Q3 2021 ThredUp Inc Earnings Call
Good day and welcome to the write up Q3, 2021 earnings call today's call is being recorded at.
At this time I'd like to turn the call over to Lauren Frasch Senior director of Investor Relations. Please go ahead ma'am.
Good afternoon, and thank you for joining us on today's conference call to discuss third quarter 2021 financial results with Us James Reinhart Chief.
Chief Executive Officer, and co founder and Shanghai birth, Chief Financial Officer, We've posted our press release and supplemental financial information on our Investor Relations website at IR <unk> com.
This call is also being webcast on our IR website and a replay of this call will be available on the website shortly.
Before we begin I'd like to remind you that we will make forward looking statements. During the course of this call, including but not limited to statements regarding our guidance on future financial performance market demand growth prospects business strategies and plans.
These forward looking statements involve known and unknown risks and uncertainties and our actual results could differ materially.
Words, such as anticipate believe estimate expect as well as similar expressions are intended to identify forward looking statements you can find more information about these risks uncertainties and other factors that could affect our operating results in our SEC filings earnings press release, and supplemental information posted on our IR web site.
In addition, during the call we will present certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to not as a substitute for or in isolation from GAAP measures. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our earnings release now I'd like to turn the call over to James.
Hart.
Good afternoon, everyone I'm, James Reinhart, CEO and co founder of threat up. Thank you for joining us for threat ups third quarter 2021 earnings call.
As we head into the final quarter of the year, we're excited to share our financial results and key business highlights from our third quarter I'll start with some perspective on what we're seeing in the broader retail environment and how our strategy is evolving I'll, then discuss our marketplace dynamics and progress with our retail as a service offering.
Finally, I'll touch on changes in our product experience, how we're scaling our operations and what we're doing internationally.
Sean Sobers, Chief Financial Officer will follow with a review of our financials in more detail and provide our outlook for the fourth quarter and fiscal year 2020. One will then close out today's call with a question and answer session.
Let's start with the results for the third consecutive quarter, we achieved record revenue record gross profit record active buyers and record orders. Our revenue of 63 million is an increase of 35% year over year, while gross profit grew 41% to $46 million. This is our third quarter of accelerating revenue and gross profit.
Both active buyers and orders increased 14% and 28% respectively. These.
These growth metrics underscore for IDEXX resilience to the headwinds we faced throughout the pandemic and indicate that our long term investment strategy will lead to sustainable growth over time.
So let me first address what we've been seeing in the broader retail sector. We concur with consensus that there was a dip in consumer spending at the beginning of the third quarter. It makes delta varian concerns, but that overall consumer sentiment was robust into September with a significant rise in retail sales.
Now, having said that supply shortages labor cost and logistics surcharges has continued to take a toll and we see inflationary pressure and higher prices for the consumer a structural changes rather than temporary changes.
And how this impacts theoretically is unique.
While many retailers have been forced to raise prices due to inflation or supply chain pressure. We did not have the same level of exposure threat ex U S business is entirely domestically sourced from our sellers and we do not rely on direct manufacturing for supply.
This means that consumers can always find a vast and ever frac selection of secondhand items on our site, 100% of which are already in stock and ready to ship.
As a result, we see a compelling customer acquisition and wallet share opportunity in the near term, we have chosen to strategically lower prices in order to engage as many customers as possible. During a time when consumers are feeling price pressure in many other parts of their life you can see this clearly in our average listed prices they were.
15% lower on average in Q3 of this year compared to the same time period last year. We expect to continue this strategy of providing the most competitive price as possible in the quarters ahead, leveraging our unrivaled access to high quality wholly domestic supply.
If I dive deeper into recent demand trends, we've seen an uptick in sales for colder weather items on our site, including a 26% month over month increase in sales for both boots and coats and a 20% jump in sales for puffer jackets over the same period.
There are also early indicators that consumers were looking to dress up this holiday season cocktail dresses experienced 14% month over month growth in October heels, a 16% increase during the same time period in handbags, So a 10% lift in sales last month.
Last week, we launched our holiday shop with festive outfits winter wear gift ideas and they're always popular gift cards.
I'd also like to take a moment to give a shout out to a few brands who have built loyal resale followings on threat up by making great products with important stories emissions brands like peaks blurry and Smartwater Birkenstocks Rockies aviator nation, Crocs, Christy Don our Terex and ice breaker for all brands were 90%.
The items that we listed in Q3 soldiers in 30 days, it's just remarkable sell through of these brands, we love to see these types of brands, who resonates so strongly with retail customers.
Let me turn to supply on the supply side, we continued to see strong demand for our clean out service, we are processing more bags than ever.
