Q2 2024 ThredUp Inc Earnings Call

August 5, 2024

[inaudible]

Operator: Good day, everyone, and welcome to today's ThredUp Q2 2024 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note, today's call will be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Lauren Frasch, Head of Investor Relations.

Speaker Change: Good day, everyone, and welcome to today's ThredUp Q2 2024 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session.

Speaker Change: Please note, today's call will be recorded and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Lauren Frasch, Head of Investor Relations.

Lauren Frasch: Good afternoon, and thank you for joining us on today's conference call to discuss ThredUp's second quarter 2024 financial results. With me are James Reinhart, ThredUp CEO and co-founder, and Sean Sobers, CFO.

Speaker Change: Good afternoon and thank you for joining us on today's conference call to discuss ThredUp's second quarter 2024 financial results. With me are James Reinhart, ThredUp's CEO and co-founder, and Sean Sobers, CFO .

Speaker Change: We post 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.

Unknown Executive: threat up.com. This call is being webcast on our IR website, and a replay of this call will be available on the site shortly.

Lauren Frasch: We post 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. Before we begin, I'd like to remind you that we will make forward-looking statements during the course of this call, including, but not limited to, statements regarding our earnings guidance for the third and fourth fiscal quarters and full year of 2024, future financial performance, market demand, growth prospects, business strategies and plans, investments in AI technologies, the company's intention to exit the European market and to seek strategic alternatives for its European business, and our ability to cost-effectively track new buyers.

Lauren Frasch: 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 to 3rd and 4th fiscal quarters and 4 years 2024. Future financial performance, market demand, growth prospects, business strategies and plans, investments in AI technologies, the company's intention to exit the European market and to seek strategic alternatives for its European business and our ability to cost-effectively truck new buyers. We're in such as anticipate, believe, estimate, and expect, as well as similar expressions, are intended to identify forward-looking statements.

Speaker Change: Before we begin, I'd like to remind you that we will make forward-looking statements during the course of this call, including, but not limited to, statements regarding our earnings guidance for the third and fourth fiscal quarters and full year of 2024.

Speaker Change: Future financial performance, market demand, growth prospects, business strategies and plans, investments in AI technologies, the company's intention to exit the European market and to seek strategic alternatives for its European business, and our ability to cost-effectively track new buyers.

Lauren Frasch: Words such as anticipate, believe, estimate, and expect, as well as similar expressions, are intended to identify a forward-looking statement. These forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties, including our ability to effectively deploy new and evolving technologies, such as artificial intelligence and machine learning, in our offerings, our ability to identify and execute a strategic alternative for the company's European business, and the effects of inflation, increased interest rates, changing consumer habits, climate change, and general global economic uncertainty.

Lauren Frasch: Our actual results could differ materially from any projections of future performance or results expressed or implied by such forward-looking standards. You can find more information about these risks, uncertainties, and other factors that could affect our operating results in our SFC filings, earnings press release, and supplemental information posted on our IR website. 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 Change: Words such as anticipate, believe, estimate, and expect, as well as similar expressions, are intended to identify forward-looking statements.

Lauren Frasch: These forward-looking statements are not guarantees of future performance, involved known and unknown risks and uncertainties, including our ability to effectively deploy new and involve eight technologies such as artificial intelligence and machine learning in our offerings. Our ability to identify and execute a strategic alternative for the company's European business and the effects of inflation, increase interest rates, changing consumer habits, climate change, and general global economic and certainty. Our actual results could differ materially from any projection of future performance or results expressed or implied by such forward-looking statements.

Speaker Change: These forward-looking statements are not guarantees of future performance, involve known and unknown risks and uncertainties, including our ability to effectively deploy new and evolving technologies, such as artificial intelligence and machine learning in our offerings.

Speaker Change: Our ability to identify and execute a strategic alternative for the company's European business and the effects of inflation, increased interest rates, changing consumer habits, climate change, and general global economic uncertainty.

Speaker Change: Our actual results could differ materially from any projections of future performance or result expressed or implied by such forward-looking standards.

Lauren Frasch: You can find more information about these risks and certainties and other factors that could affect our operating results and our SEC filings. Our name's press release and supplemental information posted on our website.

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

Lauren Frasch: 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 Change: 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.

Lauren Frasch: In addition, during the call, we will present certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, GAAP measures. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our earnings press release and supplemental information posted on our IRO website. Now, I'd like to turn the call over to James Reinhart

Lauren Frasch: In addition, during the call we will present certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from GAAP measures. You can find additional disclosure regarding these non-GAAP measures, including reconciliation with comparable GAAP measures, in our earnings press release and supplemental information posted on our website.

Speaker Change: 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 Change: You can find additional disclosures regarding these non-GATT measures, including reconciliations with comparable GATT measures in our earnings press release and supplemental information posted on our IRO website. Now I'd like to turn the call over to James Reinhart.

James Reinhart: Now I'd like to turn the call over to James Reinhart. Thanks, Lauren. Good afternoon, everyone. I'm James Reinhart, CEO and co-founder of ThredUp. Thank you for joining our second quarter of 2024 earnings call. We're pleased to share thredUP's financial results for Q2. And that's significant news to share about how we expect our business to evolve in the back after the year and into 2025. We will provide an update on growth, adjusted EBITDA margin expansion, and expectations for free cash flow over the next year. And further developments in our new AI products as we launch them widely this month.

James Reinhart: Thanks, Lauren. Good afternoon, everyone.

James Reinhart: Thanks, Lauren. Good afternoon, everyone. I'm James Reinhart, CEO and co-founder of ThredUp. Thank you for joining our second quarter 2024 earnings call.

James Reinhart: I'm James Reinhart, CEO and co-founder of ThredUp. Thank you for joining our second quarter 2024 earnings call. We're pleased to share ThredUp's financial results for Q2 and have some significant news to share about how we expect our business to evolve in the back half of the year and into 2025. We will provide an update on growth, adjusted EBITDA margin expansion, expectations for free cashflow over the next year, and further developments in our new AI products as we launch them widely this month.

Speaker Change: We're pleased to share ThredUp's financial results for Q2, and have significant news to share about how we expect our business to evolve in the back half of the year and into 2025.

Speaker Change: We will provide an update on growth, adjusted EBITDA margin expansion, expectations for free cash flow over the next year, and further developments in our new AI products as we launch them widely this month.

Sean Sobers: I will then hand it over to Sean Sobers, our Chief Financial Officer, to talk to our second quarter of 2024 financials in more detail and provide our outlook for the third and fourth quarter of 2024.

James Reinhart: I will then hand it over to Sean Sobers, our Chief Financial Officer, to talk through our second quarter of 2024 financials in more detail and provide our outlook for the third and fourth quarters of 2024. We'll close out today's call with a question and answer session.

Speaker Change: I will then hand it over to Sean Sobers, our Chief Financial Officer, to talk through our second quarter of 2024 financials in more detail and provide our outlook for the third and fourth quarter of 2024. We'll close out today's call with a question and answer session.

James Reinhart: We'll close out today's call with a question-and-answer session. To get right to it, I want to start by acknowledging that the quarter, on a consolidated basis, was challenging for us. This was the case for three specific reasons, which I'll explain in order of impact. First, and by far most significantly, our European business really struggled. Second, we experimented in the US with initiatives around new forms of customer acquisition and promotion. And they simply didn't perform the way we expected. Third, we are operating in an incrementally more challenging consumer environment, or the compounding effects of inflation continue to hurt our core customers.

James Reinhart: To get right to it, I want to start by acknowledging that the quarter on a consolidated basis was challenging for us. This was the case for three specific reasons, which I will explain in order of impact. First, and by far the most significantly, our European business really struggled. Second, we experimented in the US with initiatives around new forms of customer acquisition and promotion, and they simply didn't perform the way we expected. Third, we are operating in an increasingly more challenging consumer environment, where the compounding effects of inflation continue to hurt our core customers. Well, Sean will walk you through all the detailed financials in a moment.

Sean Sobers: To get right to it, I want to start by acknowledging that the quarter on a consolidated basis was challenging for us. This was the case for three specific reasons, which I will explain in order of impact.

Sean Sobers: First, and by far most significantly, our European business really struggled.

Sean Sobers: Second, we experimented in the U.S. with initiatives around new forms of customer acquisition and promotion, and they simply didn't perform the way we expected. Third, we are operating in an incrementally more challenging consumer environment, where the compounding effects of inflation continue to hurt our core customers.

James Reinhart: Well, Sean will walk you through all the detailed financials in a moment. I want to highlight that for the fourth quarter in a row, our US business is growing growth profit, expanding margins, and it's adjusted EBITDA positives. In Europe, however, the business has continued to struggle, even as we invested over $20 million in cash in that business over the past six quarters. In Q2, our EU business contracted 18% while posting a negative 23% adjusted EBITDA, despite significant attention from our US team. The accelerated transition to consignment in EU business has been challenging, particularly in the midst of a difficult consumer demand environment and persistent inflation.

James Reinhart: I want to highlight that for the fourth quarter in a row, our U.S. business is growing gross profit, expanding margins, and it's even adjusted up positive. In Europe, however, the business has continued to struggle, even as we invested over $20 million in cash in that business over the past six quarters. In Q2, our EU business contracted 18% while posting a negative 23% adjusted EBITDA, despite significant attention from our U.S. The accelerated transition to consignment in our EU business has been challenging, particularly in the midst of a difficult consumer demand environment and persistent inflation.

Sean Sobers: While Sean will walk you through all the detailed financials in a moment, I want to highlight that for the fourth quarter in a row, our U.S. business is growing gross profit, expanding margins, and is adjusted even positive.

Sean Sobers: In Europe , however, the business has continued to struggle, even as we invested over $20 million in cash in that business over the past six quarters.

Sean Sobers: In Q2, our EU business contracted 18% while posting a negative 23% adjusted EBITDA, despite significant attention from our U.S. team.

Sean Sobers: The accelerated transition to consignment in the EU business has been challenging, particularly in the midst of a difficult consumer demand environment and persistent inflation.

James Reinhart: Despite bringing a new leadership upon strategic review, we determined that the remix business needs a longer-term turnaround.

James Reinhart: Despite bringing in new leadership, upon strategic review, we've determined that the remix business needs a longer-term turnaround. As such, we've made the difficult decision to divest our European business and commence seeking strategic alternatives. I'd now like to turn your attention to U.S. performers. There are two areas I would like to make sure are very clearly understood.

Sean Sobers: Despite bringing in new leadership, upon strategic review, we've determined that the Remix business needs a longer-term turnaround. As such, we've made the difficult decision to divest our European business and have commenced seeking strategic alternatives.

James Reinhart: As such, we've made the difficult decision to divest our European business and a commend seeking strategic alternatives.

James Reinhart: I'd now like to turn your attention to US performance. There are two areas I would like to make sure are very clearly understood. First, midway through Q1, we embarked on a plan for driving increased life and value from new customers by spending a bit less on marketing and changing our new customer offer structure and subsequent retention incentives. With the US business cash flow positive and growing revenue for buyer, we attempted to test into a new customer growth strategy and to further increase the LTV attack ratio by exploring some bold changes. Unfortunately, after reducing spend, iterate in nearly 90 days of testing and observing retention metrics, we found ourselves to be worse off.

Sean Sobers: I'd now like to turn your attention to U.S. performance.

