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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2022


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

For the transition period from ______ to ______

Commission File Number: 001-39848

Poshmark, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	27-4827617
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
203 Redwood Shores Parkway, 8th Floor Redwood City, California	94065
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (650) 262-4771

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

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Class A Common Stock of $0.0001 par value per share

POSH

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

As of November 1, 2022, the number of outstanding shares of the registrant’s Class A common stock, par value $0.0001 per share, was 54,626,374, and the number of outstanding shares of the registrant’s Class B common stock, par value $0.0001 per share, was 24,592,080.

Poshmark, Inc.

Table of Contents


		Page
	Note Regarding Forward-Looking Statements	3
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets (unaudited)	4
	Condensed Consolidated Statements of Operations (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Loss (unaudited)	6
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity (unaudited)	7
	Condensed Consolidated Statements of Cash Flows (unaudited)	9
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
Signatures		43

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•

our proposed acquisition by NAVER Corporation, including our expectations regarding the timing and completion thereof;

•

our expectations regarding our revenue, expenses, profitability, and other operating results;

•

the growth rates of the markets in which we compete;

•

our ability to acquire new users and successfully engage new and existing users and convert them into Active Users, Active Buyers, and sellers;

•

the costs and effectiveness of our marketing efforts through paid advertising channels and otherwise, as well as our ability to promote our brand;

•

our ability to continue to collect meaningful data, improve our algorithms, and provide recommendations for our users;

•

our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;

•

our ability to effectively manage our growth, including offering new categories and any international expansion;

•

our ability to maintain our profitability;

•

our ability to maintain the security and availability of our software;

•

our ability to protect our intellectual property rights and avoid disputes in connection with the use of intellectual property rights of others;

•

our ability to protect our users’ information and comply with growing and evolving data privacy laws and regulations;

•

impact of the COVID-19 pandemic on our business and consumers;

•

future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements;

•

our ability to compete effectively with existing competitors and new market entrants; and

•

our ability to remediate our material weakness in our internal control over financial reporting.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, as well as in our other filings with the Securities and Exchange Commission (SEC). Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Poshmark, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except shares data)

(unaudited)


	September 30,			December 31,
	2022			2021
Assets
Current assets
Cash and cash equivalents	$	588,816		$	581,538
Prepaid expenses and other current assets		8,267			9,737
Total current assets		597,083			591,275
Property and equipment, net		6,249			7,376
Operating lease right-of-use assets		6,739			—
Intangible assets, net		885			1,360
Goodwill		7,012			7,012
Other assets		1,629			1,650
Total assets	$	619,597		$	608,673
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	12,516		$	1,595
Funds payable to customers		153,212			145,290
Operating lease liabilities, current		5,918			—
Accrued expenses and other current liabilities		47,585			40,922
Total current liabilities		219,231			187,807
Operating lease liabilities, non-current		4,518			—
Long-term portion of deferred rent and other liabilities		—			3,247
Total liabilities		223,749			191,054
Commitments and Contingencies (Note 6)
Stockholders’ equity
Preferred Stock, $0.0001 par value, 100,000,000 shares authorized as of September 30, 2022 and December 31, 2021, respectively; zero shares issued and outstanding as of September 30, 2022 and December 31, 2021		—			—
Class A and Class B common stock, $0.0001 par value; 5,000,000,000 Class A shares authorized as of September 30, 2022 and December 31, 2021; 54,472,825 and 52,503,819 Class A shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively; 700,000,000 Class B shares authorized as of September 30, 2022 and December 31, 2021; 24,623,085 and 24,777,228 Class B shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		8			8
Additional paid-in capital		679,710			641,974
Treasury stock, at cost (50,595 shares at September 30, 2022 and December 31, 2021)		(2,651	)		(2,651	)
Accumulated deficit		(282,276	)		(221,835	)
Accumulated other comprehensive income		1,057			123
Total stockholders’ equity		395,848			417,619
Total liabilities and stockholders’ equity	$	619,597		$	608,673