Still managing to keep bank processing times around 12 weeks on average across our distribution Center network as we continue to invest in processing capacity and automation, we expect lead times to come down in 2022 in.
In September we announced the signing of our new 10 million item flagship distribution Center, just south of Dallas, Texas.
This facility will be nearly 600000 square feet and will be our largest and most automated distribution center when.
Fully scaled this four level facility will increase our total network wide capacity by more than 150% to $16 5 million items.
We expect to begin processing items in Q2 2022 with demand fulfillment to begin in Q3 2022 in.
In addition, we have secured our first dedicated processing center in Grapevine, Texas.
This facility will focus exclusively on cleanup processing and will become an immediate feeder to our new Dallas facility.
We expect to begin processing items and the new Grapevine facility in Q1 2022.
As you might expect.
Bringing our Dallas distribution Center online, our Grapevine processing center online and investments in technology data science and automation will all pressure operating expenses in the near term. However, our history shows that these J curve like expenses ultimately drive up overall processing rates and thus our potential revenue in future quarters.
Now, let's talk about Ras.
To share some progress in our retail as a service business. We recently launched new Ras programs with Adidas Crocs, and Michael stars, bringing our total number of paying Ras clients to more than two dozen brands and retailers are turning to rack to support not just their business strategy, but also to improve their sustainability footprint.
As a reminder, our rasp platform enables brands to offer a quality and seamless retail experience for their customers across three main areas are clean out service, our cash out marketplace and our full service retail shops.
Taking a calling this suite of offerings resale $3 60, and we'll continue to update you as our client roster grows and our service modules evolve.
I've been getting asked a lot lately about how to think about Ras as it relates to threat ups core business.
While we're still in the early stages of scaling this business I think it's important to highlight two elements.
First our cleanout Kid and retail shop offerings for brands leverage our existing infrastructure and amplify the competitive advantages that we've already built in our marketplace.
As more brands sign on as clean out get clients, we deepen our long term supply advantages at lower cost.
That's more brands launched online resale shops powered by our technology, we drive faster sell through and higher turns on the same asset base.
Second for brands, who wished to launch premium or enterprise retail services, either on the clean outside or on the resale shop side, we charge recurring platform and usage fees.
Some examples of premium or enterprise offerings include deeper data intelligent marketing branding pricing control packaging repair or omni channel experiences.
In summary, using our marketplace infrastructure RASK amplifies, our supply advantage increases our sell through and return on assets and expands our long term profitability metrics by adding sources of high margin revenue.
Now, let me turn to some developments on the product front. After a business review in late August we decided to discontinue our goodie box offering in October we first explored goodie boxes four years ago with the goal of lowering the barrier to thrift by making it less time consuming to sift through the millions of products in our markets.
We've already had some success, we typically recorded revenue of $2 million to $3 million per quarter.
Boxes, we're proving difficult to scale efficiently as they consumed outside of labor in our distribution centers the hours and capacity freed up by not running a goodie box business. We believe can be better used to scale back processing and ultimately serve the core marketplace customer.
Yet importantly, learning how the customer valued goodie boxes, one to one and styling service helped us immensely and it's led us to launch the rest of the look.
Rick the look if not one to one styling like goodie boxes, but one can menu styling peripheral look leverages the algorithms and the data science assets, we've built through the goodie box experience.
Makes it easy to recreate our communities favorite outfit with similar secondhand styles across our vast assortment I encourage you to check it out at Ww that threat dotcom backslash looks.
Moving onto international last quarter, we announced the initial phase of our international expansion strategy with the agreement to acquire a remix one of Europe's leading fashion retail companies the transaction officially closed in October.
Our acquisition of remix accelerate spread ups international growth plans and enables us to gain an established a foothold in Europe. We're a global data estimates that the secondhand market will grow to $39 billion by 2025 <unk> currently operates in nine countries across central and Eastern Europe.
We plan to leverage remix is custom single SKU logistics that can process millions of secondhand items efficiently.
Time, we will introduce our automation technology to strengthen their offering.
We also believe their market intelligence and technology platform will accelerate our growth into the broader European market.
One area, we will address more quickly is moving remix this business model from a direct sales model towards a predominantly confinement based model over the next few years. This means we will undergo a transition very similar to what we've done in the U S that will ultimately deliver better gross profits over time.
Tim you revenue growth in the near term.
In late October threat up announced a strategic investment in Volterra manage resale marketplace, serving Latin America.
The apparel caters to consumers seeking a seamless fund convenient and sustainable way of buying and selling secondhand clothing online their technology platform also handle single SKU logistics and it also offers brands and retailers retail experiences they can either be plug and play where customizable to their specific audiences.