James Reinhart: First, midway through Q1, we embarked on a plan for driving increased lifetime value for new customers by spending a bit less on marketing and changing our new customer offer structure and subsequent retention incentives. With the U.S. business cash flow positive and growing revenue per buyer, we attempted to test a new customer growth strategy and to further increase the LTV to CAC ratio by exploring some bold changes. Unfortunately, after reducing spend to iterate and nearly 90 days of testing and observing retention metrics, we found ourselves to be worse off. The estimated impact of this was that we acquired 90,000 fewer customers, who will then also not materialize into repeat customers this year.

Sean Sobers: There are two areas I would like to make sure are very clearly understood. First, midway through Q1, we embarked on a plan for driving increased lifetime value from new customers by spending a bit less on marketing and changing our new customer offer structure and subsequent retention incentives.

Sean Sobers: With the U.S. business cash flow positive and growing revenue per buyer, we attempted to test into a new customer growth strategy and to further increase the LTV to CAC ratio by exploring some bold changes.

Sean Sobers: Unfortunately, after reducing spend to iterate, and nearly 90 days of testing and observing retention metrics, we found ourselves to be worst off.

James Reinhart: The estimated impact of this was that we acquired 90,000 fewer customers who then also will not materialize into repeat customers this year. We reverted back to our prior spend and offer strategy on June 1st, and I've seen immediate recovery in June and July. Second, let me turn to pricing and promotion. Since the middle of 2022, back when the consumer environment began to soften, we've been flexing prices and promotion to optimize for unit and contribution. Margin Over that time period, we have made significant margin gains, with gross margins up nearly 800 basis points to roughly 80%, and contribution margins improving more than 1000 basis points.

Sean Sobers: The estimated impact of this was that we acquired 90,000 fewer customers, who then also will not materialize into repeat customers this year. We reverted back to our prior spend and offer strategy on June 1st, and have seen immediate recovery in June and July .

James Reinhart: We reverted back to our prior spend and offer strategy on June 1, and I've seen immediate recovery in June and July. Now, let me turn to pricing and promotion. Since the middle of 2022, back when the consumer environment began to soften, we've been flexing prices and promotions to optimize for unit and contribution markets. Over that time period, we have made significant margin gains, with gross margins up nearly 800 basis points to roughly 80% and contribution margins improving more than 1000 basis points. Our unit economics have been as strong as ever.

Sean Sobers: Second, let me turn to pricing and promotion. Since the middle of 2022, back when the consumer environment began to soften, we've been flexing prices and promotions to optimize for unit and contribution margin.

Sean Sobers: Over that time period, we have made significant margin gains, with gross margins up nearly 800 basis points to roughly 80%, and contribution margins improving more than 1,000 basis points.

James Reinhart: Our unit economics have been as strong as ever, and we have made substantial progress towards our long term margin to a while. The results have been mixed; orders and revenue per buyer reached all-time highs in Q2, running at more than $208 per active buyer in the US. Total item sales for the quarter of each and all-time high of more than 5 million pieces of clothing. The downside is that we did not see sufficient buyer incrementality, given what we believe is just a muted overall demand environment. In addition, revenue flowed through it reduced unit economics, and we believe we pulled forward summer demand from Q3 into Q2.

James Reinhart: And we have made substantial progress towards our long-term margin profile. What we've been experimenting with in Q2 and into the early part of Q3 was to trade some of those unit economics for increased active buyer engagement, orders per customer, and sell through. And the results have been mixed. Orders and revenue per buyer reached all-time highs in Q2, running at more than $208 per active buyer in the US. Total item sales for the quarter reached an all-time high of more than 5 million pieces of clothing.

Sean Sobers: Our unit economists have been as strong as ever, and we have made substantial progress towards our long-term margin profile.

Sean Sobers: What we've been experimenting with in Q2 and into the early part of Q3 was to trade some of those unit economics for increased active buyer engagement, orders per customer, and sell-through.

Sean Sobers: And the results have been mixed. Orders and revenue per buyer reached all-time highs in Q2, running at more than $208 per active buyer in the U.S. Total item sales for the quarter reached an all-time high of more than 5 million pieces of clothing.

James Reinhart: The downside is that we did not see sufficient buyer incrementality given what we believe is just a muted overall demand environment. In addition, revenue flowed through at reduced unit economics, and we believe we pulled forward summer demand from Q3 into Q2. To give you a sense of this, item sales in June were up 16% year over year, and June tends to be a weaker demand month in apparel. We learned important lessons in Q2 and early in Q3 around item targeting, promotions, and pricing elasticity that will guide our decision making into the back half of the year and beyond. Unfortunately, these two initiatives, which we take full accountability for, will have a lingering impact for the remainder of the year. But it's worth emphasizing that these were not things that, quote unquote, happened to us.

Sean Sobers: The downside is that we did not see sufficient buyer incrementality, given what we believe is just a muted overall demand environment.

Sean Sobers: In addition, revenue flowed through at reduced unit economics, and we believe we pulled forward summer demand from Q3 into Q2. To give you a sense of this, item sales in June were up 16% year-over-year, and June tends to be a weaker demand month in apparel.

James Reinhart: To give you a sense of this, items else in June were up 16% year every year, and June tends to be a weaker demand month in a peril. We learned important lessons in Q2 and early in Q3 around item targeting, promotions, and pricing elasticity that will guide our decision making into the back half of the year and beyond. Unfortunately, these two initiatives, which we take full accountability for, will have a lingering impact the remainder of the year. But it's worth emphasizing that these were not things that, quote unquote, happened to us; rather, we made choices with well-considered strategic considerations, and they just did not perform the way we expected.

Speaker Change: We learned important lessons in Q2 and early in Q3 around item targeting, promotions, and pricing elasticity that will guide our decision-making into the back half of the year and beyond.

Speaker Change: Unfortunately, these two initiatives, which we take full accountability for, will have a lingering impact the remainder of the year.

Speaker Change: But it's worth emphasizing that these were not things that quote-unquote happened to us. Rather, we made choices with well-considered strategic considerations, and they just did not perform the way we expected.

James Reinhart: Rather, we made choices with well-considered strategic considerations, and they just did not perform the way we expected. Many of our initiatives over the past couple of years have led to the steady growth and adjusted EBITDA expansion you've seen in the U.S. But we're not perfect.

James Reinhart: Many of our initiatives over the past couple of years have led to the steady growth and adjusted EBITDA expansion you've seen in the US. But we're not perfect. We won't get it right every time, but we believe our body of work over the past couple of years demonstrates that we're getting it right a lot more than we're getting it wrong as we navigated a challenging macro environment.

Speaker Change: Many of our initiatives over the past couple of years have led to the steady growth and adjusted EBITDA expansion you've seen in the U.S.

James Reinhart: We won't get it right every time, but we believe our body of work over the past couple of years demonstrates that we're getting it right a lot more than we're getting it wrong as we navigate a challenging macro environment. And that's a nice segue as I turn to our product launches this week. After months of testing, we are going live with our quote endless expression marketing campaign that launches our new AI shopping products to all customers.

Speaker Change: But we're not perfect. We won't get it right every time. But we believe our body of work over the past couple of years demonstrates that we're getting it right a lot more than we're getting it wrong as we navigate a challenging macro environment.

James Reinhart: And that's a nice segue as I turn to our product launches this week. After months of testing, we are going live with our quote endless expression marketing campaign that launches our new AI shopping products to all customers. Our visual search functionality is now deployed across each of our platforms, bringing a much more robust shopping experience to every journey. Our style chat launch helps customers shop by inspiration and occasion in ways that are much more intuitive. For example, you could now shop for a Cape Cod fall wedding or a Disney Bahama cruise or outfits for New York City back to school like area on a Grande.

Speaker Change: And that's a nice segue as I turn to our product launches this week.

Speaker Change: After months of testing, we are going live with our quote, endless expression marketing campaign that launches our new AI shopping products to all customers.

James Reinhart: Our visual search functionality is now deployed across each of our platforms, bringing a much more robust shopping experience to every journey. Our Style Chat launch helps customers shop by inspiration and occasion in ways that are much more intuitive. For example, you could now shop for a Cape Cod fall wedding, or a Disney Bahama cruise, or outfits for New York City back to school, like Ariana Grande. Customers are now only limited by their imaginations and creativity. Our image search tool now lets you import any item into ThredUp's mobile experience and find quality, high-fidelity looks that match your style.

Speaker Change: Our visual search functionality is now deployed across each of our platforms, bringing a much more robust shopping experience to every journey.

Speaker Change: Our Style Chat launch helps customers shop by inspiration and occasion in ways that are much more intuitive. For example, you could now shop for a Cape Cod fall wedding, or a Disney Bahama cruise, or outfits for New York City back to school like Ariana Grande.

James Reinhart: Customers are now only limited by their imagination and creativity. Our image search tool now lets you import any item into threat of mobile experience and find quality high fidelity looks that match your style. Whether it's finding a look you up on Instagram or TikTok or Pinterest, or reading People Road magazine, or seeing a cute manic and dressed up in a store window. We now bring you all of this into a customizable on-demand drift experience.

Speaker Change: Customers are now only limited by their imaginations and creativity.

Speaker Change: Our image search tool now lets you import any item into ThredUp's mobile experience and find quality, high-fidelity looks that match your style.

James Reinhart: Whether it's finding a look you love on Instagram, or TikTok, or Pinterest, or reading People or Vogue magazine, or seeing a cute mannequin dressed up in a store window, we now bring all of this into a customizable, on-demand thrift experience. I want to emphasize, this is the most significant product launch we've had at ThredUp in a long time, arguably since we launched the company more Much of the customer innovation from here will build on top of this foundational technology for merchandising, discovery, and inspiration. This technology can enable us to leap forward because we already have built a massive data advantage, world-class infrastructure, and a beloved brand. As I've said before, this isn't ThredUp plus the new AI experiences.

Speaker Change: Whether it's finding a look you love on Instagram, or TikTok, or Pinterest, or reading People or Vogue magazine, or seeing a cute mannequin dressed up in a store window, we now bring you all of this into a customizable, on-demand thrift experience.

James Reinhart: I want to emphasize this is the most significant product launch we've had it brought up in a long time, are viewably since we launched the company more than a decade ago. Much of the customer innovation from here will build on top of this foundational technology for merchandising discovery and inspiration. This technology can enable us to leap forward because we already have built a massive data advantage, world-class infrastructure, and the beloved brand. As I've said before, this isn't ThredUp plus the new AI experiences. This is a fundamental upgrade in how we're innovating on behalf of the customer.

Speaker Change: I want to emphasize, this is the most significant product launch we've had at ThredUp in a long time, arguably since we launched the company more than a decade ago. Much of the customer innovation from here will build on top of this foundational technology for merchandising, discovery, and inspiration.

Speaker Change: This technology can enable us to leap forward because we already have built a massive data advantage, world-class infrastructure, and a beloved brand.

Sean Sobers: This is a fundamental upgrade in how we're innovating on behalf of the customer. We believe that AI disproportionately benefits our business relative to other marketplaces and retailers. And as consumers become more accustomed to these types of products in their lives, we believe we will see significant upside in our business. Before I turn it over to Sean, I want to close with a few thoughts on how we see the back half of the year shaping up broadly, and for ThredUp specifically.

Speaker Change: As I've said before, this isn't ThredUp plus some new AI experiences. This is a fundamental upgrade in how we're innovating on behalf of the customer.

