Q3 2023 ThredUp Inc Earnings Call

Speaker 1: Good afternoon ladies and gentlemen and welcome to the ThreadApp Q3 2023 results conference call. At this time, online is in a lesson only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Monday, November 6, 2023.

Good afternoon, ladies and gentlemen, and welcome to the threat of Q3, you did touch on switches. We 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 you require assistance. Please press star zero for the operator. This call is being recorded on Monday November six 2023.

Speaker 1: I would now like to turn the conference over to Lauren Fresh, Senior Director, Investor Relations and Strategic Finance. Please go ahead.

I'd now like to turn the conference over to Lauren <unk> Senior director of Investor Relations and strategic Finance. Please go ahead.

Speaker 2: Good afternoon, everyone, and thank you for joining us on today's conference call to discuss thredUP's third quarter 2023 financial results. With me are James Reinhart, thredUP CEO and co-founder, and Sean Stobart, CFO . We posted our press release and supplemental financial information on our investor relations website at IR.thredUP.com. This call is being webcast on our IR website, and a replay of this call will be available on the site shortly.

Good afternoon, everyone and thank you for joining us on today's conference call to discuss <unk> third quarter 2023 financial results with me are James Reinhart try to CE.

Oh, and cofounder and Sean Sobers CFO.

We posted our press release and supplemental financial information on our Investor Relations website at IR Dot Dot Dot com.

This call is being webcast on our IR website and a replay of this call will be available on the site shortly.

Speaker 2: 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 fourth fiscal quarter and full year of 2023.

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 fourth fiscal quarter and full year of 2023 future financial performance, including our goal of reaching adjusted EBITDA breakeven market demand growth prospects is the strat.

Speaker 2: future financial performance, including our goal of reaching adjusted EBITDA breakeven, market demand, growth prospects, business strategies, and plans, our ability to attract new buyers, and the effects of inflation, increased interest rates, changing consumer habits, climate change, and general global economic uncertainty.

<unk> and plans our ability to attract new buyers and the effects of inflation increased interest rates changing consumer habits climate change in general global economic uncertainty.

Speaker 2: These forward-looking statements are not guarantees of future performance, involve known and unknown risks and uncertainties, and our actual results could differ materially from any projections of future performance or results expressed or implied by such forward-looking statements.

These forward looking statements are not guarantees of future performance involve known and unknown risks and uncertainties and our actual results could differ materially from any projections of future performance or results expressed or implied by such forward looking statements.

Speaker 2: Words such as anticipate, believe, estimate, and expect, as well as similar expressions are intended to identify forward-looking states.

Words, such as anticipate believe estimate expect as well as similar expressions are intended to identify forward looking statements.

Speaker 2: You can find more information about these risks, uncertainties, and other factors that could affect our operating results and our FCC filings, earnings, press release, and supplemental information posted on our IR website.

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.

Speaker 2: Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events.

Any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.

Speaker 2: 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.

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.

Speaker 2: You can find additional disclosures through already these non- GAAP measures , including reconciliation with comparable GAAP measures in our earnings press release and supplemental information posts that are our website. Now, I'd like to turn the call over to James Reinhardt.

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 website now I'd like to turn the call over to James Reinhart.

Speaker 3: Good afternoon, everyone. I'm James Reinhart, CEO and co-founder of ThredUP. Thank you for joining ThredUP's third quarter 2023 earnings call.

Good afternoon, everyone I'm, James Reinhart, CEO and co founder of threat up. Thank you for joining <unk> third quarter 2023 earnings call.

Speaker 3: We are excited to share Threat Up Financial Results and key business highlights from our third quarter. In addition to our financial results, we will provide an update on key company-specific initiatives contributing to our growth, ongoing expansion of a gesti-dibidda, and some early thoughts on 2024. I will then hand it over to Sean Silvers, our chief financial officer, to talk to our third quarter 2023 financials in more detail and provide our outlook for the fourth quarter in fiscal year 2023. We'll close out today's call with a question and an-

We are excited to share threat to the financial results and key business highlights from our third quarter. In addition to our financial results. We will provide an update on key company specific initiatives contributing to our growth.

Expansion of adjusted EBITDA and some early thoughts on 2024, I will then hand, it over to Sean Sobers Chief Financial Officer.

Talk through our third quarter 2023 financials in more detail and provide our outlook for the fourth quarter and fiscal year 2023.

Close out today's call with a question and answer session.

Let me start with our Q3 results, we achieved another quarter of strong financial performance. Despite a highly dynamic environment, we delivered accelerating revenue growth outperformed on gross margin and in fact at our active buyer account for the first time this year to achieve a record number of active buyers are revenue of 82 million is an increase of 21%.

Speaker 3: Let me start with our two, three results. We achieved another quarter of strong financial performance to spend a highly dynamic environment. We delivered accelerating revenue growth outperformed on gross margin and infected our active buyer account for the first time this year to achieve a record number of active buyers. Our revenue of 82 million is an increase of 21% year-over-year. Our consolidated gross margin exceeded expectations at 69%. Driven by another record gross margin in our US business of 78 and a half.

Year over year consolidated gross margin exceeded expectations at 69% driven by another record gross margin in our U S business of 78, 5%.

Speaker 3: We are especially proud that our Rekordactive buyer account returned to growth in such a competitive retail environment, reaching 1.8 million, up 4% compared to the same core row asset.

We're especially proud that our record active buyer account returned to growth in such a competitive retail environment, reaching $1 8 million up 4% compared to the same quarter last year.

Speaker 3: We continue to be pleased with our improvements to adjusted evadot as we posted a loss of just 3.6 million and 1180 basis point improvement year-to-year and a sequential improvement of 170 basis points from the prior quarter.

We continue to be pleased with our improvements to adjusted EBITDA as we posted a loss of just $3 6 million and 1100 80 basis point improvement year over year, and a sequential improvement of 170 basis points from the prior quarter of <unk>.

Speaker 3: Of note, we increased expenses across operations, products, and technology just 4% while driving 21% revenue growth and 27% gross profit growth. We believe this best illustrates the ability for our marketplace to achieve increasing efficiency at scale.

We increased expenses across operations product and technology, just 4%, while driving 21% revenue growth and 27% gross profit growth. We believe this best illustrates the ability for our marketplace to achieve increasing efficiency at scale.

Speaker 3: Finally, on top of record gross margins, I want to share that our US business reached a just the diva.break even and generated free cash flow in Q3 for the first time in our company's history. But we still have some work to do in Europe . We are increasingly confident that executing on our US playbook in Europe will yield similar success.

Finally on top of record gross margins I want to share their U S business reached adjusted EBITDA breakeven and generating free cash flow in Q3 for the first time in our company's history.

While we still have some work to do in Europe, we are increasingly confident that executing on our U S. Playbook in Europe will yield similar success.

Speaker 3: I'd now like to provide an update on our progress towards EBITDA Break-Even on a consolidated basis and some initial thoughts on 2024. With just one quarter left in our fiscal year, we have clear sight to achieving our goal of reaching quarterly EBITDA Break-Even, but not on our original Q4 time.

I'd now like to provide an update on our progress towards EBITDA breakeven on a consolidated basis and some initial thoughts on 2024 with just one quarter left in our fiscal year, we have clear sight to achieving our goal of reaching quarterly EBITDA breakeven, but not in our original Q4 timeline. There are a few primary reasons for this first there are accelerating headwinds in Europe since our Europe.

Speaker 3: There are a few primary reasons for this. First, there are accelerating headwinds in Europe . Since our European business is not a consignment-based business yet, there are fewer levers to manage growth.

<unk> business is not a consignment base business yet there are fewer levers to manage gross margins. We expect this to change over time as we transition to consignment, but in the meantime, it is presenting a headwind to our consolidated margins.

Speaker 3: We expect this to change over time as we transition to confinement, but in the meantime, it is presenting headland to our consolidated.

Speaker 3: Second, is an uncertain macro environment that's continuing to pressure discretionary spending in both the US and Europe , resulting in a weaker consumer landscape than meet anticipated. And third, given that challenging backdrop, in order to maintain momentum in our buyer growth into 2024, we've chosen to be incrementally more promotional to set us up for success next year. With active buyer growth returning, we made the decision to fuel our momentum rather than extinguish it in pursuit of short-term goal.