It's early investors in the apparel, we will share expertise and enabling resell it scale and advise their team as they grow and transform the future of sustainable fashion in Latin America.
Retail is a global phenomenon and a force for good in the world and we see threat up facilitating the industry's growth for many years to come.
In conclusion, we are committed to building the world's leading retail company I'm proud of the threat is raising awareness about the benefits of retail and elevating the conversation around circularity by educating consumers and brands alike.
Cobra alone we were recognized for the impact we're creating with the award recognitions in Fortune's World changing ideas. Good housekeeping as 2021, sustainable innovation awards and fast companies brands that matter.
Every day, we are inspiring a new generation of consumers to think secondhand first and creating a more sustainable future for fashion.
That I will now turn it over to Shaun to walk through our financial results and our guidance.
Thanks, James and again, thanks, everyone for joining us on our third quarter earnings call I'll begin with an overview of our results and follow with guidance for the fourth quarter and full year.
I will discuss non-GAAP results throughout my remarks, our GAAP financials, and a reconciliation between GAAP and non-GAAP are found in our earnings release supplemental financials and on our 10-Q.
We are extremely proud of our Q3 results, especially delivering our third consecutive quarter of accelerating revenue and gross profit dollar growth.
For the third quarter of 2021 revenue exceeded our expectations totaling $63 $3 million, an increase of 34, 8% year over year consignment revenue increased 42, 8% year over year, while product revenue grew 14, 5%.
Active buyers and orders are amongst the most important kpis that we use to track our business.
For the trailing 12 months active buyers rose, 14% to $1 4 million.
Third quarter orders reached $1 3 million, increasing 28% as compared to the same period last year.
Gross margin expanded to 72, 8%. This is a 300 basis point improvement over a 69, 8% gross margin for the same quarter last year.
Gross profit totaled $46 $1 million.
Representing growth of 41% year over year.
Gross margin expansion has come as a result of expanded automation larger distribution distribution centers and more items per order offset by continuing headwinds from wage inflation and increasing logistics and shipping costs.
We believe gross profit dollar growth is the best way to measure our business growth as we continued to transition to a mostly consignment based business.
For the third quarter of 2021, GAAP net loss was $14 7 million compared to a GAAP net loss of 11.0 a million dollars for the third quarter of 2020.
Adjusted EBITDA loss was $7 8 million or 12, 4% of revenue.
350 basis point improvement compared to the adjusted EBITDA loss of $7 5 million or 15, 9% of revenue for the third quarter of 2020.
Q3, GAAP operating expenses increased $18 2 million or 42% year over year. This includes $3 million of stock based compensation.
We continue to invest in the expansion of processing capacity marketing efforts and technology infrastructure to support our growth.
Turning to the balance sheet, we began the third quarter with $233 5 million in cash and investments and ended the quarter with $266 $9 million.
The Q3, ending balance includes $45 $5 million of net proceeds from our follow on offering that closed in August.
Third quarter basic and weighted average shares were $97 3 million shares included 2 million shares issued by us in our August follow on offering.
We closed our acquisition of remix of October remix provides the platform to accelerate our international expansion into the European retail market that is predicted to be $39 billion in 2025.
We funded the <unk> acquisition with a mix of cash from our balance sheet and chairs.
Cash paid at closing was approximately $19 $2 million. Shortly after closing we also paid approximately $6 2 million of other remixed liabilities, bringing the total payment to $25 $4 million.
Subject to customary purchase price adjustments, we will pay approximately $3 $5 million in the form of 131000 shares of newly issued class a common stock to be issued 18 months. Following the closing of the remix acquisition.
<unk> operates in nine countries of Bulgaria, and Romania, representing approximately 70% of revenue.
It makes us a smaller footprint in Austria, and Germany, which we view as a longer term opportunity.
Phoenix sells both secondhand apparel and slightly worn returns from brands and retailers plus remix also operates in the men's category.
<unk> gross margins are in line with threat up margins of about five years ago, leading us to believe that there is ample runway to leverage the threat up model and expertise to generate meaningful profitability improvements over the long term.
For example, historically a significant portion of the <unk> business has been direct sale and which they own their own inventory.
This is lower margin and consignment.
In addition, a significant portion of their supply has been from wholesalers, which is also lower margin that individual sellers.
Over time, we plan to migrate the business towards higher margin consignment and away from the wholesale supply in order to be more in line with the current threat up business model.
At the same time, while the acquisition was modestly accretive to EBITDA as previously disclosed we plan to aggressively invest in the business to accelerate top line growth and gained share in the European market.
Including these near term investments and remix we remain confident we will achieve our previously discussed long term financial targets.
Since this is our first Q4 as a public company I.
