Q4 2023 The RealReal Inc Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the RealReal fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode.
Good day, and thank you for standing by welcome to the real real fourth quarter and full year 2023 earnings conference call.
This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Caitlin Howe, Senior Vice President of Finance. Please go ahead.
Well, then you're an automated message advising your hand is raised to withdraw your question. Please press star one one again.
Be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Kaitlyn, how senior Vice President of Finance. Please go ahead.
Caitlin Howe: Thank you, Operator. I'm joining me today to discuss our results for the period ended December 31, 2021. Our Chief Executive Officer, John Koryl, President and Chief Operating Officer, Rati Levesque, and Interim Chief Financial Officer and Chief Legal Officer, Todd Succo. Before we begin, I would like to remind you that during today's call, we will make forward-looking statements that involve known and unknown risks and events. Our actual results may differ materially from those suggested.
Kaitlyn: Thank you operator.
Any need today to discuss our results are period ended December 31st 2023, our Chief Executive Officer, John Coral, President and Chief operating officer, Rocky buyback and interim Chief Financial Officer, and Chief Legal Officer College Hugo.
Speaker Change: Before we begin I would like to remind you that during today's call. We will make forward looking statements, which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements.
Caitlin Howe: You can find more information about these risks, uncertainties, and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-K. Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking, for which historical financial measures we have provided reconciliations to the most comparable GAAP measures in our earnings press release. In addition to the earnings press release, we issued a shareholder letter earlier today I would now like to turn the call over to John Koryl, Chief Executive Officer of the Company. Caitlin, and welcome to our call. Today we reported financial results for the fourth quarter and full year. For the first time since our IPO in 2019, we reported a full quarter of positive adjusted EBITDA, as well as our first ever quarter of positive free cash.
You can find more information about these risks uncertainties and other factors that could affect our operating results and the company's most recent Form 10-K and subsequent.
Speaker Change: Quarterly reports.
Thank you.
Speaker Change: Today's presentation will also include certain non-GAAP financial measures, both historical and forward looking for which historical financial measures. We have provided reconciliations to the most comparable GAAP measures in our earnings press release.
Speaker Change: In addition to the earnings press release, we issued a shareholder letter earlier today, both of which are available on our Investor Relations website.
Speaker Change: I would now like to turn the call over to John Coyle, Chief Executive Officer.
John E. Koryl: Thank you Caitlin and welcome to our earnings call today, we reported financial results for the fourth quarter and full year 2023.
John E. Koryl: The first time since our IPO in 2019, we reported a full quarter of positive adjusted EBITDA as well as our first ever quarter of positive free cash flow.
Caitlin Howe: Our Q4 adjusted EBIT even exceeded the high end of our Q4 guidance, and the Q4 GMV and revenue exceeded the midpoint of our guidance. Importantly, we announce today a reworking of our capital structure, for which I'll provide further details later in my prepared remarks. Additionally, we recently announced two exciting leadership changes. First, our new CFO, Ajay Gopal, will join us in March. Ajay brings with him a strong background as an e-commerce CFO, as well as extensive experience with two-thousand dollar companies. We look forward to introducing Ajay in the near future. We also announced that Karen Katz, who is a current member of our board and the former CEO at Neiman Marcus, is our newly appointed board chairperson.
John E. Koryl: Our Q4 adjusted EBITDA exceeded the high end of our Q4 guidance range.
John E. Koryl: Q4, <unk> and revenue exceeded the midpoint of our guidance range.
John E. Koryl: Importantly, we announced today, a reworking of our capital structure for which I'll provide further details later in my prepared remarks.
John E. Koryl: Additionally, we recently announced two exciting leadership updates.
John E. Koryl: <unk>, our new CFO Ajay no Paul will join US in March he brings with him a strong background in ecommerce CFO as well as an extensive experience with two sided marketplaces.
John E. Koryl: Look forward to introducing a J in the near future.
John E. Koryl: Also announced that Karen Katz, who is a current member of our board.
John E. Koryl: The former CEO at Neiman Marcus group as our newly appointed Board chairperson.
John E. Koryl: Taken together, we believe that The RealReal is starting off 2024 with solid momentum from a business, operations, and organization perspective. Our improved financial results in 2023 were driven by our strategic shift to refocus on our core consigned business. We refined our growth model with a focus on profitable supply. As part of these efforts, we reduced direct revenue by half, overhauled our consignor commission structure, and revamped our approach to sales and marketing
Taken together, we believe that the real real are starting off 2024 with solid momentum from our business operations and organizational perspective.
John E. Koryl: Our improved financial results in 2023 or driven by our strategic shift to refocus on our core consignment.
John E. Koryl: We refined our growth model with a focus on profitable supply.
John E. Koryl: As part of these efforts, we reduced direct revenue by house overhaul of our Consignor Commission structure and revamped our approach to sales and marketing.
John E. Koryl: Looking ahead, our new initiative of dropship consignment, previously referred to as virtual consignment, has the potential to unlock incremental supply from trusted partners. Operationally, our results in 2023 were a significant step forward on our path to profit. We are beginning to deliver efficiencies from our investments in automation and artificial intelligence.
John E. Koryl: Looking ahead, our New addition of a new initiative of drop ship consignment previously referred to as virtual consignment has the potential to unlock incremental supply from trusted partners.
Operationally our results in 2023, where a significant step forward on our path to profitability. We are beginning to deliver efficiencies from our investments in automation and artificial intelligence and.
John E. Koryl: In 2024, we are focused on enhancing our technological capabilities and processes to improve the product flow in our authentication centers and further automating. While these initiatives require a small investment in Q2 of this year, we are bullish on the long-term benefits. It will enable us to continue to enhance our best-in-class authentication and deliver a superior experience to our customers. Regarding our capital structure, today we announced that we entered into private, separately negotiated debt exchange transactions with certain holders of our convertible senior notes due in 2025 and 2028. As a result of the debt exchange transactions, we reduced our total indebtedness by more than $17 million, creating substantial runway and capital structure flexibilities for us to execute on our strategic plans. Looking forward, we project that we are on track to deliver a breakeven-adjusted EBITDA year in 2020.
In 2024, we are focused on enhancing our technological capabilities and processes to improve the product flow and our authentication centers and further automating our authentication.
John E. Koryl: While these initiatives are all part of a small investment in Q2 of this year. We are bullish on the long term benefits that will enable us to continue to enhance our best in class medication and deliver a superior experience to our customers.
John E. Koryl: Regarding our cash flow capital structure today, we announced that we entered into a private separately negotiated debt exchange transactions with certain holders of our convertible senior notes due in 2025 and 2028.
John E. Koryl: As a result of the debt exchange transactions, we reduced our total indebtedness by more than $17 million.
John E. Koryl: Creating substantial runway and capital structure flexibility for us to execute on our strategic vision.
John E. Koryl: Looking forward, we project that we are on track to deliver a breakeven adjusted EBITDA at year end 2024 today, we provided Q1 2024 and full year 2024 financial guidance guidance.