James Reinhart: We believe that AI disproportionately benefits our business relative to other marketplaces and retailers, and as consumers become more accustomed to these types of products in their lives, we believe we will see significant upside in our business.

Speaker Change: We believe that AI disproportionately benefits our business relative to other marketplaces and retailers. And as consumers become more accustomed to these types of products in their lives, we believe we will see significant upside in our business.

James Reinhart: Before I turn over to Sean, I want to close with a few thoughts on how we see the back half of the year shaping up broadly, and for ThredUp specifically. First, consistent with commentary from many of our peers, we expect a consumer environment to remain challenging until consumers begin to feel the benefits of that being inflation, where we're interest rates, and ongoing job stability and wage gains. We agree with soft landing commentary for the broader economy, but remember, landings are not the same as takeoffs. We think it will take several quarters for consumers, especially our core customers, to feel the benefits of interest rates coming down, and for overall sentiment to improve.

Speaker Change: Before I turn it over to Sean, I want to close with a few thoughts on how we see the back half of the year shaping up broadly.

Sean Sobers: First, consistent with commentary from many of our peers, we expect the consumer environment to remain challenging until consumers begin to feel the benefits of ebbing inflation, lower interest rates, and ongoing job stability and wage. We agree with soft landing commentary for the broader economy, but remember, landings are not the same as takeoffs. We think it will take several quarters for consumers, especially our core customers, to feel the benefits of interest rates coming down and for overall sentiment to improve.

Sean Sobers: And for ThredUp specifically, first, consistent with commentary from many of our peers, we expect the consumer environment to remain challenging until consumers begin to feel the benefits of ebbing inflation, lower interest rates, and ongoing job stability and wage gains.

Sean Sobers: We agree with soft landing commentary for the broader economy, but remember, landings are not the same as takeoffs. We think it will take several quarters for consumers, especially our core customers, to feel the benefits of interest rates coming down and for overall sentiment to improve.

James Reinhart: We also remain cautious given the upcoming US election cycle and recent financial indicators of the slow economy and degradation in the jobs market. Second, after the volatility of the first half of the year with our March restructure, intention to divest our European business and to seek strategic alternatives for me, and the full scale launch of a whole new set of product experiences built around generative AI, our approach is to remain cautious on investments in marketing, processing, and general operating expenditures. We will focus our efforts on improving our product experience, normalizing our unit economics, and driving process improvements in our DCs to lower our overall variable cost.

Sean Sobers: We also remain cautious given the upcoming U.S. election cycle and recent financial indicators of a slowing economy and degradation in the jobs market. Second, after the volatility of the first half of the year with our March restructure, the intention to divest our European business and to seek strategic alternatives from Emix, and the full scale launch of a whole new set of product experiences built around generative AI, our approach is to remain cautious on investments in marketing, processing, and general operating expenditures.

Sean Sobers: We also remain cautious given the upcoming U.S. election cycle and recent financial indicators of a slowing economy and degradation in the jobs market.

Sean Sobers: Second, after the volatility of the first half of the year, with our March restructure, intention to divest our European business and to seek strategic alternatives from Emix, and the full-scale launch of a whole new set of product experiences built around generative AI, our approach is to remain cautious on investments in marketing, processing, and general operating expenditures.

Sean Sobers: We will focus our efforts on improving our product experience, normalizing our unit economics, and driving process improvements in our DCs to lower our overall variable cost. We remain poised to accelerate all of our growth engines as conditions for discretionary apparel spending in the US improve. Despite the ambition and optimism of every teammate in the halls at ThredUp, we just do not see a playing field in the second half that suggests we should or could be more aggressive.

James Reinhart: We remain poised to accelerate all of our growth engines as conditions for discretionary apparel spending in the US improve. Despite the ambition and optimism of every teammate in the halls that brought up, we just do not see a playing field in the second half that suggests we should or could be more aggressive. Third, as we refocus all of our efforts on the US, we expect our business to grow faster, with structurally higher margins, adjusted EBITDA and free cash will, despite having a lower top on. This might not come all at once, as I mentioned earlier, and we may remain temporarily at the mercy of economic forces outside of our control.

Sean Sobers: Despite the ambition and optimism of every teammate in the halls at ThredUp, we just do not see a playing field in the second half that suggests we should or could be more aggressive.

Sean Sobers: Third, as we refocus all of our efforts on the US, we expect our business to grow faster with structurally higher margins, adjusted EBITDA, and free cash flow, despite having a lower top line. This might not come all at once, as I mentioned earlier, and we may remain temporarily at the mercy of economic forces outside of our control. But we believe the fundamentals of ThredUp's business will be more resilient, more predictable, and more defensible as we move back to exclusively focusing on the U.S. opportunity. This laser-like focus should be a significant catalyst for us in the year ahead. I'll now turn it over to Sean to walk through the financials in more detail.

Sean Sobers: Third, as we refocus all of our efforts on the U.S., we expect our business to grow faster with structurally higher margins, adjusted EBITDA, and free cash flow, despite having a lower top line.

Sean Sobers: This might not come all at once, as I mentioned earlier, and we may remain temporarily at the mercy of economic forces outside of our control.

James Reinhart: But we believe the fundamentals of Thrive's business will be more resilient, more predictable, more defensible as we move back to exclusively focusing on US opportunity.

Sean Sobers: But we believe the fundamentals of ThredUp's business will be more resilient, more predictable, more defensible as we move back to exclusively focusing on the U.S. opportunity. This laser-like focus should be a significant catalyst for us in the year ahead.

James Reinhart: This laser-like focus should be a significant catalyst for us in the year ahead.

Sean Sobers: I'll now turn it over to Sean to walk through the financials in more detail. Thanks, James. I'll begin with an overview of our results and follow up with guidance for the third and fourth quarters in full year of 2024. I will discuss non-GAAP results throughout my remarks.

Sean Sobers: I'll now turn it over to Sean to walk through the financials in more detail.

Sean Sobers: Thanks, James. I'll begin with an overview of our results and follow up with guidance for the third and fourth quarters and full year of 2024. I will discuss non-GAAP results throughout my remarks. Our GAAP financials and a reconciliation between our GAAP and non-GAAP measures are found in earnings release supplemental financials and our 10-Q files.

Sean Sobers: Our gap financials and a reconciliation between our gap and non-gap measures are found in an earnings release, supplemental financials, and our 10-Q filing. Before we get into the numbers, I want to start with an overview of how I view our business and the remainder of the year. Tutu was a challenge in part due to the factors outside of our control in Europe and part due to factors within our control in the US. We have our arms around both of these challenges.

Sean Sobers: Before we get into the numbers, I want to start with an overview of how I view our business for the remainder of the year. 2-2 was a challenge in part due to factors outside of our control in Europe and in part due to factors within our control in the US. We have our arms around both of these challenges. In the U.S., we expect the impact of the Q1 and Q2 missteps in our buyer acquisition strategy and promotional cadence that James described earlier to linger throughout the balance of the year. But we are pleased to report that we have diagnosed the problem and are on course correct.

Sean Sobers: Before we get into the numbers, I want to start with an overview of how I view our business in the remainder of the year. Q2 was a challenge, in part due to the factors outside of our control in Europe , and in part due to factors within our control in the U.S. We have our arms around both of these challenges.

Sean Sobers: In the U.S. We expect the impact from the Q1 and Q2 missteps in our buyer acquisition strategy and promotional cadence that James described earlier to linger throughout the balance of the year. But we are pleased to report that we have diagnosed the problem and are course-correcting. While our revenue growth in the second half will be weaker than we'd like, as we absorb the negative impact of the strategy shifts, as well as being up against 15% growth in the second half of 2023, we expect to be even positive. Europe has been a drag on our profitability and focus for several quarters, but we intend to exit the European market and expect to present U.S.

Sean Sobers: In the U.S., we expect the impact from the Q1 and Q2 missteps in our buyer acquisition strategy and promotional cadence that James described earlier to linger throughout the balance of the year.

Sean Sobers: But we are pleased to report that we have diagnosed the problem and are course correcting.

Sean Sobers: While our revenue growth in the second half will be weaker than we'd like as we absorb the negative impact of this strategy shift, as well as being up against 15% growth in the second half of 2023, we expect to be EBITDA positive. Europe has been a drag on our profitability and focus for several quarters, but we intend to exit the European market and expect to present only US operating results when we report our Q3 earnings.

Sean Sobers: While our revenue growth in the second half will be weaker than we'd like as we absorb the negative impact of the strategy shift, as well as being up against 15% growth in the second half of 2023, we expect to be EBITDA positive.

Sean Sobers: Europe has been a drag on our profitability and focus for several quarters, but we intend to exit the European market and expect to present US-only operating results when we report our Q3 earnings.

Sean Sobers: only operating results when we report our Q3 earnings. We will be able to direct our focus and resources to prioritize our U.S. operations without the burden of optimizing for consolidated results. We anticipate that this action will immediately increase our growth margins and improve our growth profit growth, get us to positive adjusted EBITDA, and accelerate our path to free cash flow. So XMVU will incur some cash cost; our balance sheet remains healthy, and we do not anticipate our cash and multiple securities falling below $50 million before we reach free cash flow positive.

Sean Sobers: We'll be able to direct our focus and resources to prioritize our US operations without the burden of optimizing for consolidation. We anticipate that this action will immediately increase our growth margins, improve our growth profit growth, get us to positive adjusted EBITDA, and accelerate our path to free cash. So although exiting the EU will incur some cash costs, our balance sheet remains healthy, and we do not anticipate our cash and multiple securities falling below $50 million before we reach free cash flow positive. Now on to our results.

Sean Sobers: We will be able to direct our focus and resources to prioritize our U.S. operations without the burden of optimizing for consolidated results.

Sean Sobers: We anticipate that this action will immediately increase our growth margins, improve our growth profit growth, get us to positive adjusted EBITDA, and accelerate our path to free cash flow.

Sean Sobers: So exiting the EU will incur some cash costs, our balance sheet remains healthy, and we do not anticipate our cash and multiple securities falling below $50 million before we reach free cash flow positive.

Sean Sobers: Now on to our results. This quarter I will be reviewing the results of both our U.S. and European businesses. We are also providing historical U.S. active buyers, net revenue, and gross margins in our supplemental financials. As discussed, we were faced with this halogen Q2 in both the U.S. and Europe. For the second quarter of 2024, revenue totaled $79.8 million, a decrease of 3.5 percent year-over-year. Additionally, active buyers will 1.7 million while orders will 1.7 million, representing a 2.6 percent and a 6 percent decline, respectively. In Q2, Europe posted net revenue of $13 million and 18 percent decline year-over-year.

Sean Sobers: This quarter, I'll be reviewing the results of both our U.S. and European businesses. We are also providing historical U.S. active buyers, net revenue, and gross margins in our supplemental financial statements. As discussed, we were faced with a challenging Q2 in both the US and Europe. For the second quarter of 2024, revenue totaled $79.8 million, a decrease of 3.5% year over year. Additionally, active buyers were 1.7 million, while orders were 1.7 million, representing a 2.6% and a 6% decline, respectively.

Sean Sobers: Now on to our results. This quarter I'll be reviewing the results of both our U.S. and European businesses. We are also providing historical U.S. active buyers, net revenue, and gross margins in our supplemental financials.