I would like to note some unique aspects regarding the seasonality of our business.
Audi and resale purchasing differs from traditional retail this is particularly true in the back half of the quarter as retail is not leaned on for holiday gift, giving.
As a result, Q4 is not typically our strongest sales quarter.
Furthermore, we actually tend to pull back on marketing as a percentage of sales due to its high cost during Q4 and reallocate those dollars towards our processing efforts.
In December we tend to shift our associates to aggressively process bags and build selection in advance of Q1 and Q2 of next year.
Acceleration of inbound processing tends to increase our operating expenses in Q4, which pressures EBITDA.
Equally this quarter I would also remind you of what James said earlier and that we decided to discontinue our goodie box program in late August and expedited. This full wind down by mid October we estimate goodie boxes would've contributed approximately $2 $5 million in revenue in Q4 with minimal impact to EBITDA.
As we look ahead to Q4 2021 and next year, we are actively investing in the business. Both here in the U S and in Europe, we have begun building out our Dallas DC as well as continue to invest in additional processing capacity to process, our backlog of supply and facilitate new listings.
As we bring on our Dallas DC investments in technology data science and automation in the near term will drive long term value in this facility and eventually across our global network.
While we expect to eventually be our largest and most automated DC yet we know from experience that the build out process tends to be less cost efficient as we ramp to scale.
To see this dynamic play out in particular in the early part of next year, but would also expect the additional processing capacity to accelerate sales growth in the second half.
We're also expanding remix processing infrastructure investing in this technology and data science stack and spending marketing dollars as we seek to capitalize on the large opportunity in Europe.
Additionally, like other U S companies, we are dealing with the ongoing wage inflation and competitive labor markets as well as rising freight costs.
In Q4, we anticipate an incremental $4 million negative impact to EBITDA versus Q3, as a result of higher labor and freight expenses.
While we are planning for these quarter over quarter increases to moderate from Q4, we continue to expect elevated levels on both the labor and freight front for the foreseeable future.
However, we plan to continue to offset the rising labor rates and shipping costs as we expand our DC automation scale into larger Dcs and innovate on shipping logistics.
Now I would like to share our financial outlook for the fourth quarter, including remix since the acquisition closed in October of 2021.
For the fourth quarter of 2021, we expect revenue in the range of 69 million to $71 million.
Gross margins in the range of $65 to 67%.
And adjusted EBITDA loss of 17% to 15% of revenue and basic weighted average shares outstanding of approximately $98 million.
For the full year of 2021, we now expect revenue in the range of $248 million to $250 million.
Gross margin of approximately 71%.
And adjusted EBITDA loss of approximately 15% of revenue.
And basic weighted average shares outstanding of approximately $77 million.
In closing we are very pleased with our third quarter performance. We remain highly confident that we can continue to execute on our model and make our plan progress towards achieving steady growth aligned with our long term targets.
James and I are now ready to take your questions. Operator, Please open the line.
Okay.
Thank you.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad.
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Well pause for just a moment to allow everyone an opportunity to signal for questions.
Okay.
Yeah.
We will take our first question.
From Erinn Murphy of Piper Sandler.
Great. Thank you good afternoon, a couple of questions for me first Jim I was curious if you could share a little bit more about your strategy of lowering prices here at the competitive advantage. How are you marketing. This change to the consumer have you seen kind of a new consumer come into the top of the funnel and then maybe.
First Sean what is this doing potentially to that margin structure in the near term and then I've got one follow up.
Sure.
Yeah, I mean, I think customers come to us for predictable.
Particularly low prices and great deals and so I think what we've tried to do with our messaging and the storytelling, we've done onsite in an email and our app.
Let people know the great deals that they're getting and I think where the sort of broader sense that people aren't getting promotions and aren't getting discounts at other places they're shopping at we just keep hitting hard like write up is the place where you can find the best prices on the brands that you love in a sustainable way and so I think it's more of a.
Just doubling down on the idea of how great our prices are.
Reminding people that while they're feeling the pinch and other parts of their life. You know, we're going to kind of be there to support them and I'll talk I'll, let Sean talk about the margins, yes, Aaron Yeah no.
On the lower prices and get some of the dynamics there that work with it is the fact that with lower prices were going to discount less a lot less discount will be less promotional so you'll have less sales happening at the same time. So you don't end up with kind of a lower all overall pricing charts, you'll also get returns coming down as well because we know there's a direct correlation between the ASP and <unk>.
Returns happening I think generically if you think longer term, what I think just drives us more new customers, which drives better growth and more revenue over time. So we think that all works together really well.
Yes, you're definitely seeing an error in the conversion rates and sort of how new customers are coming onto the platform and I think we feel like the whole strategy really holds together.