John E. Koryl: Today, we provided Q1 2024 and full year 2024 financial guidance. Through growing profitable supply, driving operational efficiencies, and delivering exceptional service to our consignors and buyers, we believe we can continue to make significant progress on the bottom line as we re-accelerate growth in 2020. I am excited about the trajectory of our business and believe we will continue to capitalize on our position as the leader in luxury resale. With that, let's open the call to questions. Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
John E. Koryl: Through growing profitable supply driving operational efficiencies and delivering exceptional.
John E. Koryl: Service to our Consignors and buyers. We believe we can continue to make significant progress on the bottom line as we reaccelerate growth in 2024.
John E. Koryl: I am excited about the trajectory of our business and believe we will continue to capitalize on our position as the leader in luxury resale.
Speaker Change: With that let's open the call for questions.
Thank you.
Speaker Change: As a reminder to ask a question. Please press star one one on your telephone.
Speaker Change: Wait for your name to be announced to withdraw your question. Please press star one one again please.
Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Mark Altschwager from Baird. Good afternoon.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Mark All Schwager from Baird.
Mark R. Altschwager: Thanks for taking my question and congratulations on the results this quarter. So, bigger picture here: over the past few months, there's been a lot of discussion of the slowdown and the aspirational consumer, and a little bit more promotional intensity for luxury apparel, especially online. Do you view these trends as headwinds or tailwinds for your business and resale in general? I would love your perspective there both as it relates to supply and, or I should say, quality of supply of quality goods, excuse me, as well as buyer engagement. Thank you. Yeah, thanks, Mark. This is Rati.
Speaker Change: Hi, good afternoon, Thanks for taking my question.
Speaker Change: And congrats on the results this quarter.
Speaker Change: So.
Speaker Change: Bigger picture here over the past few months there has been a lot of discussion of the slowdown in the aspirational consumer a little bit more promotional intensity for luxury apparel, especially online.
Speaker Change: Do you view these trends as headwind or tailwind for your business in retail in general and would love your perspective, there both as it relates to.
Speaker Change: Supply and or I should say quality of supply of quality goods excuse me as well as buyer engagement. Thank you.
Speaker Change: Yes. Thanks, Mark this is rajiv so as far as the health of the consumer goes in Q4, we saw a little blip I think we spoke about in October but after that it definitely picked up I will say you know we've talked about the product consumer being slightly more promotional in October.
Rati Sahi Levesque: So as far as the health of the consumer goes, in Q4, you know, we saw a little blip, which I think we spoke about in October, but after that, it definitely picked up. I will say, you know, we talked about the consumer being slightly more promotional in October, but we didn't see that for the rest of the quarter.
Rati Sahi Levesque: And then going into Q1, we are also quite happy with the consumer there, both on the supply and demand sides, so both sides of the marketplace. Our top of the funnel looks very healthy. And again, we look at opportunities all the way to appointments, to GMB, and revenue or supply coming in. Excellent. Thank you.
Speaker Change: Didn't see that for the rest of the board and then going into Q1.
Rajiv: Also quite happy with the consumer there both on the supply and demand sides of both sides of the marketplace are top of the funnel looks very healthy and again, we look at opportunities all the way to appointments.
Rajiv: <unk> and revenue are the supply coming in.
Mark R. Altschwager: And maybe a follow-up with respect to the guidance. Over the past few years, Q1, I think, has marked the low point of the year from an EBITDA perspective with improvement in the back half, especially Q4. The initial guidance here doesn't seem to imply much improvement.
Speaker Change: Excellent. Thank you and maybe a follow up with respect to the guidance.
Speaker Change: Over the past few years Q1, I think as Mark the low point of the year from an EBITDA perspective with improvement in the back half, especially in Q4.
Speaker Change: The initial guide here doesn't seem to imply much improvement I think $4 million loss at the midpoint in Q1, but breakeven at the midpoint for the full year, maybe walk us through some of the dynamics this year that are different.
Caitlin Howe: I think 4 million loss at the midpoint in Q1, but break even at the midpoint for the full year. Maybe walk us through some of the dynamics this year that are different, especially with the revenue guide, which I think is implying some nice acceleration after Q1. Thanks. Yeah, thanks for the question, Mark. This is Caitlin.
Speaker Change: Especially with the revenue guide I think implying some nice acceleration after Q1.
Speaker Change: Yes. Thanks for the question Mark This is Avon and so what I would say there is.
Caitlin Howe: And so what I would say there is, you know, the midpoint of the Q1 guide is negative six. And so what we're expecting for this year is really a return to our typical cadence, our typical seasonality, which, you know, we are more of a back half type of loaded business in terms of both top line and bottom line. And so I think you're going to see that, right. So, historically, kind of excluding last year, which had some anomalies, because of the changes we were making in the business, when you look back over the course of the time that we've been a public company, you know, Q1 and Q2 are typically pretty even between, you know, top line and bottom line. And then it accelerates kind of throughout the year.
Avon: One of the Q1 guidance negative checks and so what we're expecting for this year is really a return to our typical cadence our typical seasonality, which we are more of a batch type of loaded business in terms of both topline and bottomline.
Avon: So I think youre going to see that right. So historically, you kind of excluding last year, which had some anomalies because of the changes we are making in the business. When you look back over the course of the time that we've been a public company Q1, and Q2 are typically pretty even between topline and bottom line and then it accelerates throughout the.
Mark R. Altschwager: And so I think that's kind of how we're thinking about it this year, too. So I think we're feeling good about where we are. But I do think we expect that we will see some acceleration through the year. And then the other factor we have is just, you know, because of our comps. We had kind of a tough comp in Q1 of last year; we brought in a lot of low-value supply that we moved through, right as we were kind of, you know, minimizing low value, minimizing direct. So I think you're going to see that as we accelerate throughout the year. Very helpful. Thank you and best of luck!
Avon: So I think that's kind of how we're thinking about it this.
Speaker Change: This year Jill.
Jill: So I think I think we're feeling good about where we are but I do think we expect that we would see some acceleration through the year and then the other factor. We have is just because of our comps we had kind of a tough comp in Q1 of last year. We brought in a lot of low value supply that we've moved through right. As we were kind of minimizing low value minimizing direct so I. Thank you.
Jill: Youre going to see that accelerate throughout the year too.
Speaker Change: Very helpful. Thank you and best of luck.
Speaker Change: Thanks.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Anna Andreeva from Needham.
Speaker Change: Thank you one moment far next question.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Ana <unk> from need hands.
Anna A. Andreeva: Great, thanks so much and congrats on profitability, guys. I wanted to check where the biggest upsides came in the P&L versus the plan to reach profitability in the second quarter and, rather, in the fourth quarter. And secondly, what's the timing of the new revenue streams that you guys have discussed as we go through the year? Maybe remind us where you are with sponsored ads and also warranty opportunities. Thanks. Thanks, Anna. This is Caitlin again.
Ana: Great. Thanks, so much and congrats.
Ana: Profitability guys.
Ana: I wanted to.
Ana: Check.
Ana: Where are the biggest upsides came in the P&L versus the plan to reach profitability in the second quarter and in the fourth quarter, rather and secondly, what's the timing of the new revenue streams.