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

Poshmark, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Net revenue	$	88,428		$	79,463		$	268,430		$	241,806
Costs and expenses:
Cost of net revenue, exclusive of depreciation and amortization		14,915			12,082			44,915			37,798
Operations and support		15,513			13,199			46,770			41,062
Research and development		18,189			12,325			52,457			43,574
Marketing		42,613			36,198			129,606			104,021
General and administrative		20,473			11,729			53,281			42,317
Depreciation and amortization		1,000			827			3,033			2,463
Total costs and expenses		112,703			86,360			330,062			271,235
Loss from operations		(24,275	)		(6,897	)		(61,632	)		(29,429	)
Interest income		1,586			77			2,145			201
Other expense, net
Change in fair value of redeemable convertible preferred stock warrant liability		—			—			—			(2,816	)
Change in fair value of the convertible notes		—			—			—			(49,481	)
Loss on extinguishment of the convertible notes		—			—			—			(1,620	)
Change in fair value of contingent consideration		(37	)		—			396			—
Foreign exchange loss, net		(694	)		(36	)		(969	)		(220	)
		(731	)		(36	)		(573	)		(54,137	)
Loss before provision for income taxes		(23,420	)		(6,856	)		(60,060	)		(83,365	)
Provision for income taxes		120			—			381			180
Net loss	$	(23,540	)	$	(6,856	)	$	(60,441	)	$	(83,545	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.30	)	$	(0.09	)	$	(0.77	)	$	(1.17	)
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted		78,682			76,479			78,160			71,639

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

Poshmark, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Net loss	$	(23,540	)	$	(6,856	)	$	(60,441	)	$	(83,545	)
Other comprehensive income:
Reclassification upon extinguishment of the fair value of the convertible notes related to instrument-specific credit risk to statement of operations		—			—			—			1,620
Change in foreign currency translation adjustment		550			70			934			95
Change in unrealized gains on marketable securities, net of tax		—			(1	)		—			(1	)
Total other comprehensive income		550			69			934			1,714
Comprehensive loss	$	(22,990	)	$	(6,787	)	$	(59,507	)	$	(81,831	)

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

Poshmark, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity

(in thousands, except share data)

(unaudited)


	For the Three Months Ended September 30, 2021
	Class A and Class B Common Stock				Additional Paid-in Capital		Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Shares		Amount
Balance as of June 30, 2021		75,917,867	$	8	$	622,673	$	(2,651	)	$	(200,195	)	$	71	$	419,906
Issuance of common stock upon vesting of restricted stock units		193,724		—		—		—			—			—		—
Tax withholding related to vesting of restricted stock units		—		—		—		—			—			—		—
Issuance of common stock upon exercise of stock options		787,045		—		2,580		—			—			—		2,580
Stock-based compensation		—		—		6,718		—			—			—		6,718
Other comprehensive income		—		—		—		—			—			69		69
Net loss		—		—		—		—			(6,856	)		—		(6,856	)
Balance as of September 30, 2021		76,898,636	$	8	$	631,971	$	(2,651	)	$	(207,051	)	$	140	$	422,417


	For the Three Months Ended September 30, 2022
	Class A and Class B Common Stock				Additional Paid-in Capital		Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Shares		Amount
Balance as of June 30, 2022		78,431,389	$	8	$	665,595	$	(2,651	)	$	(258,736	)	$	507	$	404,723
Issuance of common stock upon vesting of restricted stock units		479,309		—		—		—			—			—		—
Issuance of common stock upon exercise of stock options and employee stock purchase plan		185,212		—		517		—			—			—		517
Stock-based compensation		—		—		13,598		—			—			—		13,598
Other comprehensive income		—		—		—		—			—			550		550
Net loss		—		—		—		—			(23,540	)		—		(23,540	)
Balance as of September 30, 2022		79,095,910	$	8	$	679,710	$	(2,651	)	$	(282,276	)	$	1,057	$	395,848

The accompanying notes are an integral part of the condensed consolidated financial statements

Poshmark, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity

(in thousands, except share data)

(unaudited)