That in mind.
Great Super encouraging and then my second question is one thing we noticed during the quarter is the dollar could no longer request, a cleanout bag and I'm sure. It's just given the backlog you have at 12 weeks now, but should we expect that 12 week processing times to continue until the new Dallas DC ramps there just help us think.
About the interplay there between what you're attempting to do to re prioritize labor into processing bags with them you know that new DC opening up just curious on expectations. There. Thanks, so much.
Yeah I mean, we're also keep in mind that we're also scaling out our RASK partnerships Aaron So theres a lot of demand coming from what we've launched with Adidas and Crocs and Michael Star. So there are a lot of sort of backed out in the ether that are that are coming back to us, but as you know.
Not everyone can request one online and yes. The idea is that we're opening a new processing center in Dallas those will both come online Q on Q2, and then we should start to make progress on driving that that backlog down.
But I would sort of be consistent with sort of what we said last quarter is the.
The demand for our clean out service continues to rise and threat ups presence becomes even better known in the market. So we were trying to get it down but we don't have a timeline to commit to you as far as when that will happen.
Got it well you're going to get a new bag for me. This week, so I mean in practice.
Alright. Thank you so maybe I'll, let someone else jump in.
Yeah.
We will take our next question from Ike <unk> of Wells Fargo.
Hey, Congrats Jim Shaun and welcome Lauren.
Couple of two from me I guess, James I think you know we've spent a lot of time thinking about the potential sales opportunity.
Ross could be for threat up over the long term, but could you maybe help us all understand the most impactful ways. The rest can drive profitability for the business.
Yeah sure.
Yeah and I appreciate the note I think you captured a lot of that sentiment correctly I think the.
I think the two ways to think about that are won all the ways that it amplifies our supply advantage allows us to leverage other people's supply chains.
Q2 to get supply in the door and so that means on the backs of the distribution, whether it's in store or online and the way we work with our partners on.
The payout to the supplier and what the rash partner contributes so I think that really helps sort of lower our supply.
And then of course, you know with the with our pro shops in our premium and our enterprise version the brands that we're working with our pain.
To pay overtime SaaS like.
Right and so whether that for the types of customization that they want to work the omnichannel experience that they want and so you know as Ive joked Ras rhymes with SaaS for a reason and so we think Theres high margin revenue to monetize on a client by client basis as well as just lower operating cost you know as as Ras part.
<unk> working our supply chain. So that's really the two ways that we think about it and we're going to continue to try and get folks more information as we bring new new clients onto the platform.
Got it and then just one follow up two follow Aaron's anecdote.
I placed the order last week and I got three bags in the mail today I guess, what I wanted to understand is how atypical is that to.
To see that level of split shipments is that just because of.
The what happened with Covid and opening up a new processing center.
This time next year, if someone places a bundled order like that should all come in one bag or could you just kind of help explain.
How that all should work.
Yes, I guess it depends a little bit on what you are buying and where you are buying it from and we continue to kind of experiment with how.
We move goods around through our network.
But certainly there is an experience where you get things from multiple.
Multiple distribution centers, but ideally over time as we bring on a facility like Dallas that'll hold 10 million items. Our expectation is that that the customer you for example would be able to find a selection of items for your basket all out of that facility and so instead of getting three packages you would get one and sort of.
Part of the strategy over time is to really reduce logistics costs by having people shop out of one facility and not three.
That's sort of the plan and.
We're excited to bring Dallas online.
Middle part of next year.
Good luck.
Our next question comes from Ross Sandler of Barclays.
Hey, guys Sean.
Sounded like the labor costs, and the freight where most of the.
Headwinds from <unk> doing it before COVID-19.
Just can you confirm if that's the case and then remits, what's baked in in terms of.
Revenue.
Gross margin impact in EBITDA margin impact for the <unk>, how should we think about remix for for next year as well.
Maybe one for James on all these new Ross partnerships, you've got a bunch of different strategies are different versions of your offering so for someone like Adidas.
You just give us a little color on like which one are we getting and do you guys have that capability.
Having these partners and products into all your facilities or do you have to set up.
Dedicated facilities like Dallas that can handle more rats volume.
Just any color on like how the.
The bad processing works on that versus the regular business. Thanks a lot.
Sure Rob let me start with the RAF one and then I'll kick it over to Sean to talk labor and freight and remix.
Yeah, and then on the resale side Theres really three the three ways that we work with with folks to start clean out kept partnership cash out marketplace, and then the retail shops and ideally we bring people on either side of the of the cleanout kits for the resale shops, but we really become a full service offering on both sides.
To really drive circularity in the resale market, you want supply and demand kind of working together and so I think for example, with Adidas, we've started with the clean out kit partnership.