Sean Sobers: As discussed, we were faced with a challenging Q2 in both the U.S. and Europe . For the second quarter of 2024, revenue totaled $79.8 million, a decrease of 3.5% year-over-year.

Sean Sobers: Additionally, active buyers were 1.7 million, while orders were 1.7 million, representing a 2.6% and a 6% decline, respectively.

Sean Sobers: In Q2, Europe posted net revenue of $13 million and an 18% decline year over year. This was well below our expectation for the quarter. The macro environment in Europe has yet to recover, while the transition to consignment proved to be more difficult to execute in a challenging consumer environment.

Sean Sobers: In Q2, Europe posted net revenue of $13 million and 18% decline year-over-year. This was well below our expectation for the quarter. The macro environment in Europe has yet to inflect, while the transition to consignment proved to be more difficult to execute in a challenging consumer environment.

Sean Sobers: This was well below our expectation for the quarter. The macro-environment Europe has yet to inflict, while the transition to consignment proved to be more difficult to execute in a challenging consumer environment. In Q2, the U.S. achieved net revenue of $66.7 million, flat to last year, on 1.3 million active buyers, representing a 5.6 percent decline year-over-year. A James shared earlier, U.S. Net revenue was challenged due to changes to our new buyer strategy that we implemented in mid-Q1, causing us to miss out on acquiring approximately 90,000 buyers until we course corrected in June. We estimate this was an approximate $3 million negative net impact to Q2.

Sean Sobers: In Q2, the US achieved net revenue of $66.7 million, flat to last year on 1.3 million active buyers, representing a 5.6% decline year over year. As James shared earlier, U.S. net revenue was challenged due to changes to our new buyer strategy that we implemented in mid-Q1, causing us to miss out on acquiring approximately 90,000 buyers until we course-corrected in June. We estimate this was an approximate $3 million negative net impact on Q2.

Sean Sobers: In Q2, the U.S. achieved net revenue of $66.7 million flat to last year on 1.3 million active buyers, representing a 5.6% decline year over year.

Sean Sobers: As James shared earlier, U.S. net revenue was challenged due to changes to our new buyer strategy that we implemented in mid-Q1, causing us to miss out on acquiring approximately 90,000 buyers until we course-corrected in June .

Sean Sobers: We estimate this was an approximate $3 million negative net impact to Q2.

Sean Sobers: In addition, starting in mid-April and persisting into Q3, we see the promotional landscape intensify in the U.S. and consumers pressured by compounding inflation became incrementally more selective in their purchases. The second quarter of 2024 consolidated gross margin was 70.4 percent, a 300 basis point increase over the same quarter last year. The U.S. achieved gross margin of 78.8 percent, 240 basis points higher than last year; however, lower than our expectations. In addition to a highly competitive market, we mean harder into promotions in an effort to achieve our consolidated outlook. As a result of both of these dynamics, we sold more units at lower prices, pressuring gross margin.

Sean Sobers: In addition, starting in mid-April and persisting into Q3, we've seen the promotional landscape intensify in the U.S., and consumers pressured by compounding inflation became incrementally more selective in their purchases. The second quarter of 2024 consolidated gross margin was 70.4%, a 300 basis point increase over the same quarter last year. The US achieved gross margin of 78.8%, 240 basis points higher than last year, however, lower than our In addition to a highly competitive market, we pushed harder into promotions in an effort to achieve our consolidated outlook.

Speaker Change: In addition, starting in mid-April and persisting into Q3, we've seen the promotional landscape intensify in the U.S., and consumers pressured by compounding inflation became incrementally more selective in their purchases.

Speaker Change: The second quarter of 2024, consolidated gross margin was 70.4%, a 300 basis point increase over the same quarter last year.

Speaker Change: The U.S. achieved gross margin of 78.8%, 240 basis points higher than last year, however lower than our expectations.

Speaker Change: In addition to a highly competitive market, we leaned harder into promotions in an effort to achieve our consolidated outlook. As a result of both of these dynamics, we sold more units at lower prices, pressuring growth margins.

Sean Sobers: As a result of both of these dynamics, we sold more units at lower prices, pressuring growth markets. The EU posted growth margins of 27.3%, a 250 basis point decline year over year, driven by higher unit costs and aggressive distribution. For the second quarter of 2024, GapNet's loss was $14 million compared to a loss of $18.8 million in the same quarter last year.

Sean Sobers: The EU posted gross margins of 27.3 percent at a 250 basis point decline year-over-year, driven by higher-unit costs and aggressive distance. For the second quarter of 2024, Gap net loss was $14 million compared to gap net loss of $18.8 million in the same quarter last year. Adjusted EBITDA loss was $1.5 million, or a negative 1.9% of revenue, for the second quarter of 2024. In the US, we generated $1.5 million of Adjusted EBITDA in Q2, our fourth consecutive quarter of positive Adjusted EBITDA after having generated $1.9 million in Q1. Europe was a $3 million drag on Adjusted EBITDA in Q2 as their business meaningfully underperformed.

Speaker Change: The EU posted growth margins of 27.3%, a 250 basis point decline year-over-year, driven by higher unit costs and aggressive discounting.

Speaker Change: For the second quarter of 2024, Gap Net Loss was $14 million compared to Gap Net Loss of $18.8 million in the same quarter last year.

Speaker Change: Adjusted EBITDA loss was $1.5 million, or a negative 1.9% of revenue for the second quarter of 2024.

Sean Sobers: Adjusted EBITDA was $1.5 million, or a negative 1.9% of revenue, for the second quarter of 2024. In the US, we generated $1.5 million of adjusted EBITDA in Q2, our fourth consecutive quarter of positive adjusted EBITDA after having generated $1.9 million in Q1. Europe was a $3 million drag on adjusted EBITDA in Q2 as their business meaningfully underperformed.

Speaker Change: In the U.S., we generated $1.5 million of adjusted EBITDA in Q2, our fourth consecutive quarter of positive adjusted EBITDA after having generated $1.9 million in Q1.

Speaker Change: Europe was a $3 million drag on adjusted EBITDA in Q2 as their business meaningfully underperformed.

Sean Sobers: Turning to the balance sheet, we began the second quarter with $67.9 million in cash and securities and ended the quarter with $60.7 million, using $7.2 million in cash in Q2. Of that, $2.3 million was due to the EU's cash needs; $2 million was severance from our Q1 restructuring; $1.2 million was using CAPEX; and $1 million was the debt paydown. As we focus on the US business, we do not expect this degree of cash consumption to continue. Regarding CAPEX, we are maintaining our expectations of approximately $8 million for all of 2024.

Sean Sobers: Turning to the balance sheet, we began the second quarter with $67.9 million in cash and securities and ended the quarter with $60.7 million, using $7.2 million in cash in Q2. Of that, $2.3 million was due to EU's cash needs, $2 million was severance from our Q1 restructuring, $1.2 million was used for CapEx, and $1 million was the debt payday. As we focus on the US business, we do not expect this degree of cash consumption to continue.

Speaker Change: Turning to the balance sheet, we began the second quarter with $67.9 million in cash and securities and ended the quarter with $60.7 million, using $7.2 million in cash in Q2.

Speaker Change: Of that, $2.3 million was due to EU's cash needs, $2 million was severance from our Q1 restructuring, $1.2 million was using CapEx, and $1 million was the debt pay down.

Speaker Change: As we focus on the U.S. business, we do not expect this degree of cash consumption to continue.

Sean Sobers: Regarding CapEx, we are maintaining our expectations of approximately $8 million for all of 2020. Reflecting on the first half of the year, it has certainly been a challenge, but we feel that we are starting off the second half on a stronger footing.

Speaker Change: Regarding CapEx, we are maintaining our expectations of approximately $8 million for all of 2024.

Sean Sobers: Deflecting on the first half of the year, it has certainly been a challenge. We feel that we are starting off the second half on stronger footing. We made some mistakes in the US, but we've diagnosed the problem and have pivoted our strategy. We are operating in a highly competitive environment, but are well positioned that flux our marketplace model. And finally, we are exploring strategic options for our EU business. We believe our stakeholders will be best served by focusing our attention and resources solely on our Adjusted EBITDA-positive US business. To reiterate, exiting the European market will immediately increase our gross margins, improve our gross profit growth, get us to a positive adjusted EBITDA, and accelerate our path to free cash flow.

Speaker Change: Reflecting on the first half of the year, it has certainly been a challenge, but we feel that we are starting off the second half on a stronger footing.

Sean Sobers: We made some mistakes in the US, but we've diagnosed the problem and have pivoted our strategy. We are operating in a highly competitive environment, but we are well positioned to flex our marketplace model. And finally, we are exploring strategic options for our EU business. However, we believe our stakeholders will be best served by focusing our attention and resources solely on our adjusted positive US business. To reiterate, exiting the European market will immediately increase our gross margins, improve our gross profit growth, get us to a positive adjusted EBITDA, and accelerate our path to pre-cap. Moving to our outlook, I would like to add some color to the comments James made earlier to provide additional context for guidance.

Speaker Change: We've made some mistakes in the U.S., but we've diagnosed the problem and have pivoted our strategy.

Speaker Change: We are operating in a highly competitive environment, but are well positioned to flex our marketplace model. And finally, we are exploring strategic options for our EU business. We believe our stakeholders would be best served by focusing our attention and resources solely on our adjusted EBITDA positive U.S. business.

Speaker Change: To reiterate, exiting the European market will immediately increase our gross margins, improve our gross profit growth, get us to a positive adjusted EBITDA, and accelerate our path to free cash flow.

Sean Sobers: Moving to our outlook, I would like to add some color to the comments James made earlier to provide additional context for guidance. At the moment, we are facing three distinct headwinds in the balance of the year. First, after changing our new buyer strategy in mid Q1, we believe we missed out on acquiring approximately 90,000 buyers until we changed course in June. Our buyers typically make multiple purchases annually. So not only did we miss out on the first purchase from those would-be buyers, but we feel the impact of this misstep in the remainder of the year when we also miss out on their repeat purchases.

Speaker Change: Moving to our outlook, I would like to add some color to the comments James made earlier to provide additional context for guidance. At the moment we are facing three distinct headwinds in the balance of the year.

Sean Sobers: At the moment, we are facing three distinct headwinds in the balance of the company. First, after changing our new buyer strategy in mid Q1, we believe we missed out on acquiring approximately 90,000 buyers until we changed course in June. Our buyers typically make multiple purchases annually. So, not only did we miss out on the first purchase from those would-be buyers, but we felt the impact of this misstep in the remainder of the year when we also missed out on their repeat purchase.

Speaker Change: First, after changing our new buyer strategy in mid-Q1, we believe we missed out on acquiring approximately 90,000 buyers until we changed course in June .

Speaker Change: Our buyers typically make multiple purchases annually, so not only did we miss out on the first purchase from those would-be buyers, but we feel the impact of this misstep in the remainder of the year when we also miss out on their repeat purchases.

Sean Sobers: We estimate this dynamic to be several million dollar revenue headwind in the second half. Second in Q2, we made the strategic decision to be more promotional in order to achieve our consolidated goals. Not only did this negatively impact our unit economics in Q2, but it also pulled forward lower quality revenue into June and higher quality revenue out of July. We estimate this to be a five million dollar negative impact to Q3. Finally, our core customer is feeling the multi-year impact of compounding inflation. There are incrementally more discriminating in their purchasing, resulting in a highly competitive consumer discretion environment.