	For the Nine Months Ended September 30, 2021
	Redeemable Convertible Preferred Stock						Class A and Class B Common Stock					Additional Paid-in Capital		Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total Stockholders’ (Deficit) Equity
	Shares			Amount			Shares			Amount
Balance as of December 31, 2020		52,286,631		$	156,175			13,093,065		$	1	$	28,300	$	—		$	(123,506	)	$	(1,574	)	$	(96,779	)
Conversion of redeemable convertible preferred stock to common stock upon initial public offering		(52,286,631	)		(156,175	)		52,286,631			6		156,169		—			—			—			156,175
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions and offering costs		—			—			7,590,000			1		292,234		—			—			—			292,235
Conversion of convertible notes to common stock upon initial public offering		—			—			1,400,560			—		104,902		—			—			—			104,902
Exercise of common stock warrants		—			—			85,583			—		100		—			—			—			100
Reclassification of warrant liability to additional paid-in capital upon initial public offering		—			—			—			—		6,310		—			—			—			6,310
Issuance of common stock upon vesting of restricted stock units		—			—			760,185			—		—		—			—			—			—
Tax withholding related to vesting of restricted stock units		—			—			(50,595	)		—		—		(2,651	)		—			—			(2,651	)
Issuance of common stock upon exercise of stock options		—			—			1,733,207			—		4,705		—			—			—			4,705
Stock-based compensation		—			—			—			—		39,251		—			—			—			39,251
Other comprehensive income		—			—			—			—		—		—			—			1,714			1,714
Net loss		—			—			—			—		—		—			(83,545	)		—			(83,545	)
Balance as of September 30, 2021		—		$	—			76,898,636		$	8	$	631,971	$	(2,651	)	$	(207,051	)	$	140		$	422,417


	For the Nine Months Ended September 30, 2022
	Redeemable Convertible Preferred Stock						Common Stock					Additional Paid-in Capital		Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Shares			Amount			Shares			Amount
Balance as of December 31, 2021		—		$	—			77,281,047		$	8	$	641,974	$	(2,651	)	$	(221,835	)	$	123		$	417,619
Issuance of common stock upon vesting of restricted stock units		—			—			880,940			—		—		—			—			—			—
Issuance of common stock upon exercise of stock options and employee stock purchase plan		—			—			933,923			—		3,223		—			—			—			3,223
Stock-based compensation		—			—			—			—		34,513		—			—			—			34,513
Other comprehensive income		—			—			—			—		—		—			—			934			934
Net loss		—			—			—			—		—		—			(60,441	)		—			(60,441	)
Balance as of September 30, 2022		—		$	—			79,095,910		$	8	$	679,710	$	(2,651	)	$	(282,276	)	$	1,057		$	395,848

The accompanying notes are an integral part of the condensed consolidated financial statements

Poshmark, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2022			2021
Cash flows from operating activities
Net loss	$	(60,441	)	$	(83,545	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		3,033			2,463
Stock-based compensation		34,285			38,912
Reduction in the carrying amount of right-of-use assets		2,756			—
Change in fair value of redeemable convertible preferred stock warrant liability		—			2,816
Change in fair value of the convertible notes		—			49,481
Loss on extinguishment of the convertible notes		—			1,620
Change in fair value of contingent consideration		(396	)		—
Accretion of discounts and amortization of premiums on marketable securities, net		—			237
Other		362			4
Changes in operating assets and liabilities:
Prepaid expenses and other assets		1,491			2,302
Accounts payable		10,921			(1,697	)
Funds payable to customers		7,922			19,231
Accrued expenses and other liabilities		9,119			2,142
Operating lease liabilities		(4,621	)		—
Net cash provided by operating activities		4,431			33,966
Cash flows from investing activities
Purchases of property and equipment		(1,311	)		(1,580	)
Maturities of marketable securities		—			26,000
Net cash (used in) provided by investing activities		(1,311	)		24,420
Cash flows from financing activities
Proceeds from initial public offering, net of underwriting discounts and commissions and offering costs		—			293,692
Proceeds from issuance of redeemable convertible preferred stock warrants		—			100
Tax withholding related to vesting of restricted stock units		—			(2,651	)
Proceeds from exercise of stock options and employee stock purchase plan		3,223			4,705
Net cash provided by financing activities		3,223			295,846
Effect of foreign exchange rate changes on cash and cash equivalents		935			95
Net increase in cash and cash equivalents		7,278			354,327
Cash and cash equivalents
Beginning of period		581,538			238,902
End of period	$	588,816		$	593,229
Supplemental cash flow data
Cash paid for income taxes	$	337		$	320
Stock-based compensation capitalized to internal use software		228			339
Deferred offering costs included in accounts payable and accrued expenses and other current liabilities		—			182
Conversion of convertible notes upon initial public offering		—			104,902
Conversion of redeemable convertible preferred stock upon initial public offering		—			156,175
Reclassification of preferred stock warrant liability upon initial public offering		—			6,310