And we're going to move to a retail shop strategy. Similarly, with what we did with Madewell same idea you know I think as we bring partners online in some ways, it's easier to get them started on the clean air side.
And then we help use that to build supply to launch real high quality retail shops.
And so that's how we think about retail 360, I mean, that's the way we talk about it internally and I think that's the way brands are why it's resonating so well with brands because we can really provide a full service experience and as for where the bags and the fulfillment flows.
You know we can do it out of all of our distribution centers, but I think over time, we will probably consolidate some of those operations in our larger facilities just to provide.
Complicity in the processing approach, but we have flexibility to do it across our network and I think what's exciting is that as we've launched in Europe, we see a lot of opportunity for Ras for partners, we work with in the U S.
To work with them as well in Europe, and so I think not only can we provide a full service offering on supply and demand. We can do it in the U S and we can't do it abroad.
So a lot of good momentum on the RASK side I'll, let Sean talk about yeah, Ross on the labor and freight, yes, youre right Theres about $4 million impact to Q4 from Q3. So that's a big chunk there and then I think the other pieces to not Miss it and we are going to continue to process more focused so you will see that in the <unk> line. So as we crank through Q4 and get more things online.
And process Youll see some pick up there in that expense line and again think about that as investment for Tomorrow's revenue. So it's a really good thing is what will continue to do as we go through our process and then I think you asked about remix on the remix I think you can we give them some directional thoughts on how big they were or they are about $33 $5 million on last full year. So you can kind of figure out.
They werent really investing a lot of growth dollars in so the business probably hasn't changed that much.
Gross margin itself is a pretty good headwind when you consolidate in mostly because of what I talked about in the prepared remarks is there and so there is no consignment. They also have some wholesale wholesale which is also a lower gross margin, but overall they were operating the business at.
Or more.
Relatively better EBITDA than us so theres, a little bit of a kind of a tailwind from EBITDA, but we're going to turn around and invest pretty heavily on the marketing side and the infrastructure side as it relates to remix to really capture that growth opportunity to share in Europe.
Our next question comes from Andrea <unk> of Needham.
Hi, great good.
Good afternoon, congrats guys.
I have two quick one for James So another one on Ross for you can you talk about the economics of each structure versus your initial expectations, maybe what had been you know some of the surprises and how should we think about the cadence of these partnerships as we look into 'twenty two.
And congrats also on the Texas D. C. Just for modeling purposes. I guess this is for Sean as we look into next year can you remind us how we should think about the incremental rent expense.
As part of.
Your line I guess for <unk> chicken. Thanks, so much.
Sure I think on the thanks for the questions I think on the on the <unk> side, we're not breaking out the discrete economics by partner, but what I would say is that we again I think it provides us the leverage on the supply side.
Obviously, as we sell things in branded retail shops and increases our sell through.
<unk> kind of a return on assets.
I think the other piece is if you think about what retailers or brands or paying for SaaS vendors that are enabling new distribution channels I would think about it like that and so we think that these are large revenue opportunities.
That scale over time.
They are high margin and so as for cadence I mean, ultimately we think there are hundreds if not if not thousands of brands.
Could participate in our retail as a service offerings and so I think you should see us continue quarter after quarter to announce new one and deepen the relationships with those those brands over time again, not just in the U S. But.
We think global with the scale of those opportunities.
And then on the on the Dallas, DC, and I would say, Brian the Dallas PC to process agenda, as well total bookstar impacting rent expense for the full facility starting in Q1. So we're going to think about it it takes a while to ramp up and we don't really even start processing in Dallas DC until Q2, and that's going to be 500000 items.
During Q2, and then it'll ramp up quarter after quarter after quarter. So there's a there's a decent level of headwind and inefficiency certainly through 'twenty, two and most friendly more heavy weighted to the front end. So if you're thinking about modeling to 600000 square foot building eventually 2000 employees a million items, but it starts off at half a million dollars and not getting <unk>.
<unk> until Q2, so there is a level of inefficiency there on the Opex side, as we kind of roll into and scale out of that facility.
Okay Super helpful. I'll take the rest offline good luck guys.
Thank you.
Our next question comes from Ed rumor of Keybanc.
Hey, guys. Thanks for taking my question I guess two questions first on the changes in pricing.
Is it your intention that over time, the consignor isn't one that is really bearing it. So it's margin neutral like pop to Aaron's question. Then second I know you guys have been doing a lot of investment.
The unit economics in some of your more recent vintage the fees I guess relative to your expectation how are they trending thanks so much.
Yeah.
Yeah, and I mean on the.
The pricing side I mean, yes, I mean, the supplier I think on the margin makes a few.