Second is an uncertain macro environment, that's continuing to pressure discretionary spending in both the U S and Europe, resulting in a weaker consumer landscape than we had anticipated.

And third given that challenging backdrop in order to maintain momentum in our buyer growth into 2024, we've chosen to be incrementally more promotional to set us up for success next year with active buyer growth. Returning we made the decision to fuel our momentum rather than extinguish it in pursuit of short term goals.

Speaker 3: We remain committed to building a business for the long term and will not optimize for short term optics when faced with difficulty.

We remain committed to building a business for the long term and will not optimized for short term optics when faced with difficult decisions.

Speaker 3: It is these types of decisions that enable us to be extremely proud of the continued progress we're making towards our growth and profitability goals in the face of ongoing consumer uncertainty and a competitive promotional environment. We expect the U.S. business to again be EBITDA positive in Q4, despite Q4 historically being our slowest quarter in the U.S. At the midpoint of our annual guidance for 2023, we expect to grow revenue 11% and expand EBITDA by nearly 1,000 basis points.

It is these types of decisions that enable us to be extremely proud of the continued progress, we're making towards our growth and profitability goals in the face of ongoing consumer uncertainty and a competitive promotional environment. We expect the U S business to again be EBITDA positive in Q4, despite Q4, historically being our slowest quarter in the U S.

At the midpoint of our annual guidance for 2023, we expect to grow revenue, 11% and expand EBITDA by nearly 1000 basis points.

Speaker 3: Quarter after quarter, we've demonstrated that we are one of the best performing companies in 2023 on a revenue growth and margin expansion basis. And we remain confident that we'll be breaking even for the total company on an annual basis in 2024. We still view break even as a waypoint to our future and we'll continue to make decisions based on what's best for building a sustainable and generation defining company that enjoys along beyond arriving at this mouth.

Quarter after quarter, we've demonstrated that we are one of the best performing companies in 2023 on our revenue growth and margin expansion basis, and we remain confident that we'll be breaking even for the total company on an annual basis in 2024.

We still view breakeven as a waypoint to our future and we'll continue to make decisions based on what's best for building, a sustainable and generation defining company. It endures along beyond the rising at the smartphone.

Speaker 3: Though retail has been grappling with an extended consumer malaise, this challenging backdrop has only strengthened the underlying engine of our business. Threat is executing at a high level, and returning to active buyer growth while expanding margins is key proof of this. As we look into 2024, we plan to pursue the clear opportunity to accelerate our current momentum in both the U.S. and Europe , while achieving break-even on a full-year basis.

The retail has been grappling with an extended consumer malaise. This challenging backdrop has only strengthened the underlying engine of our business thrive is.

Is executing at a high level and returning to active buyer growth while expanding margins is key proof of this as we look into 2024, we plan to pursue the clear opportunity to accelerate our current momentum in both the U S and Europe.

It's eating breakeven on a full year basis.

Speaker 3: While the consumer landscape continues to be choppy and retail remains highly competitive, we believe resale benefits as consumers continue to prioritize value and seek deals. And we're confident in the teams ability to manage the business in this environment. As we head into the final quarter of the year, we will maintain our focus and steady approach in controlling the controls. How we spend our time, 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.

Well the consumer landscape continues to be choppy and retail remains highly competitive we believe retail benefits as consumers continue to prioritize value and seek deals and we're confident in the team's ability to manage the business in this environment as we head into the final quarter of the year, we will maintain our focus and steady approach and controlling the controllable how we spend our time the quality of it.

The decisions, we make during times of uncertainty the urgency we have to invent on behalf of our customers and their willingness to keep learning what's different this time around.

Speaker 3: I'm grateful to the exceptional team at Threadout Poo Show's commitment and grit every day in the service of delivering on our goals.

I'm grateful to the exceptional team of threat I appreciate his commitment and great everyday and service and delivering on our goals.

Speaker 3: I'd now like to provide an update on some of the key company initiatives that are enabling us to drive revenue growth, active buyer growth, and margin.

I'd now like to provide an update on some of the key company initiatives that are enabling us to drive revenue growth active buyer growth and margin expansion.

Speaker 3: First, we're continuing to make progress towards our vision to create a marketplace experience that achieves the highest levels of customer satisfaction.

We're continuing to make progress towards our vision to create a marketplace experience that achieves the highest levels of customer satisfaction over the last few quarters I've shared initial tactics related to our thrift promise, which aims to do right by the customer with every order.

Speaker 3: Over the last few quarters, I've shared initial tactics related to our thrift promise, which aims to do right by the customer with every order. And in Q3, we debuted our delivery promise with the goal of delivering purchase to doorstep shipping in three days or less. Our dedication to delivering a delightful post-order experience is not only improving retention, but also improving the margin profile of our business. Our return rate in Q3 decreased by more than 700 basis.

And in Q3, we debuted our delivery promise with the goal of delivering purchase to doorsteps shipping in three days or less.

Dedication to delivering a delightful post order experience is not only improving retention, but also improving the margin profile of our business. Our return rate in Q3 decreased by more than 700 basis points compared to the same quarter last year and since we first launched this promise we generated millions of dollars in logistics savings.

Speaker 3: Compared to the same quarter last year, and since we first launched promise, we've generated millions of dollars and we just.

Speaker 3: Second, we're deepening our commitment to our community of sellers with a renewed focus on providing the easiest and most convenient way for people to resell a parallel online. We have a diverse seller base, but whether you're an everyday seller who wants to just get it out of the house, a VIP seller seeking expedited processing times, or a resell of the service client customer interested in getting credit to your favorite brands, we're expanding our offering to cement thread up as the go-to destination for all types of sellers.

Second we're deepening our commitment to our community of sellers with a renewed focus on providing the easiest and most convenient way for people to resell apparel online we have a diverse seller base, but whether youre, an everyday seller, who wants to just get it out of the house.

Sellers seeking expedited processing times or resale of the service client customer interested in getting credit to your favorite brands, we're expanding our offering to cement dried up as the go to destination for all types of sellers.

Speaker 3: Third, as we continue to apply learning from our US business to our European business, we're driving more active buyers in Europe . Of note, we rolled out key for credit to our primary European markets after seeing success in the US, and we're made meaningful progress with the shift in confinement.

Third as we continue to apply learnings from our U S business to our European business, we're driving more active buyers in Europe of note, we've rolled out keep for credit to our primary European markets. After seeing success in the U S.

Meaningful progress with the shift to consignment sales.

Speaker 3: short term, the transition to confinement will present a real headwind to revenue due to the accounting treatment, which Shambh will discuss more in a minute. Long term, confinement will significantly improve gross margins, expand the selection of high quality supply, and ultimately yield ongoing net revenue growth.

Short term the transition that consignment will present, a real headwind to revenue due to the accounting treatment, which Sean will discuss more in a minute long term confinement will significantly improve gross margins expand the selection of high quality supply and ultimately yield ongoing net revenue growth.

Speaker 3: Fourth, a resell of the service business or RAS has added several new brands to its client roster, including Beyond Yoga, part of the Levi Strauss company, SmartWall, part of the S Corporation and Journeys. As a reminder, RAS enables brands and retailers to deliver customizable and scalable resell experiences to their customers.

Fourth.

Our retail as a service business, where Ross has added several new brands to its client roster, including beyond yoga pardon. The Levi Strauss company Smartwater part of VF Corporation and journeys as a reminder, Ras enables brands and retailers to deliver customizable and scalable retail experiences to their customers.

Speaker 3: By leveraging ThredUP's marketplace infrastructure, RAS amplifies our supply advantage, increases our sell-through and return on assets, and expands our long-term profitability metrics by adding sources of recurring high margin revenue.

Leveraging threat ups marketplace infrastructure, Ras amplifies, our supply advantage increases our sell through and return on assets.

And expands our long term profitability metrics by adding sources of recurring high margin revenue.

Speaker 3: Finally, we're continuing to deploy artificial intelligence across our distribution center network and our problem.

Finally, we're continuing to deploy artificial intelligence across our distribution center network and our product experience, taking new applications, but lower processing costs and lead to greater economic value to give an example, where do you think AI to build a robust product catalog with millions of unique items and to surface and more personalized selection from that inventory all allowing cut.