Ana: Guys have discussed as we go through the year, maybe remind us where are you with sponsored ads and also the warranty opportunities. Thanks.
Caitlin Howe: Why don't I take the first one and then Koryl and the team can comment on the new revenue streams. So, what we saw in Q4 versus our expectations, as Rati mentioned, you know, October, I think there was some general kind of concern or just watching out for kind of demand trends more broadly. And so we weren't an exception to that.
Ana: Great. Thanks. This is Caitlin again, why don't I take the first one and then.
Caitlin: And the team can comment on the new revenue streams. So what we thought what we saw in Q4 versus our expectations as Ross you mentioned October I think there was some general kind of concern or just just watching out for kind of demand trends more broadly and so we weren't an exception to that when we did see is we saw a nice acceleration on the top line from Q4.
Caitlin Howe: What we did see is we saw a nice acceleration on the top line through Q4. And so, from a top line perspective, we were pleased with where we ended up in Q4. And then, as we think about flow through, I would say the beat versus our expectations was split roughly evenly between gross profit and OPEX. And so let's talk through that.
Caitlin: And so I think from a topline perspective, we were pleased with where we ended up in Q4, and then from as we think about flow through I would say the beat versus our expectations was split roughly evenly between gross profit and opex and so let's talk through that so what what helped us from a gross margin perspective in Q4, we had more favorability.
Caitlin Howe: So what helped us from a gross margin perspective in Q4 was that we had more favorability than expected. And this mix between direct and consigned, we grew the consignment revenue while shrinking direct a little bit more than 50% in the quarter versus the prior year, which, again, is a purposeful change that we made earlier last year. And then the other thing that helped, the take rate was favorable in the quarter versus where we thought we'd land. And that's a function of the commission structure change that we made in late 2022, combined with the mix of product that we sold within the quarter. I would say, you know, and in order of importance, I would say the shipping margin was a little bit more favorable than expected. And we continue to make progress on efficiencies in terms of inventory control, transportation costs, those types. On OPEX, what I would say is that we were really favorable in terms of just being disciplined on the support OPEX.
Caitlin: With an expected in this mix between direct and Showtime grew the consignment revenue, while shrinking direct a little bit more than 50% in the quarter versus prior year, which again is a purposeful change that we made earlier last year.
Caitlin: And then the other thing that helped take rate was favorable in the quarter versus where we thought we'd land. That's a function of the commission structure change that we made in late 2022 combined with the mix of product that was sold within the quarter I would say and then and then kind of order of importance, obviously shipping margin off a little bit more favorable than anticipated and we continue to.
Caitlin: Make progress efficiencies in terms of inventory control transportation costs those types of things on the Opex. What I would say is that we were really favorable in terms of just being disciplined on the support on that so when we talk about support versus sales and ops, we had a nice healthy supply quarter and some sales and ops came in.
John E. Koryl: So, you know, when we talk about support versus sales and operations, we had a nice, healthy supply quarter, and so sales and operations... more or less where we expected, maybe even a little bit of spending, but that's an area where we like to spend right when supply is healthy, and we were just really disciplined in the support office. And in terms of the new revenue, Dropship is a Q1 launching capability. So that didn't impact Q4 at all as we reported.
Caitlin: More or less where we expected maybe even a little bit spending, but that's an area, where we're we'd like to spend right. When supply is healthy and we were just really disciplined.
Caitlin: Our next report on us.
Caitlin: And in terms of the new revenue.
Caitlin: Drop ship is a Q1 launching.
[noise] capability, so that didn't impact Q4 at all what we've reported so youll see a little bit of that.
John E. Koryl: So you will see a little bit of that. Not a huge impact whatsoever in 2024, but from an advertising perspective, it was not material at all in our Q4 results. We've been learning for probably half a year, and what I've learned is we need to spend all of our time focusing on our core.
Caitlin: Not a huge impact whatsoever in 2024, but from an advertising perspective, it was not material at all in our Q4 results we've been learning for probably half a year.
Caitlin: What I have learned is we need to spend all of our time focusing on our core business. It's a nice sized business, but at the end of the day anything that distracts from the core business from our site experience perspective.
John E. Koryl: Right, it's a nice side business. But at the end of the day, anything that distracts from the core business from a site experience perspective is something that we have to be very careful with. So as much tailwind as we're seeing with our core business right now, we're really just focusing on that. And again, making sure that we're investing in our sales team and investing in marketing in the right way and providing all the operational efficiency needs that we need on the warehouse and authentication side. So this is truly not only Q4, but our 2024 outlook is a story about our core business. All right. Thank you so much.
Things that we have to be very careful with so as.
Caitlin: As much tailwind as we're seeing with our core business right now, we're really just focusing on that and again, making sure that we're investing in our sales team investing in marketing in the right way and providing all the operational efficiency means that we need on the warehouse not medication side. So this is truly not only Q4, but our.
Caitlin: 2024 outlook is a story about our core business.
Anna A. Andreeva: Super helpful. Thank you. One moment for the next question. Our next question comes from the line of Rick Patel from Raymond James. Thank you, and good afternoon, everyone.
Alright. Thank you so much super helpful.
Speaker Change: Thank you.
Speaker Change: For next question.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Rick Patel from Raymond James.
Rakesh Babarbhai Patel: Thank you and good afternoon, everyone.
Operator: Can you unpack the opportunity for dropship consignment? Just curious if you can provide any context on how much volume this can touch in the first quarter versus where it can ramp up to by the end of the year. And then, secondly, just curious if you can help us understand the economics of dropship as we think about the positive contribution towards profitability. Sure, Hi Rekha, it's Rati again.
Rakesh Babarbhai Patel: Can you unpack the opportunity.
Rakesh Babarbhai Patel: For drop ship consignment, just curious if you can provide any context on how much volume it can touch on the first quarter versus where it can rescue by the end of the year and then secondly, just curious if you can help us understand the economics of drop ship as you think about the positive contribution towards profitability.
Rakesh Babarbhai Patel: Sure Hi, Randy It's Ron again, so you like Paul mentioned with other revenue stream, that's how we're thinking about drop ship as well it's early we're learning.
Rati Sahi Levesque: So, like Karl mentioned with other revenue streams, that's how we're thinking about Dropship as well. It's early, we're learning, it is a very small, it has a very small impact this year. We really are, you know, excited about it, and we are confident that this can generate a new channel for us when we think about growth in the next few years. But this year, it really is a test and learn, and you're not, and a huge forecast baked in at 24.
Ron: Very small very small impact for this year.
Ron: Really are.
Ron: We're excited about it and.
Ron: We are confident that this can generate a new channel for us when we think about growth in the next few years, but this year. It really is a test and learn and youre not going to see a huge forecast baked in.
Ron: 24.
Rati Sahi Levesque: Got it. And then can you also help us with the cash flow mechanics following the debt refi? As we think about the impact of the changes in aggregate, what will be the impact on cash interest expense in 2024 and beyond? And is there anything to contemplate from a modeling perspective for the share count going forward? Yeah, so from a refi perspective, and Todd, you know, you've led a lot of that. So feel free to jump in here.