A few pennies on the supply side, but ultimately what it does is I think it creates predictable pricing for.
For the buyer and so unlike sort of the environment, whereas it's.
Promotional and customers are waiting for sale days and that's what's really driving the magic I think now we're in a in an experience where consumers are really seeing like PVC prices are just structurally lower and so what we want to do is create that experience, where we're buyers think hey, I should just go to threat up first because they have the best prices.
I don't need to wait and stuff on sale you know everyone. Every item. We have is a snowflake and so we do think that ultimately the economics are and it's <unk>.
Margin neutral, but that but the key to that is we drive a lot more buyers into the funnel for new buyers retaining existing buyers at higher rates more orders per buyer. So I think that's really part of the pricing strategy at least in the near term.
I'll, let Sean talk a little bit about the investment side, yes on the unit economics piece, that's where your focus is.
I think from what we put out early on when we were looking at <unk> or Phoenix in Mechanicsburg.
We're well past that was Atlanta coming on so I think the overall economics have gotten better and what you guys saw out I do think there is that that headwind that we've been talking about shipping as well as the labor costs are due to the headwind, but we're continuing to innovate our way around that James talked about innovations, where we can have more items coming from one DC that Alison shipping and then just general automation where it.
We're less reliant on manpower and helping reduce the risk of the rising labor wages.
Thanks, so much guys.
Thanks, Ed.
We'll take our next question from Dana Telsey of Telsey Advisory group.
Good afternoon, everyone. Just just to go back to the pricing one more time is 15% lower average price is that going to remain that way or how do you see the pricing architecture of how you how you maneuver with the with the lower prices and then I see you made another acquisition in Latin America, what do you see it.
That opportunity is it is significant as we thank you.
Thanks Dana.
On the pricing side I think we've always believed that threat up because the product is high quality used product that we can always provide the best prices.
On a relative basis when that consumer is looking to shop, new versus used and we've always tried to target prices up to 90% off I think generally speaking.
We want to try and do is as we're able to drive.
Lower operating cost through automation through technology through uses of our data what can we what kind of <unk>.
Pricing power can we pass on to the consumer so that we can provide an incredibly.
Wide selection.
Always great prices and so I think what's exciting for US now is when you you know you open the newspaper every day and it feels like prices are going up everywhere. All around you and we can say with confidence that that's not going to happen on dried up and that you can count on us and you can trust us to do everything we can to create the best prices possible I think he build a lot of trust with the <unk>.
<unk> and I think you leverage that trust over time, and so so I want to be able to do that.
Distantly.
Switching to Latin America and of apparel that we did not acquire of apparel Mesa.
It's a relatively new company.
That started in Uruguay now operates in Mexico, a wonderful founding team.
And we are a minority investor alongside Grupo <unk>, which is a great partner of ours in Latin America, and so together, we are minority shareholders, but I think what's exciting is that we see a lot of opportunities.
With the Latin American market and with both Arrow and are interested in watching that business grow and flourish.
Thank you.
We will take our next question from Tom Nick <unk> of Wedbush Securities.
Hey, everybody. Thanks for taking my question and congratulations on the new gig.
So Sean I want to ask on so the or John or James.
So the new distribution center historically, you've kind of opened a distribution center every like two years or so but obviously the scale of this one is far larger than anything we welcomed before.
I mean, I'm, assuming it's safe to assume that youre.
Youre not going to need another distribution center two years from now.
Kind of like how many years of growth do you think.
Dallas Center, Ken can support.
Yeah, no. It's a good question I think it's really interesting to think about it because we have a lot of data that talks about how much close are just ending up in landfills that can be reused and I think the estimate that we've seen is something like the equivalent of 1 billion threat up clean out case on an annual basis. So if you think about that equivalent to 10 million items.
And the Dallas DC, we're going to have to open more dcs.
But to your question I think it is very specific and what is the timing and I think thats TBD here. So how fast can we processed how fast can we sell how can we ran how fast can we ramp up so.
You're right we've been doing one every 18 months, we'll just have to wait and see and see how fast the catalysts actually comes up to speed.
Understood and Tom I think youre going to see US continue youre going to see us continue to invest a lot right. I mean, I just think we see the opportunity is so large.
And I think you can see a little bit with the processing center that feeds into Dallas.
And Youll, just see us continue to try and scale to attack the supply opportunity.
Got it and if I could follow up.
It sounds like 2022 will be a fairly heavy investment year.
Investing in your international business, a new DC.
There's probably some cost inflation.
Rose through the P&L next year as well.
How do we think about like the EBITDA line next year.
Is it possible but.
The EBITDA kind of takes a step backwards before it starts moving forwards again or just.