Speaker 3: seeking new applications that lower processing costs and lead to greater economic value. To give an example, we're using AI to build a robust product catalog with millions of unique items and to surface a more personalized selection from that inventory, all allowing customers to seamlessly shift through our vast assortment to find items they love fast.

<unk> to seamlessly shift through our vast assortment to find items they love faster.

By evolving and executing against these initiatives, we believe we will create enterprise value over time.

Speaker 3: By evolving and executing against these initiatives, we believe we will create enterprise value over time.

Speaker 3: Turning to impact in our pursuit of enterprise value creation and profitability, we're also proud of the social impact our business has on our people, our communities and the planet. In Q3, ThredUp was named to Time's 100 most influential companies of 2023 and Digiday recognized us for exemplary workplace and company culture in its Work Like 50 award.

Turning to impact in our pursuit of enterprise value creation profitability. We're also proud of the social impact our business has on our people our communities and the planet in Q3 threat up was named to times 100, most influential companies of 2023 and did you de recognized us for exemplary workplace and company culture, and it's work like 50 Awards.

Speaker 3: As a team, we aim to balance purpose and profit and believe holding these with equal importance is critical in furthering our mission to inspire a new generation of consumers to think second-hand first.

As a team we aimed to balance purpose and profit and believe holding needs with equal importance is critical and furthering our mission to inspire a new generation of consumers to think secondhand first.

Speaker 3: Before I turn it over to Sean, I want to re-emphasize the strength of our Q3 performance and our commitment to balancing the demands of short-term scrutiny and long-term value creation. The macro environment remains uncertain, and the retail landscape is highly promotional. But we've never been afraid of a challenge and have always persevered when things get tough. We believe we're focused on the right strategic initiatives as we close out the year and expect positive momentum into 2024. I'm excited about how far we've come, but more importantly, I'm excited about where we're headed next.

Before I turn it over to Sean I want to reemphasize the strength of our Q3 performance and our commitment to balancing the demands of short term scrutiny and long term value creation, the macro environment remains uncertain and the retail landscape is highly promotional but we've never been afraid of a challenge and have always persevered when things get tough. We believe we're focused on the right strategic initiatives as we close out the year.

And we expect positive momentum into 2024.

We're excited about how far we've come but more importantly, I am excited about where we're headed next with that I will now turn it over to Sean to go through our financial results and guidance in more detail.

Speaker 3: With that, I will now turn it over to Sean to go through our financial results and guidance in more detail.

Thanks, James and then I'll begin with an overview of our results and follow up with guidance for the fourth quarter and the full year.

Speaker 4: Thanks, James and I'll begin with an overview of our results and follow up with guidance for the 4th quarter and the full year. I will discuss non gap results throughout my remarks. I got a GAAP financial s and a reconciliation between gap and non gap are found in our earnings release supplemental financials and our 10 to 5.

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 filing.

Speaker 4: We're very proud of our Q3 results, which we believe reflect our ability to execute in a challenging retail environment.

We're very proud of our Q3 results, which we believe reflect our ability to execute in a challenging retail environment.

Speaker 4: The third quarter of 2023 revenue totaled $82 million and increased to 21% year over year.

The third quarter of 2023 revenue totaled $82 million, an increase of 21% year over year.

Speaker 4: and send revenue to group 39% year-over-year all product revenue shrank by 8%. Bear please with the accelerating.

Consignment revenue grew 39% year over year, while product revenue shrank by 8%, we're pleased with the accelerating growth in consignment revenue as we can.

Speaker 4: continue to make progress in transitioning our RAS supply and our European business to a consignment model. So we are still early in our Europe transition. We are proud to report that as of this month all of our RAS partnerships are on a consignment basis.

You need to make progress in transitioning our <unk> supply and our European business to a consignment model.

So we are still early in our Europe transition.

Good to report that as of this month all of our routes partnerships or on a consignment basis.

Speaker 4: While the transition of these businesses to consignment should be a tailwind to growth margin over time, we expected a slightly new revenue growth simply due to the accounting.

While the transition of these businesses, taking climate should be a tailwind to gross margin over time, we expect it to slightly meet revenue growth simply due to the accounting treatment.

Speaker 4: As a reminder, consignment payouts reduce net revenue while own payouts are in fogs and reduce gross.

Minder consignment payouts reduced net revenue, while one payouts are in Cogs and reduced gross margin.

Speaker 4: We're happy to report that we achieved a record number of active buyers this quarter, reaching 1.8 million growing active buyers for the 1st time this year, or is increased 11% year over year to 1.

We're happy to report that we achieved a record number of active buyers this quarter, reaching $1 8 million growing active buyers for the first time this year orders increased 11% year over year to $1 8 million.

For the third quarter of 2023 gross margin was 69% a 350 basis point increase over the same quarter last year.

Speaker 4: For the third quarter of 2023, gross margin was 69 percent, a 350 basis point increase over the same quarter last year.

Speaker 4: Given the ongoing transition to consignment and the resulting shift in the accounting for revenue, we believe that gross profit dollars are the best indicator of our underlying growth and are pleased to report that our Q3 gross profit grew an impressive 27%.

Given the ongoing transition to consignment and the resulting shift in the accounting for revenue. We believe that gross profit dollars are the best indicator of our underlying growth and are pleased to report that our Q3 gross profit grew an impressive 27%.

Speaker 4: Our consolidated results exceeded our expectations driven by US, by record US gross margins of 78.5%.

Our consolidated results exceeded our expectations driven by U S by record U S. Gross margins of 78, 5%. This outperformance was the result of converting our res business to consignment sooner than expected.

Speaker 4: This outperformance was the result of converting our RAS business to consignment sooner than expected and continued improvements in how we optimize our marketplace, including pricing, promotions, returns, payouts, and fees.

Improvements in how we optimize our marketplace, including pricing promotions returns payouts and fees.

Speaker 4: So, the 3rd quarter of 2023 gap net loss was 18.1Million dollars compared to a gap net loss of 23.7Million dollars in the same quarter last.

For the third quarter of 2023, GAAP net loss was $18 1 million compared to a GAAP net loss of $23 $7 million in the same quarter last year.

Speaker 4: Adjusted EBITDA loss of $3.6 million or a negative 4.4% of revenue for the third quarter of 2023.

Adjusted EBITDA loss was $3 6 million or a negative four 4% of revenue for the third quarter of 2023.

Speaker 4: We reduced our e-data loss in Q3 by 2-3rds versus last year. Representing an approximate 1180 basic point improvement has a tightly managed expenses and leverage our investments on higher.

We reduced our EBITDA loss in Q3 by two thirds versus last year.

Presenting at approximate 11, 180 basis point improvement Hasnt tightly managed expenses and leveraged our investments are higher up to.

Speaker 4: To this point, we are proud to report that our hard work drove a 21% year over year revenue increase and a 27% gross profit increase on just a 4% increase in ops product and technology expenses, illustrating the powerful leverage.

To this point, we are proud to report that our hard work drove a 21% year over year revenue increase and a 27% gross profit increase on just a 4% increase in ops product and technology expenses illustrating the powerful leverage of our marketplace model.

Speaker 4: Turning to balance sheet, we began the third quarter with $82.6 million in cash and marketable securities and ended the quarter with $80.2 million.

Turning to the balance sheet, we began the third quarter with $82 6 million in cash and marketable securities and ended the quarter with $82 million.

Speaker 4: We're proud to report that we used just $2.5 million in cash in Q2.

We are proud to report that we use just $2 $5 million in cash in Q3.

Speaker 4: significantly reduced cash burn is due to reaching cashflow positive from operations, in addition to spending maintenance levels of capex of just 1.5.

Our significantly reduced cash burn is due to reaching cash flow positive from operations. In addition to spending biggest levels of Capex I'm, just $1 $5 million.

Speaker 4: As a reminder, in Q3 of last year, we used $25 million in cash, illustrating the enormous progress we've made over the last four quarters.

As a reminder, in Q3 of last year, we used $25 million in cash illustrating the enormous progress we've made over the last four quarters.

Speaker 4: We have made significant progress this year on our path to profitability, reducing our EBITDA loss in every quarter this year, allowing us to achieve EBITDA breakeven and free cash flow in the US in Q3.

We have made significant progress this year on our path to profitability, reducing our EBIT EBITDA loss in every quarter this year, allowing us to achieve EBITDA breakeven and free cash flow in the U S. In Q3, while.