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

Poshmark, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Organization

Description of Business

Poshmark, Inc. (the Company) was incorporated in the state of Delaware with headquarters in Redwood City, California, and has wholly-owned subsidiaries based in Chennai, India, Vancouver, Canada, New South Wales, Australia, and London, United Kingdom. The Company is 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, the Company brings the power of community to buying and selling online. Pairing technology with the inherent human desire to socialize, the Company creates passion and personal connections among users.

The accompanying unaudited condensed financial statements have been prepared assuming the Company will continue as a going concern. Since inception, the Company has incurred cumulative net losses. The Company generated net loss of $23.5 million for the three months ended September 30, 2022. The Company had an accumulated deficit of $282.3 million as of September 30, 2022. The Company has historically financed its operations primarily through the issuance and sale of redeemable convertible preferred stock and through the issuance of convertible debt. While the Company believes that its current cash and cash equivalents are adequate to meet its needs for a one-year period from the date these condensed consolidated financial statements are issued, the Company may need to borrow funds or raise additional equity to achieve its longer-term business objectives.

Initial Public Offering

On January 19, 2021, the Company completed its initial public offering (IPO). In connection with the IPO, it authorized two new classes of common stock: Class A common stock and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting, conversion and transfer rights. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Each share of Class B common stock is convertible at any time at the option of the stockholder into one share of Class A common stock and has no expiration date. The Class B common stock automatically converts to Class A common stock upon transfers or any sale. In its IPO, the Company issued and sold 6,600,000 shares of its 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. The Company received net proceeds of $292.3 million after deducting underwriting discounts and commissions and offering expenses. Upon the closing of the IPO:

•

all 52,286,631 shares of the Company’s outstanding redeemable convertible preferred stock automatically converted into an equivalent number of shares of Class B common stock on a one-to-one basis;

•

convertible notes with an aggregate principal amount of $50.0 million automatically converted into 1,400,560 shares of our Class A common stock at a conversion price equal to 85% of the IPO price of $42.00 per share; and

•

redeemable convertible preferred stock warrants amounting to 85,583 automatically converted into Class B common stock warrants.

Upon completion of the IPO, $4.2 million of deferred offering costs were reclassified to additional paid-in capital and accounted for as a reduction of the IPO proceeds in the condensed consolidated balance sheets.

Merger Agreement

On October 3, 2022, the Company entered into an Agreement and Plan of Merger (the Merger Agreement), by and among the Company, NAVER Corporation, a public corporation organized under the laws of the Republic of Korea (Parent or Naver), Proton Parent, Inc., a Delaware corporation and wholly owned subsidiary of Parent (Proton Parent), and Proton Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Proton Parent (Merger Sub), pursuant to which Merger Sub will merge with and into the Company, with the Company surviving the merger (the Merger) as an indirect subsidiary of Naver. As a result of the Merger, each share of the Company’s Class A common stock and Class B common stock (together, the Company Common Stock) outstanding immediately prior to the effective time of the Merger (subject to certain exceptions set forth in the Merger Agreement) will, at the effective time, automatically be canceled and converted into the right to receive $17.90 in cash, without interest and subject to applicable withholding taxes. If the Merger is consummated, the Company’s Class A common stock will be delisted from the Nasdaq Global Select Market and deregistered under the Securities Exchange Act of 1934.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and condensed footnotes have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) as well as the instructions to Form 10-Q and the rules and regulations of the U.S. SEC for interim financial information. Certain information and disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited financial statements as of that date but does not include all disclosures, including notes required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the financial position, results of operations and cash flows for the interim periods. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results of operations expected for the entire year ending December 31, 2022 or for any other future annual or interim periods. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K (2021 Annual Report) for the year ended December 31, 2021, filed with the SEC on March 30, 2022.

