, especially outside the United States where laws may offer less protection for intermediaries and platforms than the United States. Under current U.S. copyright law and Section 230 of the Communications Decency Act, we may benefit from statutory safe harbor provisions that may help protect us from certain types of liability for content posted on our marketplace by sellers and buyers. However, trademark laws do not include similar statutory provisions, and liability for trademark infringement is often determined by court decisions. These safe harbors and court rulings may change unfavorably. In that event, we may be held secondarily liable for the intellectual property infringement of sellers on our marketplace.
Regardless of the validity of any claims made against us, we may incur significant costs and efforts to defend against or settle them. If a governmental authority determines that we have aided and abetted the infringement or sale of stolen, illegal, or counterfeit goods or if changes in the law result in us being liable for actions by sellers on our marketplace, we could face regulatory, civil, or criminal penalties. Successful claims by third-party rights owners could require us to pay substantial damages or reduce our ability to offer certain brands on our marketplace. These types of claims could force us to modify our business practices, which could lower our revenue, increase our costs, or make our marketplace less user-friendly.
Furthermore, while we strictly prohibit the sale of illegal items, sellers may try to sell stolen goods, impaired goods, replicas, or fakes, goods derived from threatened or extinct species, and misrepresented Native American or American Indian arts and crafts. Examples of products that may be interpreted as trading in or derived from threatened or extinct species include, but are not limited to, clothing, shoes, jewelry, fur, bags, accessories, rings, or bracelets containing parts or products from tigers, sharks, turtles, yaks, whales, dolphins, staghorn or elkhorn coral, rhinoceroses, boars, elephants, walruses, mammoths, or other endangered or extinct species. The public perception that stolen, illegal, or counterfeit or other unauthorized items are common on our marketplace, even if factually incorrect, could result in negative publicity and damage to our reputation.
Our procedures may not effectively reduce or eliminate our liability. Any of the foregoing could have an adverse effect on our business, results of operations, and financial condition.
Increased merchandise returns above current levels could harm our business.
We allow our customers to return products, subject to our return policy. If the rate of merchandise returns increases significantly or if merchandise return economics become less efficient, our business, financial condition and results of operations could be harmed. Further, we modify our policies relating to returns from time to time, which may result in customer dissatisfaction or an increase in the number of product returns. From time to time, our products are damaged in transit, and any increase in the occurrence of such damages can increase return rates and harm our business.
Our software is highly complex, and if it contains serious errors or defects, we may lose revenue and market acceptance and may incur costs to defend or settle claims with our sellers and harm our reputation among users.
Software such as ours often contains errors, defects, security vulnerabilities, or software bugs that are difficult to detect and correct, particularly when first introduced or when new versions or enhancements are released. Despite internal testing, our software may contain serious errors or defects, security vulnerabilities, or software bugs that we may be unable to successfully correct in a timely manner or at all, which could result in lost revenue, significant expenditures of capital, a delay or loss in market acceptance, and damage to our reputation and brand, any of which could adversely affect our business, results of operations, and financial condition.
Since some of our sellers use our services for processes that are critical to their businesses, errors, defects, security vulnerabilities, service interruptions, or software bugs on our marketplace could result in losses. Further, buyers or sellers could share information about bad experiences on social media, which could result in damage to our reputation and could adversely affect our business, results of operations, and financial condition.
Some of our software and systems contain open source software, which may pose particular risks to our proprietary applications.
We utilize open source software in the applications we have developed to operate our business and will use open source software in the future. Such open source software is generally licensed by its authors or other third parties under open source licenses and is typically freely accessible, usable, and modifiable. Pursuant to such open source licenses, we may be subject to certain conditions, including requirements that we offer our proprietary software that incorporates the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software, and that we license such modifications or derivative works under the terms of the particular open source license. We may face claims from third parties claiming ownership of, or demanding the release or license of, the open source software or derivative works that we developed from such software (which could include our proprietary source code), or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to purchase a costly license, publicly release the affected portions of our source code, or cease offering the implicated software unless and until we can re-engineer it to avoid infringement. We also may be required to re-engineer products if the license terms for incorporated open source software change. The re-engineering process of some or all of our software could require significant additional research and development resources, and we may not be able to complete it successfully. In addition, use of open source software can lead to greater risks than use of third-party commercial software because open source licensors generally do not provide warranties or controls on the origin of the software. Use of open source software may also present additional security risks because the public availability of such software may make it easier for hackers and other third parties to determine how to breach our website and systems that rely on open source software. These risks could be difficult to eliminate or manage and, if not addressed, could adversely affect our business, results of operations, and financial conditions.
If we fail to attract and retain key personnel, or effectively manage succession, our business, results of operations, and financial condition could be adversely affected.
Competition for key personnel is strong, especially in the San Francisco Bay Area where our headquarters are located, and we cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel in the future or that the compensation costs of doing so will not adversely affect our results of operations. If we are
unable to retain, attract, and motivate talented employees with the appropriate skills at cost-effective compensation levels or if changes to our business adversely affect morale or retention, we may not achieve our objectives, and our business, results of operations, and financial condition could be adversely affected.
In addition, our failure to put in place adequate succession plans for senior and key management roles or the failure of key employees to successfully transition into new roles could have an adverse effect on our business and results of operations. The unexpected or abrupt loss of one or more of our key personnel or the failure to effectively transfer knowledge and effect smooth key personnel transitions could have an adverse effect on our business. In particular, our Chief Executive Officer, Mr. Chandra, has unique and valuable experience leading our company from its inception through today. If he were to depart or otherwise reduce his focus on our business, our business may be severely disrupted. We do not currently maintain key-person life insurance policies on any members of our senior management team or other key employees.
To attract and retain key personnel, we use equity incentives, among other measures. These measures may not be sufficient to attract and retain the personnel we require to operate our business effectively. Additionally, members of our senior management team and many of our employees hold stock options that are or will become exercisable for Class A common stock that will be tradeable following our initial public offering, which may adversely impact our ability to retain these employees. Further, the equity incentives we currently use to attract, retain, and motivate employees may not be as effective as in the past, particularly if the value of the underlying stock does not increase commensurate with expectations or consistent with our historical stock price growth. If we are unable to attract and retain high-quality management and operating personnel, our business, results of operations, and financial condition could be adversely affected.
We may incur significant losses from fraud.
We have in the past incurred and may in the future incur losses from various types of fraud, including stolen credit card numbers, account takeovers, claims that a user did not authorize a purchase, merchant fraud, and users who have closed bank accounts or have insufficient funds in open bank accounts to satisfy payments. Although we have measures in place to attempt to detect and limit the occurrence of fraudulent and other illegal activity, those measures may not always be effective. In addition to the direct costs of such losses, if the fraud is related to credit card transactions and becomes excessive, it could potentially result in us paying higher fees or losing the right to accept credit cards for payment. In addition, under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder’s signature. Our failure to adequately prevent fraudulent transactions or follow payment card industry data security standards could damage our reputation, result in litigation or regulatory action, and lead to expenses that could substantially impact our business, results of operations, and financial condition.
Sellers may falsely describe or promote items or take portions of branded items and re-purpose them into other items like jewelry. Negative publicity and user sentiment resulting from fraudulent or deceptive conduct by users, or the sale of products derived from threatened or extinct species, or the perception that our levels of responsiveness and customer support are inadequate could reduce our ability to attract new users or retain existing users and damage our reputation.
In addition, even though our TOS provide that taking any part of a transaction off our platform is a violation of our rules, and even though we cannot protect such transactions or uphold such agreements, a small number of transactions is nonetheless conducted outside our platform between buyers and sellers who initially located each other on our platform. We do not receive any fees from those transactions, which results in fewer revenues to us, and any future increase in such off-platform transactions would likely lead to further decreases in our revenue.
Our results of operations are subject to seasonal and quarterly variations in our revenue and operating income. As a result, our quarterly results may fluctuate and could be below expectations, which could cause our stock price to decline.
Our business is seasonal, and we expect this seasonality to continue in the future. If we experience lower than expected revenue during any quarter that traditionally experiences seasonally high revenue, it may have a significant impact on our business, results of operations, and financial condition for that year. Any factors that harm quarterly
results of operations, including unfavorable economic conditions, could have a disproportionate effect on our results of operations for our entire fiscal year.
Our results of operations have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of our future performance, and comparing our results of operations on a period-to-period basis may not be meaningful. In addition to the other risks described herein, factors that may affect our results of operations include the following:
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fluctuations due to the seasonality of our business described above;
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our ability to attract users, and convert those users into buyers, and sellers;
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our ability to retain our existing users at existing levels and expand their engagement on our platform;
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the amount and timing of our costs, including operating expenses;
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potential accelerations of prepaid expenses and deferred costs;
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the timing and success of new services, features, and products we introduce;
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our ability to effectively launch and manage new categories;
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our ability to effectively launch and manage new markets;
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promotional pricing by the brands that are resold on our platform, which could cause our sellers to need to lower their prices to sell items;
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our ability to manage our existing business and future growth;
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the success of our marketing efforts;
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our success in executing on our strategy and the impact on any changes in our strategy;
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the impact of competitive developments and our response to those developments;
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adverse economic and market conditions, such as currency fluctuations;
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disruptions or defects in our marketplace, such as privacy or data security breaches errors in our software, or other incidents that impact the availability, reliability, or performance of our platform;
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the impact of the COVID-19 pandemic, or other global health pandemics;
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the amount and timing of non-cash expenses, including stock-based compensation and other non-cash charges;
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awareness of our brand; and
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our ability to recruit and retain employees.
Fluctuations in our quarterly operating results and key metrics may cause such results to fall below our financial guidance, or the expectations of our analysts that may cause our stock to decline. These fluctuations could also cause a number of other problems. You should not rely on the results of one quarter as an indication of future performance.
We rely on consumer discretionary spending and may be adversely affected by economic downturns and other macroeconomic conditions or trends.
Macroeconomic conditions may adversely affect our business. If general economic conditions further deteriorate in the United States, consumer discretionary spending may decline and demand for the items available on our marketplace may be reduced. This decline would cause sales on our marketplace to decline and adversely impact our business, results of operations, and financial condition. Our business, results of operations, and financial condition are also subject to global economic conditions and their impact on consumer discretionary spending. Some of the factors that may negatively influence consumer spending, many of which are becoming increasingly present as a result of the COVID-19 pandemic and political instability, include high levels of unemployment, higher consumer debt levels, reductions in net worth, declines in asset values and related market uncertainty, home
foreclosures and reductions in home values, fluctuating interest rates and credit availability, fluctuating fuel and other energy costs, fluctuating commodity prices, general uncertainty regarding the overall future political and economic environment, and recent large-scale social unrest across much of the United States. Economic conditions in certain regions may also be affected by natural disasters, such as earthquakes, hurricanes, tropical storms, and wildfires. Consumer purchases of discretionary items, including the merchandise that we offer, generally decline during periods of economic uncertainty when disposable income is reduced or when there is a reduction in consumer confidence.
Even without changes in economic conditions, the demand for the items listed on our marketplace is dependent on consumer preferences. Consumer preferences can change quickly and may differ across generations and cultures. If demand for the items that sellers offer on our marketplace declines, our business would be harmed. Our growth prospects would also be hampered if the shift from brick-and-mortar retail to online and mobile commerce does not continue.
We may require additional capital to support business growth, and this capital might not be available, may not be available to us on acceptable terms, or may be available only by diluting existing stockholders.
We intend to continue making investments to support our business growth and may require additional funds to support this growth and respond to business challenges, including the need to develop our services, enhance our operating infrastructure, expand the markets in which we operate, and potentially acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our Class A common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and our business, results of operations, and financial condition could be adversely affected. Our decision to issue securities in the future will depend on numerous considerations, including factors beyond our control, and therefore we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our common stock and diluting their interest.
If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, and the rules and regulations of the listing standards of the Nasdaq Global Select Market, or Nasdaq. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting related costs and significant management oversight.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, deficiencies or weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.
Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which could have a negative effect on the trading price of our Class A common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq. As a public company, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second Annual Report on Form 10-K.
Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business, results of operations, and financial condition and could cause a decline in the price of our Class A common stock.
We plan to expand our operations abroad where we have no operating experience and will be subject to risks associated with operations abroad.
Expanding our platform into markets outside of the United States is an important part of our strategy. We launched Poshmark in Canada in 2019 and in Australia in 2021, and are considering launching in additional international geographies. We plan to enter international markets where we have no experience in marketing, selling, and deploying our platform. The nature of the items that sellers list on our marketplace may not appeal to non-U.S. users in the same way as they do to users in the United States. Also, visits to our marketplace from buyers outside the United States may not convert into sales as often as visits from within the United States, including due to the impact of the strong U.S. dollar relative to other currencies. Our success in markets outside the United States will be linked to our ability to attract local sellers and buyers to our platform. If we are not able to do so, our growth prospects could be harmed.
In addition, competition is likely to intensify in the international markets where we plan to expand our operations. Local companies based in markets outside the United States may have a substantial competitive advantage because of their greater understanding of, and focus on, those local markets. Some of our competitors may also be able to develop and grow in international markets more quickly than we will.
Expansion in markets outside of the United States also requires significant financial investment. These investments include marketing to attract and retain new users, contracting with localized delivery and payment services, forming relationships with third-party service providers, supporting operations in multiple countries, and potentially acquiring companies based outside the United States and integrating those companies with our operations.
In addition, we are subject to a variety of risks inherent in doing business internationally, including:
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political, social, and economic instability;
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impact of global health pandemics, including the ongoing COVID-19 pandemic;
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risks related to the compliance with different (and sometimes conflicting) legal and regulatory environments in foreign jurisdictions, including with respect to privacy, and unexpected changes in laws, regulatory requirements, and enforcement;
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potential damage to our brand and reputation due to compliance with local laws, including requirements to provide user information to local authorities;
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fluctuations in currency exchange rates;
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higher levels of credit risk and payment fraud;
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potentially heighted risk of fraudulent or other illegal transactions;
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higher shipping costs;
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complying with multiple tax jurisdictions;
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managing and staffing operations over a broader geographic area with varying cultural norms and customs;
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adapting our platform to local cultural norms and customs;
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complying with a variety of foreign laws, including certain employment laws requiring national collective bargaining agreements that set minimum salaries, benefits, working conditions, and termination requirements;
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reduced protection for intellectual-property rights in some countries;
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difficulties in staffing and managing global operations and the increased travel, infrastructure, and compliance costs associated with multiple international locations;
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regulations that might add difficulties in repatriating cash earned outside the United States and otherwise preventing us from freely moving cash;
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import and export restrictions and changes in trade regulation;
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complying with statutory equity requirements;
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carrying levels of internet, e-commerce, and mobile technology adoption and infrastructure;
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our ability to enforce contracts and intellectual property rights in jurisdictions outside the United States;
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geopolitical events such as natural disasters, terrorism and acts of war;
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complying with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar laws in other jurisdictions; and
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export controls and economic sanctions administered by the Department of Commerce Bureau of Industry and Security and the Treasury Department’s Office of Foreign Assets Control.
Finally, operating in markets outside of the United States requires significant management attention. If we invest substantial time and resources to expand our operations outside of the United States and cannot manage these risks effectively, the costs of doing business in those markets may be prohibitive or our expenses may increase disproportionately to the revenue generated in those markets.
If we fail to deploy or manage our operations in international markets successfully, our business, results of operation, and financial condition may suffer.
If we are unable to make acquisitions and investments, or successfully integrate them into our business, our business, results of operations, or financial condition could be harmed.
As part of our business strategy, we may acquire other companies or businesses. However, we may not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all. Acquisitions involve numerous risks, any of which could harm our business, results of operations, and financial condition, including:
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difficulties in integrating the technologies, operations, existing contracts, and personnel of an acquired company;
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difficulties in supporting and transitioning clients and suppliers, if any, of an acquired company;
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diversion of financial and management resources from existing operations or alternative acquisition opportunities;
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failure to realize the anticipated benefits or synergies of a transaction;
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failure to identify all of the problems, liabilities, or other shortcomings or challenges of an acquired company or technology, including issues related to intellectual property, regulatory compliance practices, revenue recognition, or other accounting practices, or employee or client issues;
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risks of entering new markets in which we have limited or no experience;
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potential loss of key employees and clients from either our current business or an acquired company’s business;
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inability to generate sufficient revenue to offset acquisition costs;
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additional costs or equity dilution associated with funding the acquisition; and
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possible write-offs or impairment charges relating to acquired businesses.
Our operations could be significantly hindered by the occurrence of a natural disaster, terrorist attack, or other catastrophic event.
Our business operations are susceptible to outages due to earthquakes, fire, floods, power loss, hurricanes, tornadoes, and other adverse weather and climate conditions, public health crises such as the COVID-19 pandemic, political crises such as terrorist attacks, war and other political instability, social unrest, or other catastrophic events, telecommunications failures, and other events beyond our control. In addition, a substantial portion of our facilities, including our headquarters, are located in Northern California, an area susceptible to earthquakes and wildfires, and are thus vulnerable to damage. We do not carry earthquake insurance for earthquake-related losses. In addition, public health crises, such as the COVID-19 pandemic, acts of terrorism, and other geo-political unrest could cause disruptions in our business or the business of our buyers or sellers, or the economy as a whole. To the extent that such events disrupt our business or the business of our current or prospective users, or adversely impact our reputation, such events could adversely affect our business, results of operations, and financial condition.
We may not accurately forecast our results of operations or appropriately plan our expenses.
We base our current and future expense levels on our operating forecasts and estimates of future results. Operating results are difficult to forecast because they generally depend on the volume and timing of the activity of our users, which are uncertain. Additionally, our business is affected by general economic and business conditions around the world. A decrease in our revenue could be caused by changes in consumer preferences or a weakening in global economies and we may be unable to adjust our spending in a timely manner to compensate for any unexpected shortfall in revenue. This inability could cause our operating results in a given quarter to miss our expectations or those of securities analysts or investors. We also make certain assumptions when forecasting the amount of expense we expect related to our share based payments, which includes the expected volatility of our share price, the expected life of share options granted, and the expected rate of share option forfeitures. These assumptions are partly based on historical results. If actual results differ from our estimates, our business, results of operations, or financial condition may be harmed.
Risks Related to our Dependence on Third Parties
We rely, in part, on Internet search engines and social networking sites to help drive traffic to our apps and website. If our access to internet and mobile networks is impeded or we fail to appear prominently in the search results or fail to drive traffic through paid advertising, our traffic could decline and our business, results of operations, and financial condition would be adversely affected.
We depend in part on Internet search engines, such as Google, Bing, and Yahoo!, as well as social networking sites such as Facebook, Instagram, Snapchat, TikTok, and Pinterest, to drive traffic to our website. Our ability to maintain and increase the number of visitors directed to our website is not entirely within our control. Our competitors may increase their search engine optimization efforts and outbid us for placement on various search engines, resulting in their websites receiving a higher search result page ranking than ours. Additionally, Internet search engines could revise their methodologies in a way that would adversely affect our search result rankings, or they could remove our paid listings altogether. For example, in January 2019, Google temporarily suspended our paid listings appearing on its search engine on account of the number of items for sale on our website that Google perceived to be replicas. We continue to take steps to identify listings that might be replicas; however, there can be no assurance that replicas or perceived replicas may still be listed from time to time. If Internet search engines modify their search algorithms in ways that are detrimental to us, remove our paid listings or if our competitors’ efforts are more successful than ours, overall growth in users could slow or the number of users using our platform could decline. Internet service providers may also choose to disrupt or degrade access to our platform or increase the cost of such access or mobile network operators or operating system providers could block or place onerous
restrictions on the ability to download and use our mobile apps. Furthermore, mobile operating system and web browser providers, such as Apple and Google, have announced plans to limit the ability of advertisers to collect and use data to target and measure advertising. For example, Apple recently announced changes to iOS 14 that will require apps to get a user’s opt-in permission before tracking or sharing the user’s data across apps or websites. Such changes will reduce our ability to efficiently target and measure advertising and may make our advertising less effective. Any reduction in the number of users directed to our website through Internet search engines or social networking sites, or any impediment to our access to the internet or mobile networks could harm our business, results of operations, and financial condition.
Outside of the United States, it is possible that governments of one or more countries may seek to censor content available on our platform or may even attempt to block access to our platform. If we are restricted from operating in one or more countries, our ability to attract and retain sellers and buyers may be adversely affected and we may not be able to grow our business as we anticipate.
Shipping is a critical part of our business. We currently rely on the USPS for our U.S. business, and any changes in our shipping arrangements with the USPS or any interruptions in shipping could adversely affect our business results of operations, and financial condition. In addition, shipping costs are rising faster than the rate of inflation, which could have an adverse impact on our business, results of operations, and financial condition.
We currently rely on the USPS to enable sellers to easily ship the products they sell on our marketplace in the United States. The COVID-19 pandemic has impacted the USPS and caused delays, and the COVID-19 pandemic, and any future pandemic, epidemic, or similar outbreak, may disrupt the USPS’s ability to meet their obligations to us, which may negatively affect our operations. In addition, there has been recent news coverage about politicization of, and funding challenges at, the USPS, and reports of significant service delays. In addition, delays or interruptions in shipping may be caused by inclement weather, natural disasters, labor disputes, transportation disruptions, acts of war or terrorism, public health crises, labor unrest, government shut-downs, and similar factors. Delays in the shipping of items sold on our marketplace may result in the cancellation of a purchase by the buyer. If sellers do not deliver items sold in a timely manner, if items sold on our marketplace are damaged or lost during the delivery process, or if users perceive that there could be such delivery delays or failures, our users could become dissatisfied and cease using our services, which would adversely affect our business, results of operations, and financial condition.