Speaker 4: While we expect the U.S. business to continue to be even at breakeven in Q4, it will not be enough to overcome losses in Europe and reach consolidated breakeven on our targeted timeline. However, we expect to achieve breakeven on an annual basis in 2024.

While we expect the U S business to continue to be EBITDA breakeven in Q4, we will not be enough to overcome losses in Europe and reach consolidated breakeven on our targeted timeline. However, we expect to achieve breakeven on an annual basis in 2024.

Speaker 4: As we look to 2024, we believe there are 2 important factors to consider when contemplating revenue growth. 1st, our ongoing transition to consignment will drive gross profits and margin improvement, but mute revenue growth due to the accounting.

As we look to 2024, we believe there are two important factors to consider when contemplating revenue growth first our ongoing transition to consign that will drive gross profit and margin improvement, but mute revenue growth due to the accounting treatment.

Speaker 4: Second, as James mentioned earlier, we are operating in a highly competitive retail environment that continues to challenge threat of value proposition, which we would expect to continue continue through 2020.

As James mentioned earlier, we are operating in a highly competitive retail environment that continues to challenge threat up's value proposition, which we would expect to continue through 2024.

Speaker 4: Due to our reduced capex needs and our ability to manage our expense structure, we were able to significantly reduce our cash burning.

Due to our reduced capex needs and our ability to manage our expense structure, we were able to signet to significantly reduce our cash burn in Q3, we expect to continue that maintenance capex levels of approximately $2 million per quarter until 2026, which provides us with a high level of confidence that we can fund the business with our existing cash until we reach cash flow positive.

Speaker 4: We expect to continue at maintenance cap-ex levels approximately $2 million per quarter until 2026, which provides us with a high level of confidence that we can fund the business with our existing cash until we reach cash will pass.

Speaker 4: 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 or draw down our existing debt book.

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 for drawdown on existing debt before them.

Speaker 4: Turning to guidance, we are adjusting our Q4 outlook to account for mounting headwinds in Europe and a challenging consumer environment in the U.S.

Turning to guidance, we are adjusting our Q4 outlook to account for mountain headwinds in Europe, and a challenging consumer environment in the U S.

Speaker 4: For the 4th quarter, we now expect revenue in the range of 79Million to $81Million, which is a 12% growth rate at the midpoint. Gross margin in the range of 61 to 63% of revenue. Adjusted.

For the fourth quarter, we now expect revenue in the range of $79 million to $81 million, which is a 12% growth rate at the midpoint.

Gross margin in the range of 61% to 63% of revenue.

Adjusted EBITDA loss of 2% of revenue to breakeven.

Speaker 4: And a basic weighted average share is approximately 108 million.

And the basic weighted average shares of approximately $108 million.

Speaker 4: For the full year of 2023, we now expect revenue in the range of approximately 319.5 to 321.5Million dollars.

For the full year of 2023, we now expect revenue in the range of approximately $319 five to $321 5 million gross.

Speaker 4: gross margins in the range of approximately 66.2 to 66.7% of revenue.

<unk> in the range of approximately $66 two to 66, 7% of revenue.

Speaker 4: adjusted even to a loss of 5.3% to 4.7% of revenue, and basic weighted average shares outstanding of approximately 105 million shares.

Adjusted EBITDA loss of $5 three to four 7% of revenue and basic weighted average shares outstanding of approximately 105 million shares.

Speaker 4: In closing, we are extremely proud of the progress we've made towards our growth and profitability goal, even if not on the timeline we had originally planned.

In closing we are extremely proud of the progress we've made towards our growth and profitability goals.

Even if not on the timeline we had originally planned.

Speaker 4: Despite ongoing consumer uncertainty, we remain confident in the underlying threat of engine and look forward to delivering results that demonstrate our capacity to navigate this difficult environment and emerge stronger, more profitable business on the other.

Despite ongoing consumer uncertainty, we remain confident in the underlying credit engine and look forward to delivering results that demonstrate our capacity to navigate this difficult environment and emerge a stronger more profitable business on the other side.

James and I are now ready to take your questions. Operator, Please open the line.

Speaker 4: James and I are now ready to take your questions. Operator, please open the line.

Speaker 1: Thank you. Ladies and gentlemen, we will now begin the question and answer session.

Thank you ladies and gentlemen, we will now begin the question and answer session.

Should you have a question. Please press star followed by one on your telephone keypad.

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One moment. Please for your first question.

Yeah.

Thank you and your first question comes from the line of Bruce <unk> from Wells Fargo. Please go ahead.

Speaker 1: Thank you. And your first question comes from the line of E.K. Boruchel from Wells Fargo. Please go ahead.

Speaker 5: Hey, guys, just a couple of questions for me on the on the outlook for 24 understanding the headwinds to revenue. I guess.

Hey, guys.

A couple questions for me on the outlook for 2004.

Understanding the headwinds to revenue I guess.

Speaker 5: A couple of questions. Is the revenue guide that's more muted now for 4Q, is that a good baseline to kind of think about how we should think about fiscal 24? Maybe a follow up to that would be Sean, based on the headwinds that are in there, based on the consignment, you know, the mixed consignment, can you give us roughly what you're expecting the consignment mix to look like in 24? Yeah, those are my 2 questions.

<unk> question is the revenue guide, but it's more muted now for <unk> is that a good baseline to kind of think about how we should think about.

Fiscal 'twenty four.

Maybe a follow up to that would be strong based on the headwinds that are in there based on the confined the mixed the consignment can you give us roughly what you are expecting.

The consignment mix to look like in 'twenty four.

Yes, those are my two questions. Thank you.

Speaker 4: Yes, so I think the basis for the Q4 basis is fairly good. We're still migrating more revenue to the consignment model, because even though we've moved all of our partners from RAS over to consignment, we still have inventory we need to sell through. So that actual consignment percentage of revenue will continue to go up as we go through 24, in addition to we are actively migrating the business in Europe also to consignment.

Yes, so I think the basis for the Q4 basis is fairly good we're still migrating more revenue to the consignment model because even though we've moved all of our partners from raz over to consignment, we still have inventory, we need to sell through so that the actual consignment as a percentage of revenue will continue to go up as we go through 24 in.

Addition to we are actively migrating the business in Europe also to consignment.

So I would expect that that ratio between consignment and owned to continue to increase all the way through 'twenty four.

Speaker 4: So I would expect that that ratio between consignment and owned to continue to increase all the way through 24.

Speaker 5: I'm just curious. Yeah, I guess I'm just curious. Can you give a little bit more detail? I guess, like, 65% of 70, like, I'm not sure just understand the context of how much. Next benefit there is in pressure on revenue and then benefit on budget.

I'm just curious.

Yes, I am just curious can you give us a little bit more detail like is like 65% of our 70 like I'm not sure I just understand the context of how much mix benefit there is pressure on revenue and then set up on our margin.

Speaker 4: Yeah, so I mean the US business kind of collectively is about 80% of the business. And by the time we exit 24, it'll be almost entirely assignment at that point.

Yes, so I mean, the U S business kind of collectively is about 80% of the business and by the time, we exit 'twenty four it will be.

Almost entirely.

Consignment at that point in time.

Speaker 6: and Europe will just basically start transitioning now. And I think by the time we end, 24 you can think of it's gonna be something like around 80 in total, as a percentage of the assignment.

And Europe will just basically start transitioning now and I think by the time. We end 24, you can think of it is going to be something like around 80 in total.

As a percentage of assignment.

Okay. Thank you.

Question on the Rep on the revenue piece I mean, I think yes, I think Q4 is a baseline as we as we think about going into 2024, I mean, we still feel very good about the momentum in the 'twenty four it's just as you got into a little bit of back to school holiday season.

Speaker 3: On the revenue piece, I think Q4 is the baseline as we think about going into 2024. I mean, we still feel very good about the momentum into 2024. It's just as you got into a little bit of back-to-school holiday season, especially in Europe , it was just a little bit softer than we had anticipated.

In Europe. It was just a little bit softer than we had anticipated and so.

Speaker 3: you know, rather than try and lean into those numbers, we thought, you know, let's make the smart decisions and set ourselves up for 24 in a smart way. So that reflects in the eyes.

Rather than try and lean into those numbers, we thought let's make the smart decisions and set us set ourselves up for 24 in a smart way.