Speaker Change: Got it.
Speaker Change: Can you also help us with the cash flow mechanics, following the debt refi as we think about the impact of the changes in aggregate.
Speaker Change: It will be the impact on cash interest expense in 2024 and beyond and is there anything to contemplate from a modeling perspective for the share count going forward.
Yes, so from a refi perspective, and Todd Todd you, let a lot of that so feel free to jump in here, but from a modeling perspective, clearly we have had.
Caitlin Howe: But, you know, from a modeling perspective, clearly, you know, we had really inexpensive debt; we still have a large portion of that, especially in the 2028s, those are a 1% coupon. And so still, a significant portion of our capital structure and the debt side of our capital structure is very inexpensive debt. But the interest rate environment has changed, and so there will be an incremental cash expense. That we'll have to pay for. And, you know, Todd, I don't know if you have any commentary on that.
Speaker Change: Todd really inexpensive debt, we still have a large portion of that especially in the 2028th wells or a 1% coupon and so.
Speaker Change: A significant portion of our capital structure on the debt side of our capital structure is very inexpensive debt.
Speaker Change: But interest rate environment has changed.
Speaker Change: So so there will be incremental cash expense.
Speaker Change: We will have to pay and how to Nokia and some commentary around that yes.
Speaker Change: Incremental.
Todd A. Suko: Yeah, the incremental, Interest Expenses $8.75, Cash $4.25. And, you know, we think our average weighted cost of debt stays reasonably low at about 4.8% in the first year. I'm not sure if that answers your question. Yeah, that's helpful context. And anything to think about for the scarecrow going forward? So I would just say that the total amount of warrants that were issued was approximately 7.9 million, so a little bit over 7% dilution when you use the year-end share cap.
Speaker Change: Interest expenses.
Speaker Change: 75 cash corporate to biotech.
Speaker Change: And.
Speaker Change: Yes, we think our average weighted cost of debt stays reasonably low at about four 8% in the first year.
Speaker Change: I'm not sure if that answered your question.
Speaker Change: Yes.
Speaker Change: Contracts and anything too.
Speaker Change: But to think about for the share count going forward.
Speaker Change: Oh for sure yes, so I would just say that yes in the agreement.
Speaker Change: Total.
Speaker Change: The amount of warrants that were issued 479 million or approximately.
Speaker Change: Little bit over 7% solution.
Speaker Change: What do you use that year end share count.
Rakesh Babarbhai Patel: And Rick, the only other thing I would add is just, you know, we were able to delever a little bit of the transaction, which we saw as favorable. Very helpful. Thanks very much, guys. All the best.
Speaker Change: And the only other thing I would add is just we were able to delever a little bit of a transaction, which we saw as as favorable.
Speaker Change: Very helpful. Thanks, very much guys all the best Thank you.
Operator: Thank you. Thank you. One moment for our next question. Our next question comes from the line of Kunal Madhukar from UBS. Hi, thanks a lot. This is Jason speaking on behalf of Kunal Madhukar from UBS.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: One moment for next question.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Kunal Mod <unk> from UBS.
Speaker Change: Alright. Thanks, a lot. This is Jason on for Canal from UBS, a couple of questions. So the first one is.
Kunal Madhukar: A couple of questions. The first one is on the modeling side of things. I see the footnote in the press release, but could you please provide some details around the underlying components of the $6 million restructuring charge in Q4Q that pretty much drove the better-than-expected EBITDA compared to your guidance? And speaking of which, how should we think about this line item for 2024 in terms of dollars and year-on-year changes? and Al Bafalo.
Jason: On the modeling side of things.
Jason: I see the footnote in the press release, but could you. Please provide some details around the.
Jason: Underlying components of the 6 million restructuring charge in Q <unk>.
Jason: That pretty much drove the better than expected EBITA compared to your guidance and speaking of which how can we think about this line item for 2024 in terms of dollars and year on year change it up a level.
Caitlin Howe: Yes, so the crux of the restructuring charge that we took in Q4 really had to do with exiting some real estate, and so we did incur additional expenses, so I would characterize it a little bit differently. But I don't think that's what drove our favorability. You exclude those types of things when you're spending to exit real estate because it's not part of your ongoing operations, so that's how I would characterize it. Got it. Thank you. Um, my second question is, um, how can we think about sort of the inventory levels and gross margin levels compared to 2020 for this year? Any color on that will it be?
Speaker Change: Yes, so the.
Speaker Change: The restructuring charge that we took in Q4, it really had to do with exiting some real estate and so we did incur additional expenses. So I would characterize it a little bit differently I don't think that's what drove our favor ability is.
You exclude those types of things when you are spending to exit real estate, because because it's not part of your ongoing.
Speaker Change: Operations, So that's how I would characterize it.
Speaker Change: Got it thank you.
Speaker Change: Second question is how.
Speaker Change: How can we think about sort of the inventory levels and gross margin level.
Speaker Change: Levels compared to 24 this year any color on that would be helpful. Thank you.
Caitlin Howe: Yeah, so I assume you're talking about owned inventory. So our inventory balance at the end of 2023 was about $22 million. And if you remember, we peaked at $75 million of owned inventory 12 to 18 months ago. And so what I would say is, you know, that's really reflective of us minimizing the direct business, minimizing that owned inventory transaction, those transactions. And so I would consider this to be more or less a new normal for us. So there are ways that we still acquire inventory. And it's really through out of policy returns.
Speaker Change: So I assume youre talking there about owned inventory so our inventory balance at the end of 2023 was about $22 million and if you remember we peaked at $75 million of owned inventory 12 to 18 months ago, and so what I would say as you know that's really reflective of us minimizing the direct business minimizing owned inventory trend.
Speaker Change: Those transactions and so on.
Speaker Change: I was I would consider this to be more or less a new normal for us. So there are ways that we still acquire inventory and it's really through auto policy returns.
Caitlin Howe: So if somebody returns something, we've already paid out the consignor, then we will take that back onto our balance sheet in certain circumstances for really good repeat buyers. So that's, you know, we assume that will more or less grow with the business. It's a small, obviously, and all a small dollar amount.
Speaker Change: With somebody return something we've already paid out the Consignor, then we will take that back onto our balance sheet in certain circumstances for really good repeat buyers. So we assume that will more or less grow with the business. If you're small obviously at all a small dollar amount and then there also.
Caitlin Howe: And then there are also some get paid now, which is really, really a customer offering. So in certain circumstances, on very limited brands, high-end categories, think high-end watches, a few categories of high-end bags, there are some situations where we will pay a consignor upfront, and we typically pay them less. So we think if you consign with us, you'll end up earning more. But there is a really low risk of having to discount those goods.
Speaker Change: There are also some get paid now which is really really a customer offering so in certain circumstances I'm very limited brands high end categories being high end watches a few categories of high end bag. There is there is some situations, where we will pay a consignor.
Speaker Change: And we would typically pay the last so we think if you can sign with US you'll end up earning more but those are really low risk of having to discount those goods. So those two will continue but.