Furthermore, in the event of an interruption in the USPS’s delivery capabilities, we may not be able to obtain an alternate delivery service without incurring material additional costs and substantial delays, which could adversely impact our revenue, gross margins, and results of operations. Our agreement with the USPS is scheduled to expire in March 2023. If we are not able to renew the agreement or if we are not able to renegotiate acceptable pricing and other terms with the USPS or they experience performance problems or other difficulties, it could negatively impact our business, results of operations, and financial condition and our users’ experience. Furthermore, the USPS may introduce improved scanning technology to measure the weight and dimensions of packages which may cause us to incur additional shipping costs for excess weight and oversized packages. In addition, shipping costs are rising faster than the rate of inflation in the economy in general, thereby making our products more expensive relative to other goods and services with cheaper or free shipping, which could lead to a reduction in the demand for items available on our marketplace. This would cause sales on our marketplace to decline and could adversely impact our business, results of operations, and financial condition.
We rely on AWS to host our mobile app and website and on third parties to process payments on our online marketplace. Any significant disruption in service provided by, or termination of our relationship with, AWS and such third parties could damage our reputation and result in loss of users, buyers, and sellers, which would harm our business, results of operations, and financial condition.
Our brand and ability to attract and retain buyers and sellers depends in part on the reliable performance of our network infrastructure and content delivery process. We have experienced, and expect that in the future we will experience interruptions, delays, and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions, and capacity constraints that could affect the availability of services on our platform and prevent or inhibit the ability of buyers to access our
online marketplace or complete purchases on our apps and website. We currently host our platform and support our operations using AWS. We do not have control over the operations of the facilities of AWS that we use. AWS’ facilities are vulnerable to damage or interruption from natural disasters, cybersecurity attacks, terrorist attacks, power outages, and similar events or acts of misconduct. The continuing and uninterrupted performance of our online marketplace is critical to our success. Volume of traffic and activity on our online marketplace spikes on certain days and during certain periods of the year and any interruption would be particularly problematic if it were to occur during a high volume time. In the event that our agreement with AWS is terminated, we may experience downtime for a short period or significant short-term costs in connection with the transfer to, or the addition of, new cloud infrastructure service providers, which could cause short-term harm to our business, financial condition, or results of operations.
We rely on third-party payment processors to process payments made by buyers on our marketplace. If our third-party payment processors terminate their relationships with us or refuse to renew their agreements with us on commercially reasonable terms, we would need to find an alternate payment processor and may not be able to secure similar terms or replace such payment processors in an acceptable time frame. Further, the software and services provided by our third-party payment processors contain errors or vulnerabilities, be compromised, experience outages, or not meet our expectations. Any of these risks could cause us to lose our ability to accept online payments, make payments to sellers, or conduct other payment transactions, any of which could make our platform less convenient and attractive and adversely affect our ability to attract and retain buyers and sellers.
Risks Related to our Legal and Regulatory Environment
We store, process, and use data, some of which contains personal information. This subjects us to complex and evolving federal, state, and foreign laws and regulations regarding privacy, data protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to our business practices, increased cost of operations, and declines in user growth, retention, or engagement, any of which could seriously harm our business, results of operations, and financial conditions.
We collect and maintain significant amounts of personal information and other data relating to our users and employees. Numerous federal, state and international laws, rules, and regulations govern privacy and the collection, use, and protection of personal information and can expose us to enforcement actions and investigations by regulatory authorities, and potentially result in regulatory penalties and significant legal liability, if our compliance efforts fail. For example, in June 2018 the State of California enacted the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020 and broadly defines personal information, gives California residents expanded privacy rights and protections, and provides for civil penalties for violations and a private right of action for data breaches. In addition, California voters recently approved the California Privacy Rights Act, or CPRA. Among other changes, the CPRA would establish a dedicated privacy regulator in California, create a new category of “sensitive information” over which California residents have additional rights, and require businesses to implement data minimization principles. Future laws, regulations, standards, and other obligations, including those related to the CCPA, and changes in the interpretation of existing laws, regulations, standards, and other obligations could impair our ability to collect, use, or disclose information relating to consumers.
Laws, rules, and regulations concerning privacy, data protection, and data security evolve frequently and may be inconsistent from one jurisdiction to another or may be interpreted to conflict with our practices. For example, in addition to the developments in California, a number of other states are considering privacy legislation similar to the CCPA and/or other potential privacy laws. We expect that there will continue to be new proposed laws, regulations, and industry standards concerning privacy, data protection, and information security in the United States, the EU, and other jurisdictions. We cannot yet fully determine the impact that these or future laws, rules, and regulations may have on our business or operations. Additionally, we may be bound by contractual requirements applicable to our collection, use, processing, and disclosure of various types of data, including personal information, and may be bound by, or voluntarily comply with, self-regulatory or other industry standards relating to these matters.
Any failure or perceived failure by us or any third parties with which we do business to comply with these laws, rules, and regulations, or with other obligations to which we may be or may become subject, may result in actions against us by governmental entities, private claims and litigations, fines, penalties, or other liabilities, or
result in orders or consent decrees forcing us to modify our business practices. Any such action would be expensive to defend, would damage our reputation and adversely affect our business, results of operations, and financial condition.
Unfavorable changes or failure by us to comply with evolving internet and eCommerce regulations could substantially harm our business, results of operations, and financial condition.
We are subject to general business regulations and laws as well as regulations and laws specifically governing the internet and eCommerce. These regulations and laws may involve taxes, privacy and data security, consumer protection, the ability to collect and/or share necessary information that allows us to conduct business on the internet, payment processing, marketing communications and advertising, content protection, electronic contracts, or gift cards. Furthermore, the regulatory landscape impacting internet and eCommerce businesses is constantly evolving which could expose us to enforcement actions and investigations by regulatory authorities, and potentially result in regulatory penalties. For example, California has proposed legislation that would expand product liability of defective products to an online platform even when the platform does not manufacture, sell, distribute, or take possession of the product. If this proposal were to pass, our legal liability could increase significantly. Any unfavorable changes in the regulatory or legal environment could have a material adverse impact to our business.
We may experience fluctuations in our tax obligations and effective tax rate, which could adversely affect our business, results of operations, and financial condition.
We are subject to taxes in every jurisdiction in which we operate. We record tax expense based on current tax liabilities and our estimates of future tax liabilities, which may include reserves for estimates of probable settlements of tax audits. At any one time, multiple tax years are subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. Further, our effective tax rate in a given financial statement period may be materially impacted by changes in tax laws, changes in the mix and level of earnings by taxing jurisdictions, or changes to existing accounting rules or regulations. Fluctuations in our tax obligations and effective tax rate could adversely affect our business, results of operations, and financial condition.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2020, we had $18.1 million of federal and $4.6 million of state net operating loss carryforwards, or NOLs, available to reduce future taxable income, some of which will begin to expire in 2026 for state tax purposes and 2031 for federal tax purposes. It is possible that we will not generate taxable income in time to use certain NOLs before their expiration, or at all. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent stockholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Our ability to use net operating loss to reduce future taxable income and liabilities may be subject to annual limitations as a result of prior ownership changes and ownership changes that may occur in the future, including as a result of transactions that are outside of our control.
The amount of NOLs arising in taxable years beginning after December 31, 2017 that we are permitted to deduct in a taxable year beginning after December 31, 2020 will be limited to 80% of our taxable income in each such year to which the NOLs are applied (where taxable income for such year is determined without regard to the NOL deduction itself). In addition, NOLs arising in tax years beginning after December 31, 2017 can be carried forward indefinitely, but carryback is generally prohibited (except that, under the Coronavirus Aid, Relief and Economic Security Act, federal NOLs generated in 2018, 2019 and 2020 may be carried back to each of the five taxable years preceding the taxable year in which the loss arises).
Changes in tax law could adversely affect our financial condition and results of our operations.
The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes in U.S. tax laws or their interpretations (which may have retroactive application) could materially increase the
amount of taxes we owe, thereby negatively impacting our results of operations as well as our cash flows from operations. Furthermore, our implementation of new practices and processes designed to comply with changing tax laws and regulations could require us to make substantial changes to our business practices, allocate additional resources, and increase our costs, which could negatively affect our business, results of operations, and financial condition.
As we grow internationally, we may also be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws, or revised interpretations of existing tax laws and precedents, which could harm our liquidity and results of operations. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest, and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could harm our business, results of operations, and financial condition.
Adverse litigation judgments or settlements resulting from legal proceedings in which we may be involved, as well as regulatory matters, which could be expensive, time consuming, and limit our ability to operate our business.
We have in the past and may in the future become involved in private actions, collective actions, investigations, shareholder derivative lawsuits, and various other legal proceedings by users, employees, clothing brands, competitors, government agencies, or others. The results of any such litigation, investigations, and other legal proceedings are inherently time consuming, unpredictable and expensive. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation and an unfavorable judgment, damage our reputation, require significant amounts of management time, and divert significant resources. If any of these legal proceedings were to be determined adversely to us, or we were to enter into a settlement arrangement, we could be exposed to monetary damages or limits on our ability to operate our business, which could have an adverse effect on our business, results of operations, and financial condition, as well as lead to reputational damage.
Risks Related to Ownership of Our Class A Common Stock
The dual class structure of our common stock has the effect of concentrating voting control with certain stockholders, which will limit your ability to influence the outcome of important transactions, including a change in control.
Our Class B common stock has ten votes per share, and our Class A common stock have one vote per share. The holders of our Class B common stock, certain of whom are our founders, executive officers and directors, together hold approximately 98.3% of the voting power of our outstanding capital stock as of February 28, 2021.
Holders of our Class B common stock collectively control a majority of the combined voting power of our share capital even if their stock holdings represent less than 50% of the outstanding shares of our common stock. Because of the 10-to-1 voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively control a majority of the combined voting power of our common stock even if the shares of Class B common stock were to represent as little as 10% of the combined voting power of all outstanding shares of our Class A and Class B common stock. Therefore, holders of Class B common stock will likely be able to control substantially all matters submitted to our stockholders for approval until the ten-year anniversary of the closing of our initial public offering when the Class B common stock class sunsets and converts into Class A common stock, or such other date as described in our amended and restated certificate of incorporation that may cause the Class B common stock class to convert into Class A common stock. These holders of our Class B common stock may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentrated control may have the effect of delaying, preventing, or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of our company and might ultimately affect the market price of our Class A common stock.
Future transfers by holders of our Class B common stock will generally result in those shares converting into our Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning
purposes. The conversion of our Class B common stock into our Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, Mr. Chandra retains a significant portion of his holdings of Class B common stock for an extended period of time, he could, in the future, control a majority of the combined voting power of our Class A and Class B common stock. As a board member, Mr. Chandra owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Chandra is entitled to vote his shares in his own interests, which may not always be in the interests of our stockholders generally.
We cannot predict the impact our dual class structure may have on our stock price.
We cannot predict whether our dual class structure will result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indexes. In July 2017, FTSE Russell and S&P Dow Jones announced that they would cease to allow most newly public companies utilizing dual or multi-class capital structures to be included in their indices. Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together make up the S&P Composite 1500. Beginning in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. Under the announced policies, our dual class capital structure would make us ineligible for inclusion in certain indices, and as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track those indices will not be investing in our stock. These policies are still fairly new, and it is as of yet unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included. Because of our dual class structure, we will likely be excluded from certain of these indexes, and we cannot assure you that other stock indexes will not take similar actions. Given the sustained flow of investment funds into passive strategies that seek to track certain indexes, exclusion from stock indexes would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors. As a result, the market price of our Class A common stock could be adversely affected.
We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our Class A common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced financial disclosure obligations, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved.
We may take advantage of these provisions until we are no longer an “emerging growth company.” We would cease to be an “emerging growth company” upon the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; (iii) the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of our initial public offering. We may choose to take advantage of some but not all of these reduced reporting requirements. If we take advantage of any of these reduced reporting requirements in future filings, the information that we provide our stockholders may be different than the information you might get from other public companies in which you hold equity interests. We cannot predict if investors will find our Class A common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We expect that the market price of our Class A common stock will fluctuate significantly, regardless of our operating performance.
The trading price of our Class A common stock is likely to be volatile and could fluctuate significantly regardless of our operating performance. The market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
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actual or anticipated fluctuations in our quarterly and annual results of operations;
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the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections;
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failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates or ratings changes by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
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announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;
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changes in operating performance and stock market valuations of companies, particularly those in the technology, eCommerce or retail sectors;
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price and volume fluctuations in the overall stock market from time to time, including as a result of trends in the economy as a whole, or in our industry in particular;
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changes in accounting standards, policies, guidelines, interpretations, or principles;
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actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;
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developments or disputes concerning our intellectual property or our solutions, or third-party proprietary rights;
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significant security breaches of, technical difficulties with, or interruptions to, our platform;
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new laws or regulations, new interpretations of existing laws, or the new application of existing regulations to our business;
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any major change in our board of directors or management;
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additional Class A common stock being sold into the market by us or our existing stockholders or the anticipation of such sales;
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lawsuits and governmental investigations threatened or filed against us; and
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other events or factors, including those resulting from war, incidents of terrorism, or responses to these events.
These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, the stock markets, and in particular the market on which our Class A common stock will be listed, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from operating our business, and harm our business, results of operations, and financial condition.
Short sellers of our stock may be manipulative and may drive down the market price of our common stock.
Short selling is the practice of selling securities that the seller does not own but rather has borrowed or intends to borrow from a third party with the intention of buying identical securities at a later date to return to the lender. A
short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is therefore in the short seller’s interest for the price of the stock to decline, some short sellers publish, or arrange for the publication of, opinions or characterizations regarding the relevant issuer, its business prospects and similar matters calculated to or which may create negative market momentum, which may permit them to obtain profits for themselves as a result of selling the stock short. Issuers, like us, whose securities have historically had limited trading volumes and/or have been susceptible to relatively high volatility levels can be particularly vulnerable to such short seller attacks. The publication of such commentary has, and may in the future, cause a temporary, or possibly long term, decline in the market price of our common stock. No assurances can be made that declines in the market price of our common stock will not occur in the future in connection with such commentary by short sellers or otherwise.
If securities or industry analysts do not publish research or reports about our business, or if they downgrade our common stock, the price of our Class A common stock could decline.
The trading market for our Class A common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, if our results of operations or guidance fail to meet the expectations of analysts or investors, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause demand for our Class A common stock to decrease, which might cause our stock price and trading volume to decline.
Substantial future sales of our Class A common stock could cause the market price of our Class A common stock to decline.
If our existing stockholders sell substantial amounts of our Class A common stock in the public market the market price of our common stock could decrease significantly. The perception in the public market that our existing stockholders might sell shares of common stock could also depress our market price. The shares of our Class A common stock offered in our recent initial public offering, including any shares reserved under our directed share program, may be resold in the public market immediately. In addition, the 1,400,560 shares of Class A common stock issued upon the automatic conversion of the Convertible Notes (based on the initial public offering price of $42.00 per share) are not subject to lock-up agreements or market standoff agreements and may be resold in the public market subject to the holding periods and other provisions of Rule 144. Substantially all of the remaining shares of our common stock are subject to the lock-up agreements or market standoff provisions described in “Underwriting” and the Rule 144 holding period requirements described in the section titled “Shares Eligible for Future Sale” found in our S-1.
As a result of the lock-up and market standoff agreements described under the section titled “Description of Capital Stock-Registration Rights,” as set forth in our S-1, subject to the provisions of Rule 144 or Rule 701, shares will be available for sale in the public market as follows:
Earliest Date Available for Sale in the Public Market
Number of Shares of Common Stock
The date of our initial public offering
The 6,600,000 shares of Class A common stock sold, including the shares reserved under our directed share program.
The third trading day immediately following the public release of earnings for the period ended December 31, 2020, and which we refer to as the “first post-IPO earnings announcement.”
Up to 680,629 shares of Class A common stock. Includes certain securities held by Employee Stockholders (as defined in the section titled “Underwriting”). Excludes securities held by “affiliates” for the purposes of Rule 144, as described under “Shares Eligible for Future Sale-Rule 144” set forth in our S-1.
The 90th day after our initial public offering
The 1,400,560 shares of our Class A common stock issuable upon the automatic conversion of the Convertible Notes (calculated based on the initial public price of $42.00 per share).
The third trading day immediately following our public release of our earnings for the public release of earnings for the period ending March 31, 2021, and which we refer to as the “second post-IPO earnings announcement,” provided that the closing price of our common stock on Nasdaq is at least 25% greater than our initial public offering price of $42.00 for at least 10 trading days out of the 15 consecutive trading day period ending on the trading day immediately preceding the second post-IPO earnings announcement.
Up to 721,493 additional shares of Class A common stock. Excludes securities held by “affiliates” for the purposes of Rule 144. Does not give effect to up to 680,629 shares available for sale after the first post-IPO earnings announcement that may be sold after the second post-IPO earnings announcement if not previously sold.
The 181st day after the date of our initial public offering
All remaining shares held by our stockholders not previously eligible for sale, subject to volume limitations applicable to “affiliates” under Rule 144 as described under “Shares Eligible for Future Sale-Rule 144”.
Furthermore, Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC, the representatives of the underwriters in our initial public offering, may waive the lock-up agreements before they expire.
Stockholders owning an aggregate of 52,286,631 shares of Class B common stock will be entitled, under contracts providing for registration rights, to require us to register their shares for public sale in the United States. We also intend to register common stock that we may issue under our employee equity incentive plans and ESPP. Once we register these shares, they will be able to be sold freely in the public market upon issuance, subject to certain market stand-off or lock-up agreements.
Further, our outstanding RSUs will generally settle on the first of each month. On the settlement date of the RSUs that are scheduled to vest after the closing of our initial public offering, we must withhold income taxes at applicable minimum statutory rates based on the then-current value of the common stock underlying the portion of such RSUs that vests on such date. The lockup agreements permit us to allow holders of our RSUs, including our directors and executive officers subject to the reporting requirements of Section 16 of the Exchange Act, to sell shares of our Class A common stock in the open market to cover any income taxes owed in “sell-to-cover” transactions. Alternatively, we may elect to permit holders of our RSUs to “net settle” such RSUs, in which case we remit income taxes on behalf of holders of such RSUs and withhold shares that would otherwise be issued in respect
of such RSUs. Initially, we intend to satisfy the anticipated tax withholding and remittance obligations related to the settlement of our outstanding RSUs through net settlement. By April 1, 2021, we expect that we will no longer permit holders to net settle RSUs, and instead such RSU holders will sell to cover. As a result, between April 1, 2021 and the expiration of the lockup period, we expect that approximately 212,719 shares would be sold in such sell-to-cover transactions in connection with the expected vesting of 506,473 RSUs outstanding as of the date of our initial public offering, assuming a 42% tax withholding rate.
Sales of our Class A common stock as these lockup end, our registration rights are waived or in connection with the net settlements of RSUs may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause the market price of our Class A common stock to fall.
Future sales and issuances of our common stock or rights to purchase common stock could result in additional dilution to our stockholders and could cause the price of our common stock to decline.
We may issue additional common stock, convertible securities, or other equity in the future, including as a result of conversion of the outstanding Notes. We also issue common stock to our employees, directors, and other service providers pursuant to our equity incentive plans. Such issuances could be dilutive to investors and could cause the price of our common stock to decline. New investors in such issuances could also receive rights senior to those of current stockholders.
We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, particularly after we are no longer an “emerging growth company,” which could adversely affect our business, results of operations, and financial condition.
As a public company, and particularly after we cease to be an “emerging growth company,” we will incur greater legal, accounting, and other expenses than we incurred as a private company. We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, and the rules and regulations of Nasdaq. These requirements will increase our legal, accounting, and financial compliance costs and will make some activities more difficult, time-consuming, and costly, and place significant strain on our personnel, systems, and resources. For example, we expect these rules and regulations to make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to maintain the same or similar coverage.
After we are no longer an “emerging growth company,” we will need to comply with auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. In that regard, as we prepare for such compliance, we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current board of directors, and limit the market price of our Class A common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:
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authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock;
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require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent if such action occurs after the first date that the total aggregate number of votes represented by all then-issued and outstanding shares of Class B common stock constitute less than
51% of the total aggregate number of votes represented by all then-issued and outstanding shares of our capital stock, or the Written Consent Threshold Date;
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until the Written Consent Threshold Date, allow our stockholders to be able to act by written consent if the action is first recommended or approved by our board of directors;
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specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, our chief executive officer or our president (in the absence of our chief executive officer);
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provide for a dual class common stock structure in which holders of our Class B common stock have the ability to control the outcome of certain matters requiring stockholder approval, even if they own significantly less than a majority of the aggregate outstanding shares of our common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets;
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establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;
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establish that our board of directors is divided into three classes, with each class serving three-year staggered terms and provide that directors are removable only for cause;
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prohibit cumulative voting in the election of directors;
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provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum, or by a sole remaining director; and
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require the approval of our board of directors or the holders of at least 66 2/3% of the voting power of our outstanding shares of capital stock entitled to vote thereon, voting together as a single class, to amend our amended and restated bylaws and certain provisions of our amended and restated certificate of incorporation.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, or the DGCL, which imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our outstanding common stock. Any provision of our amended and restated certificate of incorporation, amended and restated bylaws, or Delaware law that has the effect of delaying, preventing or deterring a change in control or changes in our management or our board of directors and could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect or depress the price that some investors are willing to pay for our Class A common stock.