That reflects I think I got it.

Okay.

Yes.

Thank you and your next question comes from the line of Dylan Carden from William Blair. Please go ahead.

Speaker 1: Thank you. And your next question comes from the line of Dylan Carden from William Blair. Please go ahead.

Speaker 7: Thank you. A couple ones, I guess. Just curious, the

Thank you.

Couple of ones I guess just curious.

The gross margin that you achieved in the third quarter and the sort of the step down in the fourth quarter looks to be a little bit bigger than the seasonality that we might otherwise expect anything to call out there.

Speaker 7: The gross margin that you achieved in the third quarter and the sort of the step down in the fourth quarter looks to be a little bit bigger than the seasonality that we might otherwise expect anything to call out there.

Speaker 7: It's just that just reversal of some of that what you just were speaking to as a consignment versus product revenue.

Particularly as you or I mean is that just a reversal of some of the what you just were speaking to a consignment versus product revenue.

Yes, definitely some of it is the consignment piece.

Speaker 3: Yeah, I definitely, some of it is the confinement piece in the mix in Europe , right? Because Europe is, Q4 tends to be their biggest quarter and so you have a little bit of that.

And then mixing in Europe, right, because Europe is Q4 tends to be their biggest quarter and say you have a little bit of that.

Speaker 3: revenue at lower first margin sort of coming in. And then the other pieces we've just as we've said, I mean, it's a promotional environment out there and we've made the conscious decision to be incrementally.

Revenue that lowered gross margin sort of coming in and then the other piece is we've just as we've said I mean, it's a promotional environment out there and we've made the conscious decision to be incrementally I think more promotional to continue to grow active buyers and maintained by our engagement because we ultimately think that's the right strategy as you get into 'twenty four and so on the margin I think we are.

Speaker 3: I think more promotional to continue to grow active buyers and maintain buyer engagement, because we ultimately think that's the right strategy as you get into 24. So on the margin, I think we're being, a little bit more discounting than we were in Q3.

Being.

A little bit more discounting.

When we were in Q3.

Speaker 3: But again, we think that's the right approach in this environment. And I think that'll play out.

But again, we think that's the right approach in this environment.

And.

I think that will play out well for us in 'twenty four.

Speaker 7: Great. For next year, I know it's early, but this sort of thinking through seasonality, there's a lot of moving pieces as relates to consignment versus product. I'd just say anything to call out as far as revenue trends, margin of collection.

Great.

Last year I know, it's early but just sort of thinking to seasonality. There is a lot of moving pieces as it relates to <unk>.

Consignment versus product.

Just anything to call out as far as revenue trends.

Margin inflection.

Sort of a back half acceleration.

Yeah, I mean, I think at least John It's John I would say at least as you go through gross margin throughout the year with ticket assignment shifts you should start to see kind of improving gross margins on a quarterly basis certainly year over year. So those should improve I think thats and the seasonality is going to be fairly similar other than we are creating a little bit of a muted headwind.

Speaker 6: I mean, I think at least, Dylan is shot. I would say at least as you go through gross margin throughout the year with the consignment shift, you should start to see kind of improving gross margin on an orderly basis, certainly year over year, so those should improve. I think that, and the seasonality is gonna be fairly similar other than we're creating a little bit of a muted Edwin on the revenue side as we move to the consignment model, both in kind of the rest of the US related to RADs, and as Europe really picks it up and starts to transition to consignment. Yep. Yep.

On the revenue side as we move through the consignment model both in kind of the rest of the U S related to rise and as Europe really picks it up and starts to transition to consignment.

Got it.

Speaker 7: And then as far as kind of the...

<unk>.

And then as far as kind of.

<unk>.

<unk>.

Speaker 7: pass utilization of your distribution capacity, where are you there and how is that maybe showing up in the model?

Asset utilization I think in your distribution capacity, where are you there and how is that maybe showing up in the model.

Speaker 3: I mean, no real change from the last call. I mean, we continue to have strong ability to kind of expand into GTSM and in Dallas. But I think as the business has continued to turn a product even faster, I think our capex needs are pushed out even further. So I think we're in great shape dealing on a utilization basis and plenty of room for growth in those facilities.

I mean, no real change from the last the last call I mean, we continue to have.

Strong ability to kind of expand into DCF.

<unk> been in Dallas.

But I think as the business has continued to turn product even faster I mean, I think our capex needs are pushed out even further so I think we're in great shape dealing on a utilization basis and plenty of room for growth in those facilities.

Speaker 6: Yeah, we're very confident we don't need that capex until 2026 for the earliest

So we're very confident we don't need that capex until 2026 at the earliest.

Speaker 7: And I guess that's, I meant more from my margin perspective, have you sort of grown into that more so incrementally from this third quarter or second quarter rather and sort of how is that showing up in March?

And I guess I meant more from a margin perspective have you sort of grown into that more so incrementally from the sort of third quarter or second quarter, rather than sort of how is that showing up in Martin.

Speaker 3: Yeah, there's a little bit of that as we move some of the logistic network around. So we're now consolidating orders more efficiently than we were before. So yeah, Dylan, definitely some of that is starting to come through in Q3. But you should see some of those tailwinds continue into 2024. And I think the US gross margin should continue to expand incrementally as we move through 24. Which we are does this go off yellow polar.

Yes, theres, a little bit of that as we move some of the well.

Logistic network around.

So we're now.

Consolidating orders more efficiently than we were before so so yes definitely some of that is starting to come through in Q3.

But you should see some of those tailwind.

Continue into 2024, and I think the U S.

Gross margin should continue to expand incrementally as you move through 'twenty four.

Great. Thanks, guys.

Yes.

Yeah.

Speaker 1: Thank you and your next question comes when the line of Edward Yiruma from Piper Sandler. Please go ahead.

Thank you and your next question comes from the line of Edward <unk> from Piper Sandler. Please go ahead.

Speaker 8: Hey guys, good afternoon. Thanks for taking the questions. I guess first, on the promotional environment, given the rough outline you gave for 24 guidance, should we assume that the promotional environment persists or is that embedded within that 24-hand-a-thought process? And then as a follow-up, there have been some, I guess, newly public peers that are starting to expand in retail. Are you seeing any incremental, competitive pressures when some of these physical doors open locations? Thank you.

Hey, guys. Good afternoon, thanks for taking the questions I guess first.

On the promotional environment, given the rough kind of outline you gave for 24 guidance should we assume that the promotional environment persist or is that embedded within that 24 kind of thought process and then as a follow up there have been some I guess newly public peers that are starting to expand.

In retail are you seeing any kind of incremental competitive pressures when some of these physical doors opened locations. Thank you.

Hey, Ed, Yes, I mean, we're not seeing anything like that.

Speaker 3: Hey, yeah, I mean, we're not seeing any like in as far as we can see in our data and incremental pressure from from other resailed players. I mean really what we're seeing is as it sort of got through the back to school season and into this early holiday season We're October with very promotional. We really had two paths and like one path was to you know be less promotional and and sort of drive margin expansion But we thought really active buyers is the name of the game and so it was a better strategy to provide a little bit more discounts a little bit more on the promotional sides to both drive active buyers growth and you know continued engagement so that has really been

As far as we can see in our data any incremental pressure from.

From other retail players I mean really what we're seeing is is it sort of got through the back to school season and into this early holiday season, where October was very promotional we really had two paths one path was to be less promotional and sort of drive margin expansion, but we thought really active buyers is the name of the game and so it was a better.

Strategy to you to provide a little bit more discounts a little bit more on the promotional side to both drive active buyer growth and continued engagement. So that has really been.

Speaker 3: the plan and we expect the environment to continue to be promotional in 2024 and I think our numbers reflect that but there's nothing right now that we're seeing that makes us

The plan and.

We expect the environment to continue to be.

Promotional in 2024, and I think our numbers reflect that but there's nothing right now that we're seeing that makes us.

Speaker 3: have any fear that 2020 is going to get worse. It's just about being smart with customer engagement.

Have any fear that 'twenty 'twenty four is going to get worse.

It's just about being smart with customer engagement and.

Speaker 3: You can think about what we did in Q3. We were promotional in Q3 in the US and the business was EBITDA break even and free cash flow positive. So like that strategy is a winning one. What really we're focused on is the consignment transition in Europe because that's really the headwind for us in Q4 and I think that'll be the work to be done in 24 is how do we transition that business as efficiently as possible.

