Q2 2023 ThredUp Inc Earnings Call
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Good afternoon, ladies and gentlemen, and welcome to <unk> second quarter 2023 results conference call. At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time during this call.
Higher immediate assistance, please press star zero for operator.
This call is being recorded on Tuesday, the <unk> of August 2023.
I would like to turn the conference over to Alan brought them Chief Legal Officer. Please go ahead Sir.
Good afternoon, and thank you for joining us on today's conference call to discuss <unk> second quarter 2023 financial results.
With me are games, Reinhart brought up CEO , and cofounder and John <unk> CFO .
We posted our press release and supplemental financial information on our Investor Relations website at IR Dot threat up Dot com.
This call is being webcast on our IR website and a replay of this call will be available on the site.
Great.
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 earnings guidance for the third and fourth quarter and full year of 2023.
Future financial performance, including our goal of reaching adjusted EBITDA breakeven market demand growth prospects.
The strategies and plans our ability to attract new buyers and the effects of inflation increased interest rate change.
Changing consumer habits.
And general global economic uncertainty.
These forward looking statements are not guarantees of future performance.
Known and unknown risks and uncertainties and our actual results to differ materially from any projections of future performance or results expressed or implied by such forward looking statements.
Words, such as anticipate believe.
And in fact 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 website.
Forward looking statements that we make on this call are based on something as of today and we undertake no obligation to update these statements as a result of new information or future events.
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 press release and supplemental information posted on our IR website.
Now I'd like to turn the call over to James Reinhart.
Good afternoon, everyone I'm, James Reinhart, CEO and co founder of dried up. Thank you for joining <unk> second quarter of 2023 earnings call.
We are excited to characterize our financial result in EBIT and this highlights from our second quarter. In addition to our financial results. We will provide an update on key company specific initiative.
Pivoting to our growth and expansion of adjusted EBITDA I will then hand, it over to Sean <unk>, Our Chief Financial Officer to talk about our second quarter 2020 financials in more detail and provide our outlook for the third and fourth quarters of 2023, who will close out today's call with a question and answer vector.
We are project Terra that we exceeded the high end of our guidance for revenue gross margin and adjusted EBITDA revenue was $82 7 million, increasing eight 2% year over year.
<unk> gross margin declined 150 basis points year over year due to the continued growth of our lower margin European business. However, U S. Gross margins were a record 76, 4%, increasing 220 basis points year over year, our active buyers in Q2 slightly decreased year over year.
Fully up two 5% Q1 to Q2 and is now positively impacted.
We're up 5% year over year, we're very pleased with our improvement to adjusted EBITDA as we posted a loss of <unk> 5 million, which was a 1160 basis point expansion year over year, and a sequential improvement of 260 basis points from the prior quarter.
Before we dive into the rest of the call I wanted to take a moment to reflect on the past few years of being a public company.
It's been a wild ride it's been radically Nicole public offering in March 2021, we've consistently though hit or exceeded every single quarterly guidance.
Faced with the persistently challenging macro environment and the competitive retail landscape. Our team has demonstrated exceptional rigor and forecasting predicting and managing the business I am proud that we continue to make progress towards our growth and profitability goals and that notably at the midpoint of guidance through 2023, we're aiming to grow revenue.
13, 4% and expand EBITDA 1000 basis points.
Look across the consumer universe on our revenue growth and margin expansion basis. We believe we are one of the very best performing company in 2023.
Our philosophy has always been to control the controllable how we spend our time with the quality of the decisions we make during times of uncertainty the urgency we have to invent on behalf of our customers and the willingness to keep learning what's different this time around.
My hat goes off to the incredible team here at Grubhub, that's making this happen every day.
Now, let me turn to provide an update on some of the key company initiatives that have powered our growth and market expansion.
First we're continuing to refine our marketplace acceptance strategy as I shared on last quarter's call. We started testing a new deeper a cleanup there to improve the quality of supply in our marketplace.
After validating that this increased our bad yield of our sellable items as well as the quality and the sell through of items, we repeat we rolled out this new theater nearly all sellers in our marketplace.
We're continuing to go at client margin.
All while creating a better clean out of service for our best customers and the better collecting for our best buyer.