If our insurance coverage is insufficient or our insurers are unable to meet their obligations, our insurance may not mitigate the risks facing our business.
Our insurance policies cover a number of risks and potential liabilities, such as general liability, property coverage, errors, and omissions liability, employment liability, business interruptions, data breaches, crime, product liability, and directors’ and officers’ liability. For certain types of business risk, we may not be able to, or may choose not to, acquire insurance. In addition, our insurance may not adequately mitigate the risks we face or we may have to pay high premiums and/or deductibles for the coverage we do obtain. Additionally, if any of our insurers becomes insolvent, it would be unable to pay any claims that we make.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case, to the fullest extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for any breach of fiduciary duties as directors, except liability for:
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any breach of the director’s duty of loyalty to the corporation or its stockholders;
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any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
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unlawful payments of dividends or unlawful stock repurchases or redemptions; or
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any transaction from which the director derived an improper personal benefit.
Such limitation of liability does not apply to liabilities arising under federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. Our amended and restated bylaws provide that we are required to indemnify our directors and officers to the fullest extent permitted by Delaware law and may indemnify our other employees and agents. Our amended and restated bylaws also provide that, on satisfaction of certain conditions, we will advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee, or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. We have entered and expect to continue to enter into agreements to indemnify our directors and executive officers. With certain exceptions, these agreements provide for indemnification for related expenses, including attorneys’ fees, judgments, fines, and settlement amounts incurred by any of these individuals in connection with any action, proceeding, or investigation. We believe that these amended and restated certificate of incorporation and amended and restated bylaws provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.
While we maintain directors’ and officers’ liability insurance, such insurance may not be adequate to cover all liabilities that we may incur, which may reduce our available funds to satisfy third-party claims and could harm our business, results of operations, and financial condition.
Our amended and restated bylaws provide that a state or federal court located within the State of Delaware is the exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or other employees.
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for any state law claims for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees or our stockholders to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provisions of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim governed by the internal affairs doctrine shall be, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware. Our amended and restated bylaws also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, or the Securities Act; provided, however, that our stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to these provisions.
These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits. The enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find these exclusive forum provisions in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.
We do not expect to declare dividends in the foreseeable future.
We have never declared or paid any cash dividends on our capital stock. We currently anticipate that we will retain future earnings, if any, for the development, operation, and expansion of our business, and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the increase, if any, of our share price, which may never occur.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
None.

---

ITEM 2. PROPERTIES
Item 2. Properties.
Our corporate headquarters is located in Redwood City, California, where we currently lease approximately 75,876 square feet under a lease agreement that expires on May 31, 2024. We also lease facilities in Newark, California, Canada, India and Australia.
We believe that our facilities are suitable to meet our current needs. We intend to expand our facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth.

---

ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
See “Note 5-Commitments and Contingencies- Litigation and Loss Contingencies” in the Notes to Consolidated Financial Statements.

---

ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock has been listed on the Nasdaq Global Select Market under the symbol “POSH” and began trading on January 14, 2021. Prior to that date, there was no public trading market for our common stock.
Holders of Record
As of February 28, 2021, there were approximately 271 stockholders of record of our common stock. The number of stockholders of record is based upon the actual number of holders registered on this date and does not include holders of common stock in “street name” by brokers or other entities on behalf of stockholders.
Dividend Policy
We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and future earnings and do not anticipate paying cash dividends in the foreseeable future. Any future decision to declare cash dividends will be made at the discretion of our Board of Directors, subject to applicable laws and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our Board of Directors think are relevant.
Securities Authorized for Issuance under Equity Compensation Plans
The information called for by this item regarding equity compensation plans is incorporated by reference to the information set forth in Part III, Item 12 of this Annual Report on Form 10-K.
Recent Sales of Unregistered Securities
None.
Use of Proceeds from our IPO
The offer and sale of the shares in the IPO was registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-251427), which was declared effective by the SEC on January 13, 2021. Pursuant to such registration statement, we issued and sold an aggregate of 7,590,000 shares of our common stock at a price of $42.00 per share for an aggregate cash proceeds of approximately $296.5 million, net of underwriting discounts and commissions and offering costs, which includes the full exercise by the underwriters of their option to purchase additional shares of common stock. None of the underwriting discounts and commissions or offering expenses were incurred or paid, directly or indirectly, to any of our directors or officers or their associates or to persons owning 10% or more of our common stock or to any of our affiliates.
There has been no material change in the expected use of the net proceeds from our IPO, as described in our final prospectus filed with the SEC on January 14, 2021 pursuant to Rule 424(b) under the Securities Act of 1933.
Issuer Purchases of Equity Securities
None.

---

ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data.
The following tables summarize our consolidated financial data. We derived the summary consolidated statements of operations data for the fiscal years ended December 31, 2018, 2019 and 2020 and the consolidated balance sheet data as of December 31, 2019 and 2020 from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selected balance sheet data as of December 31, 2018 is derived
from audited financial statements that are not included in this Annual Report on Form 10-K. We have included, in our opinion, all adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results to be expected in any future period. You should read the following selected financial and other data in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
Year Ended December 31,
(in thousands except per share data)
Consolidated Statements of Operations
Net revenue
$
148,305
$
205,225
$
262,077
(Loss) income from operations
$
(15,020
)
$
(49,829
)
$
23,400
Net (loss) income
$
(14,475
)
$
(48,692
)
$
16,845
Net (loss) income attributable to common
stockholders
$
(14,475
)
$
(48,692
)
$
4,069
Net (loss) income per share attributable to common
stockholders, basic(1)
$
(1.29
)
$
(4.01
)
$
0.32
Net (loss) income per share attributable to common
stockholders, diluted(1)
$
(1.29
)
$
(4.01
)
$
0.22
(1)
See Notes 2 and 11 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for an explanation of the method used to compute the historical net (loss) income per share attributable to common stockholders and the number of shares used in the computation of the per share amounts for the years ended December 31, 2018, 2019 and 2020.
Consolidated Balance Sheet Data
As of December 31,
(in thousands)
Cash and cash equivalents
$
74,466
$
63,318
$
235,834
Marketable securities
$
63,416
$
65,546
$
26,238
Working capital(1)
$
66,511
$
21,766
$
104,674
Total assets
$
147,399
$
151,988
$
285,434
Convertible notes(2)
$
-
$
-
$
55,421
Redeemable convertible preferred stock warrant
liability
$
$
1,221
$
3,494
Total liabilities
$
77,999
$
120,600
$
229,041
Redeemable convertible preferred stock
$
156,175
$
156,175
$
156,175
Total stockholders’ deficit
$
(86,775
)
$
(124,787
)
$
(99,782
)
(1)
Working capital is defined as current assets less current liabilities. Current liabilities included funds payable to customers of $51.6 million, $73.9 million, and $117.1 million as of December 31, 2018, December 31, 2019, and December 31, 2020, respectively.
(2)
See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations and Commitments-Convertible Note Financing” for additional information.

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with our consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. This discussion includes both historical information and forward-looking information based upon current expectations that involve risk, uncertainties and assumptions. Our actual results may differ materially from management’s expectations as a result of various factors, including, but not limited to, those discussed in “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
Overview
We are a social marketplace that combines the human connection of a physical shopping experience with the scale, reach, ease, and selection benefits of eCommerce. In doing so, we bring the power of community to buying and selling online. We created Poshmark in 2011 to make buying and selling simple, social, and fun. Pairing technology with the inherent human desire to socialize, our marketplace creates passion and personal connections among users. We dynamically curate our marketplace into lifestyle categories that our users love, including apparel, accessories, footwear, home, beauty, and pets. Powered by our proprietary technology, our social marketplace is purpose-built to enable simple transactions, seamless logistics, and an engaging experience at scale. As of December 31, 2020, we had 6.5 million Active Buyers.
We empower people to sell a few items or to become successful entrepreneurs by providing them with end-to-end seller tools. We refer to this as “making selling a superpower.” Our comprehensive infrastructure makes it easy for sellers to build their businesses with seamless listing, merchandising, promotion, pricing, and shipping. Sellers use content, inventory selection, and social interactions to monetize their listings and drive growth. Our transparent fee structure aligns our success with the success of our sellers. Our fee is 20% of the final price for sales $15 and over, or a flat rate of $2.95 for sales under $15. We attract, engage, and retain sellers by offering the community the benefits of social connection with the ability to combine personal passion and economic empowerment. We do not own or manage inventory as products are listed, managed, sold, and shipped by our sellers, utilizing our transaction tool that makes the selling process seamless and easy. This asset-light model creates scalability and favorable working capital dynamics.
Our social features make the discovery and purchase process simple and enticing for buyers, fostering high engagement and retention. The engagement of our community has fueled strong growth in our business, supported by attractive unit economics and efficient user acquisition. We enable buyers to discover, connect, and curate their network and news feed with that of other users who share similar styles and personal preferences, creating a fun shopping experience. Our marketplace is vast, with sellers listing millions of secondhand and new items across multiple categories. We use data-driven personalization to customize each user’s feed to feature the most relevant listings and make it easy to quickly search for and find products of interest. Furthermore, sellers list a variety of items across all price points, with the added benefit of being able to negotiate offers directly with buyers seeking to optimize their budget, allowing sellers to manage their listings to achieve their individual objectives. Because our marketplace features a massive selection of secondhand items, buyers are also able to support their personal style while minimizing their environmental impact.
As of December 31, 2020, our community has generated almost $4.4 billion in GMV since 2011, with $1.4 billion in 2020 and $1.1 billion in 2019, representing a 29% growth rate. In 2020 and 2019, we had revenue of $262.1 million and $205.2 million, respectively, representing a 28% growth rate. In 2020 we generated net income of $16.8 million, and Adjusted EBITDA of $34.3 million compared to a net loss of $48.7 million and Adjusted EBITDA loss of $37.1 million in 2019.
Key Operating and Non-GAAP Financial Metrics
We collect and analyze operating and financial data to evaluate the health of our community, allocate our resources (such as capital, time, and technology investments), and assess the performance of our business. In addition to revenue, net (loss) income, and other results under GAAP, the key operating and financial metrics we use are GMV, Active Buyers, and Adjusted EBITDA.
Gross Merchandise Value. Our gross merchandise value, or GMV, is the total dollar value of transactions on our platform in a given period, prior to returns and cancellations, and excluding shipping and sales taxes. GMV is a measure of the total economic activity generated by our marketplace, and an indicator of the scale and growth of our marketplace and the health of our marketplace ecosystem.
GMV
($ in millions)
Our GMV has grown at a 33% compound annual growth rate, or CAGR, from $807 million in 2018 to $1.4 billion in 2020. Our GMV grew 29% from $1.1 billion in 2019 to $1.4 billion in 2020. Our quarterly GMV has increased year-over-year for the past ten quarters. We have continued to add users and enhance our social marketplace with the ongoing introduction of new features like the launch of Posh Stories and the ability for sellers to make offers to shoppers who like their listings.
Active Buyers. Active Buyers are unique users who have purchased at least one item on our platform in the trailing 12 months preceding the measurement date, regardless of returns and cancellations. An Active Buyer could have more than one account if they were to use a separate unique email address to set up each account. The number of Active Buyers is a key driver of GMV and revenue, as well as a measure of the scale and growth of our buyer community. We believe it is also an important indicator of our ability to convert user activity on our marketplace into transactions. The number of Active Buyers has increased steadily every quarter as we attract and retain users. Active Buyers can be new users to our marketplace who make a purchase, existing users who convert into buyers for the first time as our marketplace strengthens with more sellers and items, or repeat buyers.
Active Buyers
(in thousands)
5,713 6,032 6,231 5,374 4,952 4,550 4,190 3,734 3,345 2,953 2,657 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 Active Buyers measured as of the last day of the quarter presented
Active Buyers measured as of the last day of the quarter presented
Adjusted EBITDA. We define Adjusted EBITDA as net (loss) income attributable to common stockholders, excluding depreciation and amortization, stock-based compensation expense, interest income, other expense, net, change in accrued sales tax, provision for income taxes, and undistributed earnings attributable to participating securities. Adjusted EBITDA is a key performance measure used by our management and board of directors to assess our operating performance and the operating leverage in our business. We believe that Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the income and expenses that we exclude in Adjusted EBITDA. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making. See “-Reconciliation of Non-GAAP Financial Measures” for more information and for a reconciliation of net (loss) income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA.
Adjusted EBITDA
($ in millions)
Key Factors Affecting Our Performance
Growth and Retention of Users. We focus on attracting new users and retaining existing users. New users and the social and transactional activities they contribute help keep existing users more active, increasing their lifetime value over time. Users engage in many ways on our social marketplace: they connect, they browse, they buy, and they sell. The positive relationship between new users and existing users illustrates the network effects of our marketplace. As of December 31, 2020, we had 6.5 million Active Buyers.
User Engagement. The engagement of our community has fueled strong growth in our business, supported by attractive unit economics and efficient user acquisition. We believe that cultivating a robust network of users over the longer-term is crucial to bolstering broader community engagement, growing social interactions, and increasing GMV. Users can engage on our marketplace in a variety of activities that range from shopping and social interactions to buying and selling. The continuous increase in users, social interactions, and listings has led to steady activations of buyers and sellers across cohorts, resulting in increasing GMV for these cohorts.
Cumulative % Sellers Activated as Buyers from Year 1 to Year 5 31% of First-Time Sellers Also Became Buyers in Year 1 40% 42% 44% 37% 31% Year of Seller's Year 2 Year 3 Year 4 Year 5 First Sale
Investments in Growing Our User Community. We have invested substantially in marketing to grow our user community and drive further awareness of our brand. These investments have enabled us to grow our base of new users, buyers, and sellers while continuing to retain buyers and sellers, resulting in strong growth of our GMV and revenue. Marketing expenses represented 65% and 35% of revenue in 2019 and 2020, respectively. We significantly reduced our investment in marketing to 17% of revenue in the second quarter of 2020 while growing revenue 41% year-over-year for the same period due to the continued benefits from the network effects of our social platform. These network effects continue to increase the number of users who come to our platform organically. In 2020, we reduced marketing spend by $39.6 million compared to 2019. This reduction in marketing spend was not due to a change in marketing channel mix or a significant reduction in marketing spend per new Active User in the period. In the future, we plan to substantially increase our investment in marketing as a percentage of revenue from the level in the second quarter of 2020, as the economy recovers from the COVID-19 pandemic; however, we do not expect that marketing as a percentage of revenue will reach 2019 levels. We intend to manage our marketing spend to balance growth and profitability. We will continue to invest in user acquisition and retention while the underlying user unit economics indicate the return on investment is strong.
Investments in Platform Innovation. We invest in both the people and technology behind our platform. We also intend to continue to make significant investments in the technology and infrastructure of our platform to attract and retain buyers and sellers, expand the capabilities and scope of our platform, and enhance the user experience. We expect to continue to make significant investments to attract and retain employees, particularly engineers, data scientists, designers, product management, and operations personnel. All functions are important, and we intend to invest in our people to help us drive additional efficiencies across our marketplace. In addition, we may invest in new and existing businesses that may lower our margins temporarily but may enhance our platform capabilities, deliver revenue growth, and enable us to achieve and maintain long-term profitability.
International Expansion. We began operations in Canada, the first country we expanded to after the United States, in May 2019. In 2021, we expanded our operations to Australia. In 2019 and 2020, revenue from international operations was less than 10% of our net revenue. As we continue our global expansion, we believe international demand for our platform will develop and increase. Accordingly, we believe there is a significant opportunity to grow our international business. We have invested, and plan to continue to invest, in the adoption of our platform and solutions internationally, including localization of our platform and the addition of critical capabilities to our platform required to serve those local markets.
Impact of the COVID-19 Pandemic. The COVID-19 pandemic has had a variety of impacts on our business to date and will continue to impact our business in ways that remain unpredictable. In the initial weeks of the pandemic in the United States, we experienced a significant decrease in GMV. In the month of March 2020, we had negative 13% year-over-year GMV growth which in turn impacted the year-over-year GMV growth for the quarter ended March 31, 2020, which was 9%. Subsequently, in the quarter ended June 30, 2020, the year-over-year GMV growth rebounded to 42% as buyer and seller activity resumed. However, such trends may not continue and could be reversed. In particular, to the extent that federal and state governmental aid programs initiated in connection with the
pandemic are reduced or terminated, consumer discretionary spending would likely decrease, which would have a negative impact on our business. As a result of the COVID-19 pandemic, the lives of our users, buyers, and sellers have been disrupted as people have been required to stay home and many have experienced significant economic and employment disruption. As many people have shifted to a work-from-home environment, there has been less of a need for some to purchase apparel. In some cases, buyers also have a decreased ability to spend on our marketplace due to economic concerns and pressures. In other cases, physical stores have remained closed or are viewed as potentially dangerous, leaving fewer offline shopping alternatives for people and driving demand to online alternatives, including Poshmark. For our sellers, our marketplace has continued to serve as a means for additional income, though the requirement to handle their own logistics amid quarantine has proven difficult for many. Additionally, the social nature of our platform and the community we have built has attracted users throughout the pandemic to come shop, interact, and share. We have temporarily closed our headquarters and offices, with substantially all of our employees working remotely, temporarily lowering our operating expenses. Additional disruptions or a resurgence of offline shopping demand could adversely affect our business, results of operations, liquidity, and financial condition in future periods. The conditions caused by the pandemic are still evolving and we will continue to evaluate the potential impact of the pandemic on our business. See “Part I, Item 1A. Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic on our business, operations and financial condition.
Seasonality. Our business is seasonal in nature as it is affected by the cyclicality of the consumer as well as broader market conditions. Historically, we have often seen both stronger growth in the number of Active Users and Active Buyers and in engagement during the first quarter of the year. In addition, we have seen higher GMV in the fourth quarter of the year, followed by the third quarter, which we believe is due in part to the higher price points of seasonal apparel and footwear and the holiday season. We believe the recent growth in our business, as well as the recent effects of sales taxes and the COVID-19 pandemic, have partially masked these trends to date, and we expect the impact of seasonality to be more pronounced in our future quarterly results as our business matures.
GAAP and Non-GAAP Financial Measures
We also review the following GAAP and non-GAAP financial measures to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
Year Ended December 31,
(in thousands)
Net (Loss) Income
$
(14,475
)
$
(48,692
)
$
16,845
Net (Loss) Income Margin(1)
(10
)%
(23
)%
%
Adjusted EBITDA
$
(11,077
)
$
(37,060
)
$
34,253
Adjusted EBITDA Margin(2)
(7
)%
(18
)%
%
(1)
Net (Loss) Income Margin is calculated by dividing Net (Loss) Income for a period by revenue for the same period.
(2)
Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA for a period by revenue for the same period.
Adjusted EBITDA
Adjusted EBITDA is a key performance measure that we use to assess our operating performance and the operating leverage in our business. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes.
We calculate Adjusted EBITDA as net (loss) income attributable to common stockholders, adjusted to exclude:
•
depreciation and amortization;
•
stock-based compensation expense;
•
interest income;
•
other expense, net;
•
change in accrued sales tax;
•
provision for income taxes; and
•
undistributed earnings attributable to participating securities.
Adjusted EBITDA decreased $26.0 million for the year ended December 31, 2019 compared to the prior year primarily due to our implementation of sales tax collection and remittance in the quarter ended June 30, 2019, which adversely impacted activity on our marketplace and caused us to decide to increase marketing to help increase user acquisition and engagement.
Adjusted EBITDA increased $71.3 million for the year ended December 31, 2020 compared to the same period in 2019 primarily due to an increase in revenue and a decrease in marketing spend in response to the COVID-19 pandemic.
Reconciliation of Non-GAAP Financial Measures
We use Adjusted EBITDA and Adjusted EBITDA Margin in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, and to evaluate the effectiveness of our business strategies. Our definition may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish similar metrics. Furthermore, this metric has certain limitations in that it does not include the impact of certain expenses that are reflected in our consolidated statements of operations that are necessary to run our business. Thus, our Adjusted EBITDA and Adjusted EBITDA Margin should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.
We compensate for these limitations by providing a reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin to the related GAAP financial measure, net (loss) income attributable to common stockholders. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure, and to view Adjusted EBITDA and Adjusted EBITDA Margin in conjunction with their respective related GAAP financial measures.