Kunal Madhukar: So those two will continue. But you know, what we did kind of during COVID to go out and buy inventory, that's really minimized and done at this point. So how we're thinking about total inventory and owned inventory going forward is more or less as a percent of revenue. Right now, we assume it will stay in that range going forward. Thank you very much.
Speaker Change: We did kind of during COVID-19 to go out and buy inventory, that's really minimized and done at this point. So how we're how we're thinking about total inventory owned inventory going forward, it's more or less as a percent of revenue, it's 4% to 5% right now we assume that it will stay in that range going forward.
Speaker Change: Thank you very much appreciate it.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Marvin Fong from BTIG, LLC. Good evening.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Marvin Fong from <unk> E. L. L C.
Marvin Milton Fong: Thanks for taking the questions. And congratulations on the quarter. I guess I'd like to circle back to what Rati was saying about, you know, the improvement after the bumpy October. And I believe you said you were pretty happy with January, even though there were signs elsewhere that the consumer, you know, kind of pulled back. So just curious, you know, if you could, do you have any thoughts on why it is that you guys saw that improvement? Was it something you guys yourselves were doing with your marketing or anything like that? Or did you just kind of feel like it's a value proposition responding with the, Hey Marvin, thanks for the question. I think it's all of the above.
Marvin Milton Fong: Hi, good evening, thanks for taking the questions.
Marvin Milton Fong: Congratulations on the quarter.
Marvin Milton Fong: I guess I'd like to circle back to what Rodney was saying about the improvement.
Marvin Milton Fong: After the bumpy October and I believe you said you are pretty happy with mid January even though they.
Marvin Milton Fong: There were signs that elsewhere that the consumer kind of pulled back. So I was just curious if you could do you have any.
Marvin Milton Fong: Thoughts on why it is that you guys all of that improvement whether it's something you guys yourselves, we're doing with your with marketing or anything like that or.
Marvin Milton Fong: Or did you just kind of feel like it's the value proposition resonating with the consumer.
Marvin Milton Fong: Hey, Margaret Thanks for the question I think it's in all of the above I think what people forget is we didn't have a lot of capabilities on how to personalize our relationship with the customer and what something that we've gotten really good at now as a year ago, We Couldnt say, hey, we haven't heard from Marvin in awhile here lets offering.
John E. Koryl: I think what people forget is that we didn't have a lot of capabilities to personalize our relationship with the customer. And something that we've gotten really good at now is, a year ago, we couldn't say, hey, we haven't heard from Marvin in a while, here, let's offer him, you know, something to make it so that he can consign. We now have that capability.
Marvin Milton Fong: Something to make it so that he can side, we now have that capability. We have the exact same capability on the customer side. So that's just one example on the marketing side on the other side of the coin we're seeing a lot of efficiency from our sales team brought the and team have done an incredible job of increasing the tenure of our sales representatives. We always knew we were in there.
John E. Koryl: We have the exact same capability on the customer side, so that's just one example on the marketing side. On the other side of the coin, we're seeing a lot of efficiency from our sales. Rati and her team have done an incredible job of increasing the tenure of our sales representatives. We always knew we were in the relationship business, but that's really coming through in the past year.
Marvin Milton Fong: Our relationship business, but that's really coming through in the past year and as I Didnt tenure increases the relationships increases in the Stick-to-it-ive Miss.
John E. Koryl: And as that tenure increases, the relationship increases, and the stick-to-itiveness of the RealReal's relationship with the consigner and ultimately the customer is really good. We still have a lot of opportunities to turn customers into consignors and even consignors into customers. But a lot of those relationships from a marketing and a sales perspective have made us a lot stickier, and we're seeing a lot more continuity. Anything to add, Rati?
Marvin Milton Fong: The <unk> relationship with the Consignor and ultimately the customer is really good we still have a lot of opportunities of concern turning customers into can signers, even can signers into customers, but a lot of those relationships from a marketing and a sales perspective.
Marvin Milton Fong: So we're a lot stickier and we're seeing a lot more constant annuity as the business goes forward anything to add around it.
Rati Sahi Levesque: Well, I would just say, you know, also, our investments are working, right? We have the affiliate program, we have a referral program, we're offering more events, our consumer events. So like Koryl and Don mentioned, marketing and sales are working better together, there are more efficiencies, and then our investments and our tactics are working. And, you know, we look forward to this year because now we have a full year of these investments. And I can't, you know, overemphasize the personalized promotions. Now we know what we need and how to get it, and who to get it from. And that's, that's been a game changer. That's terrific.
Marvin Milton Fong: Just say also our investments are working right. We have the affiliate program. We have a referral program, we're offering more and that are in our consumer event. So like Carl like Dan mentioned marketing and sales are working better together more efficiencies and then kind of our investments.
Marvin Milton Fong: And our tactics are working and we look forward to this year because now we have a full year of these investments and I can't.
Marvin Milton Fong: Overemphasize.
Marvin Milton Fong: Personalized promotions now we know what we need and how to get it to get it from and.
Marvin Milton Fong: That's been a game changer.
Marvin Milton Fong: And maybe a follow up. You know, so you guys, you know, obviously provided full year guidance. And then, you know, I observed that, you know, the active buyers were down in the fourth quarter. So, the first part is, you know, was that just a final flush of kind of the low, the low value buyers finally cycling out of the active buyer account? And, and secondly, could you just kind of talk about what you're thinking about, you know, active buyer growth versus AOV growth as you go through providing your full year GMB guidance? Sure. Yeah, I can take that one, Marvin.
Speaker Change: That's terrific and maybe.
Speaker Change: A follow up.
Speaker Change: So you guys, obviously provided full year guidance.
Speaker Change: Observe that the active buyers were down in the fourth quarter. So the first part as you know was that is.
Speaker Change: Is that just a final flush of kind of the low the low value buyers finally cycling out of the active buyer accounting and then secondly could you just kind of talk about what youre thinking about.
Speaker Change: Buyer growth versus <unk> growth as you.
Speaker Change: Went through providing full year <unk> guidance.
Speaker Change: Sure, Yes, I can take that one Martin so our active buyers.
Rati Sahi Levesque: So our active buyers did decelerate in Q4. But we expected that. This is all the changes that we made, moving out of unprofitable inventory, low value, unprofitable categories, and moving out of the direct business. So, something that we had forecasted, you're going to see this kind of turn going into this year and definitely going into the back half of this year. And that's the same way we think about average order value; the quality of the consumer, and the quality of the product are really what we're focused on. Got it.
Martin: Decelerate in Q4, we expected that this is all the changes that we made moving out unprofitable inventory low value unprofitable categories moving out of the direct business. So it's something that we had forecasted youre going to see this.
Martin: Kind of churn that's going into this year and definitely going into the back half of this year.
Martin: And the same is not the same way, we think about average order value.
Martin: Quality of the consumer the quality of the product is really what we're focused on.
Marvin Milton Fong: That's great. Thanks, everyone. Thank you. One moment for our next question. Our next question comes from the line of Ike Boruchow from Wells Fargo. Hey, everyone.
Speaker Change: Got it that's great. Thanks, everyone.