Demand for our cleanup further accelerated in Q2, and we don't anticipate any pullback in demand.
With increased processing power our backlog is now at six week for regular buyer and under one week for those who pay for our VIP therapist.
Second we are doubling down on efforts to boost growth retention and achieve the highest levels of customer satisfaction in our history last quarter I detailed our effort to intercept customer when they are most likely to be unhappy with their experience.
Your month of testing, an offering called peak for credit where customers can optic T select often low priced items in exchange for tapping credit instead of making a cost a return we've now rolled this option out to 100% of our customers.
The work we've done in this area has generated meaningful improvement to our unit economics without recurring rate year over year in Q2, increasing by more than 500 basis points.
And connecting with our promised effort. We also rolled out a new resolution hub in July .
Portal that offered infant pick the common issues.
That make our experienced <unk> sort of being in 10 out of 10 customers.
We believe that collectively through these initiatives we have.
We'll be able to deliver an ever better experience that keep customers coming back again and again.
Third we continue to be impressed with the performance and progress of remix our European business.
Typical diamond sales have been processed and early feedback from customers has been positive. We believe that this change will improve premixed with margins over the long term and also expanded.
The high quality of Dubai.
Fourth our retail as a service business continues to provide brands and retailer with the fastest and easiest way to deliver customizable and scalable retail experiences to their customers in Q2, we launched new programs with 11 brands, including American Eagle bulk cycle and as a reminder, Ras is the leading provider.
<unk> end to end retail for the apparel ecosystem, including global brands like J crew and smaller heritage brands like Michael start.
By leveraging credit marketplace infrastructure, Ras amplifies, our supply advantage increases our sell through and return on assets and expand our long term profitability metric by adding sources of recurring by market revenue.
And finally.
Given the proliferation of dialogue around artificial intelligence.
Want to briefly mention how we are deploying AI a threat.
As a business that is now processed more than $172 million one of a kind secondhand items, we have relied on AI for many years across our distribution network AI helped us to reduce processing costs by substituting activity that would otherwise be done manually in turn creating greater economic value for.
We're leveraging AI in various ways across our product experience, including enhanced search functionality that the customers can more easily find what theyre looking for across our vast collection.
Each of these investments positions our business to drive sustainable growth in the quarters and years to come.
Now I would like to provide an update on our goal of reaching adjusted EBITDA breakeven in Q2, we saw yet another quarter of sequential EBITDA improvement since announcing our intention to hit breakeven earlier this year with each quarter, our confidence level in achieving this goal increases and we have even clear sight of hitting this milestone in Q4 of 2023.
Let me also in the diet that breakeven at depth. The waypoint, we're committed to building an enduring business that generates significant free cash flows over time.
On a road to profitability and growth. It's also important that we don't lose sight of our pursuit of correct.
<unk> is and always has been a business rooted in an ambitious mission to inspire a new generation of consumer that secondhand birth.
As we work to further and make a dent in the universe, we hold ourselves accountable to following our business and brand aligned environmental social and governance strategy that guides us to deal with I think that we recently published our second annual impact report, which outlined our strategy and provides a transparent look at how we're impacting our people our communities.
And the planet.
We're committed to disclosing our progress each year and raising the bar for what it means to balance purpose and profit.
I'm also proud to share that we were recognized for the impact we're having is going to find 100, most influential company into 2023.
Let's highlight the 100 companies, making an extraordinary impact globally, we are honored to be lifted alongside some of the world's most iconic brands, including Apple Patagonia and Microsoft.
Thank you again and before I turn it over to Don I want to close by retaining the strength of our Q2 results and our management team's ability to forecast predict and manage the business effectively quarter after quarter driving topline growth and EBITDA expansion.
As we enter our third year as a public company could not be more proud of the work we are getting and the progress. We have made we are eager to tackle the opportunity in front of us and remain committed and focused on our mission.
The upgrading of more sustainable era for the fact that anything.
Thanks, Jane and again, thanks, everyone for joining us on our second quarter 2023 earnings call I'll begin with an overview of our results and follow up with guidance for the third and fourth quarters 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 in our 10-Q filings.
We're very proud of our Q2 results for the second quarter of 2023 revenue totaled $82 7 million, an increase of 8% year over year.