The following table provides a reconciliation of net (loss) income to Adjusted EBITDA (in thousands):
Year Ended December 31,
(in thousands)
Net (loss) income attributable to
common stockholders
$
(14,475
)
$
(48,692
)
$
4,069
Adjusted to exclude the following:
Depreciation and amortization
2,056
2,894
Stock-based compensation
2,606
9,687
7,959
Interest income
(1,096
)
(1,677
)
(569
)
Other expense, net
6,467
Change in accrued sales taxes(1)
1,026
-
Provision for income taxes
Undistributed earnings
attributable to
participating securities
-
-
12,776
Adjusted EBITDA
$
(11,077
)
$
(37,060
)
$
34,253
(1)
Reflects our estimated liability for the non-collection and non-remittance of sales taxes which became required beginning in 2018. We began collecting and remitting sales tax in April 2019. Accordingly, these liabilities were no longer incurred in 2020.
Initial Public Offering
Our registration statement on Form S-1 (IPO Registration Statement) related to our initial public offering (IPO) was declared effective on January 13, 2021, and our Class A common stock began trading on the Nasdaq Global Select Market on January 14, 2021. On January 19, 2021, we completed our IPO, in which we issued and sold 6,600,000 shares of our Class A common stock at the public offering price of $42.00 per share, plus an additional 990,000 shares of common stock at the public offering price of $42.00 per share pursuant to the exercise of the underwriters’ option to purchase additional shares. We received net proceeds of $292.0 million after deducting underwriting discounts and commissions and estimated offering expenses.
Our consolidated financial statements as of December 31, 2020 do not reflect stock-based compensation expense of $14.5 million associated with the vesting of Restricted Stock Units (RSUs) for which the service-based condition was met as of December 31, 2020. The liquidity event-related performance condition of such RSUs was satisfied upon the effectiveness of our IPO Registration Statement on January 14, 2021.
Components of Results of Operations
Net Revenue
We generate revenue from sellers for fees earned when they sell items they have listed on our social marketplace to buyers (20% of the final price for sales $15 and over, or a flat rate of $2.95 for sales under $15). The buyer also pays a shipping label fee as part of their order. On some orders, the shipping label fee exceeds our shipping label cost, which we record as revenue. In 2020, this revenue was 3% of our total net revenue. In 2019, this revenue was 1% of our total net revenue and was less than 1% in 2018. Our revenue is recognized when we satisfy our performance obligations. We report both revenue from buyers and revenue from sellers based upon the net amount earned, which is reduced by certain buyer and seller incentives.
Costs and Expenses
Cost of Net Revenue. Cost of net revenue primarily consists of costs associated with credit card processing, transaction fees for order related payments, and hosting expenses associated with operating our platform. Cost of net revenue does not include depreciation and amortization.
We expect cost of net revenue to increase in absolute dollars in future periods and to vary from period to period as a percentage of net revenue for the foreseeable future as we grow our platform by increasing Active Buyers and generating higher GMV.
Operations and Support. Operations and support expense primarily consists of personnel-related compensation costs, including stock-based compensation, incurred in providing support to users of our platform including authentication services that we provide. This expense also includes postage and shipping costs that we incur primarily from order losses and cancellations, and credits and incentives issued to buyers for customer satisfaction purposes in excess of shipping facilitation revenue.
We expect that operations and support expenses will increase in absolute dollars for the foreseeable future as we continue to grow our operations and hire additional employees to support the scaling of our business. To the extent we are successful in becoming more efficient in supporting our users, we would expect operations and support expenses as a percentage of revenue to decrease over the long term.
Research and Development. Research and development expense consist primarily of compensation expenses for engineering, product development, and design employees, including stock-based compensation, expenses associated with ongoing improvements to and maintenance and testing of our platform offerings including website, mobile apps, and other products, and other research and development programs. Research and development
expenses are expensed as incurred. We capitalize certain costs associated with website development and software for internal use.
We expect that research and development expenses will increase in absolute dollars and vary from period to period as a percentage of revenue for the foreseeable future as we continue to invest in research and development activities relating to ongoing improvements to and maintenance and testing of our platform offerings including website, mobile apps, and other products, and other research and development programs, including the hiring of engineering, product development, and design employees to support these efforts.
Marketing. Marketing expense primarily consists of expenses associated with personnel-related compensation costs, including stock-based compensation, and costs related to user acquisition, public relations, marketing events such as Posh Parties, and business development. User acquisition costs primarily consist of costs associated with acquiring new users by spend on advertising channels such as television, Google, Facebook, Instagram, Snapchat, and TikTok. These marketing expenses also include promotional credits and incentives issued to buyers to encourage buyer activity on our platform in excess of shipping facilitation revenue and cost of referral incentives for new user acquisition. We plan to continue to invest in our marketing efforts, including hiring additional employees, in order to attract new users.
We expect that marketing expenses will increase in absolute dollars and vary from period to period as a percentage of revenue for the foreseeable future as we plan to continue to invest in marketing to grow the number of Active Users and Active Buyers and increase our brand awareness. The trend and timing of our brand marketing expenses will depend in part on the timing of marketing campaigns.
General and Administrative. General and administrative expense consists primarily of employee related costs including stock-based compensation for those employees associated with administrative services such as legal, human resources, information technology, accounting, and finance, and all related costs associated with our facilities, such as rent and office administration. These expenses also include certain third-party consulting services, facilities, IT shared services, meals and other corporate costs not allocated to other expense categories.
We expect that general and administrative expenses will increase in absolute dollars and vary from period to period as a percentage of revenue for the foreseeable future as we focus on processes, systems, and controls to enable our internal support functions to scale with the growth of our business. We expect to incur additional expenses as a result of operating as a public company, including expenses to comply with the rules and regulations applicable to companies listed on a national securities exchange, expenses related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and expenses for general and director and officer insurance, investor relations, and professional services. We also expect rent expense and other facilities related costs to continue to increase in the future.
Depreciation and Amortization. Depreciation and amortization expense primarily consists of depreciation of computer equipment and software, furniture and fixtures, leasehold improvements, and website development and software for internal use.
We expect that depreciation and amortization expense will increase in absolute dollars as we continue to build out our network infrastructure and establish new office locations to support our growth.
Interest Income
Interest income primarily relates to amounts earned on our cash and cash equivalents and marketable securities.
Other Expense, Net
Other expense, net mainly relates to changes in fair value of the Convertible Notes and redeemable convertible preferred stock warrants, and foreign exchange remeasurement gains and losses recorded from consolidating our foreign subsidiaries at each period end.
Provision for Income Taxes
Our provision for income taxes consists primarily of foreign taxes and state minimum taxes in the United States. As we expand the scale of our international business activities, any changes in the U.S. and foreign taxation of such activities may increase our overall provision for income taxes in the future. We have established a valuation allowance for our U.S. deferred tax assets, including federal and state NOLs.
We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income in the United States.
Results of Operations
The results of operations presented below should be reviewed in conjunction with our consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K. The following tables set forth our consolidated results of operations data and such data as a percentage of net revenue for the periods presented:
Year Ended December 31,
(in thousands)
Net revenue
$
148,305
$
205,225
$
262,077
Costs and expenses (1):
Cost of net revenue, exclusive of depreciation
and amortization
22,837
34,142
43,507
Operations and support
20,299
29,879
39,759
Research and development
15,484
25,033
30,025
Marketing
88,439
132,470
92,915
General and administrative
15,464
31,474
29,577
Depreciation and amortization
2,056
2,894
Total costs and expenses
163,325
255,054
238,677
(Loss) income from operations
(15,020
)
(49,829
)
23,400
Interest income
1,096
1,677
Other expense, net
Change in fair value of redeemable convertible
preferred stock warrant liability
(438
)
(475
)
(2,273
)
Change in fair value of convertible notes
-
-
(3,801
)
Other, net
(22
)
(393
)
(460
)
(366
)
(6,467
)
(Loss) income before provision for income
taxes
(14,384
)
(48,518
)
17,502
Provision for income taxes
Net (loss) income
$
(14,475
)
$
(48,692
)
$
16,845
Undistributed earnings attributable to participating
securities
-
-
(12,776
)
Net (loss) income attributable to common
stockholders
$
(14,475
)
$
(48,692
)
$
4,069
(1)
Costs and expenses include stock-based compensation expense as follows:
Year Ended December 31,
(in thousands)
Operations and support
$
$
$
Research and development
3,017
2,571
Marketing
1,306
1,321
General and administrative
1,181
4,675
3,381
Total
$
2,606
$
9,687
$
7,959
Year Ended December 31,
Net revenue
%
%
%
Costs and expenses:
Cost of net revenue, exclusive of
depreciation and amortization
Operations and support
Research and development
Marketing
General and administrative
Depreciation and amortization
Total costs and expenses
(Loss) income from operations
(10
)
(24
)
Interest income
-
-
Other expense, net
Change in fair value of redeemable
convertible preferred stock warrant
liability
-
-
(1
)
Change in fair value of convertible notes
-
-
(1
)
Other, net
-
-
-
-
-
(2
)
(Loss) income before provision for
income taxes
(10
)
(23
)
Provision for income taxes
-
-
-
Net (loss) income
(10
)%
(23
)%
%
Undistributed earnings attributable to
participating securities
-
-
(5
)
Net (loss) income attributable to common
stockholders
(10
)%
(23
)%
%
Comparison of Years Ended December 31, 2019 and 2020
Net Revenue
Year Ended December 31,
Change
$
%
(dollars in thousands)
Net revenue
$
205,225
$
262,077
$
56,852
%
Net revenue increased $56.9 million for the year ended December 31, 2020 compared to the prior year. This growth was primarily due to an increase in the volume of GMV on our marketplace to a total of $1.4 billion, an increase of 29% for the year ended December 31, 2020 compared to the prior year. The increase in GMV was substantially driven by the increase in Active Buyers on the platform to 6.5 million for the year ended December 31,
2020, a 20% increase compared to the same period in 2019, and an 8% increase in GMV per Active Buyer for the year ended December 31, 2020 compared to the prior year.
Cost of Net Revenue
Year Ended December 31,
Change
$
%
(dollars in thousands)
Cost of net revenue
$
34,142
$
43,507
$
9,365
%
Cost of net revenue increased $9.4 million for the year ended December 31, 2020 compared to the prior year. The increase was driven by a $8.2 million increase in costs related to overall volume increases on our marketplace, including increased credit card processing fees and associated expenses, and an increase in data hosting costs of $1.2 million to support the increased usage of our platform and upgrades we made to our systems which were required to support our growth.
Operations and Support
Year Ended December 31,
Change
$
%
(dollars in thousands)
Operations and support
$
29,879
$
39,759
$
9,880
%
Operations and support expense increased $9.9 million for the year ended December 31, 2020 compared to the prior year. The increase was primarily driven by the overall volume increase on our marketplace, including a $5.0 million increase in net shipping costs as a result of our growth, a $2.5 million increase in credits and incentives issued to users for the purposes of dispute resolution, and a $2.3 million increase in customer service and support personnel costs as a result of increased headcount.
Research and Development
Year Ended December 31,
Change
$
%
(dollars in thousands)
Research and development
$
25,033
$
30,025
$
4,992
%
Research and development expense increased $5.0 million for the year ended December 31, 2020 compared to the prior year. The increase was primarily due to an increase of $4.8 million in engineering personnel costs required to support the growth of our business as we launch new innovations and improve functionality on our platform.
Marketing
Year Ended December 31,
Change
$
%
(dollars in thousands)
Marketing
$
132,470
$
92,915
$
(39,555
)
(30
)%
Marketing expense decreased $39.6 million for the year ended December 31, 2020 compared to the prior year. The decrease was primarily due to a $41.4 million decrease in spending on marketing programs and events, including decreased spending on television ad campaigns and digital marketing to preserve liquidity in response to the COVID-19 pandemic, partially offset by an increase of $1.7 million in marketing personnel costs as a result of an increase in headcount to support the growth of our business.
General and Administrative
Year Ended December 31,
Change
$
%
(dollars in thousands)
General and administrative
$
31,474
$
29,577
$
(1,897
)
(6
)%
General and administrative expense decreased $1.9 million for the year ended December 31, 2020 compared to the prior year. This decrease was primarily driven by a $2.6 million decrease in legal and consulting fees as the current year period was impacted by decreased spending on corporate initiatives and projects to preserve liquidity in response to the COVID-19 pandemic, lower expenses for sales tax accruals as the prior year period included accruals of $0.9 million with no corresponding change in the current year period, and lower facility costs of $0.7 million, partially offset by a $2.3 million increase in chargeback costs related to the overall volume increase on our marketplace and increased fraud activity.
Depreciation and Amortization
Year Ended December 31,
Change
$
%
(dollars in thousands)
Depreciation and amortization
$
2,056
$
2,894
$
%
Depreciation and amortization expense increased $0.8 million for the year ended December 31, 2020 compared to the prior year. The increase was primarily due to an increase in leasehold improvements amortization associated with our new headquarters.
Interest Income
Year Ended December 31,
Change
$
%
(dollars in thousands)
Interest income
$
1,677
$
$
(1,108
)
(66
)%
The decrease in interest income is due to the lower balance of our marketable securities and lower interest rates earned from our marketable securities.
Other Expense, Net
Year Ended December 31,
Change
$
%
(dollars in thousands)
Other expenses, net
$
(366
)
$
(6,467
)
$
(6,101
)
1,667
%
The increase in other expense, net is primarily due to an increase in fair value of the Convertible Notes and the associated write-off of debt issuance costs related to the Convertible Notes for the year ended December 31, 2020 with no comparable activity in the prior year period, and the change in fair value of the redeemable convertible preferred stock warrant liability which was driven by an increase in the fair value of the underlying redeemable convertible preferred stock.
Provision for Income Taxes
Year Ended December 31,
Change
$
%
(dollars in thousands)
Provision for income taxes
$
$
$
%
The increase in our provision for income taxes is primarily due to state income taxes.
Comparison of Years Ended December 31, 2018 and 2019
Net Revenue
Year Ended December 31,
Change
$
%
(dollars in thousands)
Net revenue
$
148,305
$
205,225
$
56,920
%
Net revenue increased $56.9 million for the year ended December 31, 2019 compared to the prior year. This growth was primarily due to an increase in the volume of GMV on our marketplace to a total of $1.1 billion, an increase of 37% for the year ended December 31, 2019 compared to the prior year. The increase in GMV was substantially driven by the increase in Active Buyers on the platform to 5.4 million for the period ended December 31, 2019, a 44% increase compared to the prior year, partially offset by a 5% decrease in GMV per Active Buyer due to the implementation of sales tax on our platform.
Cost of Net Revenue
Year Ended December 31,
Change
$
%
(dollars in thousands)
Cost of net revenue
$
22,837
$
34,142
$
11,305
%
Cost of net revenue increased $11.3 million for the year ended December 31, 2019 compared to the prior year. The increase was primarily driven by a $7.9 million increase in costs related to overall volume increases on our marketplace, including increased credit card processing fees and associated expenses, and an increase in data hosting costs of $3.4 million to support more usage of our platform and upgrades we made to our systems. Cost of net revenue increased to 17% of revenue from 15% due to the implementation of sales tax, which led to lower growth in revenue than growth in fixed expenses in cost of net revenue.
Operations and Support
Year Ended December 31,
Change
$
%
(dollars in thousands)
Operations and support
$
20,299
$
29,879
$
9,580
%
Operations and support expense increased $9.6 million for the year ended December 31, 2019 compared to the prior year. The increase was primarily driven by the overall volume increase on our marketplace, including a $5.6 million increase in customer service and support personnel costs as a result of increased headcount, and a $2.8 million increase in net shipping costs, and a $0.8 million increase in credits and incentives issued to users for the purposes of dispute resolution.
Research and Development
Year Ended December 31,
Change
$
%
(dollars in thousands)
Research and development
$
15,484
$
25,033
$
9,549
%
Research and development expense increased $9.5 million for the year ended December 31, 2019 compared to the prior year. The increase was primarily due to an increase of $8.5 million in engineering personnel costs.
Engineering personnel costs include an increase of $2.3 million in stock-based compensation expenses primarily related to a sale of common stock by a select group of employees to other investors in excess of estimated fair value during 2019 and, to a lesser extent, a $0.8 million increase in development-related services, which were driven by our efforts to launch new innovations, improve functionality on our platform, and improve our efficiency in attracting and retaining users and converting them into buyers and sellers.
Marketing
Year Ended December 31,
Change
$
%
(dollars in thousands)
Marketing
$
88,439
$
132,470
$
44,031
%
Marketing expense increased $44.0 million in the year ended December 31, 2019 compared to the prior year. The increase in marketing expenses was to help reduce friction in user growth and re-engagement as a result of our implementation of sales tax collection in April 2019. The increase was primarily due to a $37.5 million increase in spending on marketing programs, including increased spending on television ad campaigns and digital marketing to acquire users. The increase was also driven by a $3.7 million increase associated with our referral and buyer incentive programs, and an increase of $2.1 million in marketing personnel costs as a result of an increase in headcount to support the growth of our business.
General and Administrative
Year Ended December 31,
Change
$
%
(dollars in thousands)
General and administrative
$
15,464
$
31,474
$
16,010
%
General and administrative expense increased $16.0 million for the year ended December 31, 2019 compared to the prior year. This increase was primarily driven by a $6.9 million increase in personnel costs due to increased headcount (including stock-based compensation expenses of $3.5 million driven primarily by a sale of common stock by a select group of employees to other investors in excess of estimated fair value during 2019), a $3.5 million increase in legal and consulting fees due to the implementation of sales tax, a $2.0 million increase in chargeback costs related to the overall volume increase on our marketplace and increased fraud activity, a $2.1 million increase in facility costs (including rent and maintenance) associated with the lease of our new headquarters, and higher taxes, including sales tax in arrears of $1.0 million.
Depreciation and Amortization
Year Ended December 31,
Change
$
%
(dollars in thousands)
Depreciation and amortization
$
$
2,056
$
1,254
%
Depreciation and amortization expense increased $1.3 million for the year ended December 31, 2019 compared to the prior year. The increase was primarily due to an increase in leasehold improvements amortization associated with our new headquarters of $0.6 million, and an increase in capitalization of website and software development of $0.3 million.
Interest Income
Year Ended December 31,
Change
$
%
(dollars in thousands)
Interest income
$
1,096
$
1,677
$
%
The increase in interest income is due to interest income earned from our marketable securities.
Other Expense, Net
Year Ended December 31,
Change
$
%
(dollars in thousands)
Other expenses, net
$
(460
)
$
(366
)
$
(20
)%
The decrease in other expense, net is primarily due to the proceeds from sales tax discount for timely payment of sales tax, partially offset by the change in fair value of the redeemable convertible preferred stock warrant liability which was driven by an increase in the fair value of the underlying redeemable convertible preferred stock.
Provision for Income Taxes
Year Ended December 31,
Change
$
%
(dollars in thousands)
Provision for income taxes
$
$
%
The increase in our provision for income taxes is related to an increase in the provision for taxes resulting from the operations of our foreign subsidiaries.
Selected Quarterly Financial Information
The following table set forth our unaudited selected quarterly consolidated statements of operations data for each of the quarters indicated. The information for each quarter has been prepared on a basis consistent with our audited consolidated financial statements included in this Annual Report on Form 10-K and reflects, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for the fair statement of results of operations for these periods. Our historical results are not necessarily indicative of the results that may be expected in the future and the results of a particular quarter or other interim period are not necessarily indicative of the results for a full year.
Three Months Ended
March 31,
June 30,
September 30,
December 31,
March 31,
June 30,
September 30,
December 31,
(in thousands)
Net revenue
$
52,949
$
47,572
$
49,968
$
54,736
$
57,108
$
66,870
$
68,782
$
69,317
(Loss) income from operations
$
(8,515
)
$
(13,490
)
$
(12,759
)
$
(15,065
)
$
(11,166
)
$
21,345
$
11,660
$
1,561
Net (loss) income
$
(8,450
)
$
(13,083
)
$
(12,413
)
$
(14,746
)
$
(10,987
)
$
21,120
$
10,773
$
(4,061
)
Net (loss) income attributable to
common stockholders
$
(8,450
)
$
(13,083
)
$
(12,413
)
$
(14,746
)
$
(10,987
)
$
10,987
$
8,130
$
(4,061
)
Net (loss) income per share
attributable to common
stockholders, basic
$
(0.72
)
$
(1.07
)
$
(1.01
)
$
(1.20
)
$
(0.89
)
$
0.89
$
0.65
$
(0.31
)
Net (loss) income per share
attributable to common
stockholders, diluted
$
(0.72
)
$
(1.07
)
$
(1.01
)
$
(1.20
)
$
(0.89
)
$
0.61
$
0.44
$
(0.31
)
Liquidity and Capital Resources
As of December 31, 2020, our principal sources of liquidity were cash and cash equivalents of $235.8 million, and marketable securities of $26.2 million. Cash equivalents consisted of institutional money market funds, commercial paper, and cash in transit from third-party credit card providers that we receive within approximately three to five business days from the date of the underlying transaction. Marketable securities consisted of commercial paper, corporate bonds, and U.S. Treasury securities, which mature in twelve months or less.
As of December 31, 2020, our cash and cash equivalents held by our foreign subsidiaries were not material.
Since our inception, we have most often generated negative cash flows from operations and as of December 31, 2020, we had an accumulated deficit of $126.5 million, and we have financed our operations primarily through private sales of equity securities, payments received through our platform, and the issuance of convertible debt. Upon the closing of our IPO in January 2021, proceeds from our IPO will be used to finance our operations. We believe our existing cash, cash equivalents, and marketable securities will be sufficient to meet our working capital and capital expenditures needs over at least the next 12 months. However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. We may seek to raise additional funds at any time through the issuance of debt, equity, and equity-linked arrangements.