The thing about what we did in Q3, we were promotional in Q3.

In the U S and the business was EBITDA breakeven and free cash flow positive. So like that strategy is a winning one.

Really we're focused on is the consignment transition in Europe, because that's really the headwind for us in Q4, and I think that'll be the work to be done in 'twenty for US is how do we transition that business as efficiently as possible.

Thank you.

Speaker 1: Thank you and your next question comes on the line of Trevor Young from Barclays. Peace, good night.

Thank you and your next question comes from the line of Traveler Yao from Barclays. Please go ahead.

Great. Thanks, Jay.

Speaker 6: Great, thanks. James, could you provide an update on what you're seeing among different buyer demos? Any color on demand from the more value or budget shoppers versus higher income shoppers would be helpful.

James could you provide an update on what youre seeing among different buyer buyer demos any color on demand from the more value or budget shoppers versus higher income shoppers would be helpful. And then second the slides to talk to an expected 20% industry CAGR through 2007 is there any reason why you couldnt match or even exceed that growth rate in the coming years.

Speaker 6: And then second, the slides talked to an expected 20% industry kicker through 27. Is there any reason why you couldn't match or even exceed that growth rate in the coming years? IE gain market share. I realize appreciating Sean's comments about the product versus consignment makes headwinds. So maybe we look at like GP or order growth as a proxy versus that industry growth. Is that the right way to think about it?

<unk> gained market share I realize appreciating sean's comments about the product versus consignment mix headwinds. So maybe if we look at like GP or order growth as a proxy versus that industry growth is that the right way to think about it.

Yeah. Thanks, Trevor Yeah, I mean, I do think as you think gross margin and gross profit dollars is the right way to think about it it's very similar to.

Speaker 3: yeah thanks sherever yeah i mean i do think i do think gross margin uh... gross profit dollars is the right way to think about it's very similar to you know when we uh... when we came public the u.s. business was going through uh... that transition and you know we've navigated that i think

When we came public the U S business was going through that transition and we've navigated that I think very effectively I think that's where the U S. Gross margins are at their records that they are at.

Speaker 3: very effectively and that's why the US gross margins are at the records that they're at. So we expect that same thing to be true and I do think that when you look at it on a gross margin growth basis, yeah that's 20% seems fair. I mean cute.

We expect that same thing to be true and I do think that when you look at it on a gross margin growth basis, yes that 20% themes.

<unk> Fair I mean, Q3 was 27% in that category. So we do think that that is something that we will continue to strive for.

Speaker 3: was 27%, you know, in that category. So we do think that that is something that we will continue to strive for.

Goodbye.

Speaker 3: Oh, and the buyer demo question, sorry. Well, I think we've done a really, really good job as a team of focusing more of our buyer efforts on a slightly more premium shopper. So this is a story that we've been telling for some time now. And I think now all of that work that we've done.

And the buyer demo question sorry.

I think we've done a really really good job as a team of focusing more of our buyer efforts on a slightly more premium shoppers. This is the story we've been telling you for some time now and I think now all of that work that we've done.

Speaker 3: to acquire that incrementally more premium buyer and deliver that incrementally more premium product. I think it's now like proving to be fruitful, and I think that's why you're seeing active buyers now up year-to-year, I think that's why you're seeing active buyers up sequentially. You know, expect that trend to continue into Q4 and into 2024. So I think the segmentation strategy that we've done is working, and I think we'll continue to execute on that plan.

To acquire that incrementally more premium buyer and deliver then incrementally more premium product I think is now proving to be fruitful and I think thats why youre seeing active buyers now up year over year, I think thats why youre seeing active buyers up sequentially.

That trend to continue into Q4 and into 2024 or so.

So I think the segmentation strategy that we've we've done is working and.

And I think we'll continue to execute on that plan.

Yeah.

Great. Thank you.

Thank you and your next question comes from the line of Ana <unk> from Needham. Please go ahead.

Speaker 9: Thank you and your next question, Concentral line of Anna Adriva from Needham. Please go ahead. Great. Thanks so much.

Great. Thanks, so much and good afternoon guys.

Speaker 9: Two questions from us. Could you elaborate a bit more just on what you were seeing in Europe ? Have those headwinds gotten worse a quarter to date? And does the fourth quarter guide contemplate bigger sales, the kojana remix, or a consignment revenue more moderate as well, just given your October comments?

Two questions from us could you elaborate a bit more just on what youre seeing in Europe.

Those headwinds gotten worse quarter to date and the fourth quarter guide contemplate bigger sales decline at Remax or a consignment revenue more moderate as well just given your October comments, and secondly, not sure if I missed this but what drove the upside to the third quarter gross.

Speaker 9: And secondly, not sure if I missed this, but what drove the upside to the third quarter gross margin?

Speaker 9: just impressive beat despite environment getting worse. Thanks so much.

Just impressive beat despite environment getting worse. Thanks, so much.

Speaker 6: Hey Sean, I'll do the gross margin piece first. I think that the outperformance in gross margin came from the RADS goods transitioning faster consignment as well as kind of our normal ongoing improvements to our operations and marketplace such as pricing fees, payouts, and general automation and efficiencies. That was all driving the overall gross margin in the U.S.

Hey, Ana this is John I'll do the gross margin piece first I think the outperformance in gross margin came from the raz goods transitioning faster consignment as well as kind of our normal ongoing improvements.

Our operations in marketplace, such as pricing fees payouts in general automation and efficiencies that was all driving the overall gross margin in the U S.

Speaker 3: Yeah, and on your question about the European side, I mean, I think really what we're seeing is just, it's a little bit softer than we had expected. And I mean, I, one of the things we're really just starting to see now is...

Yes.

To your question Matt.

European side, I mean, I think really what we're seeing it's just it's a little bit softer than we had expected.

One of the things we're really just starting to see now is is that the weather is changing rates are much more seasonal business, there, especially in that part of eastern Europe, and so as it gets colder.

Speaker 3: is that the weather is changing, right? It's a much more seasonal business there, especially not part of Eastern Europe . And so as it gets colder, we think we can see some momentum there, but right now it's a little softer than we had expected. And frankly, if you look at the US business being even that break even in free cash with positive in Q3, we expect similar trends to getting in Q4. It's just not enough.

We think we can see some some momentum there, but right now it's a little softer than we had expected and frankly, if you look at the U S business being EBITDA breakeven in free cash flow positive in Q3, we expect similar trends as we get into Q4, it's just not enough.

Speaker 3: to overcome, you know, some of the headwinds in Europe . And so, you know, I think that was a, that was something that was hard for us to see, you know, six quarters ago when we were forecasting break even in Q4 was with that mix. But again, we feel very good about the underlying fundamentals in both businesses. And we just didn't want to make anything too short termy trade offs right in Q4 and focus more on opportunities as we move into 24.

To overcome some of the headwinds in Europe and so.

That was a that was something that was hard for us to see six quarters ago. When we were when we were forecasting breakeven in Q4, but with that mix.

But again, we feel very good about the underlying fundamentals in both businesses.

And we just didn't want to make anything to short term me.

Yeah.

Tradeoffs right in Q4 and focus more on opportunities as we move into 'twenty four.

Speaker 6: And on of the 4Q guy, cosplayed literally everything we knew as of, let's say Friday, lapsed. Yeah.

On the <unk> guide contemplate literally everything we knew as of lets say Friday last.

Yeah.

Alright fair enough. Thanks, so much Matt.

Thank you.

Thank you and your next question comes from the line of Mike Mcdonnell from Raymond James.

Speaker 1: Thank you, and your next question comes from the line of Rick Patel from Raymond James.

Please go ahead.

Speaker 8: Hi guys, this is Josh Phillian for Rick. I was wondering, can you talk a bit about cost savings you're seeing from the improved return rates? And how we should we think about the impact of that on a bit then for you?

Hi, guys. This is Josh filling in for Rick I was wondering can you talk a bit about cost savings you are seeing from the improved return rates.

Should we think about the impact of that on EBITDA and <unk>.

Sure Josh Yes, I mean, I think we saw 700 bps of improvements on a return basis year over year and I think all of the work that we began at the beginning of the year around keep for credit at Thrift.

