ThredUp Inc. (TDUP) FY 2022 MD&A

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full calendar year or any other period.

This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-over-year comparisons between 2022 and 2021. Discussions of 2020 items and year-over-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 10-K”).

Overview

thredUP operates one of the world’s largest online resale platforms for apparel, shoes and accessories. Our mission is to inspire a new generation of consumers to think secondhand first. We believe in a sustainable fashion future and we are proud that our business model creates a positive impact to the benefit of our buyers, sellers, clients, employees, investors and the environment. Our custom-built operating platform consists of distributed processing infrastructure, proprietary software and systems and data science expertise. This platform is powering the rapidly emerging resale economy, one of the fastest growing sectors in retail, according to a GlobalData market survey conducted in February 2022.

thredUP’s proprietary operating platform is the foundation for our managed marketplace, where we have bridged online and offline technology to make the buying and selling of tens of millions of unique items easy and fun. The core marketplace we have built in the U.S. enables buyers to browse and purchase resale items for primarily women’s and kids’ apparel, shoes and accessories across a wide range of price points. Buyers love shopping value, premium and luxury brands all in one place, at up to 90% off estimated retail price. Sellers love thredUP because we make it easy to clean out their closets and unlock value for themselves or for the charity of their choice while doing good for the planet. thredUP’s sellers order a Clean Out Kit, fill it and return it to us using our prepaid label. We take it from there and do the work to make those items available for resale.

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

In 2021, we acquired Remix Global EAD (“Remix”), a fashion resale company based in Sofia, Bulgaria. With this acquisition, we further expanded our reach to European customers, added a complementary operational infrastructure and added an experienced management team to enable our expansion into Europe. In addition, Remix’s product assortment extended our resale offering to include men’s items and items sourced from a variety of supply channels, such as wholesale supply.

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Recent Business Developments

Macroeconomic Factors

Macroeconomic factors, including inflation, increased interest rates, significant capital market volatility, the prolonged COVID-19 pandemic, global supply chain constraints, and global economic and geopolitical developments have direct and indirect impacts on our results of operations that are difficult to isolate and quantify. These factors contributed to increases in our operating costs during 2022 primarily due to increased transportation costs and wage rates. In addition, rising fuel, utility, and food costs, rising interest rates, and recessionary fears may impact customer demand and our ability to forecast consumer spending patterns. We expect some or all of these factors to continue to impact our operations into 2023.

Foreign Currency

During 2022, the U.S. dollar appreciated against major European currencies, including the Bulgarian lev. We believe the strengthening U.S. dollar had a negative impact on our European sales. We are managing the currency risk related to earnings through natural hedges and have offsetting costs relating to operating our business and a regional source of supply. Therefore, changes to exchange rates have not had a significant impact to our consolidated financial results. We continue to monitor our foreign exchange exposure as we grow our business globally. We have not engaged in hedging of foreign currency transactions to date, although we may choose to do so in the future. For further details, please refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of this Annual Report on Form 10-K.

Restructuring

In the second and third quarters of 2022, we restructured certain corporate and managerial functions to improve efficiencies and to reduce overhead costs. In addition, we closed our processing centers in Tennessee and Texas and consolidated their operations into our distribution center in Texas. These activities have, and are expected to, provide future efficiency benefits; however, the actual results may differ.

Overview of 2022 Results

Revenue: Total revenue was $288.4 million, an increase of 14.5% year-over-year.

Gross Profit and Margin: Gross profit totaled $192.3 million, representing an increase of 8.0% year-over-year. Gross margin decreased by 405 basis points to 66.7% from 70.7% year-over-year.

Net Loss Attributable to Common Stockholders: Net loss attributable to common stockholders was $92.3 million, or a negative 32.0% of revenue, for the year ended December 31, 2022 as compared to a net loss attributable to common stockholders of $63.2 million, or a negative 25.1% of revenue, for the same period in 2021.

Non-GAAP Adjusted EBITDA: Non-GAAP Adjusted EBITDA loss was $43.4 million, or a negative 15.0% of revenue, for the year ended December 31, 2022 as compared to a non-GAAP Adjusted EBITDA loss of $36.5 million, or a negative 14.5% of revenue, for the same period in 2021.