Consolidated Statements of Cash Flows Data
Year Ended December 31,
(in thousands)
Net cash provided by (used in):
Operating activities
$
12,051
$
(6,743
)
$
84,324
Investing activities
(64,760
)
(5,260
)
37,871
Financing activities
50,248
Effect of foreign exchange rate changes on cash and
cash equivalents
-
(34
)
Net (decrease) increase in cash and cash equivalents
$
(52,406
)
$
(11,148
)
$
172,516
Cash Flows from Operating Activities
For the year ended December 31, 2020, cash provided by operating activities was $84.3 million, which consisted of a net income of $16.8 million, adjusted by non-cash charges of $16.9 million and net cash inflows from the change in net operating assets and liabilities of $50.6 million. The non-cash charges were primarily comprised of stock-based compensation of $8.0 million, change in fair value of convertible notes of $3.8 million, depreciation and amortization of $2.9 million, and change in fair value of redeemable convertible preferred stock warrant liability of $2.3 million. The net cash inflows from the change in our net operating assets and liabilities was primarily due to a $43.3 million increase in our funds payable to customers as a result of our growth, a $10.2 million increase in our accounts payable attributable to the timing of payments, partially offset by a $5.1 million increase in prepaid expenses and other current assets.
For the year ended December 31, 2019, net cash used in operating activities was $6.7 million, which consisted primarily of a net loss of $48.7 million, adjusted by non-cash charges of $11.3 million and net cash inflows from the change in net operating assets and liabilities of $30.6 million. The non-cash charges were primarily comprised of stock-based compensation of $9.7 million. The net cash inflows from the change in our net operating assets and liabilities was primarily due to a $22.3 million increase in our funds payable to customers, an $18.8 million increase in our accrued expenses and other current liabilities, partially offset by a $5.8 million decrease in our accounts payable attributable to the timing of payments, and a $4.9 million increase in other assets, due to the growth of our business.
For the year ended December 31, 2018, net cash provided by operating activities was $12.1 million, which consisted primarily of a net loss of $14.5 million, adjusted by non-cash charges of $3.7 million and net cash inflows from the change in net operating assets and liabilities of $22.8 million. The non-cash charges were primarily comprised of stock-based compensation of $2.6 million. The net cash inflows from the change in our net operating assets and liabilities was primarily due to a $21.5 million increase in our funds payable to customers, due to the growth of our business.
Cash Flows from Investing Activities
For the year ended December 31, 2020, net cash provided by investing activities of $37.9 million, was mainly attributable to the proceeds from the sales and maturities of marketable securities, net of purchases.
For the year ended December 31, 2019, net cash used in investing activities of $5.3 million, was mainly attributable to $4.2 million of cash used for purchases of property and equipment, including computer equipment, furniture, and fixtures to support our growth.
For the year ended December 31, 2018, net cash used in investing activities of $64.8 million, was mainly attributable to $63.1 million of cash used for purchases of marketable securities with the proceeds from the sale of Series D redeemable convertible preferred stock.
Cash Flows from Financing Activities
For the year ended December 31, 2020, cash provided by financing activities was $50.2 million consisting primarily of net proceeds of $50.0 million from the issuance of convertible notes.
For the years ended December 31, 2018 and 2019, cash provided by financing activities was $0.3 million and $0.9 million, respectively, due to proceeds from the exercise of stock options.
Concentration of Credit Risk
No customer accounted for 10% or more of our net revenue for the years ended December 31, 2018, 2019 and 2020.
Contractual Obligations and Commitments
Our principal commitments consist of rental payments under our non-cancelable operating leases and purchase commitments which expire between 2021 and 2024. The following table summarizes our contractual commitments as of December 31, 2020 (in thousands):
Payments Due by Period
Total
Less than 1
Year
1-3
Years
3-5
Years
More than
5 Years
Operating lease commitments
$
19,531
$
5,200
$
11,669
$
2,662
$
-
Purchase commitments(1)
9,742
4,742
5,000
-
-
Total
$
29,273
$
9,942
$
16,669
$
2,662
$
-
(1)
Relates to non-cancelable commitments for network and cloud services in the ordinary course of business with varying expiration terms through October 31, 2022.
Convertible Note Financing
In September 2020, we issued the Convertible Notes to certain of our investors in an aggregate principal amount of $50.0 million. The Convertible Notes mature on September 14, 2023. The Convertible Notes do not accrue interest, except during the existence of an event of default related to non-payment of the obligations under the Convertible Notes at maturity or upon acceleration. The Convertible Notes converted into 1,400,560 shares of our Class A common stock in connection with our IPO. See Note 8 to our annual consolidated financial statements for more information.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
Our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.
We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information, see Note 2 of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Revenue Recognition
We recognize revenue when we satisfy our performance obligations. We consider both sellers and buyers to be customers. We generate revenue from sellers for fees earned when sellers sell items they have listed on our social marketplace to buyers. We generate revenue from buyers for fees earned when they purchase shipping labels used for delivery of the items purchased. We periodically reassess our revenue recognition policies as new offerings become material and business models evolve. We recognize revenue net of estimated returns and cancellations based on our historical experience. Transactions may be cancelled by a buyer or seller in certain circumstances. In
2018, 2019 and 2020, cancellations were 12%, 12% and 14%, respectively, of GMV, including returns which were 2%, 2% and 2%, respectively, of GMV.
We enter into the TOS with buyers and sellers to use our technology platform. The TOS governs these parties’ use of the platform, including payment terms for the buyer and the seller and services to be provided by us. Under the TOS, upon the buyer’s purchase from the seller, the buyer, the seller and we are committed to perform and enforceable rights and obligations are established.
Sellers
Sellers are able to list their items for sale on our social marketplace at no charge. We charge a fee upon the sale of items listed on our social marketplace. The fee is 20% of the final price for sales $15 and over, or a flat rate of $2.95 for sales under $15. The service we provide to sellers includes the facilitation of the sale of their items as well as certain ancillary activities such as payment processing and authentication (for luxury items). These activities comprise a single performance obligation to sellers, which is to facilitate the sale of the listed items between sellers and buyers on our platform (sale facilitation).
We evaluate the presentation of revenue from sellers on a gross or net basis based on whether we act as a principal or an agent in the sale of listed items between sellers and buyers. We do not control the listed items at any time prior to the transfer of such items to buyers. We act as an agent in facilitating the sale of items from sellers to buyers by allowing them to connect and interact on our social marketplace. We are not primarily responsible for fulfillment of purchased items, do not have inventory risk, and do not set the price for the listed item. As such, we report revenue from sellers on a net basis to reflect the fees received from sellers.
Revenue is recognized at the point in time we satisfy the performance obligation to facilitate the sale of a listed item. This occurs when both the seller and the buyer agree to a sale and the payment is processed on our platform. For luxury items authenticated by us, sale facilitation revenue is recognized when we authenticate and arrange for shipment of the items to the buyer, as this is the point in time a sale is finalized and we have satisfied our performance obligation.
Buyers
When a sale is finalized, the buyer purchases a shipping label from the USPS through our platform. We email the shipping label to the seller and the seller ships the item to the buyer through the shipping provider, USPS. We do not purchase the shipping label on behalf of the buyer until after the buyer has purchased an item and has remitted payment. As a result, we have one performance obligation to buyers, which is to facilitate the sale of shipping labels to buyers for the delivery of items purchased on our platform (shipping facilitation).
We evaluate the presentation of revenue from buyers on a gross or net basis based on whether we act as a principal or an agent in shipment of listed items between sellers and buyers. We do not control the shipping service, which is provided by the shipping provider. We are not primarily responsible for shipping, and we do not assume any of the risks for the items shipped such as risk of damage or loss during shipping. We act as an agent of the buyer in facilitating the shipping. As such, we report revenue on a net basis which is the difference between the shipping fee paid by the buyer and the cost of shipping labels paid to the shipping provider.
Revenue from shipping facilitation is recognized upon transfer of the shipping label to the seller on behalf of the buyer.
We estimate chargebacks based on historical collectability rates. We record a reserve for chargebacks in accrued expenses and other current liabilities with an offset to general and administrative expenses. Chargebacks have not been material for all periods presented.
Sales tax and other amounts collected on behalf of third parties are excluded from the transaction price.
Incentives
Under the referral program, an existing user (the referrer) earns an incentive (Posh Credit) when a new user (the referee) first buys an item on our platform. Posh Credits are not redeemable for cash and can only be applied for purchases on our platform. We record the incentive to the referrer, which is in exchange for a distinct referral service, as a liability at the time the incentive is earned by the referrer with a corresponding charge recorded to marketing expense in the consolidated statements of operations.
Credits and incentives issued to existing users for referring new users are contingent upon a new user completing an initial purchase on our platform and represent an incremental cost of obtaining a contract with a customer. We expense such new user referral incentives as marketing expense when the referral incentives are earned because the amortization period would be one year or less.
We have several buyer incentive programs, which are offered to encourage buyer activity on our platform. These promotions reduce the fees we charge for shipping facilitation. Accordingly, we record these incentives as a reduction to revenue from the buyer when the incentive is used by the buyer. Amounts in excess of cumulative shipping facilitation revenue earned are presented as marketing expense in our consolidated statements of operations.
We participate in certain joint incentive programs with sellers that are recorded as a reduction to the fees received from the seller.
We may elect to issue incentives to buyers for customer satisfaction purposes or for refunds. These incentives (which are in the form of Posh Credits) can be applied towards future orders and, thereby, results in a reduced fee earned by us from the buyer, or redeemable credits that can also be redeemed for cash. In cases where the seller performed as required by our TOS, we reduce shipping facilitation revenue earned on the transaction and any cumulative revenue earned from the same buyer for Posh Credits and redeemable credits granted. If the amount of the incentive exceeds cumulative revenues from the buyer, then the excess is presented as operations and support expense in the consolidated statements of operations. If refunds are provided in a case where the seller did not perform and the amount cannot be recovered from the seller, the refund is presented as a reduction of revenue.
Stock-Based Compensation
We grant stock-based awards consisting of stock options and RSUs to employees and consultants.
RSUs vest upon the satisfaction of both time-based service and performance-based conditions. The time-based vesting condition for the majority of these awards is satisfied over four years. The performance-based vesting condition is satisfied upon the occurrence of a qualifying event, which is generally defined as a change in control transaction or the effective date of a Qualified IPO. Because no qualifying event has occurred, we have not recognized any stock-based compensation expense for the RSUs. In the period in which the qualifying event is probable, we will record a cumulative one-time stock-based compensation expense determined using the grant-date fair values and the accelerated attribution method. If our IPO had occurred on December 31, 2020, we would have recognized $14.5 million of stock-based compensation expense for RSUs that had satisfied or partially satisfied the time-based vesting condition on that date, calculated using the accelerated attribution method, and would have $30.3 million of unrecognized compensation cost that represents the grants that have not met the time-based condition as of December 31, 2020. Stock-based compensation related to remaining time-based service after the qualifying event will be recorded over the remaining requisite service period using the accelerated attribution method. RSUs granted after the performance condition occurs will continue to be measured using the grant date fair values and will be amortized on a straight-line basis over the service period.
Stock-based compensation expense for employee stock options is measured based on the grant-date fair value of the awards and is recognized in the consolidated statements of operations on a straight-line basis over the requisite service period, net of forfeitures. Forfeitures are recognized as they occur.
We estimate the fair value of stock options granted to employees and directors using the Black-Scholes option-pricing model. The Black-Scholes model considers several variables and assumptions in estimating the fair
value of stock-based awards. These variables include per share fair value of the underlying common stock, exercise price, expected term, risk-free interest rate, expected annual dividend yield, and expected stock price volatility over the expected term. For all stock options granted, we calculated the expected term using the simplified method. We have no publicly available stock information. Therefore, we have used the historical volatility of the stock price of similar publicly traded peer companies to estimate volatility of our equity awards granted. The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award.
Prior to our initial public offering, the fair value of the shares of common stock underlying the stock options was determined by our board of directors, with assistance by management and using contemporaneous third-party valuations, as there was no public market for the common stock. Following the closing of our initial public offering, the fair value per share of our common stock for purposes of determining stock-based compensation is the closing price of our common stock as reported on the applicable grant date.
The following table summarizes the weighted-average assumptions used in estimating the fair value of stock options granted during each of the periods presented:
Year Ended December 31,
Expected dividend yield
-
-
-
Expected volatility
39.7% - 41.8%
39.7% - 46.2%
51.8%
Risk-free interest rate
2.7% - 3.0%
1.7% - 2.6%
0.5%
Expected term (in years)
5.9 - 6.1
5.4 - 6.1
6.1
Internal Use Software
We capitalize certain costs associated with website development and software for internal use. The costs incurred in the preliminary stages of website and software development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental and deemed by management to be significant, are capitalized and amortized on a straight-line basis over the estimated life of the asset. Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the website or software that result in added functionality which are capitalized and amortized over their estimated useful lives. Capitalized costs are included in property and equipment, net on our consolidated balance sheets.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Recent Accounting Pronouncements
See Note 2 to our annual consolidated financial statements “Summary of Significant Accounting Policies” for more information.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates.
Interest Rate Risk
As of December 31, 2020, we had cash and cash equivalents, and marketable securities of $262.1 million, which consisted primarily of cash held in one high-credit quality financial institution within the United States, cash in transit from third-party credit card providers, institutional money market funds, commercial paper, corporate bonds, and U.S. Treasury securities, which each carry a degree of interest rate risk. Changes in interest rates affect the interest income we earn on our cash, cash equivalents, and marketable securities and the fair value of our cash equivalents and marketable securities. A hypothetical 10% change in interest rates would not have a material impact on our financial condition or results of operations due to the short-term nature of our investment portfolio as of December 31, 2020.
Foreign Currency Exchange Risk
Our revenue is denominated in U.S. dollars. Our expenses are primarily denominated in U.S. dollars, except for our non-U.S. operations, which are denominated in the local currency. As our operations in countries outside of the United States grow, our results of operations and cash flows may be subject to fluctuations due to changes in foreign currency exchange rates. To date, these fluctuations have not been material. As exchange rates vary, our operating loss may differ from expectations. To date, we have not entered into any foreign currency hedging contracts, although we may do so in the future. A hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would not have a material effect on our operating results as of December 31, 2020.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
Please refer to the Financial Statements and Notes to Financial Statements in this Form 10-K which is incorporated herein by reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020, our disclosure controls and procedures were effective at the reasonable assurance level in ensuring that (a) the information required to be disclosed by us in the reports that 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 (b) such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
This annual report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the company's registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies. Additionally, our auditors will not be required to formally opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an “emerging growth company” as defined in the JOBS Act.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2020 that has materially affected, or is 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 our Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived 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 the collusion of two or more people or by management override of 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.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
The following table provides information regarding our executive officers and directors as of December 31, 2020:
Name
Age
Position
Executive Officers:
Manish Chandra
Co-Founder, President, Chief Executive Officer, and Chairman of the Board
Anan Kashyap
Chief Financial Officer
John McDonald
Chief Operating Officer
Non-Employee Directors:
Navin Chaddha(2)(3)
Lead Independent Director
Jeffrey Epstein(1)
Director
John Marren(1)(3)
Director
Jenny Ming(1)
Director
Hans Tung(2)(3)
Director
Serena J. Williams(2)
Director
(1)
Member of the audit committee.
(2)
Member of the compensation committee.
(3)
Member of the nominating and corporate governance committee.
Executive Officers
Manish Chandra. Mr. Chandra co-founded our Company and has served as our President, Chief Executive Officer and member of our board of directors since February 2011. Prior to co-founding Poshmark, Mr. Chandra co-founded Kaboodle, an online shopping website where he served as the Chief Executive Officer from February 2005 to August 2010, and which was acquired by Hearst Communications in August 2007. From August 2010 to February 2011, Mr. Chandra developed the foundation of what ultimately became Poshmark. Mr. Chandra holds an M.B.A. in Marketing and Finance from Haas Business School at the University of California, Berkeley, an M.S. in Computer Science from the University of Texas at Austin, and a B.Tech from the Indian Institute of Technology, Kanpur.
We believe that Mr. Chandra is qualified to serve as a member of our board of directors based on the perspective and experience he brings as our President, Chief Executive Officer, and co-founder.
Anan Kashyap. Mr. Kashyap has served as our Chief Financial Officer since July 2016. From January 2014 to July 2016, Mr. Kashyap served as Vice President of Strategic Finance, Investor Relations, and Corporate Development at GrubHub, an online and mobile food-ordering company. From May 2012 to August 2013, Mr. Kashyap served as Vice President of Finance at KAYAK, a global travel search engine acquired by Priceline. From July 2007 to May 2012, Mr. Kashyap served as a Vice President in the investment banking group at Deutsche Bank, an international investment bank and financial services company. Mr. Kashyap holds an M.B.A. from the UCLA Anderson School of Management and a B.A. in Business Economics from University of California, Los Angeles.
John McDonald. Mr. McDonald has served as our Chief Operating Officer since September 2018. Mr. McDonald served as our Vice President of Business Operations from November 2013 to September 2018. From October 2009 to November 2013, Mr. McDonald served as Vice President of Sales and Support and then as General Manager at Ning, a platform to create a social media network later acquired by Glam Media in December 2011. Mr. McDonald holds an M.B.A. from Harvard Business School and a B.S. in Chemical Engineering from the University of California, Berkeley.
Non-Employee Directors
Navin Chaddha. Mr. Chaddha has served on our board of directors since February 2011. Mr. Chaddha is a Managing Director and leads Mayfield, a venture capital firm, where he has worked since 2006. Over his venture capital career, Mr. Chaddha has invested in over 50 companies, of which over 30 have been acquired or had IPOs, resulting in his being named as a Top Five investor on the 2020 Forbes Midas list of Top Tech investors. Early in his career, Mr. Chaddha co-founded three companies, including VXtreme, which was acquired by Microsoft to become Windows Media. Mr. Chaddha holds an M.S. in Electrical Engineering from Stanford University and a B.Tech in Electrical Engineering from the Indian Institute of Technology, Delhi, from which he received the distinguished alumni award.
We believe that Mr. Chaddha is qualified to serve as a member of our board of directors due to his broad investment experience in the technology industry, his executive and board experience at various technology companies, as well as his extensive experience as an entrepreneur and venture capital investor.
Jeffrey Epstein. Mr. Epstein has served as a member of our board of directors since April 2018. Since November 2011, Mr. Epstein has served as an Executive in Resident and then as Operating Partner of Bessemer Ventures Partners, a venture capital firm. Since June 2019, Mr. Epstein has served as Co-Chief Executive Officer and Chief Financial Officer of Apex Technology Holdings, a SPAC listed on Nasdaq. Since September 2014, Mr. Epstein has also been a Lecturer in the Department of Management Science and Engineering at Stanford University. Mr. Epstein has served as a member of the board of Twilio since July 2017 and Shutterstock since April 2012. He also served as a member of the board of directors of Booking Holdings, from April 2003 to June 2019, and Global Eagle Entertainment, from January 2013 to June 2018. From September 2008 to April 2011, Mr. Epstein served as Executive Vice President and Chief Financial Officer of Oracle. Mr. Epstein holds an M.B.A. from Stanford University Graduate School of Business and a B.A. in Economics and Political Science from Yale University.
We believe that Mr. Epstein is qualified to serve as a member of our board of directors due to his executive and board experience and broad investment experience in the technology industry.
John Marren. Mr. Marren has served as a member of our board of directors since July 2018. Since November 2017, Mr. Marren has served as Senior Managing Director in North America of Temasek, a sovereign wealth fund of the Government of Singapore. Prior to joining Temasek, Mr. Marren was a Senior Partner and the Head of Technology Investments at TPG Capital from March 2000 to March 2016. Since February 2017, Mr. Marren has served as a member of the board of directors of Advanced Micro Devices, and has served as a member of the board of directors of Impossible Foods, a private company, since August 2019. Mr. Marren previously served as a member of the board of directors of Avaya Holdings from October 2007 to April 2011, and again from August 2013 to December 2017. He has also served as a member of the board of directors at several other private companies, including Aptina Imaging from July 2009 to August 2014, Freescale Semiconductor from June 2007 to December 2015, Sungard Data Systems from August 2005 to November 2015, and Vertafore from July 2010 to 2015. From November 2001 to December 2012, Mr. Marren served as Chairman of the board of directors of MEMC Electronic Materials, Inc. (now known as SunEdison). Mr. Marren holds a BSEE in Engineering from the University of California, Santa Barbara.
We believe that Mr. Marren is qualified to serve as a member of our board of directors due to his broad investment experience in the technology industry and his background advising private and public companies in the technology industry.