Very directional help you can give us.
Yes, I wouldn't think of it as a step accurate or do you think we're investing for what I call earlier tomorrow's growth, but it's not four quarters out it's literally sometimes one quarter out or less and I think we're going to really focus on continuing to drive the actual growth revenue and the rate at which revenue growth, but I don't think you should take away anything that we're not driving.
Towards.
Expansion of EBITDA margins or closing of the EBITDA loss.
Understood Alright, thanks very much.
Best of luck the rest of the year.
Thanks, Tom.
Our next question comes from Brian Mcnamara of Baron Burt <unk>.
Capital markets.
Hey, Thanks for taking my question and congrats on the strong results.
So my question was already answered, but I was I was also wondering if you're currently seeing any benefit or if you contemplate in your Q4 guidance any benefit as the primary apparel market deals with shortages driven by supply chain headwinds.
Yes, Brian I mean, I think that there's a lot of.
There's a lot of bluster out there around that.
Fly chain markets or the supply chain and the traditional apparel market.
I think in a normal quarter.
We might see some tailwind from that but again I think in our prepared remarks Q4 typically is not.
Our strongest quarter because of the way gift, giving trends around the holidays kind of kind of play out. So I don't think that we're counting on benefiting from some macro trend.
At the moment.
But I think if that if the supply challenge spiking challenges persist into Q1 and Q2 next year, then yes, I could imagine is benefiting from from some of those macro tailwind.
Got it thanks, and then secondly, I'm Raj can you provide some color on your white label offering them what common characteristics.
Jurisdiction on a white label partner has relative to your more traditional Ras partners.
Yeah, I mean, I think it's a classic white label distinction. So I think when the offerings are white label threat up sits.
Sits in the background and you don't really see see us in the partnership so I think farfetch would.
It would be a good example of a white label strategy, where threat up powers Farfetch is cleanup program, but you really wouldn't know it you'd have to dig for it.
Whereas I think in.
In crops for example, which we just announced I think threat up is really a key partner in its threat up plus crops delivering you kind of.
The resale relationship so that would probably be the distinction and I think as as brands.
I want to be more white labeled right.
Obviously the fees go up and so that's the way, we think about sort of a roll in and.
In fees and white label as it relates to sort of a more generic partnership.
Great. Thank you best of luck.
Thanks.
Once again, if you would like to ask a question. Please press star one now.
We'll take our next question from Laurent <unk> of Morgan Stanley.
Hi, This is Nathan feather on for Lorraine.
<unk>.
As you've seen a pretty tight labor market is that impacting your ability at all sort of told me amp up processing power and then.
On the Europe side of the business, you've noted you're really investing into <unk> as a brand.
The key areas of investments, you're making in that business in 'twenty, two and then more from a logistics and infrastructure side are you able to expand the Ras partners Europe with just the remix as current infrastructure or do you need to take additional steps to really bring the rasp on there. Thank you.
Yeah, Hey, Nathan.
Yes, I think.
Yes, I mean, I think with respect to the labor and I think as Sean noted I think that the headwind in Q4 relative to Q3 of that $4 million I think part of that is just overall increased cost to hire folks.
Hourly rates and so forth. So I think it's a combination of trying to get great people in the door, what it cost to do that on the recruiting and the retention side. So that is the tailwind I mean that is the headwind that we that we noted.
I think on the remix side.
I think the infrastructure investments, we're going to move them in likely into a new facility that can do more.
More processing faster outbound so I think there'll be some cost there. We also think that the business can grow much faster than it's growing and so on the marketing side I think we'll invest dollars there and I think similar to the way it works.
No threat up in the U S. As you process and have more supply coming online you can spend more marketing dollars and so those two things we think will ultimately drive nice growth for remix in 'twenty two and beyond.
And then your last question is can you can you can you scale rash in Europe.
With remix into the existing infrastructure.
The answer is no I mean, we have to continue to invest in their infrastructure to support the growth in the Ras clients that we have in Europe, but I think we have some time to really focus there and at least in 'twenty two I'm kind of core core marketplace growth and then we can layer in RAF clients over time in the back.
Half of 'twenty, two or even into 'twenty, three but we see just an incredible amount of potential in the European business.
But having said that we've owned <unk> for like 30 days so.
So I think it's going to take it.
Take some time.
But I think I think we're excited.
Great I appreciate it thank you.
Thanks, David.
That concludes today's question and answer session James.
James Reinhart at this time I will turn the conference back to you for any closing remarks.
Yeah, Thanks, everyone for tuning into our call and for the great questions very excited about the quarter ahead in the year ahead and look forward to talking to all of you again in the new year.
This concludes today's call. Thank you for your participation you may now disconnect.
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