Sean Sobers: We estimate this dynamic to be several million dollar revenue headwinds in the second half. Second, in Q2, we made the strategic decision to be more promotional in order to achieve our consolidated goal. Not only did this negatively impact our unit economics in Q2, but it also pulled forward lower quality revenue into June and higher quality revenue out of July. We estimate this to be a $5 million negative impact on Q3. Finally, our core customer is feeling the multi-year impact of compounding inflation.

Speaker Change: We estimate this dynamic to be several million dollar revenue headwind in the second half.

Speaker Change: Second in Q2, we made the strategic decision to be more promotional in order to achieve our consolidated goals.

Speaker Change: Not only did this negatively impact our unit economics in Q2, but it also pulled forward lower-quality revenue into June and higher-quality revenue out of July .

Speaker Change: We estimate this to be a $5 million negative impact to Q3.

Sean Sobers: They are incrementally more discriminating in their purchasing, resulting in a highly competitive consumer discretionary environment. Expect this dynamic to persist in the balance of the year and could potentially worsen. In Q3 and Q4, we will continue to flex pricing in our marketplace model, but we will moderate promotions from our Q2 levels and largely return to preserving our healthy unit economy. With all of this in mind, I'd like to turn to our Outlook, which will refer to our U.S. Operations Ombudsman.

Speaker Change: Finally, our core customer is feeling the multi-year impact of compounding inflation. They are incrementally more discriminating in their purchasing, resulting in a highly competitive consumer discretionary environment. Expect this dynamic to persist in the balance of the year and could potentially worsen.

Sean Sobers: Expect this dynamic to persist in the balance of the year and could potentially worsen. In Q3 and Q4, we will continue to flex pricing in our marketplace model, but we will moderate promotions from our Q2 levels and largely return to preserving our healthy unit economics.

Speaker Change: In Q3 and Q4, we will continue to flex pricing in our marketplace model, but we will moderate promotions from our Q2 levels and largely return to preserving our healthy unit economics.

Sean Sobers: With all of this in mind, I'd like to turn to our outlook, which will refer to our U.S. operations zones. In the third quarter, we expect revenue in the range of $59 to $61 million, representing a decline of 12% at the midpoint, as we've laughed 17% growth in Q3 of last year. Gross margins in the range of $77.5 to $79.5, flats a last year at the midpoint. Adjust at EBITDA of negative 1 to a positive 1% of revenue, flats a last year at the midpoint. And basic wage average share is outstanding of approximately 113 million shares.

Speaker Change: With all of this in mind, I'd like to turn to our outlook, which will refer to our U.S. operations only.

Sean Sobers: In the third quarter, we expect revenue in the range of $59 to $61 million, representing a decline of 12% at the midpoint as we've lapped 17% growth in Q3 of last year. Gross margins in the range of $77.50 to $79.50, flat to last year. Adjusted EBITDA of negative one to a positive 1% of revenue, flat to last year. In basic ways, the average share is outstanding of approximately 113 million shares. In the fourth quarter, we expect revenue in the range of $57 to $59 million, representing a decline of 6% at the midpoint, as we lapped 12% growth in Q4 of last year.

Speaker Change: In the third quarter, we expect revenue in the range of $59 to $61 million, representing a decline of 12% at the midpoint as we lapped 17% growth in Q3 of last year.

Speaker Change: Cross margins in the range of 77.5 to 79.5, flat to last year at the midpoint.

Speaker Change: Adjusted EBITDA of negative 1 to a positive 1% of revenue, flat to last year at the midpoint.

Speaker Change: In basic ways, average shares outstanding of approximately 113 million shares.

Sean Sobers: In the fourth quarter, we expect revenue in the range of $57 to $59 million, representing a decline of 6% at the midpoint, as we've laughed 12% growth in Q4 of last year. As a reminder, Q4 is seasonally the smallest quarter in our U.S. business. Gross margins in the range of 77.5 to 79.5%, representing margin expansion of 100 basis points at the midpoint. Paws of adjusted EBITDA of 0 to 2% of revenue, a $2 million decline year-over-year at the midpoint. And basic wage average share is outstanding of approximately 115 million shares.

Speaker Change: In the fourth quarter, we expect revenue in the range of $57 to $59 million, representing a decline of 6% at the midpoint, as we lapped 12% growth in Q4 of last year.

Sean Sobers: As a reminder, Q4 is seasonally the smallest quarter in our U.S. business. Growth margins in the range of 77.5% to 79.5%, representing margin expansion of 100 basis points at the mid-period, positive adjusted EBITDA of zero to 2% of revenue, a $2 million decline year over year at the mid, And basically, the average share outstanding is approximately 115 million shares. So for the full year of 2024 in the US, we now expect revenue in the range of $247 to $251 million, representing a decline of 4% at the midpoint.

Speaker Change: As a reminder, Q4 is seasonally the smallest quarter in our U.S. business.

Speaker Change: Gross margins in the range of 77.5% to 79.5%, representing margin expansion of 100 basis points at the midpoint.

Speaker Change: Positive adjusted EBITDA of 0 to 2% of revenue, a $2 million decline year-over-year at the midpoint.

Speaker Change: And basic way to average shares outstanding of approximately 115 million shares.

Sean Sobers: For the full year of 2024 in the U.S. We now expect revenue in the range of $247 to $251 million, representing a decline of 4% at the midpoint. Keep in mind that the EU business accounted for approximately $70 million of our previous full year outlook. Gross margins in the range of approximately $78.5 to $79.5, representing gross margin expansion of 220 basis points at the midpoint. Paws of adjusted EBITDA of 1 to 2% of revenue, a $9 million improvement year-over-year at the midpoint. And basic wage average share is outstanding of approximately 114 million shares.

Speaker Change: So the full year of 2024 in the U.S. we now expect revenue in the range of $247 to $251 million, representing a decline of 4% at the midpoint. Keep in mind that the EU business accounted for approximately $70 million of our previous full year outlook.

Sean Sobers: Keep in mind that the EU business accounted for approximately $70 million of our previous full year out. Gross margins in the range of approximately 78.5% to 79.5%, representing gross margin expansion of 220 basis points at the midpoint. Positive adjusted EBITDA of 1% to 2% of revenue, a $9 million improvement year over year at the midpoint. Basic Weighted Average Shares Outstanding of approximately 114 million shares.

Speaker Change: Gross margins in the range of approximately 78.5% to 79.5%, representing gross margin expansion of 220 basis points at the midpoint.

Speaker Change: Positive adjusted EBITDA of 1-2% of revenue, a $9 million improvement year-over-year at the midpoint. Basic weighted average shares outstanding are approximately 114 million shares.

Sean Sobers: In closing, we're excited to renew our focus on our U.S. business. When completed, divesting our European operations will provide investors with greater transparency to the US's structurally higher gross margin, positive adjusted EBITDA, and favorable free cash flow dynamics. We believe that focusing our talent, capital resources, and attention on our profitable US business is the best strategy to expand our profits and accelerate our path to free cash. James and I are now ready for your questions. Operator, please open the line.

Sean Sobers: In closing, we're excited to renew our focus on our U.S. business. When completed, divesting our European operations will provide investors with greater transparency to the U.S. structurally higher gross margin, Paws of adjusted EBITDA, and Fairville Free Cash Flow Dynamics. We believe that focusing our talent, capital resources, and attention on our profitable U.S. business is the best strategy to expand our profits and accelerate our path to free cash flow.

Speaker Change: In closing, we're excited to renew our focus on our U.S. business. When completed, divesting our European operations will provide investors with greater transparency to the U.S. structurally higher gross margin, positive adjusted EBITDA, and favorable free cash flow dynamics.

Speaker Change: We believe that focusing our talent, capital resources, and attention on our profitable U.S. business is the best strategy to expand our profits and accelerate our path to pre-cash flow.

Unknown Executive: James and I are now ready for your questions. Operator, please open the line. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star two, and once more for your questions, that is star and one. And we'll take our first question from Ike Burichow with Wells Fargo.

Speaker Change: James and I are now ready for your questions. Operator, please open the line.

Operator: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star 2. And once more for your questions, that is star and one. And we'll take our first question from Ike Boruchow with Wells Fargo. Your line is open.

Speaker Change: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star 2.

Speaker Change: And once more, for your questions, that is star and 1.

Speaker Change: And we'll take our first question from Ike Boruchow with Wells Fargo. Your line is open.

Unknown Executive: The line is open. Hey, God. I guess I wanted to focus on the split of EU and U.S. I guess first questions on Europe, obviously, we know it's been a drag for a while. You guys have talked about it.

Ike Boruchow: Hey guys, I guess I wanted to focus on the split between the EU and the US. I guess the first question is about Europe.

Ike Boruchow: Hey guys, I guess I wanted to focus on the split of EU and US, I guess.

Ike Boruchow: First question is on Europe . Obviously, we know it's been a drag for a while. You guys have talked about it. Maybe what specifically changed in the second quarter? And then maybe, James, could you just talk about the evolution of your thinking as you kind of came to the decision you guys did?

James Reinhart: Maybe what's specifically changed in the second quarter, and then maybe, James, could you just talk about the evolution of your thinking as you kind of came to the decision you guys did. Sure. Hey, I think if you go back a year, we had been focused on investing in the product, technology, operations, pieces of business, and then over the past several quarters have talked about the change in consignment, really focusing on that as a driver of gross profit, expansion, and growth. It's taken longer to see that materialized the way that we'd like, and then we brought in foreign, who started in May, who I think we feel really great about, and he made it clear as he dug into the business that it was going to take even longer than I think we originally thought, and not just time, but capital, and I think we aligned with the idea that it was going to require more degrees of flexibility for them to, you know, have to turn around that business.

Ike Boruchow: Obviously, we know it's been in drag for a while. You guys have talked about it. Maybe what specifically changed in the second quarter? And then, maybe James, could you just talk about the evolution of your thinking as you kind of came to the decision you guys made?

James Reinhart: Sure, hey, um, yeah, I mean, I think, you know, if you go back a year, we had been focused on, you know, investing in the product technology operations piece of the business.

Speaker Change: And then, you know, over the past several quarters and talk, you know, about the change in consignment, really focusing on that as a driver of gross profit expansion and growth.

James Reinhart: Sure. Hey, um, yeah. I mean, I think, you know, if you go back a year, we were focused on, you know, investing in the product technology operations piece of the business. And then, you know, over the past several quarters of talking about the change in consignment, really focusing on that as a driver of gross profit expansion and growth. And, you know, like, it's just, it's taken longer to see that materialize the way that we'd like.

Speaker Change: And you know, like, it's just it's taken longer to see that materialize the way that we'd like.

Speaker Change: And then we brought in Florin, who started in May, who, you know, I think we feel, you know, really great about, and he made it clear as he dug into the business that it was going to take even longer than I think we originally thought.

Speaker Change: And not just time, but capital.

James Reinhart: And then we brought in Foran, who started in May, who we feel really great about. And he made it clear as he dug into the business that it was going to take even longer than I think we originally thought. And not just time, but capital.

Speaker Change: And, you know, I think we aligned with the idea that it was going to require more degrees of flexibility for them to, you know, to turn around that business. And so.

James Reinhart: And so, I think we then decided that in order for them to really successfully get the business to a place that they wanted, that the US was going to be tough for the US to support them. And so, that became really the catalyzing event, and we think that business and the tame opportunity in Europe is real. We just think it's going to take longer. And so, at this point, given the challenges globally, we think our capital and resources is deployed fully on the US, is the best case scenario, and part of us also reflected back.