Jenny Ming. Ms. Ming has served as a member of our board of directors since June 2019. From October 2009 to February 2019, Ms. Ming served as President and Chief Executive Officer of Charlotte Russe, a fast-fashion specialty retailer of apparel and accessories catering to young women. In February 2019, Charlotte Russe filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. From March 1999 to October 2006, Ms. Ming served as President of Old Navy, a $7 billion brand in The Gap, Inc.’s portfolio, where she oversaw all aspects of Old Navy and its 900 retail clothing stores in the United States and Canada. Ms. Ming joined The Gap, Inc. in 1986, serving in various executive capacities at its San Francisco headquarters, and in 1994, she was a member of the executive team that launched Old Navy. Ms. Ming has served on the boards of directors of Levi Strauss & Co since
2014, Paper Source since 2016, and Tower Foundation (at San Jose State University) since 2010. Ms. Ming holds a B.A. in Fashion Merchandising/Marketing from San Jose State University.
We believe that Ms. Ming is qualified to serve as a member of the board of directors due to her extensive operational and retail leadership experience in the apparel industry.
Hans Tung. Mr. Tung has served on our board of directors since March 2016. Mr. Tung is a Managing Partner at GGV Capital, a venture capital firm, where he has worked since October 2013. Prior to joining GGV, Mr. Tung was a Managing Partner at Qiming Venture Partners, a venture capital firm. Mr. Tung began his venture capital career with Bessemer Venture Partners, a venture capital firm, and was a former entrepreneur himself and a former technology banker at Merrill Lynch in New York and Hong Kong. Mr. Tung has served on the board of directors of private companies including musical.ly, Wish, StockX, Misfit, Xiaomi, eHi Car Service, Vedantu and Rupeek. He holds a B.S. in Industrial Engineering from Stanford University.
We believe that Mr. Tung is qualified to serve as a member of our board of directors due to his broad investment experience in the technology industry and his background advising companies in the technology industry.
Serena J. Williams. Ms. Williams has served as a member of our board of directors since January 2019. Ms. Williams began her career as a professional tennis player in 1995 and has won 23 career Grand Slam singles titles. Ms. Williams is also an activist, marketer, brand builder, and a dedicated philanthropist. In 2008, Ms. Williams established the Serena Williams Fund, where she focused on creating equity in education. To that end, Ms. Williams partnered with other corporations and organizations to build schools in Kenya and Jamaica as well as donate classroom resources and provide college scholarships. In 2016, Ms. Williams joined forces with her sister Venus to establish The Williams Sisters Fund to support joint philanthropic projects, beginning with the Yetunde Price Resource Center in Compton, California, which ensures individuals affected by violence and trauma have access to the resources they need to help them heal physically, emotionally, and spiritually. In 2019, Ms. Williams launched her own venture capital firm, Serena Ventures, which focuses on investing in companies that embrace diverse leadership, individual empowerment, creativity, and opportunity, and launched her own brand, SERENA, which celebrates body positivity and female empowerment. Additionally, Ms. Williams has also served as a Goodwill Ambassador with UNICEF since 2011. Since May 2017, Ms. Williams has served as a member of the board of directors of SVMK Inc., doing business as SurveyMonkey.
We believe that Ms. Williams is qualified to serve as a member of the board of directors due to her experience and perspective as an entrepreneur and developer of her global personal brand.
Each executive officer serves at the discretion of our board of directors and holds office until his or her successor is duly elected and qualified or until his or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers.
Code of Business Conduct and Ethics
Our board of directors has adopted a code of business conduct and ethics that applies to all of our employees, officers, and directors, including our Chief Executive Officer, Chief Financial Officer, and other executive and senior financial officers. Our code of business conduct and ethics is available on our investor relations website at https://investors.poshmark.com/governance/governance-documents. We intend to disclose any amendments to our code of business conduct and ethics, or waivers of its requirements, on our website or in filings under the Exchange Act.
Board of Directors
Our business and affairs are managed under the direction of our board of directors. Our board of directors consists of seven directors, six of whom qualify as “independent” under the listing standards of Nasdaq. The number of directors will be fixed by our board of directors, subject to the terms of our amended and restated certificate of incorporation and amended and restated bylaws. Each of our current directors will continue to serve as a director until the election and qualification of his or her successor, or until his or her earlier death, resignation or removal.
Classified Board
Our amended and restated certificate of incorporation provides that our board of directors will be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of stockholders. Our current directors will be divided among the three classes as follows:
•
the Class I directors will be Messrs. Chandra and Chaddha and Ms. Ming, and their terms will expire at the annual meeting of stockholders to be held in 2022;
•
the Class II directors will be Messrs. Epstein and Tung, and their terms will expire at the annual meeting of stockholders to be held in 2023; and
•
the Class III directors will be Mr. Marren and Ms. Williams, and their terms will expire at the annual meeting of stockholders to be held in 2024.
Upon expiration of the term of a class of directors, directors for that class will be elected for three-year terms at the annual meeting of stockholders in the year in which that term expires. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Each director’s term continues until the election and qualification of his or her successor, or his or her earlier death, resignation or removal.
So long as our board of directors is classified, only our board of directors may fill vacancies on our board. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors. The classification of our board of directors may have the effect of delaying or preventing changes in our control or management.
Director Independence
Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment, and affiliations, including family relationships, our board of directors has determined that Messrs. Chaddha, Epstein, Marren, and Tung and Mss. Williams and Ming do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing standards of Nasdaq. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in “Item 13. Certain Relationships and Related Transactions, and Director Independence.”
Committees of the Board of Directors
Our board of directors has established an audit committee, a compensation committee, and a nominating and corporate governance committee. The composition and responsibilities of each of the committees of our board of directors is described below. The charter of each committee is available on our investor relations website at https://investors.poshmark.com/governance/governance-documents. Members will serve on these committees until their resignation or until as otherwise determined by our board of directors.
Audit Committee
Our audit committee consists of Messrs. Epstein and Marren and Ms. Ming, with Mr. Epstein serving as Chairman. Each member of our audit committee meets the requirements for independence under the listing standards of Nasdaq and SEC rules and regulations. Each member of our audit committee also meets the financial literacy and sophistication requirements of the listing standards of Nasdaq. In addition, our board of directors has determined that Mr. Epstein is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act. We intend to comply with the listing requirements of Nasdaq regarding the composition of our audit committee within the transition period for newly public companies. Our audit committee will, among other things:
•
select a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;
•
help to ensure the independence and performance of the independent registered public accounting firm;
•
discuss the scope and results of the audit with the independent registered public accounting firm, and review, with management and the independent registered public accounting firm, our interim and year-end results of operations;
•
develop procedures for employees to submit concerns anonymously about questionable accounting or audit matters;
•
review our policies on risk assessment and risk management;
•
review related party transactions; and
•
approve or, as required, pre-approve, all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm.
Compensation Committee
Our compensation committee consists of Messrs. Chaddha and Tung and Ms. Williams, with Mr. Tung serving as Chairman. Each member of our compensation committee meets the requirements for independence under the listing standards of Nasdaq and SEC rules and regulations. Each member of our compensation committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act, or Rule 16b-3. Our compensation committee will, among other things:
•
review, approve, and determine, or make recommendations to our board of directors regarding, the compensation of our executive officers;
•
administer our equity compensation plans;
•
review and approve, or make recommendations to our board of directors, regarding incentive compensation and equity compensation plans; and
•
establish and review general policies relating to compensation and benefits of our employees.
Nominating and Corporate Governance Committee
Our nominating and governance committee consists of Messrs. Chaddha, Marren, and Tung, with Mr. Chaddha serving as Chairman. Each member of our nominating and governance committee meets the requirements for independence under the listing standards of Nasdaq and SEC rules and regulations. Our nominating and corporate governance committee will, among other things:
•
identify, evaluate and select, or make recommendations to our board of directors regarding nominees for election to our board of directors and its committees;
•
evaluate the performance of our board of directors and of individual directors;
•
consider and make recommendations to our board of directors regarding the composition of our board of directors and its committees;
•
review developments in corporate governance practices;
•
evaluate the adequacy of our corporate governance practices and reporting; and
•
develop and make recommendations to our board of directors regarding corporate governance guidelines and matters.
Compensation Committee Interlocks and Insider Participation
Our compensation committee consists of Messrs. Chaddha and Tung, and Ms. Williams, with Mr. Tung serving as Chairman. None of the members of our compensation committee is or has been an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee (or other board committee performing equivalent functions) of any entity that has one or more of its executive officers serving on our board of directors or compensation committee. See “Item 13. Certain Relationships and Related Transactions, and Director Independence” for information about related party transactions involving members of our compensation committee or their affiliates.
Non-Employee Director Compensation
We did not provide any compensation or make any equity awards or non-equity awards to any of our non-employee directors during the fiscal year ended December 31, 2020, or our fiscal year 2020. Directors may be reimbursed for travel and other expenses directly related to their activities as directors. The following individuals served as non-employee directors during fiscal year 2020: Navin Chaddha, Jeffrey Epstein, John Marren, Jenny Ming, Hans Tung, and Serena Williams. As of December 31, 2020, Ms. Ming held an outstanding RSU award for 17,736 shares and an outstanding stock option for 41,339 shares, both for Class B common stock, and Ms. Williams held an outstanding stock option for 180,000 shares of our Class B common stock. During our fiscal year 2020, Mr. Chandra, our Chief Executive Officer, was a member of our board of directors, as well as an employee, and received no additional compensation for his services as a director. See “Item 11. Executive Compensation” for more information about Mr. Chandra’s compensation for our fiscal year 2020.
In connection with our initial public offering, we implemented a formal policy pursuant to which our non-employee directors will be eligible to receive the following cash retainers and equity awards:
Annual Retainer for Board Membership
Annual service on the board of directors
$
30,000
Annual service as lead independent director
$
15,000
Additional Annual Retainer for Committee
Membership
Annual service as member of the audit committee
(other than chair)
$
10,000
Annual service as chair of the audit committee
$
20,000
Annual service as member of the compensation
committee (other than chair)
$
6,000
Annual service as chair of the compensation committee
$
12,000
Annual service as member of the nominating and
corporate governance committee (other than chair)
$
4,000
Annual service as chair of the nominating and
corporate governance committee
$
8,000
Our policy provides that each non-employee director as of the effective time of the registration statement for our initial public offering will be granted an equity award for our Class A common stock having a fair market value of $175,000, of which 50% will be RSUs and 50% will be stock options, or IPO Grant. In addition, our policy provides that, upon initial election to our board of directors, each non-employee director will be granted an equity award having a fair market value of $350,000, or Initial Grant, of which 50% will be RSUs and 50% will be stock options. Furthermore, on the date of each of our annual meetings of stockholders following the completion of our initial public offering, each non-employee director who will continue as a non-employee director following such
meeting will be granted an annual equity award having a fair market value of $175,000, or Annual Grant, of which 50% will be RSUs and 50% will be stock options. The IPO Grant and the Annual Grant will vest in full on the earlier of (i) the first anniversary of the grant date or (ii) our next annual meeting of stockholders, subject to continued service as a director through the applicable vesting date. The Initial Grant will vest in equal installments on the first, second, and third anniversary of the grant date, subject to continued service as a director through the applicable vesting date. Such awards are subject to full accelerated vesting upon the sale of the Company.
Non-employee directors will be given the opportunity to defer all or a portion of any RSUs granted under our policy into deferred stock units pursuant to the terms and conditions of our policy, our 2021 Plan, and our Non-Employee Directors’ Deferred Compensation Program.
Employee directors will receive no additional compensation for their service as directors.
We will reimburse all reasonable out-of-pocket expenses incurred by non-employee directors for their attendance at meetings of our board of directors or any committee thereof.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The following discussion contains forward-looking statements that are based on our current plans, considerations, expectations, and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation policies and practices that we adopt in the future may differ materially from currently planned programs as summarized in this discussion.
As an “emerging growth company,” we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act. This section provides an overview of the compensation awarded to, earned by, or paid to each individual who served as our principal executive officer during our fiscal year 2020, and our next two most highly compensated executive officers in respect of their service to our company for fiscal year 2020. We refer to these individuals as our named executive officers. Our named executive officers for fiscal year 2020 were:
•
Manish Chandra, our Chief Executive Officer;
•
Anan Kashyap, our Chief Financial Officer; and
•
John McDonald, our Chief Operating Officer.
Our executive compensation program is based on a pay for performance philosophy. Compensation for our executive officers is composed primarily of the following main components: base salary, bonus, and equity incentives in the form of stock options and RSUs. Our executive officers, like all full-time employees, are eligible to participate in our health and welfare benefit plans. We intend to evaluate our compensation philosophy and compensation plans and arrangements as circumstances require.
2020 Summary Compensation Table
The following table provides information regarding the total compensation, for services rendered in all capacities, that was earned by our named executive officers during our fiscal years ended December 31, 2020 and 2019.
Name and Principal Position
Year
Salary
($)
Stock
Awards
($)(1)
Option
Awards
($)(2)
Non-Equity
Incentive Plan
Compensation
($)(3)
Total
($)
Manish Chandra
405,000
2,056,271
1,996,451
300,220
4,757,942
Chief Executive Officer
381,250
-
3,102,900
198,660
3,682,810
Anan Kashyap
370,000
3,804,096
-
206,622
4,380,718
Chief Financial Officer
345,750
-
496,464
120,400
962,614
John McDonald
370,000
3,084,407
-
206,622
3,661,029
Chief Operating Officer
337,500
-
496,464
120,400
954,364
(1)
The amount reported represents the aggregate grant date fair value of the RSUs awarded to the named executive officers in fiscal year 2020, calculated in accordance with FASB ASC Topic 718. Such grant date fair value does not take into account any estimated forfeitures related to service vesting conditions. The assumptions used in calculating the grant date fair value of the RSUs reported in this column are set forth in the Notes to our Consolidated Financial Statements included elsewhere in this 10-K. The amounts reported in this column reflect the accounting cost for these RSUs and do not correspond to the actual economic value that may be received by the named executive officers upon any sale of the underlying shares of common stock.
(2)
The amounts reported represent the aggregate grant date fair value of the stock options awarded to the named executive officer in fiscal year 2020 and fiscal year 2019, calculated in accordance with FASB ASC Topic 718. Such grant date fair value does not take into account any estimated forfeitures related to service vesting conditions. The assumptions used in calculating the grant date fair value of the stock options reported in this column are set forth in the Notes to our Consolidated Financial Statements included elsewhere in this 10-K. The amounts reported in this column reflect the accounting cost for these stock options and do not correspond to actual economic value that may be received by the named executive officers upon exercise of the stock options.
(3)
The amounts reported reflect bonuses paid under our 2020 Executive Compensation Plan and 2019 Executive Compensation Plan to our named executive officers based upon achievement of certain company and individual performance metrics. Our 2020 Executive Compensation Plan is described more fully in the Narrative to Summary Compensation Table below.
Narrative to Summary Compensation Table
Base Salaries
We use base salaries to recognize the experience, skills, knowledge, and responsibilities required of all our employees, including our named executive officers. Base salaries are reviewed annually, typically in connection with our annual performance review process, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. For fiscal year 2020, the annual base salaries for each of Messrs. Chandra, Kashyap, and McDonald were $425,000, $390,000, and $390,000, respectively which were increased on July 1, 2020 from $385,000, $350,000, and $350,000, respectively.
Annual Bonuses
From time to time, our board of directors may approve annual bonuses for our named executive officers based on individual performance, company performance, or as otherwise determined to be appropriate. For fiscal year 2020, our named executive officers participated in our 2020 Executive Compensation Plan, which provides a bonus based upon company performance against pre-established performance goals and individual performance. Each of Messrs. Chandra, Kashyap, and McDonald have a target bonus equal to 80%, 60%, and 60% of their respective annual base salary. Our fiscal year 2020 performance goals are weighted equally between a GMV performance metric and an adjusted EBITDA performance metric.
Equity Compensation
Although we do not have a formal policy with respect to the grant of equity incentive awards to our executive officers, we believe that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture, and help to align the interests of our executives and our stockholders. In addition, we believe that equity grants with a time-based vesting feature promote executive retention because this feature incentivizes our executive officers to remain in our employment during the vesting period. Accordingly, our board of directors periodically reviews the equity incentive compensation of our named executive officers and from time to time may grant equity incentive awards to them. In August 2020, our board of directors approved RSU grants to our named executive officers as set forth in more detail in the “Outstanding Equity Awards at Fiscal 2020 Year-End” table below. Additionally, in September 2020, our board of directors also granted a stock option grant to Mr. Chandra as set forth in more detail in the “Outstanding Equity Awards at Fiscal 2020 Year-End” table below.
Executive Employment Arrangements
Offer Letters in Place During the Year Ended December 31, 2020 for Named Executive Officers
Manish Chandra
On February 10, 2011, we entered into an offer letter with Mr. Chandra for the position of Chief Executive Officer. The offer letter provided for Mr. Chandra’s at-will employment and set forth his annual base salary and his eligibility to participate in our benefit plans generally. Mr. Chandra is subject to our standard employment, confidential information, and invention assignment agreement.
Anan Kashyap
On June 2, 2016, we entered into an offer letter with Mr. Kashyap for the position of Chief Financial Officer. The offer letter provided for Mr. Kashyap’s at-will employment and set forth his annual base salary, target bonus opportunity, certain relocation reimbursements, an option grant, and his eligibility to participate in our benefit plans generally. Mr. Kashyap is subject to our standard employment, confidential information, and invention assignment agreement.
John McDonald
On October 28, 2013, we entered into an offer letter with Mr. McDonald pursuant to which he became our Vice President of Marketplace Operation. The offer letter provided for Mr. McDonald’s at-will employment, set forth his annual base salary, a one-time performance bonus payable three months following his start date, an option grant, and provided for his eligibility to participate in our benefit plans generally. Mr. McDonald is subject to our standard employment, confidential information, and invention assignment agreement.
Executive Severance Plan
We have adopted an executive severance plan in which our named executive officers and certain senior executives will participate. Our executive severance plan, or the Executive Severance Plan, provides that upon a (i) termination by us other than for “cause,” as defined in the Executive Severance Plan, death, or disability or (ii) a resignation for “good reason,” as defined in the Executive Severance Plan, in each case within the change in control period (i.e., the period beginning three months prior to, and ending 12 months after, a “change in control,” as
defined in the Executive Severance Plan), an eligible participant will be entitled to receive, subject to the execution and delivery of an effective release of claims in favor of us, (i) a lump sum cash payment equal to 18 months of base salary for our Chief Executive Officer and 12 months of base salary for our C-level executive officers (other than any Chief Executive Officer) and Senior Vice Presidents, or the Senior Executive Officers, (ii) a monthly cash payment equal to our contribution towards health insurance for up to 18 months for our Chief Executive Officer and up to 12 months for our Senior Executive Officers, (iii) a pro rata target annual bonus for the year in which the termination occurs, based on the number of days in such year prior to the termination date of such participant, and (iv) full accelerated vesting of all outstanding and unvested equity award held by such participant; provided, that any unvested and outstanding equity awards subject to performance conditions will be deemed satisfied at the target levels specified in the applicable award agreements.
The Executive Severance Plan also provides that upon (i) termination by us for any reason other than for “cause,” as defined in the Executive Severance Plan, death or disability, in each case outside of the change in control period, an eligible participant will be entitled to receive, subject to the execution and delivery of an effective release of claims in favor of us, (i) a lump sum cash payment equal to 12 months of base salary for our Chief Executive Officer and 6 months of base salary for any Senior Executive Officer, (ii) a monthly cash payment equal to our contribution towards health insurance for up to 12 months for our Chief Executive Officer and up to 6 months for any Senior Executive Officer, and (iii) a pro rata target annual bonus for the year in which the termination occurs, based on the number of days in such year prior to the termination date of such participant.
The payments and benefits provided under the Executive Severance Plan in connection with a change in control may not be eligible for a federal income tax deduction by us pursuant to Section 280G of the Code. These payments and benefits may also subject an eligible participant, including the named executive officers, to an excise tax under Section 4999 of the Code. If the payments or benefits payable in connection with a change in control would be subject to the excise tax imposed under Section 4999 of the Code, then those payments or benefits will be reduced if such reduction would result in a higher net after-tax benefit to the recipient.
Outstanding Equity Awards at Fiscal 2020 Year-End
The following table sets forth information regarding outstanding equity awards held by our named executive officers as of fiscal year 2020:
Option Awards(1)
Stock Awards(2)
Name
Vesting
Commencement
Date
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock that
Have Not
Vested (#)
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested($)(3)
Manish Chandra
10/1/2015
(4)
85,155
-
1.11
12/14/2025
-
5/9/2017
(4)(5)
330,909
64,060
1.52
5/8/2027
-
-
2/1/2019
(4)(5)
229,166
270,834
10.77
1/11/2029
-
-
4/1/2020
(6)
-
195,556
21.03
9/16/2030
-
-
4/1/2020
(7)
-
-
-
-
97,778
4,106,676
Anan Kashyap
7/25/2016
(4)(5)
264,125
-
1.11
8/24/2026
2/1/2019
(4)(5)
36,666
43,334
10.77
1/11/2029
-
-
4/1/2020
(7)
-
-
-
-
180,889
7,597,338
John McDonald
11/18/2013
(4)(5)
181,137
-
0.41
11/19/2023
-
-
9/1/2015
(4)
100,000
-
1.11
9/17/2025
-
-
5/9/2017
(4)(5)
137,727
16,015
1.52
5/8/2027
-
-
2/1/2019
(4)(5)
36,666
43,334
10.77
1/11/2029
-
-
4/1/2020
(7)
-
-
-
-
146,667
6,160,014
(1)
Each stock option for shares of our Class B common stock was granted pursuant to our 2011 Plan. No named executive officer has early exercisable options.