For the foreign subsidiaries where the local currency is the functional currency, translation adjustments of foreign currency financial statements into U.S. dollars are recorded as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses have not been material for all periods presented.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Estimates include the fair value of financial instruments, the incremental borrowing rate (IBR) applied in lease accounting, capitalization and estimated useful life of internal-use software, allowance for expected chargeback losses, estimates related to credits, incentives and refunds issued to customers, valuation of the convertible notes preceding its IPO, valuation of the redeemable convertible preferred stock warrant liability preceding its IPO, stock-based compensation, valuation of the Company’s common stock preceding its IPO, and valuation of deferred income tax assets and the uncertain tax positions. To the extent there are material differences between these estimates, judgments or assumptions and actual results, the condensed consolidated financial statements will be affected.

Revenue Recognition

The Company recognizes revenue when it satisfies its performance obligations. The Company considers both sellers and buyers to be customers. The Company generates revenue from sellers for fees earned when sellers sell items they have listed on the Company’s platform to buyers. The Company generates revenue from buyers for fees earned when they purchase shipping labels used for delivery of the items purchased. The Company periodically reassesses its revenue recognition policies as new offerings become material, and business models evolve. The Company recognizes revenue net of estimated returns and cancellations based on its historical experience. Transactions may be cancelled by a buyer or seller in certain circumstances.

The Company enters into the Terms of Service (TOS) with buyers and sellers to use the Company’s 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 the Company. Under the TOS, upon the buyer’s purchase from the seller, the Company, buyer, and seller are committed to perform and enforceable rights and obligations are established.

Sellers

Sellers are able to list their items for sale on the Company’s platform at no charge. The Company charges a fee upon the sale of items listed on its platform. The fee is a fixed dollar amount for orders under a certain value, and a fixed percentage of the final sales price of the item for orders greater than that. The service that the Company provides to sellers includes the facilitation of the sale of their items as well as certain ancillary activities such as payment processing and authentication (for certain 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 the Company’s platform (sale facilitation).

The Company evaluates the presentation of revenue from sellers on a gross or net basis based on whether it acts as a principal or an agent in the sale of listed items between sellers and buyers. The Company does not control the listed items at any time prior to the transfer of such items to buyers. The Company acts as an agent in facilitating the sale of items from sellers to buyers by allowing them

to connect and interact on the Company’s platform. The Company is not primarily responsible for fulfillment of purchased items, does not have inventory risk, and does not set the price for the listed item. As such, the Company reports revenue from sellers on a net basis to reflect the fees received from sellers.

Revenue is recognized at the point in time the Company satisfies its 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 the Company’s platform. For luxury items authenticated by the Company, sale facilitation revenue is recognized when the Company authenticates and arranges for shipment of the items to the buyer, as this is the point in time a sale is finalized and the Company has satisfied its performance obligation.

Buyers

When a sale is finalized, the buyer purchases a shipping label from United States Postal Service (USPS), or the relevant shipping provider for the Canada, Australia and India marketplaces, through the Poshmark platform. The Company emails the shipping label to the seller and the seller ships the item to the buyer through the shipping provider. The Company does 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, the Company has one performance obligation to buyers, which is to facilitate the sale of shipping labels to buyers for delivery of items purchased on the Company’s platform (shipping facilitation).

The Company evaluates the presentation of revenue from buyers on a gross or net basis based on whether it acts as a principal or an agent in shipment of listed items between sellers and buyers. The Company does not control the shipping service, which is provided by the shipping provider. The Company is not primarily responsible for shipping and it does not assume any of the risks for the items shipped such as risk of damage or loss during shipping. The Company acts as an agent of the buyer in facilitating the shipping. As such, the Company reports 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.

The Company estimates chargebacks based on historical collectability rates. The Company records a reserve for chargebacks in accrued expenses and other accrued liabilities with an offset to general and administrative expenses.

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 the Company’s platform. Posh Credits are not redeemable for cash and can only be applied for purchases on the Company’s platform. The Company records 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 condensed 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 the Company’s platform and represent an incremental cost of obtaining a contract with a customer. The Company expenses such new user referral incentives as marketing expense when the referral incentives are earned because the amortization period would be one year or less.