Speaker Change: I think we then decided that in order for them to really successfully, you know, get the business to a place that they wanted, that, you know, the US was going to be tougher the US to support them. And so that became really the catalyzing event. And, you know, we think that business

Speaker Change: And the TAM opportunity in Europe is real, we just think it's going to take longer.

James Reinhart: And, you know, I think we agreed that it was going to require more degrees of flexibility for them to, you know, turn around that business. And so I think we then decided that, in order for them to really successfully get the business to a place that they wanted, that the US would be tougher; the US would support them. And so that became really the catalyzing event.

Speaker Change: And so, at this point...

Speaker Change: And given the challenges, you know, globally, and we think, you know, our capital and resources deployed.

Speaker Change: fully on the US is the best case scenario. And, you know, part of us also reflected back, you know, we put $20 million over the last six quarters into the EU, you know, what would that have looked like if we had put that $20 million into the US? And I think, you know, we'd be in a better place. And so we didn't want to repeat that same mistake.

James Reinhart: We put $20 million over the last six quarters of the EU. What would that have looked like if we had put that $20 million into the US? I think we'd be in a better place.

James Reinhart: And so, we didn't want to repeat that thing.

Unknown Executive: And could you, sorry if I didn't follow up, but on U.S. Ibadah, the self-inflicted issues, you kind of talk about the past couple, I roughly have much more in dollars to the U.S. Ibadah for this year.

Speaker Change: Got it. And could you, sorry if I didn't follow, but on U.S. EBITDA, these self-inflicted issues you kind of talked about at that past call, like roughly how much was that in dollars to the U.S. EBITDA for this year?

Unknown Executive: Hold on, hold on, I can't afford it. I guess as you look for Sean, I guess what I'm trying to look at is, so your U.S. business is basically 250 million with a one to two margin, but there's some headwind in that margin from this issue. I'm just trying to think about as we try to shake this off and look into next year, what is the run rate of the business out from a profitability perspective as you're hopefully back to growth as well next year? And my third question is what's like the normal Ibadah run rate for the U.S.

Speaker Change: Hold on, hold on, I can look for it.

Sean Sobers: I guess, as you look forward, Sean, I guess what I'm trying to look at is, so your US business is basically $250 million with a one to two margin, but there's some headwind in that margin from this issue. I'm just trying to think about as we try to shake this off and look into next year, like what is

Speaker Change: What is the run rate of the business from a profitability perspective as you're hopefully back to growth as well next year?

Sean Sobers: And I, your question is, what's like the normal?

Unknown Executive: business or the impact of what happened this year in the U.S. business? I'm trying to get a good understanding. I'm trying to add back that self-inflicted issue to the positive one to two margin and think about how you guys think the U.S., because now it's the U.S. only business from here and to next year, so how should you think about U.S. profitability scaling as we think about the business moving into next year and beyond?

Speaker Change: Even our run rate for the U.S. business or the impact of what happened this year in the U.S. business? I'm trying to get a good understanding. I'm trying to add back that self-inflicted issue to the positive one to two margin and think about how you guys think the U.S.

Speaker Change: Because now it's a US-only business from here into next year, so how should we think about US profitability scaling as we think about the business moving into next year and beyond?

Sean Sobers: Okay. Yeah, I mean I'll jump in, John, and then, I think about it. If you go back to exiting 2023, the U.S. business was Q3, Q4; we were expanding. Q4 acted at 4%. In the full year in the U.S., I think we'll be in that one to two percent range. And so our expectation is whatever; where we guided on a consolidated basis previously, U.S. standalone will be above that as we get into 2025. And so I think you can try and above where the consolidated guide was, you know, previously, and knowing that, you know, there might be some tumult in Q3, Q4.

James Reinhart: And, you know, we think that business and the TAM opportunity in Europe is real; we just think it's going to take longer. And so, at this point, given the challenges, you know, globally, we think, you know, our capital and resources deployed, you know, fully in the US is the best case scenario. And, you know, part of us also reflected back, you know, we put $20 million in the last six quarters into the EU. What would that have looked like if we had put that $20 million into the US? And I think, you know, we'd be in a better place. And so we didn't want to repeat that same mistake.

Speaker Change: Okay.

Speaker Change: Yeah, I mean, I'll jump in, Sean. And then I mean, the way I think about it is you go back to you, you know, exiting 2023, you know, the US business was

Speaker Change: Q3, Q4, we were expanding, you know, Q4 exited at 4%.

Speaker Change: You know, in the full year in the US, I think we'll be, you know, in that one to two percent.

Speaker Change: range. And so, you know, our expectation is whatever were we guided on a consolidated basis previously, you know, US standalone will be above that.

Speaker Change: you know, as we get into 2025. And so I think you can triangulate around above where the consolidated guide was, you know, previously, knowing that, you know, there might be some some tumult in Q3 and Q4.

Sean Sobers: Yeah, what I would say, and I'm, hi, I'm just doing a little back of the all the low math, right, because I didn't have it here in front of me, but you could say it's around, of the $6 million that we kind of lost as it relates to the buyer strategy, related to those $90,000 buyers, that's probably around $2 million in EBITDAF for the full year. Got it. So you went through this last year on a 4 margin; you've got a couple points from the headwind here that would kind of date you back. It kind of seems like a mid-single digit U.S.

Speaker Change: Yeah, what I would say, and I'm, like, I'm just doing a little back of the envelope math, right, because I didn't have it here in front of me, but you could say it's around, of the $6 million that we kind of lost as it relates to the buyer strategy, related to those 90,000 buyers, it's probably around $2 million-ish in EBITDA.

Ike Boruchow: Got it. And could you, sorry if I didn't follow, but on US EBITDA, these self-inflicted issues you kind of talked about with that, Pascal, like roughly how much was up in dollars on US EBITDA for this year?

Speaker Change: for the full year.

Speaker Change: Got it. So you exited last year on a four margin. You've got a couple points from the headwind here that would kind of get you back. It kind of seems like a mid-single-digit U.S. margin is kind of what you would strive for as you're kind of going into the next year. Is that fair?

Sean Sobers: Margin is kind of what you strive for, as you're kind of going into the next year.

Sean Sobers: Is that pair? That sounds right. Yeah, I think that's fair. I think that's fair. Yeah.

Unknown Executive: Okay.

Unknown Executive: All right.

Speaker Change: That sounds right. Yeah, I think that's fair. I think that's fair. Yep. Okay. All right. Thanks guys.

Unknown Executive: Thank you.

Rick Patel: We'll move next to Rick Patel with Raymond James. Your line is open. Oh, hey, thanks, guys. Good afternoon. I'm just trying to better understand the change that you made in mid-1Q that had the negative impact in the second quarter.

Speaker Change: We'll move next to Rick Patel with Raymond James. Your line is open.

Sean Sobers: Hold on, hold on; I can look for it.

Ike Boruchow: I guess, as you look forward, Sean, I guess what I'm trying to look at is, so your US business is basically 250 million with a one to two margin, but there's some headwinds in that margin from this issue. I'm just trying to think about as we try to shake this off and look into next year, like what is the run rate of the business from a profitability perspective as you're hopefully back to growth as well?

Rick Patel: Oh, hey, thanks, guys, and good afternoon. I'm just trying to better understand the change that you made in mid-1Q that had the negative impact in the second quarter. So can you maybe just walk us through an example of what change that resulted in the negative impact, and I guess what changed again in the beginning of June that created the positive change in the direction? And then secondly, I was hoping you can tie in that commentary with what you're seeing with gross margins, because it sounded like you're maybe pulling, it sounded like you pulled back on promotions.

Ike Boruchow: And your question is, what's the normal EBITDA run rate for the US business or the impact of what happened this year in the US business? I'm trying to get a good understanding. I'm trying to add back that self-inflicted issue to the positive one to two margin and think about how you guys think about the US, because now it's a US-only business from here into next year. So how should we think about US profitability scaling as we as we think about the business moving into next year?

Rick Patel: So can you maybe just walk us through an example of what change that resulted in the negative impact and I guess what changed again in the beginning of June that created the positive change in the direction. And then secondly, I was hoping you can tie in that commentary with what you're seeing with gross margins because it sounded like you pulled back on promotions, and that's why you lost those 90,000 customers. But at the same time, your gross margins came in a little bit lighter than you wanted to because of the discountings. So I feel like I'm not fully understanding what happened.

Speaker Change: And that's why you lost those 90,000 customers, but at the same time, your gross margins came in a little bit lighter than you wanted to because of the discounting. So I feel like I'm not fully understanding what happened.

James Reinhart: Sir, why don't I talk about the acquisition piece, and then I can take it over to Sean. So yeah, I mean, Rick, the way to think about it is we were, we were flexing the, you know, percent all, you know, your first order, and then, you know, we have a traditional onboarding path where you may get incremental credits or loyalty points for, you know, second order, third or fourth order. And so we had moved to more of a flat dollar-based credit system. And so, you know, for example, instead of 30 or 40% off your first order to induce trial, we were flexing: is it $10, is it $20, or $30 off an order of $100 or more.

James Reinhart: Yeah, I mean, I'll jump in, Sean. And then I mean, the way I think about it is, if you go back to, you know, exiting 2023, the US business was, you know, Q3, Q4, we were expanding, you know, Q4 exited at 4%. You know, in the full year in the US, I think we'll be, you know, in that one to 2% range. And so, you know, our expectation is that, whatever we were guided on a consolidated basis previously, US standalone will be above that, you know, as we get into 2025. And so I think you can triangulate around where the consolidated guide was, you know, previously, knowing that, you know, there might be some tumult in Q3.

Sean Sobers: Why don't I talk about the acquisition piece and then I can kick it over to Sean. So, yeah, I mean, Rick, the way to think about it is we were we were flexing the percent off, you know, your first order and then.

Sean Sobers: Yeah, what I would say, and I'm, like, I'm just doing a little back of the envelope math, right, because I didn't have it here in front of me. But you could say it's around, of the $6 million that we kind of lost as related to the buyer strategy, related to those 90,000 buyers, it's probably around $2 million-ish in EBITDA.

Sean Sobers: We have a traditional onboarding path where you may get incremental credits or loyalty points for second order, third order, fourth order. And so we had moved to more of a flat dollar base.

Sean Sobers: credit system. And so, you know, for example, instead of 30 or 40% off your first order to induce trial, we reflect saying, is it $10? Is it $20? Is it $30 off an order of $100 or more?

James Reinhart: And so we were, we were, you know, really iterating around that type of strategy. And what we found is that there was nothing that we could do from a dollars off your first order or, or, or incentives across multiple orders that was better than just the straight percent off order with free shipping. And so, but we didn't, we needed, we needed 90 days to really see how those LPDs played out. And, and once we felt confident that we were solved, we reverted back to, you know, where we had been previously and where we had been for the prior year on June 1.

Sean Sobers: And so we were, we were, you know,

Sean Sobers: really iterating around that type of strategy.

Sean Sobers: And what we found is that

Sean Sobers: There was nothing that we could do from a dollars off your first order or incentives across multiple orders that was better than just the straight percent off order with free shipping.

Sean Sobers: And so, but we didn't, we needed, we needed 90 days to really see how those LPDs.