(2)
As further described in the footnotes below, the RSUs granted pursuant to our 2011 Plan will vest upon the satisfaction of both a time-based condition and a performance-based condition before the award’s expiration date. The performance-based condition will be satisfied on the first to occur of (i) a change in control or (ii) the initial public offering of our securities. The expiration date is August 19, 2027. Any RSUs that have satisfied the time-based condition at the time of the named executive officer’s termination of service remain eligible for vesting upon the achievement of the performance-based condition prior to the expiration date of the award.
(3)
The amounts represent the number of shares underlying the RSUs multiplied by our initial public offering price of $42.00 per share.
(4)
1/4th of the shares subject to the option vest and become exercisable on the first anniversary of the vesting commencement date, with the balance vesting and becoming exercisable in equal monthly installments over 36 months thereafter, subject to the named executive officer maintaining a service relationship with us at such time.
(5)
In the event the named executive officer is terminated without “cause” or resigns for “good reason” within 12 months following a “sale event” (as such terms are defined in the applicable award agreements), then the named executive officer is entitled to full accelerated vesting of all shares subject to the applicable option.
(6)
1/4th of the shares subject to the option vest and become exercisable on the first anniversary of the vesting commencement date, with the balance vesting and becoming exercisable in 12 equal quarterly installments over thereafter, subject to the named executive officer maintaining a service relationship with us at such time.
(7)
The time-based condition of the award vests as follows: 1/4th of the total RSUs on the first anniversary of the vesting commencement date and the remaining RSUs vest in 12 equal quarterly installments thereafter subject to the named executive officer continuing to provide service to us through each such vesting date.
Employee Benefits and Stock Plans
2021 Stock Option and Incentive Plan
Our 2021 Plan was adopted by our board of directors in November 2020 and approved by our stockholders in January 2021, and became effective on January 12, 2021. The 2021 Plan replaced the 2011 Plan, as our board of directors has determined not to make additional awards under the 2011 Plan following the completion of our initial public offering. However, the 2011 Plan will continue to govern outstanding equity awards granted thereunder. The 2021 Plan allows the compensation committee to make equity-based incentive awards to our officers, employees, directors, and other key persons, including consultants.
Authorized Shares. We have initially reserved 10,000,000 shares of our Class A common stock for the issuance of awards under the 2021 Plan. The 2021 Plan provides that the number of shares reserved and available for issuance under the 2021 Plan will automatically increase each January 1, beginning on January 1, 2022, by 5% of the number of outstanding shares of our Class A and Class B common stock on the immediately preceding December 31 or such lesser number of shares as determined by our compensation committee. This number will be subject to adjustment in the event of a stock split, stock dividend, or other change in our capitalization. The shares we issue under the 2021 Plan will be authorized but unissued shares or shares that we reacquire. The shares of Class A and Class B common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without the issuance of stock, or are otherwise terminated, other than by exercise, under the 2021 Plan and the 2011 Plan will be added back to the shares of Class A common stock available for issuance under the 2021 Plan. The maximum number of shares of Class A common stock that may be issued as incentive stock options in any one calendar year period may not exceed 10,000,000 cumulatively increased on January 1, 2022 and on each January 1 thereafter by the lesser of 5% of the number of outstanding shares of Class A and Class B common stock as of the immediately preceding December 31, or 10,000,000 shares.
Non-Employee Director Limit. Our 2021 Plan contains a limitation whereby the value of all awards under our 2021 Plan and all other cash compensation paid by us to any non-employee director may not exceed: (i) $1,000,000 in the first calendar year an individual becomes a non-employee director and (ii) $750,000 in any other calendar year.
Administration. The 2021 Plan is administered by our compensation committee. Our compensation committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2021 Plan. The plan administrator is specifically authorized to exercise its discretion to reduce the exercise price of outstanding stock options and stock appreciation rights or effect the repricing of such awards through cancellation and re-grants.
Eligibility. Persons eligible to participate in the 2021 Plan will be those employees, non-employee directors and consultants, as selected from time to time by our compensation committee at its discretion.
Options. The 2021 Plan permits the granting of both options to purchase Class A common stock intended to qualify as incentive stock options under Section 422 of the Code and options that do not so qualify. The option exercise price of each option will be determined by our compensation committee but may not be less than 100% of the fair market value of our Class A common stock on the date of grant unless the option is (i) granted pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code, (ii) granted to individuals who are not subject to U.S. income tax on the date of grant, or (iii) otherwise compliant with Section 409A. The term of each option will be fixed by our compensation committee and may not exceed 10 years from the date of grant. Our compensation committee will determine at what time or times each option may be exercised.
Stock Appreciation Rights. Our compensation committee may award stock appreciation rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of Class A common stock, or cash, equal to the value of the appreciation in our stock price over the exercise price. The exercise price may not be less than 100% of the fair market value of our Class A common stock on the date of grant. The term of each stock appreciation right will be fixed by our compensation committee and may not exceed 10 years from the date of grant. Our compensation committee will determine at what time or times each stock appreciation right may be exercised.
Restricted Stock and Restricted Stock Units. Our compensation committee may award restricted shares of Class A common stock and RSUs to participants subject to such conditions and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified vesting period.
Unrestricted Stock. Our compensation committee may grant or sell shares of Class A common stock that are free from any restrictions under the 2021 Plan. Unrestricted stock may be granted to participants in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant.
Dividend Equivalent Rights. Our compensation committee may grant dividend equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of shares of Class A common stock.
Cash-Based Awards. Our compensation committee may grant cash bonuses under the 2021 Plan to participants, subject to the achievement of certain performance goals, including continued employment with us through a specified period.
Sale Event. The 2021 Plan provides that upon the effectiveness of a “sale event,” as defined in the 2021 Plan, an acquirer or successor entity may assume, continue or substitute for the outstanding awards under the 2021 Plan. To the extent that awards granted under the 2021 Plan are not assumed, continued or substituted by the successor entity, all unvested awards granted under the 2021 Plan shall terminate. In such case, except as may be otherwise provided in the relevant award agreement, all options and stock appreciation rights with time-based vesting conditions or restrictions that are not exercisable immediately prior to the sale event will become fully exercisable as of the sale event, all other awards with time-based vesting, conditions or restrictions will become fully vested and nonforfeitable as of the sale event, and all awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in connection with the sale event in the plan administrator’s discretion or to the extent specified in the relevant award agreement. In the event of such termination, (i) individuals holding options and stock appreciation rights will be permitted to exercise such options and stock appreciation rights (to the extent exercisable) prior to the sale event or (ii) we may make or provide for a
payment, in cash or in kind, to participants holding vested and exercisable options and stock appreciation rights, in exchange for the cancellation thereof, equal to, for each share of our Class A common stock underlying such options and stock appreciation rights, the difference between the per share consideration payable to stockholders in the sale event and the exercise price of the options or stock appreciation rights. We may also make or provide for a payment, in cash or in kind, to participants holding other awards in an amount equal to the product of the per share cash consideration in the sale event and the number of vested shares subject to each such award.
Amendment. Our board of directors may amend or discontinue the 2021 Plan, and our compensation committee can amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose, but no such action may adversely affect rights under an outstanding award without the holder’s consent. Certain amendments to the 2021 Plan will require the approval of our stockholders.
No awards may be granted under the 2021 Plan after the date that is 10 years from January 12, 2021, and no incentive stock options may be granted under the 2021 Plan after the date that is 10 years from the date of stockholder approval of the 2021 Plan. No awards under the 2021 Plan have been made prior to the date hereof.
2011 Stock Option and Grant Plan, as amended
Our 2011 Plan was approved by our board of directors and our stockholders on February 11, 2011 and most recently amended by our board of directors in August 2020. As of December 31, 2020, we reserved an aggregate of 14,700,460 shares of our Class B common stock for the issuance of options and other equity awards under the 2011 Plan. This number is subject to adjustment in the event of a stock split, stock dividend, or other change in our capitalization. As of December 31, 2020, options to purchase 7,660,786 shares of our Class B common stock at a weighted average exercise price of $5.09 per share, 2,219,770 RSUs for shares of our Class B common stock, and no shares of restricted stock were outstanding under the 2011 Plan and 450,010 shares remained available for future issuance under the 2011 Plan. Following the completion of our initial public offering, we have not and will not grant any further awards under our 2011 Plan, but all outstanding awards under the 2011 Plan will continue to be governed by their existing terms.
Authorized Shares. The shares we have issued under the 2011 Plan were authorized but unissued shares or shares we reacquired. The shares of Class B common stock underlying any awards that are forfeited, cancelled, reacquired by us prior to vesting, satisfied without the issuance of stock, or otherwise terminated (other than by exercise) and the shares of Class B common stock that are withheld upon exercise of a stock option or settlement of an award to cover the exercise price or tax withholding, are currently added back to the shares of Class B common stock available for issuance under the 2011 Plan. Such shares have been added to the shares of Class A common stock available for issuance under the 2021 Plan.
Administration. The 2011 Plan is currently administered by the board of directors. The plan administrator has the authority to interpret and administer our 2011 Plan and any agreement thereunder and to determine the terms of awards, including the recipients, the number of shares subject to each award, the exercise price, if any, the vesting schedule applicable to the awards together with any vesting acceleration and the terms of the award agreement for use under our 2011 Plan. The plan administrator is specifically authorized to exercise its discretion to reduce the exercise price of outstanding stock options or effect the repricing of stock options through cancellation and re-grants.
Eligibility. The 2011 Plan permits us to make grants of incentive stock options to our employees and any of our subsidiary corporations’ employees, and grants of non-qualified stock options, restricted stock awards, unrestricted stock awards, and RSUs to the officers, employees, directors, and consultants of the company and our subsidiary corporations.
Options. The 2011 Plan permits the granting of stock options to purchase Class B common stock intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code and stock options that do not so qualify. The option exercise price per share of our Class B common stock underlying each stock option was determined by the plan administrator and must have been at least equal to 100% of the fair market value of a share of our Class B common stock on the date of grant. In the case of an incentive stock option granted to a participant who, at the time of grant of such stock option, owned stock representing more than 10% of the voting power of all
classes of stock of the Company, or a 10% owner, the exercise price per share of our Class B common stock underlying each such stock option must have been at least equal to 110% of the fair market value of a share of our Class B common stock on the date of grant. The term of each stock option may not have exceeded 10 years from the date of grant (or five years for a 10% owner). The plan administrator will determine the methods of payment of the exercise price of a stock option, which may include cash, a net exercise arrangement for non-qualified stock options, a promissory note (if permitted by the board of directors) and if permitted by the plan of administrators, through either the delivery of shares of our Class B common stock owned by the participant or a broker-assisted arrangement. After a participant’s termination of service (other than a termination for cause), the participant generally may exercise his or her stock options, to the extent vested as of such date of termination, for 30 days after termination or such longer period of time as specified in the applicable stock option agreement; provided, that if the termination is due to death or disability, the stock option generally will remain exercisable, to the extent vested as of such date of termination, until six months following such termination or such longer period of time as specified in the applicable stock option agreement. However, in no event may a stock option be exercised later than the expiration of its term.
Restricted Stock. The 2011 Plan permits the granting of shares of restricted stock. Restricted stock awards are grants of shares of our Class B common stock that are subject to various restrictions, including restrictions on transferability and forfeitures provisions. Shares of restricted stock will vest, and the restrictions on such shares will lapse, in accordance with terms and conditions established by the plan administrator.
Unrestricted Stock. The 2011 Plan permits the granting of shares of unrestricted stock. Unrestricted stock awards may be granted to participants in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant.
Restricted Stock Units. The 2011 Plan permits the granting of RSUs. An RSU is an award that covers a number of shares of our Class B common stock that may be settled upon vesting in cash or by the issuance of the underlying shares. The administrator determines the terms and conditions of RSUs, including the number of units granted, the vesting criteria (which may include accomplishing specified performance criteria or continued service to us), and the form and timing of payment.
Transferability or Assignability of Awards. The 2011 Plan does not allow for the transfer or assignment of awards other than by will or the laws of descent and distribution unless the applicable award agreement provides for such transfer or assignment by gift to an immediate family member, or by instrument to an inter vivos or testamentary trust in which the award is passed to beneficiaries upon the death of the participant.
Sale Event. The 2011 Plan provides that upon the occurrence of a “sale event” as defined in the 2011 Plan, awards may be assumed, substituted for new awards of a successor entity, or otherwise continued or terminated at the effective time of such sale event. In the case of the termination of outstanding stock options, such stock options may be exercised to the extent then exercisable within a period of time prior to the consummation of the sale event. In the case of forfeiture of restricted stock, such awards may be repurchased by us for a price per share equal to the original per share purchase price paid by the participant for the shares or the current fair market value of such shares, determined immediately prior to the effective time of the sale event. We may also make or provide for a cash payment to holders of vested and exercisable stock options, in exchange for the cancellation thereof, equal to, for each share of our Class B common stock underlying such stock option, the difference between the per share cash consideration in the sale event and the per share exercise price. We may make or provide for a cash payment to holders of restricted stock and RSU awards, in exchange for the cancellation thereof, in an amount equal to the product of the per share cash consideration in the sale event and the number of shares subject to each such award.
Amendment. Our board of directors may amend, suspend, or terminate the 2011 Plan at any time, subject to stockholder approval where such approval is required by applicable law. The plan administrator may also amend, modify, or terminate any outstanding award, including the exercise price of such award, provided that no amendment to an award may adversely affect any of the rights of a participant under any awards previously granted without his or her consent.
2021 Employee Stock Purchase Plan
In November 2020, our board of directors adopted, and, in January 2021, our stockholders approved, the ESPP. The ESPP became effective on January 12, 2021. The ESPP initially reserved and authorized the issuance of up to a total of 2,000,000 shares of Class A common stock to participating employees. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2022, by the lesser of 3,000,000 shares of our Class A common stock, 1% of the number of outstanding shares of our Class A and Class B common stock on the immediately preceding December 31, or such lesser number of shares as determined by our compensation committee.
All employees whose customary employment is for more than 20 hours per week and have completed at least 30 days of employment, or who are otherwise required to participate by applicable law or regulation, are eligible to participate in the ESPP. Any employee who owns 5% or more of the total combined voting power or value of all classes of stock will not be eligible to purchase shares under the ESPP.
We will make one or more offerings, consisting of one or more purchase periods, to our employees to purchase shares under the ESPP. The first offering will begin and end on dates to be determined by the plan administrator. Unless otherwise determined by the plan administrator, subsequent offerings will usually begin on the first business day occurring on or after each January 1 and July 1 and will continue for six-month periods, referred to as offering periods. Each eligible employee may elect to participate in any subsequent offering by submitting an enrollment form at least 15 days before the relevant offering date. As of the date of this Annual Report on Form 10-K, no offering periods have commenced.
Each employee who is a participant in the ESPP may purchase shares by authorizing contributions of 1-15% of his or her compensation during an offering period. Unless the participating employee has previously withdrawn from the offering, his or her accumulated contributions will be used to purchase shares on the last business day of the purchase period at a price equal to 85% of the fair market value of the shares on the first business day of the offering period or the last business day of the purchase period, whichever is lower, provided that no more than 1,000 shares of Class A common stock (or a lesser number as established by the plan administrator in advance of the purchase period) may be purchased by any one employee during each purchase period. Under applicable tax rules, an employee may purchase no more than $25,000 worth of shares of Class A common stock, valued at the start of the offering period, under the ESPP for each calendar year in which a purchase right is outstanding.
The accumulated contributions of any employee who is not a participant on the last day of a purchase period will be refunded. An employee’s rights under the ESPP terminate upon voluntary withdrawal from the plan or when the employee ceases employment with us for any reason.
The ESPP may be terminated or amended by our board of directors at any time but shall automatically terminate on the 10-year anniversary of our initial public offering. An amendment that increases the number of shares of Class A common stock that is authorized under the ESPP and certain other amendments will require the approval of our stockholders. The plan administrator may adopt subplans under the ESPP for employees of our subsidiaries and affiliates who may participate in the ESPP and may require such employees to participate in the ESPP on different terms, to the extent permitted by applicable law.
Senior Executive Cash Incentive Bonus Plan
In November 2020, our board of directors adopted the Senior Executive Cash Incentive Bonus Plan, or the Bonus Plan. The Bonus Plan became effective on January 12, 2021. The Bonus Plan provides for cash bonus payments based upon the attainment of performance targets established by our compensation committee. The payment targets will be related to financial and operational measures or objectives with respect to our company, or corporate performance goals, as well as individual performance objectives.
Our compensation committee may select corporate performance goals from among the following: cash flow (including, but not limited to, operating cash flow and free cash flow); earnings before interest, taxes, depreciation and amortization; net income (loss) (either before or after interest, taxes, depreciation and/or amortization); changes in the market price of our Class A common stock; economic value-added; acquisitions or strategic transactions;
operating income (loss); return on capital, assets, equity, or investment; stockholder returns; return on sales; gross or net profit levels; productivity; expense efficiency; margins; operating efficiency; customer satisfaction; working capital; earnings (loss) per share of our Class A common stock; bookings, new bookings or renewals; sales or market shares; revenue; corporate revenue; number of customers, number of new customers or customer references; operating income and/or net annual recurring revenue, any of which may be (A) measured in absolute terms or compared to any incremental increase, (B) measured in terms of growth, (C) compared to another company or companies or to results of a peer group, (D) measured against the market as a whole and/or as compared to applicable market indices and/or (E) measured on a pre-tax or post-tax basis (if applicable).
Each executive officer who is selected to participate in the Bonus Plan will have a target bonus opportunity set for each performance period. The bonus formulas will be adopted in each performance period by the compensation committee and communicated to each executive. The corporate performance goals will be measured at the end of each performance period after our financial reports have been published. If the corporate performance goals and individual performance objectives are met, payments will be made as soon as practicable following the end of each performance period. Subject to the rights contained in any agreement between the executive officer and us, an executive officer must be employed by us on the bonus payment date to be eligible to receive a bonus payment. The Bonus Plan also permits the compensation committee to approve additional bonuses to executive officers in its discretion and provides the compensation committee with discretion to adjust the terms and conditions of the award as it deems appropriate.
401(k) Plan
We maintain a tax-qualified retirement plan that provides eligible U.S. employees with an opportunity to save for retirement on a tax-advantaged basis. Plan participants are able to defer eligible compensation subject to applicable annual Code limits. The 401(k) plan is intended to be qualified under Section 401(a) of the Code with the 401(k) plan’s related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are generally not taxable to the employees until distributed from the 401(k) plan. Our 401(k) plan also features a Roth component, whereby participants can make contributions to the 401(k) plan on a post-tax basis that are not taxable upon distribution from the 401(k) plan.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of February 28, 2021 for:
•
each of our named executive officers;
•
each of our directors;
•
all of our directors and executive officers as a group; and
•
each person known by us to be the beneficial owner of more than 5% of any class of our voting securities.
We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. We have deemed shares of our common stock subject to options that are currently exercisable or exercisable within 60 days of February 28, 2021 to be outstanding and to be beneficially owned by the person holding the option for the purpose of computing the percentage ownership of that person but have not treated them as outstanding for the purpose of computing the percentage ownership of any other person.
We have based percentage ownership of our common stock on 11,114,719 shares of Class A common stock and 63,923,565 shares of Class B common stock outstanding as of February 28, 2021.
Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Poshmark, Inc., 203 Redwood Shores Parkway, 8th Floor, Redwood City, California 94065.
Shares Beneficially Owned
% Total
Class A
Class B
Voting
Shares
%
Shares
%
Power
Name of Beneficial Owner:
Entities affiliated with Ameriprise Financial, Inc.(1)
821,800
7.4
%
-
-
*
Entities affiliated with Mayfield(2)
-
-
17,253,647
27.0
%
26.5
%
Entities affiliated with GGV Capital(3)
-
-
5,126,167
8.0
%
7.9
%
Entities affiliated with Menlo Ventures(4)
-
-
10,319,197
16.1
%
15.9
%
Entities affiliated with Inventus Capital(5)
-
-
6,779,118
10.6
%
10.4
%
Anderson Investments Pte. Ltd.(6)
-
-
5,971,646
9.3
%
9.2
%
Manish Chandra(7)
-
-
6,211,478
9.7
%
9.6
%
Named Executive Officers and Directors:
Manish Chandra(7)
-
-
6,211,478
9.7
%
9.6
%
Anan Kashyap(8)
-
-
588,555
*
*
John McDonald(9)
-
-
511,675
*
*
Navin Chaddha(2)
-
-
17,253,647
27.0
%
26.5
%
Jeffrey Epstein(10)
-
-
269,634
*
*
John Marren(11)
-
-
-
-
-
Jenny Ming(12)
-
-
35,823
*
*
Hans Tung(3)
-
-
5,126,167
8.0
%
7.9
%
Serena J. Williams(13)
-
-
101,250
*
*
All directors and executive officers as a group
(9 persons)(14)
-
-
30,098,229
47.1
%
46.3
%
*
Represents beneficial ownership or voting power of less than one percent (1%).