<unk> revenue grew 10% year over year, while product revenue grew 5%.
We're happy to report that consignment revenue Hasnt selected growth for the first time in four quarters as we make progress in transitioning our European business and our route the buy to a consignment model.
While the transition of these businesses they can pay them it should be a tailwind to gross margin over time.
<unk>, the slightly mute revenue growth simply due to the accounting treatment.
As a reminder, our consignment payout reduced revenue while owned payouts are in Cogs and reduced gross margin.
Orders increased 5% year over year to $1 8 million.
Active buyers declined slightly year over year at the $1 7 million for the trailing 12 months, but improved 5% quarter over quarter.
As we evolve our customer acquisition strategy to focus on higher quality buyers. We are pleased with the quarter over quarter improvement.
The second quarter of 2023 gross margin was 67, 4%.
250 basis point decline over the same quarter last year.
The decline in our consolidated gross margin was due to the dynamics driven by our European business.
The continued growth of Europe lower margin operating model continued to affect our consolidated results as it becomes a larger portion of our total revenue.
We are proud to report that our consolidated results exceeded the high end of our guidance driven by record U S. Gross margins at 76, 4%. This outperformance was the result of continued improvement and how we optimize our marketplace, including pricing promotions return payout empty.
For the second quarter of 2023, GAAP net loss was $18 8 million compared to GAAP net loss of $28 4 million in the same quarter of last year.
Adjusted EBITDA loss was $5 million or negative six 1% for the second quarter of 2023. This represents an approximate 1100 60 basis point improvement compared to the same quarter last year as we tightly manage expenses and leverage our investments in higher revenue.
We are proud to report that our hard work drove an eight 2% year over year revenue increase on an eight 1% decline in operating expenses driving us forward on our path to breakeven.
Turning to balance sheet, we began the second quarter was $99 $5 million in cash and marketable securities and ended the quarter with $83 million.
Our cash usage from operations was $10 $4 million, including our annual payment of D&O insurance.
$5 million, while we spent $6 $6 million on Capex as we complete our investment in our Dallas DC.
Based on our progress and our strategic initiatives, we remain confident in our ability to reach adjusted EBITDA breakeven in the fourth quarter of 2023 broad reaching breakeven and it took a waypoint on a path to free cash flow and profitability and we believe that this timeline balances our commitment to reaching breakeven with foundational investments in our long term goals of growth in <unk>.
Handing profit.
When modeling our free cash flow adjusted EBITDA and our Capex spend are key drivers of positive cash flow given that as a marketplace. Our working capital needs are minimal.
After spending $56 million in Capex over the last six quarters, we expect to spend $4 million in the back half of 'twenty, three and expect maintenance capex of $1 million to $2 million per quarter until 2026.
Due to our significantly reduced capex needs and our ability to manage our expense structure, we expect to be able to fund the core business through our existing cash as a result, we want to reiterate that we do not anticipate our cash and marketable securities balance falling below $50 million before reaching free cash flow positive nor do we expect to turn to the capital markets are drawn down.
On our existing debt before that.
We are pleased to provide guidance that emphasizes our control of the levers and the path to long term revenue growth and free cash flow.
Turning to the guidance for the third quarter, we expect revenue in the range of $82 million to $84 million, which is a 22% growth rate at the midpoint gross margin in the range of 66, 5% to 68, 5% of revenue adjusted EBITDA loss of $6 five to four 5% of revenue, which is a 1080 bps improvement at the midpoint.
And basic weighted average shares outstanding of approximately $106 million.
For the fourth quarter, we expect revenue in the range of 84, 586, 5 million, which is a 20% growth rate at the midpoint.
Gross margin in the range of $64 five to six 5% of revenue.
Adjusted EBITDA breakeven, which was an 820 basis point improvement in basic weighted average shares outstanding of approximately $108 million.
For the full year of 2023, and we now expect revenue in the range of $325 million to $329 million.
Gross margins in the range of 66, 5% to 67, 5% of our revenue.
Adjusted EBITDA loss of $5 five to four 5% of revenue.
And basic weighted average shares of approximately $105 million.
In closing we are excited to deliver second half outlet that illustrates our confidence in our ability to generate strong growth, while achieving adjusted EBITDA breakeven and ultimately profitability.