Sean Sobers: played out. And, and once we felt confident that we were worse off, we reverted back to

Sean Sobers: So that was it; was the offer structure and then the incentive structure. And Rick, on the growth margin piece, I think in the beginning, I think you have it right; during that new customer acquisition period, growth margins were probably a little more favorable on our side. But as we started to end the quarter, we got much more promotional and started to really give opportunities to discounts back to the new customers as well as our existing purchasers. And that more than offset the benefit of having the growth margin favorability that we add in the first part of Q2.

Sean Sobers: you know, where we had been previously and where we had been for the prior year on June 1. So that was it was the offer structure and then the incentive structure.

Ike Boruchow: Got it. So you exited last year on a four margin. You've got a couple points from the headwind here that would kind of get you back. It kind of seems like a mid single-digit US margin is kind of what you strive for, as you're kind of going into next year. Is that fair? That sounds right. Yeah.

Sean Sobers: And Rick, on the gross margin piece, I think in the beginning...

James Reinhart: That sounds right. Yeah, I think that's fair. I think that's fair, yeah. Okay.

Rick Patel: I think you have it right, during that new customer acquisition period, gross margins were probably a little more favorable on our side, but as we started to end the quarter, we got much more promotional and started to really give opportunities and discounts back to the new customers, as well as our existing purchasers, and that more than offset the benefit of having the gross margin favorability that we had in the first part of Q2, and that's why you see the kind of the mix in the 78.8% gross margin in the U.S. versus the 80, this is what we've seen in Q1. Transcribed by https://otter.ai

Sean Sobers: And that's why you see the kind of the mix in the 78.8% growth margin in the US versus the 80. This is what we've seen in Q1.

Rick Patel: Okay, that's really helpful.

Rick Patel: We'll move next to Rick Patel with Raymond James. Your line is open.

Rick Patel: And, and secondly, can you just zoom out and maybe just talk about consumer behavior on the platform, you know, any incremental data that trade down, maybe getting worse than expected or maybe the kinds of consumers that you might be acquiring, like higher end versus lower end, any kind of changes in the trend line from the prior quarters. Sure, I mean, I think the biggest thing, Rick, is that you're just seeing the consumer, especially as we moved through the quarter, they were just more discerning, right? And so you were, you had, you know, discounts me to be incrementally higher.

Speaker Change: Okay, that's really helpful and

Rick Patel: Oh, hey, thanks, guys. Good afternoon.

Speaker Change: And secondly, can you just zoom out and maybe just talk about consumer behavior on the platform, you know, any incremental...

Speaker Change: Data that trade down, maybe getting worse than expected, or maybe the kinds of consumers that you might be acquiring, like higher-end versus lower-end, and any kind of changes in the trend line from the prior quarters.

Rick Patel: I'm just trying to better understand the change that you made in mid-1Q that had a negative impact on the second quarter. So can you maybe just walk us through an example of what change that resulted in a negative impact and, I guess, what changed again in the beginning of June that created a positive change in direction? And then secondly, I was hoping you could tie in that commentary with what you're seeing with gross margins because it sounded like you pulled back on promotions and that's why you lost those 90,000 customers. But at the same time, your gross margins came in a little bit lighter than you wanted to because of the discounting. So I feel like I'm not fully understanding what happened.

Rick Patel: Sure. I mean, I think the biggest thing, Rick, is that you're just seeing that the consumer, especially as we move through the quarter, they were just more discerning, right? And so you were, you had, you know, discounts needed to be incrementally higher, you know, to that budget shopper. I think the standard premium shopper, you know, our highly engaged buyer, I think they performed, you know, as well as ever. But that real budget shopper, you know, call it making 50, 60,000 bucks a year, you really needed to have compelling offers to convert them. And so

James Reinhart: You know, to that budget shopper, I think the standard premium shopper, you know, are highly engaged buyer. I think they performed, you know, as well as ever, but that real budget shopper, you know, call it making 50, 60,000 bucks a year, you really needed to have compelling offers to convert them. And so, you know, I just like give you an example, you know, discount had to be, you know, about 20% higher, Rick, for for that budget shopper relative to where they were a year ago to sort of move them off the couch and to make a purchase.

Rick Patel: You know, just to like give you an example.

Rick Patel: Discounts had to be about 20% higher.

Rick Patel: RIC for that budget shopper relative to where they were a year ago, to sort of move them off the couch and make a purchase.

James Reinhart: And so we've been navigating that now for a few months, and we feel good about sort of the plan into the back after the year, but it's really that segment of buyers that struggled.

Rick Patel: And so we've been navigating that now for a few months, and we feel good about sort of the plan into the back half of the year, but it's really that segment of buyers that struggled.

Rick Patel: I appreciate it.

Unknown Executive: Thanks very much.

Dylan Carden: Move next to Dylan Carden with William Blair. The line is open. Okay. Thanks.

Speaker Change: I appreciate it. Thanks very much.

Speaker Change: Next.

Speaker Change: to Dylan Carden with William Blair. Your line is open.

Dylan Carden: I'm curious sort of why the change was made in customer acquisition. You know, yeah, let's just start there. Yeah, I mean, Dylan, as I said, I think the business we were feeling pretty good. You know, the beginning of the year, you know, the US business, receivable positive, you know, growing. I think we felt some sense of optimism that the year would, you know, materialize better. And I think we had been in a very, you know, we had not really messed with the new customer offer in some time. And so what we were looking for was, was there something that we could do that would yield, you know, more new customers, wider, 10, you know, better LCDs over time.

Dylan Carden: Okay, thanks. I'm curious...

Dylan Carden: Total, why the change was made in.

James Reinhart: Sure. Why don't I talk about the acquisition piece, and then I can kick it over to Sean? So, yeah, I mean, Rick, the way to think about it is we were flexing the percent off your first order. And then, you know, we have a traditional onboarding path where you may get incremental credits or loyalty points for, you know, your second order, third order, fourth order. And so we have moved to more of a flat dollar-based credit system.

Speaker Change: Customer Acquisition.

James Reinhart: And so, you know, for example, instead of 30 or 40 percent off your first order to induce a trial, we were flexing, is it $10, is it $20, is it $30 off an order of $100 or more? And so we were, you know, really iterating around that type of strategy. And what we found is that there was nothing that we could do from a dollars off your first order or incentives across multiple orders that was better than just the straight percent off orders with free shipping.

Speaker Change: You know, yeah, let's just start there.

Speaker Change: Yeah, I mean, Dylan, as I said, I think the business we were feeling pretty good, you know, the beginning of the year, you know, the US business free cash flow positive, you know, growing, I think we felt some sense of optimism that the year would

Speaker Change: you know, materialize better. And I think we had been in a very

Speaker Change: You know, we had not really messed with the new customer offer in some time.

Speaker Change: And so what we were looking for was...

James Reinhart: And so, but we needed 90 days to really see how those LTVs played out. And once we felt confident that we were worse off, we reverted back to, you know, where we had been previously and where we had been for the prior year on June 1. So, it was the offer structure and then the incentive structure.

Sean Sobers: And Rick, on the gross margin piece, I think in the beginning, you have it right. During that new customer acquisition period, gross margins were probably a little more favorable on our side. But as we started to end the quarter, we got much more promotional and started to really give opportunities and discounts back to the new customers, as well as our existing purchasers. And that more than offset the benefit of having the gross margin favorability that we added in the first part of Q2. And that's why you see the kind of mix in the 78.8% gross margin in the U.S. versus the 80. This is what we saw in Q1.

Speaker Change: Was there something that we could do that would yield, you know, more new customers, wider tents, you know, better LCDs?

James Reinhart: And so we were really looking for a new mountain top. And, you know, I think it's very easy as an organization to keep doing what you're doing across your marketing mix and across your offer mix. And, and we were looking for something that potentially could have put us in a much better place. And so that was the intent.

Speaker Change: And so we were really looking for a new mountaintop, and, you know, I think it's very easy as an organization to keep doing what you're doing across your marketing mix.

Speaker Change: And across your offer mix. And, and we were looking for something that potentially could have put us in a much better place. And so that was the intent. And I think, you know, in retrospect, we probably could have done it in certain areas differently, but

James Reinhart: And I think, you know, in retrospect, we probably could have done it in certain areas differently. But, you know, that was the path we chose. And, you know, we got it wrong. And we own that, and we fixed it.

Rick Patel: Okay, that's really helpful. And secondly, can you just zoom out and maybe just talk about consumer behavior on the platform? You know, any incremental data that trades down, maybe getting worse than expected, or maybe the kinds of consumers that you might be acquiring, like higher end versus lower end, any kind of changes in the trend line from the prior quarter?

Speaker Change: You know, that was the path we chose, and, you know, we got it wrong, and we own that, and we fixed it, and we're moving forward.

James Reinhart: And so it wasn't in response to some sort of competitive change, dynamic change in the market. No, I think we were just looking for, you know, at this point, that we were looking for new sources of, you know, of growth and lifetime value. And, you know, could it be shift the type of buyer that we were looking for? Could we shift the channel from where those buyers came from? And, you know, it didn't materialize what you would like. And we think a lot of it had to do. We think one was the offer, but also just into a demand, into a demand environment that we thought that we think was weakening.

James Reinhart: Sure. I mean, I think the biggest thing, Rick, is that you're just seeing that the consumer, especially as we move through the quarter, they're just more discerning, right? And so you had, you know, discounts needed to be incrementally higher, you know, to that budget shopper. I think the standard premium shopper is a highly engaged buyer. I think they perform, you know, as well as ever.

Speaker Change: And so it wasn't in response to some sort of competitive change, dynamic change in the market.

James Reinhart: But that real budget shopper, you know, call it making 50, 60,000 bucks a year, you really needed to have compelling offers to convert them. And so, just to give you an example, discounts had to be, you know, about 20% higher, Rick, for that budget shopper, relative to where they were a year ago, to sort of move them off the couch and make a purchase. And so we've been navigating that now for a few months, and we feel good about sort of the plan for the back half of the year, but it's really that segment of buyers that has struggled.

Speaker Change: No, I think we were just looking for, you know, at this point, we were looking for new sources of

Speaker Change: and Tim Rice. How did you shift the channels of growth and lifetime value? Could we shift the type of buyer that we were looking for? Could we shift the channel from where those buyers came from? And did it materialize the way we would like? A lot of it had to do, we think, with the

Speaker Change: One was the opera, but also just into a demand environment that we thought, that we think was weakening, you just, you were worse off.

James Reinhart: You just, you were worth off.

Dylan Carden: And so now, with sort of what we're left with on the guide, there's a lot of moving pieces here. If you kind of strip away the lost 90,000 buyers, what's the incrementality on kind of the macro overhang? You know, I mean, I was at the impression I think you can go back to last call that sort of you were de-risked on the macro front in the prior guide. Is there sort of incremental behavior that you're seeing that kind of takes you another like down here? Is it really just the kind of own goal or own, yeah, that you're sort of speaking to here?

Speaker Change: And so now with sort of what we're left with on the guide, there's a lot of moving pieces here. If you kind of strip away the last 90,000 buyers,

Speaker Change: What's the incrementality on kind of the macro overhang? I mean, I was of the impression, I think you can go back to last call, that sort of you were de-risked on the macro front in the prior guide.

Speaker Change: Is there sort of incremental behavior that you're seeing that kind of takes you another leg down here? Is it really just the kind of own goal or own, yeah, that you're sort of speaking to here?