Speaker 3: Sure, Josh. Yeah, I mean, I think we saw 700 bits of improvements on a return basis year over year And you know, I think all of the work that we began at the beginning of the year around keep for credit Thrift promise or all those things are continuing to bear fruit and I think they're reflected in the Q4 guide And I think that's again, you know, focus on the US business That's what we're seeing that positive momentum on the return rate. I think that's what reflects

Thrift promise are all of those things are continuing to bear fruit and I think they are reflected.

In the Q4 guide.

And I think Thats again.

On the U S business, that's where we're seeing that positive momentum on the return rate and I think that's what reflects that EBITDA would be in Q3 and and into Q4 and so again the story really for US It's just continuing.

Speaker 3: that Iva.b in Q3 and N into Q4. And so again, the story really for us is just continuing.

Speaker 3: to tweak what we need to do on the European side to be in a better position.

Tweak what we need to do on the European side to be in a better position.

Speaker 8: Okay, and any initial thoughts on the way that will impact 2024?

Okay, and any initial thoughts on the way that will impact 2024.

I mean, we expect churn rates I mean, our goal here is everything we're doing is return nature or to improve so obviously all of them improve across the board, but nothing specifically for 2024, yet on that side.

Speaker 6: I mean, we expect return rates. I mean, our goal here is everything we're doing is return rates are going to improve. Yeah. So I'm going to say I'll improve across the board, but nothing specifically for 2024 yet on that side. Okay.

Okay. Thanks.

Thanks, so much for the color there.

Thanks.

<unk>.

Thank you and your next question comes from the line of Tom kick from that piece.

Speaker 1: Thank you and your next question, Consumable Island of Tom Nikik from Redbush, Peace Go Lads.

Please go ahead.

Speaker 10: Hey guys, thanks for taking my question. Shawna, modeling question for you.

Hey, guys. Thanks, Thanks for taking my question.

Sean a modeling question for you.

So in the fourth quarter.

Speaker 10: The revenues should be a bit lower than they were in the third quarter and the gross profit should be lower.

The revenues should be a bit lower than they were in the third quarter and the gross profit should be lower.

Speaker 10: But I believe the, just an even gone loss should be smaller, which would suggest that the op-x would be down.

But I believe the adjusted EBITDA loss should be smaller which would suggest that the.

The opex will be down quarter over quarter.

Could you kind of help us think about the.

The buckets, we obviously impact the marketing in the SG&A and how we should think about that one.

Speaker 6: Yeah, no, you're exactly right. I think the biggest driver to that is the decline in marketing in Q4. Generally, I think if you look historically, what we've done in Q4 in particular from a US business, we brought down marketing spend, you know, still today, you know, second hand isn't the gift-giving destination yet. So marketing is super expensive in the fourth quarter. So we pull back on the US and that's the biggest driver as far as kind of off-ex bathing. And then OP&T just fluxes up and down depending on ins and outs. And that's going to kind of match with what...

Yes, Youre exactly right I think the biggest driver to that is the decline in marketing in Q4 generally I think if you look historically, what we've done in Q4, and particularly from our U S business, we brought down marketing spend is still today.

Second hand isn't a gift, giving destination, yet so marketing super expensive in the fourth quarter. So we pulled back on the U S and that's the biggest driver as far as kind of Opex savings and then Oh, P&C, just flexes up and down depending on the ins and outs and thats going to kind of match with what revenue does.

Speaker 11: very much.

Understood. Thank you very much.

Thanks.

Okay.

Speaker 1: Thank you and your next question comes in the line of Donna Talsi from Talsi Advisory Group. Please go ahead.

Thank you and your next question comes from the line of Dana Telsey from Telsey Advisory Group. Please go ahead.

Speaker 12: Good afternoon, everyone. If you take a look and break out Europe , how much of the product margin or the product sales, how much of it was Europe versus the RAS business, and just can you expand a little bit on that budget versus premium consumer, what they were buying and how that changed from the prior quarter? Thank you.

Good afternoon, everyone. If you take a look and break out Europe, how many how much of the product margin or the product.

How much of it was Europe versus the rack business and just can you expand a little bit on that budget versus premium consumer what they were buying and how that changed from the prior quarter. Thank you.

Speaker 6: So, I think generically, if you think about Europe , you know, the last time we talked about them publicly, they're around 20% of the total business. So you can assume that, but they're heavy weighted in Q4. So, 3 quarters to date, they're probably, I don't know, 60% of their 20% too many numbers there, but it's not. And then the US side is, I don't know, we're probably transitioned at the 80% mark.

So I think generically if you think about Europe.

When we talked about it publicly they are around 20% of the total business. So you can assume that but theyre heavy weighted in Q4, so three quarters to date, probably I don't know 60% of their 20% now too many numbers there, but it is not.

And then the U S side is I don't know were probably transitioned at the 80% Mark.

Speaker 6: That's a lot of numbers I can do to math, behind the scenes and give you a different number, but I can keep putting it all together with that.

A lot of numbers I can do the math behind the scenes and give you or give you a different number but I think you put it all together with that.

Speaker 3: Yeah, and then on the customer segmentation piece, we've not seen any real material change on the budget side. We still think those customers are...

Yes, and Dana on the on the customer segmentation piece, we've not seen any real material change on the budget side, we still think those customers are.

Speaker 3: You know, we're not spending at the same rates they were, you know, for our business, they 12 to 18 months ago. So I think that transition to that slightly more premium customers been very good for us. And I think that's reflected in.

We're not spending at the same rates they were for our business say 12 to 18 months ago. So I think that transition to that slightly more premium customers and very good for us.

And I think that's reflected in the selling average selling prices that we've been able to you to drive as well as kind of the margin and flow through so.

Speaker 3: and selling prices that we've been able to drive as well as the margin and flow through. So I think that strategy is really working and one will continue. And so, you know, I think you should see more of that as we get into 2024 and I think that's a budget shopper.

That strategy is really working in and one will continue.

And so.

I think you should see more of that as we get into 2024, and I think that's a budget shopper.

Speaker 3: As things get better in 2024 for that chopper, you could see them come back to the platform and even amplify active buyers even further than we're seeing them today. But we think that the current sweet spot that we're in around the customer mix and the product mix is the right one.

If things get better in 2024 for that shopper, you could see them come back to the platform and even amplify active buyers, even even further than we're seeing them today.

But we think that the current sweet spot that we're in around the customer mix and the product mix is the right one.

Speaker 12: Got it. And then you just mentioned about October being very promotional. So is that a change in cadence from what you saw in the third quarter? Are you assuming a similar level of promotionality in the November and December time period?

Got it and then you just mentioned about October being very promotional so is that a change in cadence from what you saw in the third quarter and are you are you are you assuming.

Assuming a similar level of promotion Ality in the November and December time period.

Speaker 3: Yeah, I mean, with, you know, whether it was Amazon or Walmart or Target, like I think October was, you know, what we were experiencing was, you know, pretty aggressive promotion across the retail space.

Yes.

Whether it's Amazon or Walmart or target like I think October was.

What we were experiencing was pretty aggressive promotion across across the retail space and so we obviously responded to that.

Speaker 3: we obviously responded to that, you know, through the month. And so it's a little unclear whether there's some normalization, you know, as you get into November and December , but I think our guidance reflects that we expect it to continue to be pretty bloody out there. And then our strategy needs to be...

Through the month end and so it's a little unclear whether there is some normalization as you get into November and December, but I think our guidance reflects that we expect it to continue to be pretty bloody out there and and then our strategy needs to be.

Speaker 3: to mentor it with what some of those other guys are doing. But I think what we're really focused on is maintaining that active buyer growth. Because I think ultimately that's where the opportunity is as you get into 2024. We certainly rather have strong active buyer growth and incrementally weaker margins than the other way. Because we think that's how you-

Commensurate with what some of those other guys are doing.

But I think what we're really focused on Dana is maintaining that active buyer growth because I think ultimately that's where where the opportunity is as you get into 2024, we'd certainly rather have strong active buyer growth and incrementally weaker margins than the other than the other way because we think that that's how you win over time.

Speaker 6: Hey, Dan, I'm Sean. I did the map, yeah, the theme. So I could give you a better answer on that. It's about 60% of the products or own goods comes from Europe , the revenue.

Hey, David This is Sean I did the math behind it so I could give you a better answer on that is about 60% of the products are owned goods comes from Europe for revenue.