We believe that our first half results and our second half guidance demonstrate our capacity to collect our marketplace model as we execute on a variety of strategic initiatives, allowing us to distinguish ourselves in the current environment.
David and I are now ready for your questions. Operator, please open the lines.
Thank you, ladies and gentlemen, we will now conduct the question and answer session. If you have a question. Please press star followed by the number one on your Touchtone phone.
Here are three don't pump acknowledging your request.
Your first question comes from the line of Ike <unk> from Wells Fargo. Your line is now open.
Hey, guys. Congrats on the quarter just wanted to dig in a little bit more on the on the <unk>.
Scale the profitability it sounds like Youre highly confident.
<unk>.
The margin progression into next year I was wondering James or Sean if you could give a little bit more color.
It sounds like adjusted EBITDA profitability as the plan for next year, just kind of curious if you could give a little bit more.
Same work for fiscal 'twenty four whether its on the gross margin line or.
Adjusted EBITDA margin line, and then again on the on the Capex, Sean So we should be thinking $1 million to $2 million a quarter throughout.
Through next year as well that's all my questions. Thanks.
Sure. Thanks, Yes, I mean, I think as we said we feel very good about the path to queue for breakeven.
And we continue to generate that through margin expansion.
And sort of the elements of our marketplace that are really working and I think as we get into 2024 I think we feel confident that you can continue to see it.
Expansion quarter after quarter, obviously, there's some seasonality in our business and so it's probably not a straight line.
But I think we're hopefully putting these questions can be breakeven behind us and im kind.
Kind of excited about the ability to expand those margins into 'twenty four.
I think that relates to the free cash flow question, which I'll, let Sean address that around Capex, yes, and I would say even in when Youre thinking about we ended the year at breakeven in Q4, and then we March our way through expansion of EBITDA. In 2024 is free cash flow shouldnt be too far off of that right. It's not far away from when we get to breakeven EBITDA, but as it relates to your Capex question, Yes, I think 1% to.
$2 million kind of a maintenance mode actually all the way through 25. So it's not until about 26, we started to start to think about capex again at a greater size of that.
Okay. Thank you.
Your next question comes from the line of Trevor Young from Barclays. Your line is now open.
Great. Thanks, just on RASK for a second you are continuing to add some well known brands there of some of the brands that you've had for a year or more like a whole figure for example, how are those programs ramping not specific to any one brand, but just overall our volumes in engagement from buyers as well as the brands themselves where you expect.
Any key learnings there or any changes in strategy and then any sort of mark to market in terms of the proportion of inventory or volumes or even revenue coming from Ross programs.
Sure. Thanks Trevor.
Yes, I mean, I think I'm pleased with the overall adoption of of wrath by by the brands right amount <unk> seen pretty significant growth I think it varies a bit brand by brand around the momentum and who is leading the charge at the brand side I mean, it's been a difficult time for our retailers over the last six quarters or so so I do.
Think youre going to continue to see momentum as we get into a more normal inventory environment. That's certainly been a headwind I think for retail driver, but look I think lots of these brands have gotten started and I think it's going to be on these things that youre going to see continued momentum year over year.
We put in our impact report.
How many bags, we've been processing through our Ras partners and I think we put that in there to show it as a pretty significant amount of supply that we're continuing to generate through that platform and we expect to grow that again in 2024, So I think rather as an integral part of our business and I think we'll continue to see momentum there.
That's really helpful. James and just a quick follow up what are you seeing kind of in the competitive environment from retail in terms of promo you always have some good color on that what are you seeing today and what do you think evolves over the next couple of months.
And things seem to be getting better Trevor.
I think youre still handling lingering lingering inventory overhang that.
That's going to be real and I think as we get into back to school, which were sort of already in and as you get into holiday I think it's going to continue to be competitive out there and I think from where we sit holiday has never really the strong suit of retail and so I think it's an area, where we're going to be observers of what happens in Q4.
Across the retail environment, but I, but I expect things to continue to get better and.
I think as we get into 2024 youll start to see the purchasing behavior.
Retailers that we've seen over the past year like start to kind of hit the P&L and I think that's an area where resale should really shine.
As the inventory environment is finally kind of rolled over.
Yeah.
Great. Thanks James.