James Reinhart: I think, as Sean can give you kind of the bridge, but Dylan, yeah, I mean, I think consistent with, I think the commentary from a lot of our peers and consumer. You know, I think the buyer, the consumer, is more challenged now than they were 90 days ago, right? I think that you're, there's whether it's Starbucks or McDonald, right? You know, across the board, there's some consumer companies that are struggling and so. So I think maybe you think the world has gotten a little bit worse, right? From where we were 90 days ago. It's only the beginning of the year.

Sean Sobers: I think Sean can give you kind of the bridge. But Dylan, yeah, I mean, I think, consistent with I think the commentary from a lot of our peers in consumer, you know, I think the buyer, the consumer is more challenged now than they were 90 days ago.

Speaker Change: Right, I think that you're, there's, whether it's Starbucks or McDonald's.

Speaker Change: Right, um, you know, across the board, there's some consumer companies that are that are struggling. And so, um, so I think maybe you think the world has gotten a little bit worse, right, from where we were 90 days ago, and certainly at the beginning of the year.

Unknown Executive: Good.

Sean Sobers: Sean, do you want to bridge the revenue piece for Dylan? Yeah, yeah, Dylan, that so if you think about like our last guy to this guy, it's about if down at the midpoint is about $33 million on an annual basis. You know that it's pretty simple. It's 19 million of it straight up Europe. And so I think we talked about that, and you guys know we're doing there. And then the remaining 14 million is the US; about $6 million is really that active buyer strategy. Change that we made and then made back, and then the remaining is about $8 million, which is a really macro impact.

Speaker Change: Got it.

Speaker Change: Sean, do you want to bridge the revenue piece for Dylan? Yeah, yeah, Dylan, so if you think about our last guy to this guy, it's down at the midpoint to about $33 million on an annual basis. It's pretty simple. It's $19 million of it straight up Europe .

Speaker Change: And so I think we've talked about that, and you guys know what we're doing there. And then the remaining $14 million is the US, about $6 million is really that active buyer strategy change that we made and then made back. And then the remaining is about $8 million, which is really macro impact.

Dylan Carden: Great.

Unknown Executive: I'll leave it there. Thank you.

Speaker Change: Perfect. Great. I'll leave it there. Thank you.

Speaker Change: We'll move next to Dana Telsey with the Telsey Group. Your line is open.

Dana Telsey: Hi, good afternoon. James, do you talk about the increase of 20% of a discount or promo in order to get people to spend? What was it for besides the value customers? What do it look like for just your other regular core customers? What are you seeing in terms of clean-up bags in terms of what you're getting? And how do the distribution centers with this lower volume? How do you think of the capacity and the expense structure going forward? Yeah, I mean, Dana's interesting. I mean, I would not say that there's lower volume by any means.

Dana Telsey: Hi, good afternoon.

Dana Telsey: James, as you talked about the increase of 20% of a discount or a promo in order to get people to spend.

Dana Telsey: What was it for, besides the value customers, what did it look like for just your other regular core customers?

Speaker Change: What are you seeing in terms of cleanup bags, in terms of what you're getting? And how do the distribution centers with this lower volume, how do you think of the capacity and the expense structure going forward?

James Reinhart: You know, in Q2, will we sold more clothing than we've ever had, than ever in our history, right? There is a lot of volume. I think what we just found is that for those products that you know, if you think about the average selling price on ThredUp being, you know, between 20 and 25 bucks, we were just having to mark down our lower price product even further. Dana for customers to convert. And so the sort of pernicious part of it all is that you're having to discount more, right? And even that then that budget shopper is not converting at the same rate.

Speaker Change: Yeah, I mean, Dan, it's interesting. I mean, I would not say that there's lower volume by any means. You know, in Q2, we sold more clothing than we've ever had, than ever in our history, right? There is a lot of volume. I think what we've just found is that for those products that

Speaker Change: If you think about the average selling price on ThredUp being between $20 and $25.

Speaker Change: We were just having to mark down.

Speaker Change: our lower priced product even further.

Speaker Change: Data for Customers to Convert, and so...

Speaker Change: The sort of pernicious part of it all is that you're having to discount more, right? And even that, then, that budget chopper is not converting at the same rate.

James Reinhart: And so we just think that there's a segment of customers who, it's not that they potentially are trading down, it's that they are trading out. And we think that they are, you know, they're really struggling. And so I don't think our cost structure, you know, the variable cost in our DCs or the fixed cost, but then a kind of overhang. I think the biggest challenge was sort of the weakness in Europe in Q2. And then some of these strategic changes that we made, the acquisition in Q1 and then the promotions in Q2.

Speaker Change: And so we just think that there's a segment of customers who, it's not that they potentially are trading down, it's that they are trading out.

Speaker Change: And we think that they are, you know, they're, they're really struggling. And so I don't think our cost structure, you know, the variable cost in our DCs or the fixed cost is any kind of overhang. You know, I think the biggest challenge was

Speaker Change: sort of the weakness in Europe in Q2, and then some of these strategic changes that we made the acquisition in Q1 and then the promotions in Q2.

Unknown Executive: Got it.

Unknown Executive: Thank you.

Speaker Change: Got it.

Speaker Change: Thank you.

Unknown Executive: And it does appear that there are no further questions at this time.

James Reinhart: I would now like to turn it back to the company for any additional or closing remarks. Well, thank you everyone for joining. Thank you to the teammates throughout the Threat Up organization and our folks overseas in Europe. We appreciate all the things that you have done and are working on, and are very excited for the product work ahead of us. And we do make mistakes, but we also have a firm understanding of where we're headed. And so we look forward to seeing you at our next poll.

Speaker Change: And it does appear that there are no further questions at this time. I would now like to turn it back to the company for any additional or closing remarks.

Rick Patel: I appreciate it.

Dylan Carden: Loop next to Dylan Carden with William Blair. Your line is open.

Dylan Carden: Okay, thanks. I'm curious about why the change was made and Customer Acquisition, you know, yeah, yeah, let's just start there.

James Reinhart: Well, thank you everyone for joining. Thank you to the teammates throughout the ThredUp organization and our folks overseas in Europe. We appreciate all the things that you have done and are working on and are very excited for the product work ahead of us. And we do make mistakes. But we also have a firm understanding of where we're headed. And so we look forward to seeing you at our next event.

James Reinhart: Yeah, I mean, Dylan, as I said, I think the business, we were feeling pretty good, you know, at the beginning of the year, you know, the US business, free cash flow positive, you know, growing. I think we felt some sense of optimism that the year would, you know, materialize better. And I think we had been in a very, you know, we had not really messed with the new customer offer for some time.

James Reinhart: And so, what we were looking for was, was there something that we could do that would yield, you know, more new customers, wider tents, you know, better LCDs over time? And so we were really looking for a new mountaintop. And, you know, I think it's very easy as an organization to keep doing what you're doing across your marketing mix and across your offer mix.

James Reinhart: And, and we were looking for something that potentially could have put us in a much better place. And so that was the intent. And I think, you know, in retrospect, we probably could have done it in certain areas differently. But you know, that was the path we chose. And, you know, we got it wrong. And we own that, and we fixed it, and we moved forward.

Speaker Change: Well thank you everyone for joining. Thank you to the teammates throughout the ThredUp organization and our folks.

Dylan Carden: And so it wasn't in response to some sort of competitive change or dynamic change in the market.

James Reinhart: No, I think we were just looking for, you know, at this point, new sources of growth and lifetime value. And, you know, could we shift the type of buyer that we're looking for? Could we shift the channel from where those buyers came from and, you know, didn't materialize the way we would have liked? And we think a lot of it had to do, we think, one was the offer, but also just into a demand environment that we thought was weakening? You just are worse off.

Dylan Carden: And so now with sort of what we're left with on the guide, there are a lot of moving pieces here. If you kind of strip away the last 90,000 buyers, what's the incrementality on kind of the macro overhang? I mean, I was of the impression, I think you can go back to last call, that you were de-risked on the macro front in the prior guide. Is there sort of incremental behavior that you're seeing that kind of takes you another leg down here? Is it really just the kind of own goal or own, yeah, that you're sort of speaking to here?

Operator: This does conclude today's program. Thank you for your participation. You have been removed from the call. Goodbye. Have a wonderful afternoon.

James Reinhart: I think Sean can give you kind of the bridge, but Dylan, yeah, I mean, consistent with, I think, the commentary from a lot of our peers in consumer, you know, I think the buyer, the consumer is more challenged now than they were 90 days ago, right? I think that you're, there's, whether it's Starbucks or McDonald's, right? You know, across the board, there are some consumer companies that are struggling. And so I think, maybe you think the world has gotten a little bit worse, right, from where we were 90 days ago and certainly at the beginning of the year. Got it. Sean, do you want to bridge Sean, do you want to bridge the revenue piece for Dylan? Yeah,

Sean Sobers: Yeah, yeah, Dylan, that so if you think about our last guy to this guy, it's about it's down at the midpoint, about $33 million on an annual basis, you know, that it's pretty simple. It's 19 million of it straight up from Europe. So I think we've talked about that, and you guys know what we're doing there.

Sean Sobers: And then the remaining $14 million is for the US. About $6 million is really that active buyer strategy change that we made and then made back. And then the remaining is about $8 million, which is really macro impact. Perfect.

Dylan Carden: Perfect, great, I'll leave it there, thank you.

Dana Telsey: We'll move next to Dana Telsey with the Telsey Group. Your line is open.

Speaker Change: We appreciate all the things that you have done and are working on, and are very excited for the product work ahead of us, and we do make mistakes, but we also have a firm understanding of where we're headed, and so look forward to seeing you at our next call.

Dana Telsey: Hi James, as you talked about the increase of 20% of a discount or promotion in order to get people to spend, what was it for besides the value customers? What did it look like for just your other regular core customers? What are you seeing in terms of cleanup bags in terms of what you're getting? And how do the distribution centers with this lower volume, how do you think of the capacity and the expense structure going forward? Yeah, I mean, Dan, it's interesting. I mean, I would not say that there's a lower volume by by any means.

James Reinhart: Yeah, I mean, Dana, it's interesting. I would not say that there was lower volume by any means. You know, in Q2, we sold more clothing than we've ever had, more than in our history, right? There is a lot of volume.

James Reinhart: I think what we've just found is that for those products, you know, if you think about the average selling price on ThredUp being between 20 and 25 bucks, we were just having to mark down our lower priced product even further, Dana, for customers to convert. And so, the sort of pernicious part of it all is that you're having to discount more, right? And even then, that budget chopper is not converting at the same rate.

James Reinhart: And so, we just think that there's a segment of customers who, it's not that they potentially are trading down, it's that they are trading out. And we think that they are, you know, they're really struggling. And so, I don't think our cost structure, you know, the variable costs in our DCs or the fixed costs, are any kind of overhang. You know, I think the biggest challenge was sort of the weakness in Europe in Q2, and then some of these strategic changes that we made, the acquisition in Q1, and then the promotions in Q2.

Operator: And it does appear that there are no further questions at this time. I would now like to turn it back to the company for any additional or closing remarks.

Unknown Executive: This does conclude today's program. Thank you for your participation. You have been removed from the call. Goodbye.

Speaker Change: This does conclude today's program. Thank you for your participation. You have been removed from the call. Goodbye. Have a wonderful afternoon.

Have a wonderful afternoon.

Q2 2024 ThredUp Inc Earnings Call

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