Got it. Thank you thank you Barry.

Thanks.

Speaker 1: Thank you. And your next question comes from the line of Alexandra Steger from Goldman Sachs. Please go ahead.

Yes.

Thank you and your next question comes from the line of Alexander <unk> from Goldman Sachs. Please go ahead.

Speaker 13: Great, thank you so much for taking more questions. I do want to follow up on the Bio Growth question.

Great. Thank you so much for taking my questions I do want to follow up on the buyer growth question could you maybe elaborate a little bit more on the new buyer composition, either by Geo or demo and how should we think about a normalized level of active buyer growth as we turn the page on 2003 and into 'twenty four.

Speaker 13: Could you maybe elaborate a little bit more on the new buyer composition, either by geo or demo? And how should we think about a normalized levels of active by address as we turn the page on 23 and into 24?

Speaker 13: And I know you talked a lot about how you're adjusting your inventory strategy to attract a more afloen buyer. What else could you do to get those customers on the platform maybe thinking about marketing or something else?

And I know you talked a lot about how youre adjusting your inventory strategy to attracting more affluent buyer what else could you do to get those customers like on the pop from maybe thinking about marketing or something else and then.

Speaker 13: Second question is really around, you mentioned that you're seeing continued weakness at the lower end of your customer base. I'm wondering if there's like some component of Asian-based e-commerce companies taking share. Thank you so much.

Second question is really around you mentioned that Youre seeing continued weakness.

<unk> and.

Your customer base I'm wondering is.

There is some component of Asian based ecommerce companies taking share. Thank you so much.

Speaker 3: uh... a uh... uh... yeah i mean i think on the active buyer side i mean i think

Hey, Andrew Yeah.

Yes, I mean, I think on the active buyer side, I mean, I think without stating the obvious right I mean part of our growth strategy to the travelers question earlier if.

Speaker 3: Without stating the obvious, right? I mean, part of our growth strategy to Trevor's question earlier, is ultimately it's 20% plus gross profit growth or net revenue growth once we are through the consignment shift. That has to be commensurate with similar high teens active by-ear growth. And I think that's the direction.

So ultimately, it's 20% plus gross profit growth or active or our net revenue growth. Once we are through the consignment shift that has to be commensurate with.

Similar high teens active buyer growth and I think thats the direction.

Speaker 3: that we're headed as we get through this period. And then obviously trying to get those active buyers to buy more. I think what's really important, if you think about us as a marketplace, is it's a little different than a traditional pure play because you really do need to balance both supply and demand. And so part of why there's been a bit of a catch up throughout the year on active buyer growth is we really need to make sure we have the sellers and the product mix and pricing in the right place. And so I think now we're thinking those up really nicely.

We're headed as we get through this period.

And then obviously trying to get those active buyers to buy more I think what's really important if you think about us as a marketplace. It is it's a little different than a traditional pure play because you really do need to balance both supply and demand and so part of why there's been a bit of a catch up throughout the year on active buyer growth is we really need to make sure we had the sellers and the <unk>.

Mix and pricing in the right place and so I think now we're thinking those those up really nicely, which is I think driving.

Speaker 3: Pretty strong record buyers. And so that same playbook that we have been honing in 23, I think we'll use this again in the 24. And again, it's just getting buyers and sellers to map.

Pretty strong record.

Record buyers and so that same playbook that we have been honing in 'twenty three I think we will use as we get into 'twenty four and again, its just getting buyers and sellers to match.

Speaker 3: As for the lower end weakness, I mean, I think that it...

As for the lower end weakness.

I think it's.

We know we know that there are some of our buyers that are shopping on team is the same reason, we know theyre shopping on Sheehan and forever 21 before that.

And all of the fast fashion players and so and wish.

Before that so we have seen this NII I think.

Speaker 3: It's something that we have navigated for the better part of the decade of fast fashion players, coming in and coming out primark with another one a few years ago. And so we've seen this, and I think our value proposition still resonates very strongly with shoppers across the income spectrum. So we don't spend a lot of time worrying about that budget shopper right now.

It's something that we have navigated for the better part of a decade of fast fashion players coming in and coming out Prime Mark.

Another one a few years ago and so we've seen this and I think our value proposition still resonates very strongly.

With shoppers across the income spectrum.

So we don't spend a lot of time worrying about.

That budget shopper right now.

Got it thank you.

Speaker 1: Thank you and your next question comes from the line of Florence Schneck. From Morgan Stanley .

Thank you and your next question comes from the line of Lauren Schnack.

From Morgan Stanley. Please go ahead.

Speaker 3: Hey everybody, this is Nathan Feather on For Lauren. I guess continuing on that thread and digging into your comments in the promotion environment. So other players with any comments that called out pretty quickly expanding ad rates due to competition from the Asia-based exporters. I guess are you seeing that more on the marketing side than maybe the demand side? And if so, what steps you take in committing?

Hey, everybody. This is Nathan feather on for Lauren.

I guess continuing on that thread and taking into your comments on the promotional environment. So other players within ecommerce that called out pretty quickly expanding AD rates due to competition from Asia based X quarters. I guess are you seeing that more on the marketing side that maybe the demand side and if so what steps you're taking to mitigate it.

Speaker 3: Starting the agent, you broke up first thing, you see ad rate, so you said.

Sorry, you broke up first thing you can say add rate that we've had.

AD rates.

Speaker 3: Okay, sorry, I heard bad rates and then my brain had to go to work. Adirates. Okay.

Okay, sorry, I heard bad right and then I have my brain had to go to work at rates Okay.

Speaker 3: Yeah, look, I don't think we're seeing any real change on the ad rate side for us, given our targeting, I think again, that's a deep, deep discount shopper. And given that we no longer are really focused on that deep, deep discount.

Yes look I don't think we're seeing any real change on the AD rate side for us given our targeting I think again, that's a deep deep discount shopper and given that we no longer are really focused on the on that deep deep discount.

Speaker 3: buyer, we no longer actually need have that product, you know, to delight that buyer. And so the ad strategy has evolved quite a bit. And so I actually think we're in a better position and more insulated.

Buyer, we no longer actually need to have that product.

Delight that buyer and so the AD strategy has evolved quite a bit and so I actually think we're in a better position and more insulated.

Speaker 3: uh... from some of that pressure because you know the team shopper the sheen shopper uh... or the forever twenty one shopper you know they're really competing with with the deepest uh... discount prices right those are folks that walmart

From some of that pressure because the team new shopper, the XI and shopper.

Or the forever 21, shopper, they're really competing with with the deepest discount prices right those are folks at Walmart.

Speaker 3: That's cold, right? Those are products that are five, six, seven, ten dollars. I mean the average price on right up at this point is over twenty dollars.

Kohl's right. Those are products that are 567, $10 I mean, the average price on dried up at this point is over $20. So it's a very different buyer mix and I think it's important for people to recognize.

Speaker 3: So it's a very different biomext, and I think it's important for people to recognize.

Speaker 3: You know, wear threat up shifted up to meeting that more premium shopper. It's no longer the $5, $6, $7, $10 shopper. And I think that has been a very smart strategy for us over the past year. And one will continue deploying to $24.

They are a threat ups shifted up to meaning that that more premium shopper, it's no longer the 567 $10 shopper.

I think that has been a very smart strategy for us over the past year and one we will continue to deploy into 'twenty four.

Very helpful. Thank you.

Thank you.

Speaker 1: Mr. James Reinhart, there are no further questions at this time, please proceed.

Mr. James Hi, Darin.

A question at this time. Please proceed.

Speaker 3: Well, thank you everyone for joining us on our Q3 earnings call. I appreciate all the great questions. And thank you to the threat up team for all the hard work that you all do every day. And we'll see you next time and have a great holiday season.

Well. Thank you everyone for joining us on our Q3 earnings call I appreciate all the great questions.

Thank you to the threat up team for all the hard work that you all do every day and we'll see you next time and have a great holiday season.

Speaker 1: Thank you ladies and gentlemen that does come to their conference for today. Thank you all for participating. You may all just connect.

Thank you, ladies and gentlemen that does conclude our conference for today. Thank you all for participating you may all disconnect.

Speaker 14: Everyone else has left a call.

Everyone else has left to come.

It looks like no one else is going to join.