Speaker Change: Yes.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Ike <unk> from Wells Fargo.
Speaker Change: Yeah.
Operator: Um, two questions for me. First, on the demand side. Just, just curious, listening to other soft lines and consumer companies thus far this earnings season. Have you seen, can you talk about the volatility you've seen intraquarter to start Q1? A lot of companies have talked about softness in late January, early February, some stabilization coming out of February. Just not to get too granular, but I'm just kind of curious, does that mirror kind of what you're seeing? Or I just kind of curious how your businesses flow. Yeah, you know, I think we're going to resist the urge to give kind of a month by month or week by week flows. And I think this is Bobby.
Ike: Hi, everyone two questions for me first on the demand side.
Ike: Just curious listening to other soft lines and consumer companies. Thus far this earning season have you seen can you talk to the volatility you've seen intra quarter to start Q1.
Ike: You can talk to softness in late January early February some stabilization coming out of February just not to get too granular, but I'm kind of curious you've got mirror kind of what youre seeing or I'm, just kind of curious how your business has flowed.
Speaker Change: Yeah, I think we're going to resist the urge of giving kind of a month by month or week by week lows.
Robert K. Julian: But you know, I think the general principle is what we saw, right? We saw an acceleration throughout Q4, and we've seen good momentum so far in Q1. And I think, you know, overall, we're feeling pretty optimistic, maybe cautiously optimistic about where the company is headed. Got it. And then if I can shift just the margins and the guidance on revenue, so just first on the margins, I think the last call you had said, like a low 70s gross margin. I think you said it's like the new normal. You obviously had a great gross margin in 4Q. Should we be kind of expecting low 70s throughout the year?
Speaker Change: And I think this is Bobby.
Bobby: But you know what.
Speaker Change: Thank the general principle. It is what we saw right. We saw an acceleration throughout Q4, we've seen good momentum so far in Q1, and I think overall, we're feeling pretty optimistic may be cautiously optimistic about about where the businesses.
Speaker Change: Got it and then if I can shift just to the margins in the guidance on revenue. So just first on the margin, but I think the last call you had said.
Speaker Change: Like a low <unk> gross margin I think you said it like the new normal you, obviously had a great gross margin in <unk> should we be kind of expecting low seventies throughout the year is there seasonality. We should we should think of as we kind of model. The gross margin and then Caitlin just on the revenue versus GMB Guide can you just help us with the moving.
Irwin Bernard Boruchow: Is there seasonality we should think of as we kind of model the gross margin? And then, Caitlin, just on the revenue versus GMB guide, can you just help us with the moving pieces between those two? Maybe some take rate guidance for Q1 of the full year or direct revenue? How is that supposed to trend through the year? Any help on those line items?
Speaker Change: Pieces between those two maybe some take rate guidance for Q1 of the full year or direct revenue how is that supposed to trend through the year any help on those lines would be great.
Caitlin Howe: Absolutely, great question. So, you know, if you think about GMV flowing through to total revenue, there are kind of a couple factors there that you hit on. So pay grade and then also mix of products. And so when I say mix, I'm talking about consignment versus direct.
Caitlin: Yes, absolutely great question. So if you think about <unk> flowing through to total revenue kind of a couple of factors. There that you hit on some take rate and then also mix of product and so when I say mix I'm talking about consignment versus direct direct flows through dollar for dollar from GM theater revenue and so you saw a little bit of a headwind.
Caitlin Howe: Direct flows through dollar for dollar from GMV to revenue. And so you saw a little bit of headwind this year, sorry, last year, 2023, as we exited direct. You know, I still think there's a little bit of that you're going to see in Q1, that direct is still going to, we believe, shrink. But then, you know, once we start comping that lower percent of total direct, I think you're going to see a more consistent flow through, probably from GMV to total revenue. So again, I think, you know, Q1, a little bit of noise there just as we continue to exit the direct business, but then I think it should normalize. You know, take rate going forward, right? You saw we're up 150 basis points in take rate. And really, that was mostly driven by the consignor commission rate card change that we made at the end of 2022. And so, you know, we had to sell through the product that came in under the old rate card in the first half of the year.
Caitlin: This year or last year 2023, as we exited direct I still think theres, a little bit of that youre going to see in Q1.
Caitlin: That direct is still going to we believe will shrink.
Caitlin: Then once we start comping.
Caitlin: Well, we're a percent of total direct I think youre going to see a more consistent flow through Bobby from GMB said total revenue. So again, I think Q1, a little bit a little bit of noise. There just as we continue to exit the business, but then I think it should normalize you'll take rate going forward. You saw we were up 150 basis points.
Caitlin: Take rate and really that was mostly driven by the confine Our commission rate card change that we made at the end of 2022, and so we have to sell through the product that came in under the old rate card in the first half of the year, but then we saw it you said you got to see kind of a clean P&L in the back half of 2023, So what I would say is.
Caitlin Howe: But then we saw, you saw, you got to see kind of a clean P&L in the back half of 2023. So what I would say is, you know, take rate is this new normal at a higher level. And now from here, what will change is just the mix of product that's sold within a given quarter. And so as ASP or AOV goes a little bit higher, it tends to be higher in Q2, it tends to be the highest of the year in Q4, you're going to see a little pressure on take rate, but what you end up getting is good flow through on those units. So that's kind of the top line.
Caitlin: Great is this new normal at a higher level and now from here what will change is just the mix of product that sold within a given quarter.
Caitlin: And so as <unk>.
Caitlin: There was a little bit higher it tends to be higher in Q2 tends to be the highest out of the year in Q4, youre going to see a little pressure on take rate, but what you end up getting as good flow through on those units.
Caitlin Howe: And then the other piece that you asked about was margin, gross margin. And here's what I would say is, you know, we were pretty pleased with our gross margin in Q4. And I think, you know, I think we would say that a 70% plus is kind of, you know, the low 70s is the new normal.
Caitlin: So that's kind of top line and then the other piece that you asked about was margin gross margin and here's what I would say is we were pretty pleased with our gross margin in Q4, and I think I think we would say that a 770% plus is kind of you know that one of the seventies.
Caitlin Howe: Again, it will vary, you know, quarter to quarter based on, based on the mix of products that we sell. But I think we're feeling pretty good about that, you know, the consignment business has a high, has a pretty high gross margin inherently. And so as we mix more into that return to growth on the consignment and overall top line, you know, I think we feel pretty good about where the gross margin will be. Oh, thanks Caitlin. It's actually Ike.
Caitlin: Again, it will vary quarter to quarter based on based.
Caitlin: Based on the mix of products that we sell but I think we're feeling pretty good about that consignment business has.
Caitlin: <unk> has a pretty high gross margin inherently and so as we mix more into that return to growth.
On the consignment and overall top line I think we feel pretty good about where the gross margin of it.
Irwin Bernard Boruchow: I made the call. Don't worry. Hey, thanks Ike. Thank you. One moment for our next question. Our next question comes from the line of Ashley Owens from Key Bank Capital Markets. Great, thanks.
Speaker Change: Got it thanks, Caroline it's actually like maybe call for it.