Your next question comes from the line of Dylan Carden from William Blair. Your line is now open.
Hey, thanks.
I'll kind of just follow up on that thought actually James.
Why then sort of in the guidance.
Quarter, and albeit I would take that its modest but inflicting.
For Mr. Pierre absolute dollars.
Number from 82 ish to $85 86.
And your expectation your deal and part of that is the seasonality in our business. So specifically in Europe .
Q4 tends to be a seasonally stronger quarter for them than Q3, given the summer holidays. So that's what you're seeing as you move from Q3 to Q4.
Got it.
I would add to that too because you'll see it in the guide is the Q4 guide for gross margins is down for that exact same reason Europe gets to be a bigger piece of the pie in Q4, which has structurally lower gross margin now just dragged down gross margin a bit thank you for that.
Thank you.
Actual question just on the fee.
As exciting as Youre kind of rolling that out can you speak to timing.
When you rolled it out more broadly in the quarter.
And then kind of how that shows up in the model is that something where we would expect to see higher revenue per order or is that sort of a contra cost what's sort of the best way to think about modeling that rollout out.
Yeah, I'll start with yes Dylan.
And I think we treated it as an experiment for some time and then I think month over month, we've expanded.
The number of sellers that are in that are in that treatment and so yes, I would say almost all sellers are now exposed to it there are obviously some pockets of experimentation that we do around when do we waive fees when do we get people expedited service first for a shorter fee and I think those are areas. We will continue to investigate but it is it is fully dipped.
Lloyd as to where it will hit in the P&L author of what Shawn hit that yes. It's in consignment revenue on the line on the P&L and it would show up in revenue per order too as well.
Okay.
And then if you indulge me here just from a capacity utilization standpoint.
How are you thinking about the new distribution capacity ramp any sort of change there and expectations as far as timing.
Does the breakeven target still in place probably not a lot, but just wanted to make sure.
No change on timing I think we actually provided incremental guidance around the capex needs is not meaning any new capex dealing until 2026 previously we thought that would come in 25. So I think we feel very good about the capacity that we have in place.
And the fact that we can continue to grow into that capacity through the next two.
10 quarters before we have incremental Capex and I think thats, a really nice place to be able to grow the business and.
Generate free cash flow over time, yes, just for a point. So you guys know the Dallas has all been at about $1 million and have slots for.
Our available spaces.
Great.
Thank you very much thank.
Thank you.
Okay.
Your next question comes from the lineup and deliver from Needham. Your line is now open.
Great. Thank you so much and congrats on a nice quarter.
A couple of questions.
Curious if there was any variability in the business by month in the second quarter and what are you seeing quarter to date.
James anything to call out about the budget shopper behavior, you had talked about seeing some stabilization there previously and.
John as we think about the bridge to get to EBITDA breakeven in the fourth quarter, just anything we should be mindful off in the model by line item. Thank you Beth.
Sure and I mean on the.
The variability by month.
I think sort of consistent with what we've seen in prior years I think June was a little stronger than than previous June and I think we did a bunch of work.
To really hit the consumer as they have moved into their summer their summer holidays. So I think.
June was a little better probably than it had been in previous years.
Years, and I think quarter to date.
We're seeing that sort of same.
St patterns, we've seen in previous years, and you're really starting to see back to school kick in now.
And so I think that that's sort of the story for the rest of Q3 as for the budget shopper.
Continue to see that that is a customer that is.
That is more challenged right I mean I think.
It's definitely a customer who is who is feeling the pinch across their discretionary purchasing power. So well I think the numbers on a have stabilized I would not say that that customer is in better shape than they were 90 days ago.
So I think as we continue to evolve the supply mix.
To continue to evolve our customer acquisition strategy and how we retain those customers over time, Sean talk about the the walk on fourth quarter, Yeah, and I think if you think of it. This way, it's probably simple as revenues are up Europe expands at the same point that drives gross margin rate down a little bit in Q4, and then it's offset really by leveraging opex.
Across the board SG&A or PNT and marketing I think historically you guys have known for quite a while from a U S perspective.
Marketing is slightly less in Q4 than any other quarter. So it helps us drive towards breakeven when we get to Q4 and I would say one thing on which I think should make people feel pretty good as fourth quarter tends to be the softest quarter for us in the year and so I think the fact that that can be a quarter, where we're achieving breakeven in what is traditionally not R. R.