Active Buyers and Orders: Active Buyers totaled 1.65 million and Orders totaled 6.51 million in 2022, representing a decline of 2.4% and growth of 22.1%, respectively, compared to the prior year.

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Key Financial and Operating Metrics

We review a number of operating and financial metrics, including the following key business and non-GAAP metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. These key financial and operating metrics are set forth below for the periods presented.

(1)Adjusted EBITDA is a non-GAAP measure which may not be comparable to similarly-titled measures used by other companies. See below for a reconciliation of Adjusted EBITDA loss to net loss attributable to common stockholders.

Active Buyers

An Active Buyer is a thredUP buyer who has made at least one purchase in the last twelve months. A thredUP buyer is a customer who has created an account or purchased in our marketplaces, including through our RaaS clients, and is identified by a unique email address. A single person could have multiple thredUP accounts and count as multiple Active Buyers. The number of Active Buyers is a key driver of revenue for our marketplaces.

Orders

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

Non-GAAP Financial Metrics

Non-GAAP Adjusted EBITDA

Non-GAAP Adjusted EBITDA loss means net loss attributable to common stockholders adjusted to exclude, where applicable in a given period, stock-based compensation expense, depreciation and amortization, impairment of non-marketable equity investment, restructuring charges, interest expense, acquisition-related expenses, provision for income taxes, change in fair value of convertible preferred stock warrant liability. We use Adjusted EBITDA loss, a non-GAAP metric, to evaluate and assess our operating performance and the operating leverage in our business, and for internal planning and forecasting purposes. We believe that non-GAAP Adjusted EBITDA loss, when taken collectively with our GAAP results, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results.

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The following table provides a reconciliation of GAAP net loss attributable to common stockholders to non-GAAP Adjusted EBITDA loss:

Presentation

Revenue

Our revenue is comprised of consignment revenue and product revenue.

Consignment revenue

We generate consignment revenue from the sale of secondhand women’s and kids’ apparel, shoes and accessories on behalf of sellers. We recognize consignment revenue, net of seller payouts, discounts, incentives and returns. We expect consignment revenue to continue to increase as we increase our Active Buyers and Orders and grow our business.

Product revenue

We also generate product revenue from the sale of items that we own, which we refer to as our inventory. While we shifted our business to primarily consignment sales in mid-2019, historically, we purchased most of our inventory from our sellers prior to inclusion on our online marketplace. The sales from our newly acquired European operations are primarily from sale of owned items. We recognize product revenue, net of discounts, incentives and returns. We expect product revenue to increase in absolute dollars and as a percentage of total revenue in the near term as we continue to grow our international business. We expect the percentage share of product revenue to decrease in the long term as we introduce the consignment model to our European operations.

Cost of Revenue

Cost of consignment revenue

Cost of consignment revenue consists of outbound shipping, outbound labor and packaging costs. We expect cost of consignment revenue to decrease and gross margin to increase as a percentage of total consignment revenue as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

Cost of product revenue

Cost of product revenue mainly consists of inventory cost, inbound shipping related to the sold merchandise, outbound shipping, outbound labor, packaging costs and inventory write-downs. We expect cost of product revenue to increase in absolute dollars and decrease as a percentage of total revenue, leading to an increase in gross margin. We expect further gross margin to increase as we continue to scale our business due to our ability to drive leverage in shipping, labor and packaging.

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Operating Expenses

Operations, Product and Technology

Operations, product and technology expenses consist primarily of distribution center operating costs and product and technology expenses. Distribution center operating costs mainly include inbound shipping costs, other than those capitalized in inventory, as well as personnel costs, distribution center rent, maintenance and depreciation of equipment and leasehold improvements. Product and technology costs include personnel costs for the design and development of product and the related technology that is used to operate our distribution centers, merchandise science, website development and related expenses for these departments. Operations, product and technology expenses also include an allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect operations, product and technology expenses to increase in absolute dollars in future periods to support our growth, especially as costs to increase our supply (inbound costs) are generally incurred prior to the expected revenue growth. Additionally, we expect to bring on additional distribution centers and continue investing in automation and other technology improvements to support and drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments, including business acquisitions. We expect these expenses to increase in absolute dollars and decrease as a percentage of revenue over the longer term due to better leverage in our operations.