Speaker Change: Thanks.
Caroline: Thanks, Ed.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of actually Owens from Keybanc capital markets.
Operator: So, you know, we talked about the changes that have been made to the business, really encouraging to see the positive EBITDA this quarter. You know, given this in the guidance today, do you think the growth trajectory here is a little bit more firm? And what are you seeing on the website in terms of shopper behaviors today that kind of gives you the confidence that we'll see that mid single-digit to low double-digit revenue growth change this year, and that momentum will kind of persist? Yeah, sure. Hi Ashley.
Owens: Great. Thanks, So you talked about the <unk>.
Ashley Anne Owens: <unk> that have been made to the business really encouraging to see the positive EBITDA. This quarter just given this and the guidance today do you think the growth trajectory here is a little bit more firm and what are you seeing on the website in terms of shopper behaviors today that kind of gives you the confidence that we'll see that mid single digit to low double digit revenue growth change this year.
Ashley Anne Owens: That momentum will kind of persist.
Rati Sahi Levesque: I'll start, and I'll let John add anything that I missed. We feel pretty confident, I would say, going into the year, based on where we are, based on the funnel, like I mentioned earlier, based on the consumer and his health. Fine jewelry is quite strong, high value is strong, and then, you know, it all starts with supply for us. So, when we look at the supply, we're seeing, you know, really healthy growth going into Q1. You know, I won't give any more guidance than that in Q1, but we are quite optimistic, and then we talked about, you know, all of the programs that we are launching that we tested in Q4 that worked for us. Those investments, like I mentioned, around marketing and sales, the 10-year of the sales rep is quite healthy going into Q1.
Speaker Change: Yeah, sure Hi, Ashley I'll start and I'll, let John add anything that I missed.
Speaker Change: We feel pretty confident I would say going into the year based on where we are based on the funnel like I mentioned earlier based on the consumer and the health of the consumer buying.
Speaker Change: Fine jewelry is quite strong high value is strong and then you know it all starts with supply for us. So when we look at the supply.
Speaker Change: Seeing really healthy growth.
Speaker Change: Going into Q1.
Speaker Change: Give any more guidance than that in Q1, but we are quite optimistic and then we talked about all of the programs that we're launching that we tested in Q4 that that works for us those investments like I mentioned around marketing and sales at 10 Europe sales Rep is quite healthy.
Rati Sahi Levesque: It all started in Q4, that realignment of value and quality between sales and marketing really worked for us. So we're seeing these investments pay off. And we're seeing that kind of growth continue into. I think it's really well said. We're a supply-constrained business, and the team is doing a really good job of developing supply. We definitely see this as a, I said, low double-digit grower.
Speaker Change: Into Q1 that start all started in Q4 that realignment of value in quality between the sales and marketing team is really working for us.
Speaker Change: So we're seeing these investments pay off.
And we're seeing that that kind of growth continue into Q1.
I think it's really well said, we're in a supply constrained business and.
Speaker Change: The team is doing a really good job of developing supply.
Speaker Change: We definitely see this as a I said low double digit grower.
John E. Koryl: We're up against some pretty tough comps, obviously, in Q1 from last year with a lot of low-value goods and clearing out the direct goods that we even did at a negative margin last year. So the comps in terms of growth aren't gonna be easy, but from there, especially in the back half of the year, is what we've set. We see this as being a longer-term, sustainable, much more profitable model of our business than we've been running. Great, thank you.
Up against some pretty tough comps, obviously in Q1 from last year with a lot of low value goods in clearing out the direct goods even did it at negative margin last year. So the comps in terms of growth arent going to be easy, but from there, especially in the back half of the year as we've said, we see this as being the longer term sustainable.
Speaker Change: Much more profitable model of our business and we've been running to date.
Operator: Thank you. Please take a moment for our next question. Our next question comes from the line of Tom Nikic from Wedbush. Hey everybody, thanks for taking my question. I wanted to ask about the debt transaction. So now that you've done this, essentially, do you feel like this kind of, You know, said, "you're good now, like, at least for a couple years until, you know, the next big tranches come, or is this kind of, you know, step one, and then you kind of need to, you know, do another transaction to get the capital structure exactly where you want it to be Tom, I'll talk about this is John Koryl from a runway perspective, and then I'll let Todd get into the particulars.
Speaker Change: Great. Thank you.
Speaker Change: Thank you one moment for next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Tom Nickel from Wedbush.
Tom Nikic: Hey, everybody.
Tom Nikic: Thanks for taking my question.
Tom Nikic: I wanted to ask about the debt transaction.
Tom Nikic: No.
Tom Nikic: Now that you've done this essentially do you feel like this kind of.
Tom Nikic: Sounds like Youre, good now like at least for a couple of years until.
Tom Nikic: The next big tranches come or is this kind of step one.
Tom Nikic: And then you kind of need to do another transaction.
To get the capital structure, exactly where you want it to be.
Tom Nikic: Yes, Tom I'll talk about this is John.
John E. Koryl: Our runway perspective, and then I'll, let Todd get into the particulars, but.
John E. Koryl: Our runway perspective, and then I'll, let Todd get into the particulars, but.
John E. Koryl: But from my perspective, what I challenge the team and our partners with is, give us the runway to prove that our model is the right model. And what you've seen in this quarter and the previous, honestly, five quarters is that we're on the right path. Give us the time to prove it. Give us the time so that we can be adjusted, even to break even or better. And then, what can we do in 25?
John E. Koryl: From my perspective, what I challenge the team and our partners with this gives us the runway to prove that our model is the right model and what you've seen in this quarter and the previous honestly five quarters as we're on the right path give us the time to prove it gives us the time, so that we can be adjusted EBITDA breakeven or better and then what can we do on 25 million.
John E. Koryl: And how can we build on that? And then, you know, what they were able to do is give us three plus years to prove this out. And that was incredibly important to me in my role.
John E. Koryl: How can we build on that and then.
Speaker Change: What they were able to do is give us three plus years to prove this out and that is what was incredibly important to me and my role. So the specifics of the transaction I'll turn that over to Todd, but we got exactly what we wanted out of the deal in terms of the timing of being able to replace this going forward.
Todd A. Suko: So the specifics of the transaction, I'll turn that over to Todd. But we got exactly what we wanted out of the deal in terms of the timing of being able to prove it. Tom, this is Todd.
Todd A. Suko: I mean, I think your question about how we see the capital structure going forward. I think that, you know, right now, we have plenty of flexibility to deal with that in the future. And, you know, as business improvers, I think that, you know, we'll have lots of good options for making decisions. All right, great. If I could just ask a quick, quick follow-up question, I just wanna make sure I kind of understand the terms. So the total interest rate on the debt is eight and three quarters, of which four and a quarter is PIC, and four and a half is cash. Is that the way to count it? Thomas is 8.75 cash and 4.25.
Speaker Change: This is faiza I think.
Speaker Change: Question about how do we see the capital structure going forward I think that.
Speaker Change: Right now we have plenty of flexibility to deal with that in the future.
Speaker Change: As business improves I think that much.