Best quarter, I think is really important because I think then as you roll the calendar forward to 2024 and you get into Q1, Q2, Q3, which tend to be at least historically stronger quarters I think that gives us a lot of confidence in the momentum that's building in the business.
Alright, that's great. Thanks, so much.
Your next question comes from the line of Edward <unk> from Piper Sandler Your line is now open.
Hey, good afternoon, thanks for taking the questions I guess two for me first.
No you've implemented this new theme, but are there other enhancements that you can do.
Supply side of economics, given the backlog that can kind of put you back on the continuing down the path of.
The EBITDA profitability and then as a second question I noticed that Anthony the part of the business I guess what have you.
It moves around.
Thank you.
Sure Ed I mean, I think yes, we continue to look at other ways too.
Balance monetization of the seller.
The seller community, but making sure we have deliver them a great experience I think one of the things that we've become very confident in is that the fees help us really deliver a high quality seller experience.
By enabling really the best sellers in the marketplace to have their bags processed in a timely way as we pointed out in the call processing times have continued to come down and I think for VR VIP sellers, who are who are people who are really passionate about the threat up selling experience theyre getting processing times and days.
It's under one week and so we feel very good about that mix of sellers and we will continue to try and manage optimizing both their experience and the ways that they generate revenue for the business.
I think on <unk>.
If any.
And then he has been at right up for Anthony Marino is been up at threat up for 10 years. He was an integral and vital part of everything that we did.
And.
He was great and I think now he has just decided to pursue another passion in his life and we have an incredibly talented bench of folks and feel very good about picking up that mantle and.
In doing I'm proud.
Thanks very much.
Your next question comes from the line of Dana Telsey from Telsey Advisory Group. Your line is now open.
Hi, good afternoon, everyone and nice to see the progress as you think about the number of active customers I think it was down just under 1%. How are you thinking of the active customer cohorts. What are you seeing how does how is it different at all and then James you have given out some product trends in terms of what youre seeing given the.
Or environment overall anything you'd note there and then just lastly on the <unk> on the gross margin and <unk>.
To unpack ticks and ties of how you're thinking about the components of the gross margin go forward. Thank you.
Sure Dana I mean on the active buyer side.
Think probably more than more than anytime recently, we're really focusing on the quality of the customer and how she is.
Engaging and shopping the mix of goods that we have on dried up so as we've talked about over the last couple of calls with the efforts around sculpting and the mix and sellers work, we're generating like incrementally better product on the site and so I think as part of that you're really focused on that incrementally more premium buyer and again.
I want to emphasize it's not a luxury buyer by any means but but incrementally more premium.
And Q2, we posted like record us gross margin, that's really due to the transition.
Is this more to consignment as well, it's kind of improving across the board Union Economics, and then as we go forward from here, we still have some more room to go there on the consignment switch or transition on the rash business. So there's more to go there and then Europe has just started the confinements bitch, so that transition it's gonna take some time, but it will start to become a tailwind keep in mind is a little bit of a headwind on revenue growth as well.
<unk>, but so did you go forward from here I'll, probably all the way through next year, you'll start to see some nice tailwinds on the gross margin side.
Thank you.
Your next question comes from the line of Alexandra Stagger from Goldman Sachs. Your latest now open.
Hi, This is peer on for Alexandra. Thank you so much for taking our questions. So just one from us on fulfillment and contribution margins you've previously talked about how your more recent distribution centers can carry higher contribution margins relative to older generations. So just wondering how we should think about the Brian messaging around that big a potential.
Aylwin from margins.
For the U S business kind of boating current results in over the next several quarters as you see kind of utilization improve and that's one of those volumes also come an entire unit margins. Thank you.
Yes, Hi, Pierre.
Yeah, I mean, I think you hit the nail on the head, which is we are continuing to.
Focus on our most productive distribution centers that would be D. C. Six in Atlanta.
<unk> seven coming on line or that online in Dallas, and so as we flow more product through those too.
Important hub, you will see some floats around the contribution basis, both on the shipping and outbound logistics side as well as.