Marketing

Marketing expense consists primarily of advertising, public relations expenditures and personnel costs for employees engaged in marketing. Marketing costs also include an allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect our marketing expenses to fluctuate as a percentage of revenue as we intend to increase marketing spend to drive the growth of our business.

Sales, General and Administrative

Sales, general and administrative expense consists of personnel costs for employees involved in general corporate functions, including accounting, finance, tax, legal and people services, and customer service. Sales, general and administrative also includes payment processing fees, professional fees and allocation of corporate facilities and information technology costs such as equipment, depreciation and rent. We expect to increase sales, general and administrative expense as we grow our infrastructure to support operating as a public company and the overall growth in our business. While these expenses may vary from period to period as a percentage of revenue, we expect them to increase in absolute dollars and decrease as a percentage of revenue over the longer term.

Other Expense (Income), Net

Other expense (income), net consists of non-operating income and expenses such as impairments of non-marketable equity investments, claim proceeds for lost shipments, and changes in the fair value of convertible preferred stock warrants.

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Financial Results for the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

Revenue

Total revenue increased $36.6 million, or 14.5%, for the year ended December 31, 2022 as compared to the same period in 2021. The increase was attributable to a 22.1% increase in total Orders mainly due to the inclusion of our European operations beginning October 2021, which increased product revenue by $47.4 million. This was partially offset by a $11.1 million decrease in consignment revenue primarily in our core marketplace.

We experienced slowing revenue and Order growth beginning in June 2022 and continuing into the second half of the year that was attributable to various factors including, but not limited to, general global economic uncertainty, rising interest rates, increased inflation, and weakening consumer discretionary spending, as well as excess inventory at retailers and brands leading to a highly promotional and competitive environment.

Cost of Revenue

Gross margin was 66.7% and 70.7% for the years ended December 31, 2022 and 2021, respectively, or an unfavorable change of 400 basis points.

The decrease in gross margin for the year ended December 31, 2022 as compared to the same period in 2021 was due to the inclusion of operating results of our European operations from October 2021 onward. Revenue from our European operations is derived from product sales with a lower gross margin. Consignment sales have a higher gross margin than product sales but made up a smaller percentage of total revenue for the year ended December 31, 2022 as compared to the same period in 2021. Revenue for consignment sales is recognized net of seller payouts and cost of items sold, whereas for product sales, seller payouts and cost of items sold are included as a component of cost of revenue.

Cost of Consignment Revenue

Consignment gross margin was 78.8% and 77.5% for the years ended December 31, 2022 and 2021, respectively, or a favorable change of 130 basis points.

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The increase in consignment gross margin for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a favorable impact of outbound shipping as a result of order consolidation of 240 basis points, partially offset by an unfavorable impact of direct labor of 60 basis points and an unfavorable impact of packaging and other costs of 50 basis points.

Cost of Product Revenue

Product gross margin was 47.9% and 51.6% for the years ended December 31, 2022 and 2021, or an unfavorable change of 370 basis points.

The decrease in product gross margin for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a net unfavorable impact of 800 basis points from including our European operations from October 2021 onward, which have a lower product gross margin, and an unfavorable impact of direct labor and packaging of 80 basis points, partially offset by a favorable impact of inventory costs of 280 basis points and a favorable impact of outbound shipping of 230 basis points.

Operations, Product and Technology

The $27.6 million increase in operations, product and technology expenses for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a $14.3 million increase in personnel-related costs resulting from the inclusion of our European operations from October 2021 onward, increases in employee salaries, wages and stock-based compensation, expenses associated with our distribution network, and restructuring charges; an $8.6 million increase in facilities, technology and other allocated costs resulting from the expansion of our distribution network, the inclusion of our European operations and higher technology and other costs; a $3.5 million increase in inbound shipping; and $1.1 million in amortization of acquired developed technology.