Speaker Change: Is it a good options for Jacobs.
Speaker Change: Making decisions.
Speaker Change: Alright, great.
Speaker Change: Sure.
Speaker Change: If I could just ask a quick quick follow up I, just want make sure I kind of understand the returns.
Speaker Change: So the total interest rate on the debt is eight and three quarters of which four in a quarter, it's <unk> four and a half as cash is that.
Speaker Change: Tom.
Speaker Change: 75% cash and $4 25.
Tom Nikic: Got it, okay. All right. Thank you very much. Thank you. One moment for our next question. Our next question comes from the line of Edward Yruma from KWMLLC. Hey, guys, it's Eddie Yruma from Piper Sandler.
Speaker Change: Got it okay.
Speaker Change: Alright, Thank you very much.
Speaker Change: Yes.
Speaker Change: One moment for next question.
Speaker Change: Our next question comes from the line of Edward <unk> from K W. M. L. L C.
Edward: Hey, Hey, guys, it's Eddie removed from Piper Sandler a couple quick ones from me just first a housekeeping.
Operator: A couple quick ones for me. Just first, a housekeeping question. If I recall, the 25 converts were I think 150 notional. So I assume this largely takes them out, the 146. And then I guess what triggers a pick versus cash interest?
Edward: <unk> question, if I recall that 25 converts where I think 150 notional sites. This largely takes them out the $1 46, and then I guess, what triggers a pik versus cash interest and then maybe a bigger picture question, we've seen easing pricing of kind of hard luxury.
Edward James Yruma: And then maybe a bigger picture question. We've seen easing of pricing on kind of hard luxury, even some promotions on things like watches, I guess. Have you seen deterioration in pricing? And I know your consignment, but has it impacted revenue growth? Thanks. Yeah, so I'll take the first part. So the face value of the 2025 notes was 172.5, and we took out 145.8 of those notes, plus another 6.5 of the 28 to replace that with $135 million in senior secured notes.
Edward: Even some promotions on.
Edward: Watches I guess have you seen deterioration in pricing and I know your consignment, but has been impacted revenue growth.
Edward: Yeah. So I'll take the first parts of the face value of the 2025 notes was $172 five as we took out $145 eight of those.
Edward: Plus another $6 five of the 20 eights and replace that with 135.
Todd A. Suko: And that's how we get the $17 million delivered. And then I can take the second part of that, Edward, the pricing piece of it and where we're seeing the consumer, as far as squeezing there. Our average selling price for like-for-like items has gone up. We're getting smarter as far as ML is concerned.
Edward: Yeah.
Edward: Senior secured notes and Thats, how we get the $17 million of Delevering.
Speaker Change: And then I can take the second part of that Edward.
Edward: The pricing piece of it and where we're seeing the consumer as far as squeezing there our average selling price for like for like guidance have gone up we're getting smarter as far as <unk> is concerned we've got 13 years of data that commission pricing.
John E. Koryl: We've got 13 years of data on attribution and pricing, and so we feel really good about, you know, continuing to kind of test higher and higher prices because it's better for the consigner.
Edward: And so we feel really good about continuing to kind of test.
Edward: Higher and higher prices better product designer, it's better for the real real.
John E. Koryl: It's better for the RealReal. And our pricing algorithm and models are now expanding to more and more categories this year. So we're happy about the progress there as far as, you know, www.youtube.com.uk. Yeah. I have to pile on. I think it's so amazing.
Edward: And our pricing algorithms and models are now expanding over more and more categories. Throughout this year. So we're happy about the progress there as far as you know.
Edward: Sure he items and where we're seeing the consumer like I mentioned before our fine jewelry is quite healthy ready to wear is back.
Edward: We're doing well with high value overall.
Edward: Yes.
Speaker Change: Pile on I think it's still amazing I've only been here a year, but in all honesty, the amount of pricing power and knowledge that we have and putting all this data together seeing 1 million unique skus every month.
John E. Koryl: I've only been here a year, but in all honesty... the amount of pricing power and knowledge that we have in putting all this data together, seeing a million unique SKUs every month, really provides a lot of benefits. Not only the history of 13 years, but the million unique SKUs per month make it so we've seen just about everything before, and category by category, we can actually push up the prices, try it, then we get a lot of signals from our website, from our three, three and a half billion website visitors per year.
Speaker Change: It's really providing a lot of benefits not only the history of the 13 years, but the 1 million unique skus per month makes it. So we've seen just about everything before and category by category, we can actually push up the pricing try it and then we get a lot of signals from our website from our three $3 5 billion website visitors per year. So you have this.
John E. Koryl: So you have this wonderful combination of an algorithm to build on top of, but then you actually have the experience of seeing the actual product perform in the wild, how many people have assessed it, how many people add it to their cart, all of those types of things. And I think we've been able to offset a lot of softness with, in all honesty, a lot of competitive intelligence on our side. And just on the cash versus pick interest, what makes you toggle it?
Wonderful combination of you have an algorithm to build on top up but then you actually have the experience of seeing the actual product perform in the wild how many people obsess at how many people added to their cart all of those types of things, but I think we've been able to offset a lot of softness.
Speaker Change: In all honesty, a lot of competitive.
Speaker Change: Competitive intelligence on our side.
Speaker Change: And just on the cash versus Pik interest what makes your tablet or is that your discretion.
Edward James Yruma: Is it at your discretion? Is it? No, it's not at your discretion.
Todd A. Suko: So it's 8.75 cash, and then the pick just accrues, with 8.7 plus the PIC. I'm sorry, I'm making myself clear. Yes, correct. Thank you. At this time, I would now like to turn the conference back over to John Koryl, CEO, for closing remarks.
Speaker Change: No discretion so.
Speaker Change: 75 cash pick just occurs.
Speaker Change: With $8 seven plus the pick I'm, sorry, I'm, just lesser heck, yes, correct this plus per day.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: At this time I would now like to turn the conference back over to John Coral CEO for closing remarks.
John E. Koryl: Thank you for joining us today. Before closing the call, we'd like to thank our entire team at The RealReal for their hard work and dedication in delivering significant progress in our operations and results in 2020. We honestly couldn't have accomplished any of these milestones without your relentless efforts to deliver the preeminent luxury resale experience to our consignors and buyers. I look forward to the next phase of our growth in 2024 and beyond.
Speaker Change: Yes.
John E. Koryl: Thank you for joining us today before closing the call we'd like to thank our entire team at the real real for their hard work and dedication in delivering significant progress in our operations and results in 2023.
John E. Koryl: The team we have.
John E. Koryl: Honestly couldnt have accomplished any of these milestones without your relentless efforts to deliver the parameter luxury reshape resale experience targeting signers and buyers I look forward to the next phase of our growth to 2000, and 2024 and beyond we would also like to thank our more than 35 million members as they join us on our mission to exceed.
Operator: We'd also like to thank our more than 35 million members as they join us on our mission to extend the life of luxury and make fashion more sustainable. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you for watching!
John E. Koryl: The life of luxury fashion more sustainable thank you.
John E. Koryl: Okay.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Sure.