The Company has several buyer incentive programs, which are offered to encourage buyer activity on the Company’s platform. These promotions reduce the fees for shipping facilitation charged by the Company. Accordingly, the Company records 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 the condensed consolidated statements of operations.

The Company participates in certain joint incentive programs with sellers that are recorded as a reduction to the fees received from the seller.

The Company 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, result in a reduced fee earned by the Company from the buyer, or redeemable credits that can also be redeemed for cash. In cases where the seller performed as required by the Company’s TOS, the Company reduces 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. Referral incentives, joint incentives, refunds and buyer incentives are recorded in the condensed consolidated statements of operations as follows for the periods indicated (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Reduction to net revenue	$	2,478	$	2,491	$	8,478	$	7,152
Operations and support		1,706		1,687		5,562		5,171
Marketing		2,708		2,274		7,927		6,140
	$	6,892	$	6,452	$	21,967	$	18,463

Cost of Net Revenue

Cost of net revenue consists of costs associated with credit card processing, order transaction fees and hosting expenses associated with operating the Company’s platform. Cost of net revenue does not include depreciation and amortization.

Stock-Based Compensation

The Company measures and recognizes stock-based compensation expense for share-based awards issued to employees and consultants, consisting of stock options, restricted stock units (RSUs), and purchases under the 2021 Employee Stock Purchase Plan (ESPP), on the condensed consolidated statements of operations.

RSUs granted prior to the occurrence of a Qualified IPO 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. Through December 31, 2020, no stock-based compensation expense had been recognized for RSUs with a liquidity event performance condition, as such qualifying event was not probable. Upon the completion of Company's IPO, the liquidity event performance condition was met. Accordingly, upon the effectiveness of the IPO, the Company recognized cumulative stock-based compensation expense determined using the grant-date fair values and the accelerated attribution method. The remaining stock-based compensation related to these awards will be recognized over the remaining time-based service over the remaining requisite service period using the accelerated attribution method. RSUs granted after the date of the Qualified IPO only include a time-based service condition. Accordingly, these awards will be measured using the grant date fair values and will be amortized on a straight-line basis over the requisite service period. Forfeitures for all stock-based awards are recognized as they occur.

The Company estimates the fair value of stock options granted to employees and directors and fair value of ESPP purchase rights issued under ESPP using the Black-Scholes option-pricing model. The Black-Scholes option-pricing 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, the expected term is calculated using the simplified method. The Company does not have sufficient historical transactions in its own shares on which to base expected volatility and, therefore, uses the historical volatility of the stock price of similar publicly traded peer companies to estimate volatility of 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 the completion of the IPO, the fair value of the shares of common stock underlying the stock options has been determined by the board of directors as there was no public market for the common stock. The board of directors determined the fair value of the Company’s common stock by considering a number of objective and subjective factors including: contemporaneous third-party valuations of the Company’s common stock, the valuation of comparable companies, sales of redeemable convertible preferred stock to unrelated third-parties, the Company’s operating and financial performance, the lack of liquidity of common stock, and general and industry specific economic outlook, amongst other factors. After the completion of the IPO, the fair value of the Company’s common stock is determined by the closing price, on the date of grant, of its common stock, which is traded on the Nasdaq Global Select Market.

Leases

Prior to the adoption of ASC 842

The Company leases office space under non-cancelable operating lease agreements. Certain of these arrangements have free rent, escalating rent payment provisions, and landlord funded leasehold incentives. Rent expense is recorded on a straight-line basis over the lease term. If a lease provides for fixed escalations of the minimum rental payments, the difference between the straight-line rent charged to expense and the amount payable under the lease is recorded as deferred rent in accrued expenses and other current liabilities, and other liabilities. Landlord funded leasehold incentives are recorded as deferred rent in accrued expenses and other current liabilities, and long-term portion of deferred rent and other liabilities and are recognized as an offset to rent expense using the straight-line method over the lease term.

Subsequent to the adoption of ASC 842

The Company determines if an arrangement is a lease at inception. Lease agreements generally contain lease and non-lease components. The Company combines fixed payments for non-lease components with lease payments and accounts for them together as a single lease component which increases the amount of its lease assets and liabilities. Certain lease agreements contain variable payments, which are expensed as incurred and not included in the lease assets and liabilities. These amounts include payments for common area maintenance and utilities. Lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. As the interest rate implicit in lease contracts is typically not readily determinable, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company generally uses the base, non-cancelable, lease term when determining the lease assets and liabilities. Lease assets also include any prepaid lease payments and lease incentives. Short-term leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.