Marketing

The $0.7 million increase in marketing expenses for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a $4.0 million increase in personnel-related costs related to salaries, stock-based compensation and other expenses resulting from the inclusion of our European operations from October 2021 onward; a $1.3 million increase in facilities, technology and allocated costs; and a $0.3 million increase in professional services; partially offset by a $4.8 million decrease in costs of lead generation, affiliates and partnerships, and advertising.

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Sales, General and Administrative

The $13.0 million increase in sales, general, and administrative expenses for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a $13.8 million increase in personnel-related costs related to salaries, stock-based compensation, restructuring, our European operations and other personnel costs; and a $1.0 million increase in facilities, technology and allocated costs; partially offset by a $1.1 million decrease in professional services and $0.7 million of other corporate expenses.

Interest Expense

The $1.5 million decrease in interest expense for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to an increase in amounts capitalized as part of an asset and reclassified from interest expense.

Other Expense (Income), Net

The $1.9 million of other expense, net for the year ended December 31, 2022 was primarily due to an impairment charge related to our non-marketable equity investment, partially offset by claim proceeds for lost shipments.

The $1.6 million of other income, net for the year ended December 31, 2021 was primarily comprised of claim proceeds for lost shipments, offset by change in preferred stock warrants.

Liquidity and Capital Resources

We have historically generated negative cash flows from operations and have primarily financed our operations through private and public sales of equity securities and debt. As of December 31, 2022, we had cash, cash equivalents and short-term marketable securities of $104.9 million. Additionally, we have a term loan facility (“Term Loan”) under which $38.0 million remained available to be drawn as of December 31, 2022, and we were in full compliance with our debt covenants under the Term Loan as of that date. See Note 9, Long-Term Debt, to the Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a further discussion on our Term Loan.

We expect operating losses and negative cash flows from operations to continue in the near term as we continue to invest in growing our business and expanding our infrastructure. Our primary use of cash includes operating costs such as distribution network spend, product and technology expenses, marketing expenses, personnel expenses and other expenditures necessary to support our operations and our growth. Additionally, our primary capital expenditures are related to the set-up, expansion and/or automation of our distribution network and may be accelerated or delayed based on our operating position and business needs. Based upon our current operating plans, we believe that our existing cash, cash equivalents and short-term marketable securities will be sufficient to meet our short- and long-term capital requirements and we do not anticipate expanding our distribution network to include additional locations in the near term. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

Our future capital requirements will depend on many factors, including, but not limited to the timing of our increased distribution center automation and expansion plans to support planned revenue growth, the expansion of sales and marketing activities, the potential introduction of new offerings and new RaaS clients, the continuing growth of our marketplaces and overall economic conditions. However, we expect that our capital expenditures will decline significantly in 2023 as we completed the first phase of our new distribution center in Texas. We may seek additional equity or debt financing. See the section titled “Risk Factors—Risks Relating to Our Indebtedness and Liquidity—We may require additional capital to support business growth, and this capital might not be available or may be available only by diluting existing stockholders.”

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Cash Flows

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

Changes in Cash Flows from Operating Activities

Net cash used in operating activities increased $17.1 million, or 48.8%, for the year ended December 31, 2022 as compared to the same period in 2021. The increase in net cash used in operating activities for the year ended December 31, 2022 was due to $12.5 million of unfavorable changes in operating assets and liabilities and a $4.6 million increase in net loss attributable to common stockholders excluding non-cash and reconciling items disclosed within our consolidated statement of cash flows. The $12.5 million change in operating assets and liabilities was primarily the result of unfavorable changes in seller payable, inventory, accrued and other current liabilities, and accounts payable, partially offset by favorable changes in other current and non-current assets and operating lease liabilities. The $4.6 million increase in net loss attributable to common stockholders excluding non-cash and reconciling items was primarily driven by lower gross margin and higher operating expenses.

Changes in Cash Flows from Investing Activities

Net cash provided by investing activities was $8.9 million for the year ended December 31, 2022 compared to net cash used in investing activities of $169.6 million for the same period in 2021. The decrease in net cash used in investing activities for the year ended December 31, 2022 was primarily due a $174.6 million decrease in net cash used to purchase marketable securities and a $23.6 million decrease in acquisitions, partially offset by a $23.4 million net increase in purchases of property and equipment.