Labor and fulfillment. So we do think those are tailwinds over time, and and I think even so if you roll forward into twenty-five and into 26th as those become even bigger parts of the network. You can see continued flow through so I'm feeling very good about contribution margin expansion and ultimately how that flows through to free cashflow, yes.
I'll start to see some different pieces of automation innovation through both of those D. C. So as you.
Look into 2425 to give you a chance to visit you can come see those in person.
That's great. Thank you.
As a reminder, if you have a question. Please press star followed by the number one in your telephone keypad your.
Your next question comes from the line of Noah Bad skin from Keybanc. Your line is now open.
Hi, I think this is Ashley on for now I'm, just wondering to dial in a little bit on the backlog. Another time and continues to take down just curious on any updated talks on 10 line it'll take to get to that two to three week target and then I'm <unk> I'm just hoping you can provide for my color around.
The line of sight for additional clients from the back half and then just after how you're thinking about 2024 and the impact on the piano.
Transition a lot of these clients tech appointment.
Yeah, Hi, I don't know if it is actually.
Actually that that right.
Yeah, [laughter], Okay, [laughter], yeah, I think on the backlog, we continue to make progress I think where we where we have ended up is that those customers who want Superfast service are paying for VIP services, and we're getting it to them under a week and those customers who want regular service I think are getting that in that six week range. So I think we will make.
A little bit more progress towards that but but I think we've identified there are really two segment population those who want it.
Normal speed and those who want a VIP and I think the current backlog estimates I think hit that did very well on the rash side.
We ended the year last year with 40th clients and I think we continued to grow from there and I think right now we're focused on adding new clients and also really growing engagement of clients and how they are working with their customers and I think wrath will continue to see momentum into 2024, and as I mentioned I think.
As an inventory environment for broader retail gets better.
Rats will actually have an opportunity to work a little bit harder.
Four so feel good about that.
Okay. Thank you.
Your next question comes from the line of Freak Bodell from Raymond James Your line is now open.
Hey, guys. Congrats on the progress can you talk about what you're seeing with remix early on is that moves to a consignment model or you're getting the kind of products.
You know you would deem to be attractive from a merchandising perspective like you are in the U S or does it take time and then secondly.
How should we think about you implementing.
U S practices over at remix you know things such as charging fees for the cleanup kids and the opportunity there.
Yeah sure Rick right I mean, I think on the remix consignment.
We've been pleasantly surprised with how well the team has been able to Ah to execute on that and then the customer adoption I mean, there's clearly product market fit for that cleanup hit right in the lives of consumers and so I think the fact that there is a willingness to pay in the U S for that experience only solidifies.
Five.
How strongly thing product market fit is and so far we have not seen that the European seller is is is different and that way of looking for convenience and I think consignment has become an increasingly you know acceptable part of the way that that selling happens online and so I think the team is rolled it out well and we feel good about the <unk>.
The option I think.
Your question about best practices, I think one of our core theses and buying buying a business with that we have learned so much over the past 10 years that we could bring over to remix and I think the team there has been incredible.
Where.
The learning and the ability to adopt what we've done in the U S. And then adapt that to how to roll it out in Europe . So yeah, we feel we feel great about how that businesses is executing and performing and the team there and.
I think that environment in Eastern Europe is then really challenging over the past year and despite all that the team has has done great. So we feel we felt really confident that we roll roll the calendar into 24 as well.
And any additional color on the drivers for the quarter over quarter acceleration inactive customers. Just curious if that represents a higher income consumers or a different cohort then you've seen in the past.
It's a little bit incrementally higher income, but I think also just as we we have the right product mix online Rick you just seeing you know customers.
Conversion improve right the seasonality mix has hit the bid and so you know I think there is going to continue to be some puts and takes as we as we get the right mix of goods and we really find the right buyer, but but feeling very good about that sequential improvement and and ultimately how we drive that into 2004.
Thank you.
There are no further questions at this time I will now have to call back to James Please continue.
Well, thanks, everyone for joining us on the earnings call I appreciate all the good questions and for those of you who dialed in big shot onto the throat up team for continuing to execute at such a high level I. Appreciate all the work that you guys have been doing and will continue to do and we're we're optimistic and excited for the Airheads, though thanks everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Everyone else has left the call.
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