Operating lease assets and liabilities are recognized on the condensed consolidated balance sheet as operating lease right-of-use assets (ROU), operating lease liabilities, current and operating lease liabilities, noncurrent. Operating lease expense (excluding variable lease costs) is recognized on a straight-line basis over the lease term.

Concentrations of Risk

The Company currently uses a few carriers to handle all shipments, gateways to process payments and third-party vendors to host the Company’s information technology environment. A significant disruption in the operations of one of more of these vendors could have an adverse effect on the Company’s business, financial condition, and results of operations.

The majority of the Company’s cash and cash equivalents are held by one high-credit quality financial institution within the United States with balances maintained in excess of the FDIC insurance limits.

No customer accounted for 10% or more of the Company’s net revenue for the three and nine months ended September 30, 2022 and 2021.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and since that date, has issued several ASUs to further clarify certain aspects of ASU 2016-02 and provide entities with practical expedients that may be elected upon adoption. This standard requires lessees to recognize all leases, including operating leases, on the balance sheet as a right-of-use (ROU) asset and lease liability, unless the lease is a short-term lease. In July 2018, the FASB issued ASU 2018-11, Targeted Improvements – Leases (Topic 842). This update provides an alternative transition method that allows entities to elect to apply the standard prospectively at its effective date, versus recasting the prior periods presented. In June 2020, the FASB issued ASU 2020-05, deferring the effective date for one year for all other entities. The Company adopted this standard using the alternative transition method on January 1, 2022 and recorded $9.2 million right-of-use assets and a $14.5 million lease liability on its condensed consolidated balance sheet. As of January 1, 2022, $2.6 million of deferred rent and $2.7 million related to tenant improvement was derecognized upon adoption. As part of this adoption, the Company elected the package of transitional practical expedients to not reassess (1) whether any contracts that existed prior to adoption have or contain leases, (2) the classification of existing leases or (3) initial direct costs for existing leases. The Company also elected to continue to recognize lease payments related to short-term leases as an expense on a straight-line basis over the lease term.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard amended guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For available for sale debt securities, credit losses will be presented as an allowance rather than as a write-down. In November 2019, the FASB issued ASU 2019-10, amending the effective dates. The Company adopted this standard on January 1, 2022. The adoption of this standard did not have a material impact on its condensed consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This standard requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The Company early adopted this standard on January 1, 2022 on a prospective basis. The adoption of this standard did not have a material impact on its condensed consolidated financial statements and related disclosures.

3. Revision of Prior Periods' Financial Statement

As previously disclosed in the Company’s 2021 Annual Report, during 2021, the Company identified prior period errors in its previously issued financial statements as of December 31, 2020 and for the years ended December 31, 2020 and 2019, as well as the first three quarters of 2021. These errors primarily related to the Company's calculation and recording of credit card chargebacks from one of its payment processors, which resulted in the overstatement of general and administrative expenses. The corresponding impact was an understatement of cash and cash equivalents and an overstatement of accrued expenses and other liabilities.

The Company evaluated the effect of these errors on prior periods under the guidance of Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) Topic 1.M, Materiality, codified in ASC 250, Accounting Changes and Error Corrections, and concluded that the errors were not material to the prior annual or interim periods. However, the Company determined it was appropriate to revise its previously issued financial statements. In connection with such revision, the Company also corrected other immaterial misstatements, primarily related to the recording of income taxes and misclassification of marketing expenses and net revenue.

Accordingly, in connection with the filing of this Quarterly Report on Form 10-Q, the Company has revised the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss, Changes in Stockholders’ (Deficit) Equity, and Cash Flows for the three and nine months ended September 30, 2021, and the related notes to revise for those errors.

The following table presents the effect of the correction of the misstatements and the resulting revision on the Condensed Consolidated Statements of Operations and Comprehensive Loss:

Three Months Ended September 30, 2021

As Previously Reported

Adjustments

As Revised

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Poshmark, Inc. 10-Q