(1)
Based on the Schedule 13G filed with the Securities and Exchange Commission on February 10, 2021, reporting beneficial ownership as of January 31, 2021. Ameriprise Financial, Inc. has shared dispositive power with respect to 821,800 shares of Class A common stock and has shared voting power with respect to 811,300 shares of Class A common stock. Columbia Management Investment Advisers, LLC, or CMIA has shared dispositive power with respect to 821,800 shares of Class A common stock and has shared voting power with respect to 811,300 shares of Class A common stock. Columbia Wanger Asset Management, LLC, or CWAM, has shared dispositive power with respect to 700,800 shares of Class A common stock and has shared voting power with respect to 700,800 shares of Class A common stock. Columbia Acorn Fund, or CAF, has shared dispositive power with respect to 548,960 shares of Class A common stock and has shared voting power with respect to 548,960 shares of Class A common stock. Ameriprise Financial, Inc. is the parent company of CMIA and CWAM. Accordingly, the shares reported by Ameriprise Financial, Inc. include the shares reported by CMIA and CWAM. CMIA and CWAM is the investment adviser to CAF and various other unregistered and registered investment companies and managed accounts. Accordingly, the shares reported by CMIA and CWAM include the shares reported by CAF. Each of Ameriprise Financial, Inc. CMIA and CWAM may be deemed to beneficially own the shares reported, but each of these entities disclaims such beneficial ownership. The address for Ameriprise Financial Inc. is 145 Ameriprise Financial Center, Minneapolis, MN 55474. The address for CMIA is 225 Franklin St., Boston, MA 02110. The address for CWAM and CAF is 71 S Wacker Drive, Suite 2500, Chicago, IL 60606.
(2)
Consists of (i) 15,748,793 shares of Class B common stock held of record by Mayfield XIII, a Cayman Islands Exempted Limited Partnership, or MF XIII, and (ii) 1,504,854 shares of Class B common stock held of record by Mayfield Select, a Cayman Islands Exempted Limited Partnership, or MF Select. Mayfield XIII Management (UGP), Ltd., a Cayman Islands Exempted Company, or MF XIII UGP, is the general partner of Mayfield XIII Management (EGP), L.P., a Cayman Islands Exempted Limited Partnership, which is the general partner of MF XIII. Rajeev Batra, Navin Chaddha, and Vaneeta Varma are the directors of MF XIII UGP. As a result, each of the foregoing entities and individuals may be deemed to share beneficial ownership of the shares owned by MF XIII, but each of the individuals disclaims such beneficial ownership. Mayfield Select Management (UGP), Ltd., a Cayman Islands Exempted Company, or MF Select UGP, is the general partner of Mayfield Select Management (EGP), L.P., a Cayman Islands Exempted Limited Partnership, which is the general partner of MF Select. Rajeev Batra, Navin Chaddha, Timothy Chang, and Urshit Parikh are the directors of MF Select UGP. As a result, each of the foregoing entities and individuals may be deemed to share beneficial ownership of the shares owned by MF Select, but each of the individuals disclaims such beneficial ownership. The address for each of these entities is c/o Mayfield, 2484 Sand Hill Road, Menlo Park, CA 94025.
(3)
Consists of (i) 4,944,697 shares of Class B common stock held of record by GGV Capital V L.P. and (ii) 181,470 shares of Class B common stock held of record by GGV Capital V Entrepreneurs Fund L.P. GGV Capital V L.L.C. is the general partner of GGV Capital V L.P. and GGV Capital V Entrepreneurs Fund L.P. Glenn Solomon, Jixun Foo, Jenny Lee, Jeff Richards, and Hans Tung are the managing directors of GGV Capital V L.L.C., and share voting and investment control over these shares. The address for each of these entities is 3000 Sand Hill Road, Building 4, Suite 230, Menlo Park, CA 94025.
(4)
Consists of (i) 9,652,589 shares of Class B common stock held of record by Menlo Ventures XI, L.P., (ii) 372,490 shares of Class B common stock held of record by MMEF XI, L.P., (iii) 289,412 shares of Class B common stock held of record by Menlo Special Opportunities Fund, L.P. and (iv) 4,706 shares of Class B common stock held of record by MMSOP, L.P. MV Management XI, L.L.C. is
the general partner of each of Menlo Ventures XI, L.P. and MMEF XI, L.P. and MSOP GP, L.L.C. is the general partner of each of Menlo Special Opportunities Fund, L.P. and MMSOP, L.P. The managing members of MV Management XI, L.L.C., H. DuBose Montgomery, John W. Javre, Douglas C. Carlisle, Mark A. Siegel and Venky V. Ganesan, may be deemed to have shared voting and investment power over the shares held by Menlo Ventures XI, L.P. and MMEF XI, L.P., but each of these individuals disclaims beneficial ownership of such shares, except to the extent of his proportionate pecuniary interest therein. The managing members of MSOP GP, L.L.C., Mark A. Siegel, Matthew J. Murphy, Shawn T. Carolan, and Venky V. Ganesan, may be deemed to have shared voting and investment power over the shares held by Menlo Special Opportunities Fund, L.P. and MMSOP, L.P., but each of these individuals disclaims beneficial ownership of such shares, except to the extent of his proportionate pecuniary interest therein. The address for each of these entities is 2884 Sand Hill Road, Suite 100, Menlo Park, CA 94025.
(5)
Consists of (i) 3,710,090 shares of Class B common stock held of record by Inventus Capital Partners Fund I L.P., a Cayman Islands Exempted Limited Partnership, or ICP I, (ii) 2,153,377 shares of Class B common stock held of record by Inventus Capital Partners Fund II Ltd., or ICP II, and (iii) 915,651 shares of Class B common stock held of record by Inventus Capital Co-Invest Annex Fund I L.P., a Delaware Limited Partnership, or ICP Annex. Inventus Capital Master Management I, Ltd, a Cayman Islands Exempted Limited Partnership, or ICPMM I, is the general partner of Inventus Capital Management I, L.P., a Cayman Islands Exempted Limited Partnership, or ICPM I, which is the general partner of ICP I. Inventus Capital Management II, Ltd, or ICPM II, is the General Partner of ICP II. Inventus Capital Co-Invest Anex Management I, LLC, or ICPM Anex I, is the general partner of ICP Annex. John Dougery, Jr and Kanwal Rekhi are the directors of ICPMM I and ICPM II, and the managing members of ICPM Anex. As a result, each of the foregoing entities and individuals may be deemed to share beneficial ownership of the shares respectively owned by ICP I, ICP II, and ICP Annex, but each of the individuals disclaims such beneficial ownership, except to the extent of his or her proportionate pecuniary interest therein. The address for each of these entities is 1325 Howard Street, Suite 244, Burlingame, CA 94010.
(6)
Consists of 5,971,646 shares of Class B common stock held of record by Anderson Investments Pte. Ltd, or Anderson. Anderson is a direct wholly-owned subsidiary of Thomson Capital Pte. Ltd., or Thomson, which in turn is a direct wholly-owned subsidiary of Tembusu Capital Pte. Ltd., or Tembusu, which in turn is a direct wholly-owned subsidiary of Temasek Holdings (Private) Limited, or Temasek. In such capacities, each of Thomson, Tembusu, and Temasek may be deemed to have voting and dispositive power over the shares held by Anderson. The address for Anderson, Thomson, Tembusu, and Temasek is 60B Orchard Road #06-18 Tower 2, The Atrium@Orchard, Singapore 238891.
(7)
Consists of (i) 5,400,000 shares of Class B common stock held of record by Manish Chandra, (ii) 787,034 shares of Class B common stock subject to outstanding options that are exercisable within 60 days of February 28, 2021, and (iii) RSUs for 24,444 shares of Class B common stock for which the service-based vesting condition would be satisfied within 60 days of February 28, 2021.
(8)
Consists of (i) 235,875 shares of Class B common stock held of record by Anan Kashyap, (ii) 307,458 shares of Class B common stock subject to outstanding options that are exercisable within 60 days of February 28, 2021, and (iii) RSUs for 45,222 shares of Class B common stock for which the service-based vesting condition would be satisfied within 60 days of February 28, 2021.
(9)
Consists of (i) 475,009 shares of Class B common stock subject to outstanding options that are exercisable within 60 days of February 28, 2021 and (ii) RSUs for 36,666 shares of Class B common stock for which the service-based vesting condition would be satisfied within 60 days of February 28, 2021.
(10)
Consists of 269,634 shares of Class B common stock subject to outstanding options that are exercisable within 60 days of February 28, 2021.
(11)
Excludes shares held by Anderson identified in footnote 6 above. Mr. Marren, a member of our board of directors, is a managing director at Temasek.
(12)
Consists of (i) 24,028 shares of Class B common stock subject to outstanding options that are exercisable within February 28, 2021 and (ii) RSUs for 11,795 shares of Class B common stock for which the service-based vesting condition would be satisfied within 60 days of February 28, 2021.
(13)
Consists of 101,250 shares of Class B common stock subject to outstanding options that are exercisable within 60 days of February 28, 2021.
(14)
Consists of (i) 28,861,168 shares of Class B common stock beneficially owned by our current directors and executive officers, (ii) 1,964,413 shares of Class B common stock subject to outstanding options that are exercisable within 60 days of February 28, 2021, and (iii) RSUs for 118,127 shares of Class B common stock for which the service-based vesting condition would be satisfied within 60 days of February 28, 2021.
Equity Compensation Plan Information
The table below presents information as of December 31, 2020 for our compensation plans under which our equity securities are authorized for issuance.
Plan Category
(a)
Number of
common
stock to be
issued
upon exercise
of
outstanding
options,
warrants, and
rights
(b)
Weighted-
average
exercise price
of
outstanding
options,
warrants, and
rights(1)
(c)
Number of
shares of
common stock
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
shares
reflected in
column (a))
Equity compensation plans approved by
stockholders(2)
9,880,556
$
5.09
450,010
Equity compensation plans not approved by
stockholders
-
-
-
Total
9,880,556
$
5.09
450,010
(1)
The weighted-average exercise price is calculated based solely on outstanding stock options. It does not reflect the shares that will be issued in connection with the settlement of restricted stock units, since restricted stock units have no exercise price.
(2)
Includes our 2011 Stock Option and Grant Plan. In connection with the IPO in January 2021, we adopted the 2021 Stock Option and Incentive Plan and 2021 Employee Stock Purchase Plan.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
In addition to the compensation arrangements, including employment, termination of employment and change in control arrangements and indemnification arrangements, discussed, when required, in “Item 10. Directors, Executive Officers and Corporate Governance” and “Item 11. Executive Compensation” and the registration rights under our Investors’ Rights Agreement as described in “Description of Securities,” the following is a description of each transaction since January 1, 2017 and each currently proposed transaction in which:
•
we have been or are to be a participant;
•
the amount involved exceeded or exceeds $120,000; and
•
any of our directors, executive officers or holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
Equity Financing
Series D Redeemable Convertible Preferred Stock Financing
In October and November 2017, we sold an aggregate of 10,450,374 shares of our Series D redeemable convertible preferred stock at a purchase price of $8.3729 per share, for an aggregate purchase price of $87.5 million, pursuant to our Series D redeemable convertible preferred stock financing. The following table summarizes purchases of our Series D redeemable convertible preferred stock by related persons:
Stockholder
Shares of
Series D
Convertible
Preferred
Stock
Total
Purchase
Price
Anderson Investments Pte. Ltd.(1)
5,971,646
$
49,999,995
Entities affiliated with Mayfield(2)
1,534,712
12,849,990
Entities affiliated with Inventus Capital(3)
895,746
7,499,992
Entities affiliated with Menlo Ventures(4)
358,298
2,999,993
Entities affiliated with GGV(5)
298,582
2,499,997
(1)
John Marren, a member of our board of directors, is a Managing Director at Temasek Holdings, which is the parent company of Anderson Investments Pte. Ltd. Anderson Investments Pte. Ltd. beneficially owns more than 5% of our outstanding capital stock as of December 31, 2020.
(2)
Affiliates of Mayfield holding our securities whose shares are aggregated for purposes of reporting share ownership information are Mayfield Select, a Cayman Islands Exempted Limited Partnership, and Mayfield XIII, a Cayman Islands Exempted Limited Partnership. Navin Chaddha, a member of our board of directors, is a Managing Director at Mayfield. Affiliates of Mayfield beneficially own more than 5% of our outstanding capital stock as of December 31, 2020.
(3)
Affiliates of Inventus Capital holding our securities whose shares are aggregated for purposes of reporting share ownership information are Inventus Capital Co-Invest Annex Fund I, L.P., a Delaware Limited Partnership, Inventus Capital Partners Fund I L.P., a Cayman Islands Exempted Limited Partnership, and Inventus Capital Partners Fund II Ltd. Affiliates of Inventus Capital beneficially own more than 5% of our outstanding capital stock as of December 31, 2020.
(4)
Affiliates of Menlo Ventures holding our securities whose shares are aggregated for purposes of reporting share ownership information are Menlo Ventures XI, L.P. and MMEF XI, L.P. Affiliates of Menlo Ventures beneficially own more than 5% of our outstanding capital stock as of December 31, 2020.
(5)
Affiliates of GGV holding our securities whose shares are aggregated for purposes of reporting share ownership information are GGV Capital V Entrepreneurs Fund L.P. and GGV Capital V L.P. Hans Tung, a member of our board of directors, is a Managing Partner at GGV. Affiliates of GGV beneficially own more than 5% of our outstanding capital stock as of December 31, 2020.
Secondary Sales
In March 2018, we agreed to waive certain transfer restrictions in connection with a sale and transfer of 288,750 shares of our outstanding common stock from certain holders of our capital stock to certain holders of our capital stock at $7.53561 per share, for a total aggregate purchase price of approximately $2.2 million, which series of transactions we refer to as the 2018 Secondary Sale. The following table summarizes purchases of our common stock by related persons in the 2018 Secondary Sale.
Purchasing Stockholder
Shares of
Common
Stock
Total
Purchase
Price
Entities affiliated with Inventus Capital(1)
19,905
$
149,996.32
(1)
Affiliates of Inventus Capital holding our securities whose shares are aggregated for purposes of reporting share ownership information are Inventus Capital Co-Invest Annex Fund I, L.P., a Delaware Limited Partnership, Inventus Capital Partners Fund I L.P., a Cayman Islands Exempted Limited Partnership and
Inventus Capital Partners Fund II Ltd. Affiliates of Inventus Capital beneficially own more than 5% of our outstanding capital stock as of December 31, 2020.
In February 2019, we agreed to waive certain transfer restrictions in connection with a sale and transfer of 1,090,562 shares of our outstanding common stock from certain holders of our capital stock to certain new and existing stockholders of the Company at $17.00 per share, for a total aggregate purchase price of approximately $18.5 million, which series of transactions we refer to as the 2019 Secondary Sale. The following table summarizes sales and purchases of our common stock by related persons in the 2019 Secondary Sale.
Selling Stockholder
Shares of
Common
Stock
Total
Purchase
Price
Manish Chandra
575,000
$
9,775,000
Anan Kashyap
35,000
595,000
John McDonald
75,000
1,275,000
Purchasing Stockholder
Shares of
Common
Stock
Total
Purchase
Price
Entities affiliated with Menlo Ventures(1)
294,118
$
5,000,006
(1)
Affiliates of Menlo Ventures holding our securities whose shares are aggregated for purposes of reporting share ownership information are Menlo Special Opportunities Fund, L.P and MMSOP, L.P. Affiliates of Menlo Ventures beneficially own more than 5% of our outstanding capital stock as of December 31, 2020.
In August 2020, we agreed to waive certain transfer restrictions in connection with a sale and transfer of 647,802 shares of our outstanding common stock from certain holders of our capital stock to certain existing stockholders of the Company at $22.50 per share, for a total aggregate purchase price of approximately $14.6 million, which series of transactions we refer to as the 2020 Secondary Sale. The following table summarizes sales of our common stock by related persons in the 2020 Secondary Sale.
Selling Stockholder
Shares of
Common
Stock
Total
Purchase
Price
Manish Chandra
220,000
$
4,950,000
Anan Kashyap
59,000
1,327,500
John McDonald
48,000
1,080,000
Convertible Note Financing
In September 2020, we issued the Convertible Notes to entities affiliated with Owl Rock Capital Group, or Owl Rock. Pravin Vazirani, a former member of our board of directors, is a Managing Director at Owl Rock. Mr. Vazirani resigned from our board of directors in March 2019. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations and Commitments-Convertible Note Financing” for additional information.
Investors’ Rights Agreement
We are party to an Amended and Restated Investors’ Rights Agreement, or the IRA, dated as of October 20, 2017, which provides, among other things, that certain holders of our capital stock, including entities affiliated with Anderson Investments Pte. Ltd., GGV, Inventus Capital, Mayfield and Menlo Ventures, have the right to demand that we file a registration statement or request that their shares of our capital stock be included on a registration statement that we are otherwise filing.
Right of First Refusal and Co-Sale Agreement
Pursuant to our equity compensation plans and certain agreements with our stockholders, including a right of first refusal and co-sale agreement with certain holders of our capital stock, including entities affiliated with Anderson Investments Pte. Ltd., GGV, Inventus Capital, Mayfield and Menlo Ventures, which each hold more than 5% of our outstanding capital stock, Manish Chandra, our co-founder and Chief Executive Officer, Gautam Golwala, our co-founder and Chief Technical Officer, Chetan Pungaliya, our co-founder and Senior Vice President of Engineering, and Tracy Sun, our co-founder and Senior Vice President of New Markets, we or our assignees had a right to purchase shares of our capital stock which certain stockholders propose to sell to other parties. This right has terminated upon completion of our initial public offering.
Voting Agreement
We were party to a voting agreement under which certain holders of our capital stock, including entities affiliated with Anderson Investments Pte. Ltd, GGV, Inventus Capital, Mayfield and Menlo Ventures, Manish Chandra, our co-founder and Chief Executive Officer, Gautam Golwala, our co-founder and Chief Technical Officer, Chetan Pungaliya, our co-founder and Senior Vice President of Engineering, and Tracy Sun, our co-founder and Senior Vice President of New Markets, have agreed as to the manner in which they will vote their shares of our capital stock on certain matters, including with respect to the election of directors. Upon completion of our initial public offering, the voting agreement terminated and none of our stockholders have any special rights regarding the election or designation of members of our board of directors.
Other Transactions
We have granted stock options to our executive officers and certain of our directors. See “Item 11. Executive Compensation” for a description of these options.
We have entered into change in control arrangements with certain of our executive officers that, among other things, provide for certain severance and change in control benefits. See “Item 11. Executive Compensation” for more information regarding these agreements.
For the years ended December 31, 2018, 2019 and 2020, the Company purchased healthcare services in the amount of $0.4 million, $1.4 million and $1.4 million, respectively, from Kaiser Permanente. Jeffrey Epstein, one of our directors, serves as a member of the board of directors of Kaiser Permanente.
Other than as described above under this Item 13, since January 1, 2017, we have not entered into any transactions, nor are there any currently proposed transactions, between us and a related party where the amount involved exceeds, or would exceed, $120,000, and in which any related person had or will have a direct or indirect material interest. We believe the terms of the transactions described above were comparable to terms we could have obtained in arm’s-length dealings with unrelated third parties.
Limitation of Liability and Indemnification of Officers and Directors
Our amended and restated certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:
•
any breach of their duty of loyalty to our company or our stockholders;
•
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
•
unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or
•
any transaction from which they derived an improper personal benefit.
Such limitation of liability does not apply to liabilities arising under federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.
Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.
In addition, our amended and restated bylaws provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise. Our amended and restated bylaws provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit, or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to very limited exceptions.
Further, we have entered into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements will require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements will also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.
The limitation of liability and indemnification provisions that are included in our amended and restated certificate of incorporation, amended and restated bylaws and in indemnification agreements that we enter into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be harmed to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.
We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.
Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Policies and Procedures for Related Party Transactions
Our audit committee charter provides that the audit committee has the primary responsibility for reviewing and approving or disapproving “related party transactions,” which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. For purposes of this policy, a related person will be defined as a director, executive officer, nominee for director or greater than 5% beneficial owner of our common stock, in each case since the beginning of the most recently completed year, and their immediate family members. We have adopted written policies and procedures governing the review and approval of related party transactions.
All of the transactions described above were entered into prior to the adoption of a policy. Accordingly, each was approved by disinterested members of our board of directors after making a determination that the transaction was executed on terms no less favorable than those that could have been obtained from an unrelated third party.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services.
The following table presents fees for professional audit services rendered by PricewaterhouseCoopers LLP, our independent registered public accounting firm, for the years ended December 31, 2019 and 2020.
Year Ended December 31,
(in thousands)
Audit fees(1)
$
$
3,131
Audit-related fees
-
-
Tax fees
All other fees
Total
$
$
3,202
(1)
The audit fees consist of fees for the audit of our annual financial statements, and the review of our unaudited consolidated interim financial statements. The fees for fiscal year 2020 included $1.6 million of services provided in connection with the registration statement for the initial public offering of our common stock, which was completed in January 2021.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
The following documents are filed as part of this report:
(1)
Financial Statements.
Our Consolidated Financial Statements are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on Form 10-K.
(2)
Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the required information is shown in the Consolidated Financial Statements and Notes.
(3)
Exhibits.