Changes in Cash Flows from Financing Activities

Net cash used in financing activities increased $232.9 million, or 101.7%, for the year ended December 31, 2022 as compared to the same period in 2021. The increase in net cash used in financing activities for the year ended December 31, 2022 was primarily due to a $222.2 million decrease in net proceeds from the IPO and secondary offerings in 2021, a $6.6 million increase in net repayments of debt, and a $4.2 million decrease in net proceeds from the exercise of employee stock awards.

Contractual Obligations

Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. As of December 31, 2022, the value of our non-cancellable unconditional purchase obligations was $5.7 million. See Note 12, Commitments and Contingencies, to the Consolidated Financial Statements included in Part I, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information regarding our purchase obligations.

For a further discussion on our operating lease commitments and long-term debt as of December 31, 2022, see the sections above as well as Note 8, Leases, and Note 9, Long-Term Debt, to the Consolidated Financial Statements included in Part I, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

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Indemnification Agreements

In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss or consolidated statements of cash flows.

Critical Accounting Policies and Estimates

Use of Estimates

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

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Revenue Recognition

We generate revenue primarily from the sale of secondhand women’s and kids’ apparel, shoes and accessories on behalf of sellers. We retain a percentage of the proceeds received as payment for our consignment service. We report consignment revenue on a net basis as an agent and not the gross amount collected from the buyer. We recognize consignment revenue upon purchase of the seller’s secondhand item by the buyer.

We also generate revenue from the sale of our purchased inventory which we refer to as product revenue. We sell our purchased inventory mainly through our online marketplace. We recognize product revenue on a gross basis. Online sales and sales to our retail partners are recognized upon shipment of the purchased secondhand items to the buyer. Sales at retail stores are recognized upon checkout and sales of accepted items from goody boxes are recognized upon acceptance, which generally occurs at the same time as payment.

Both consignment and product revenue are recognized net of discounts, incentives and returns. Sales tax assessed by governmental authorities is excluded from revenue.

Loyalty points and rewards are accounted for as separate performance obligations and accrued as deferred revenue in the amount of the transaction price allocated to the points and rewards. The allocated transaction price is based on the estimated fair value per point, net of breakage. Breakage is estimated based on our historical redemption rates. Revenue is recognized when the loyalty rewards are redeemed or expire.

For gift cards and site credits, we recognize breakage revenue when we determine that the redemption of gift cards and site credits is remote.

Stock-Based Compensation

We estimate the fair value of stock options and the ESPP at the grant date using the Black-Scholes option-pricing model (the “Black-Scholes Model”). The fair values of Restricted Stock Units (“RSU”) are determined based on our stock price on the date of grant. The fair values of equity awards are recognized as compensation expense over the requisite service period or over the period in which the related services are received (generally the vesting period), using the straight-line method. The estimated fair value of equity awards that contain performance conditions is expensed over the term of the award once we have determined that it is probable that performance conditions will be satisfied. We account for forfeitures as they occur.

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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, expected term, risk-free interest rate, expected annual dividend yield and expected stock price volatility over the expected term. For all stock options granted to date, we calculated the expected term using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). We determine volatility using the historical volatility of the stock price of similar publicly traded peer companies. The risk-free interest rate is based on the yield available on United States Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award.

Business Combinations

We account for our business combinations using the acquisition method of accounting, which requires, among other things, allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date. The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Once the purchase accounting is finalized, any subsequent adjustments are reflected in the consolidated statements of operations. Acquisition costs, such as legal and consulting fees, are expensed as incurred.

Acquired Intangible Assets

When we acquire a business, a portion of the purchase price is typically allocated to identifiable intangible assets, such as trademarks, acquired technology and customer relationships. Fair value of these assets is determined primarily using the income approach, which requires us to project future cash flows and apply an appropriate discount rate. We amortize intangible assets with finite lives over their expected useful lives. Our estimates are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur. Incorrect estimates could result in future impairment charges, and those charges could be material to our results of operations.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not subject to amortization but will be reviewed for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

New Accounting Pronouncements

See discussion under Note 2, Significant Accounting Policies, to the Consolidated Financial Statements included in Part I, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for information on new accounting pronouncements.