Q2 2024 The RealReal Inc Earnings Call

Which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks uncertainties and other factors that could affect our operating results and the company's most recent Form 10-K and subsequent quarters.

The reports on Form 10-Q.

Caitlin Howe: www.globalonenessproject.org You can find more information about these risks, uncertainties, and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q. Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking, from which historical financial measures we have provided reconciliations to the most comparable GAAP measures in our earnings press release. In addition to the earned express release, we issued a shareholder letter earlier today, both of which are available on our investor relations website. I would now like to turn the call over to John Koryl, Chief Executive Officer of The RealReal. Thank you, Caitlin, and welcome to our earnings.

Today's presentation will also include certain non-GAAP financial measures, both historical and forward looking for which historical financial measures. We have provided reconciliations to the most comparable GAAP measures in our earnings press release. In addition to the earnings press release, we issued a shareholder letter earlier today, both of which are available.

On our Investor Relations website, I would now like to turn the call over to John Coral Chief Executive Officer of the railroad.

John Koryl: Thanks Caitlin, and welcome to our earnings call. Today we reported financial results for Q2 and the first half of 2024. We delivered another strong quarter with accelerated year-over-year GMV growth and double-digit revenue growth. Our focus on the consignment business resulted in a 17% year-over-year increase in consignment revenue in the second quarter. Active buyers on a trailing three-month basis grew 9% compared to the same period in 2023. In addition to growth, we significantly improved our bottom line results. In the second quarter, adjusted EBITDA was negative $1.8 million, an improvement of $21 million, and the 11th consecutive quarter of year-over-year improvement in adjusted EBITDA.

Thanks, Kaitlin and welcome to our earnings call today, we reported financial results for Q2, and the first half of 2024, we delivered another strong quarter with accelerated year over year, GMB growth and double digit revenue growth our focus on the consignment business resulted in a 17% year over year increase.

In consignment revenue in the second quarter.

Active buyers on a trailing three month basis grew 9% compared to the same period in 2023.

John Koryl: In 2024, we returned to top-line growth, and the incremental revenue dollars flowed to our bottom line at a high rate. In the first half of 2024, we grew revenue by $16 million and improved adjusted EBITDA by $46 million compared to the prior year. We believe this demonstrates the success of our strategic initiative, highlights the resilience of our business model, and positions us to capitalize on the expanding market for luxury resale. As I look ahead, we are focused on delivering sustained growth and expanding our margin. We believe sales, marketing, and stores are the engine powering the next chapter of our profitable growth. When these three areas work together, our sellers have a frictionless multi-channel experience.

John Koryl: We will continue to refine our approach and identify attractive markets for new stores. We also see opportunities to drive incremental growth from new supply channels. In addition to growth, we are realizing operational efficiencies to drive profitability. We can leverage recent advancements in AI thanks to 13 years of data on 40 million luxury items.

John Koryl: Our approach to continuous improvement and measured investments is paying off. Today, we provided Q3 2024 guidance and updated our full year guidance. We increased the midpoint of our full year adjusted EBITDA range, and we are now guiding to positive adjusted EBITDA for full year 2024. I am truly excited about the momentum in our business. As the leading marketplace for authenticated luxury goods, we are playing to our strengths. We remain focused on core business growth, operational excellence, and exceptional service to drive profitability. With that, let's open the call for questions.

Operator: As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A rough. Our first question today is from Rick Patel from Raymond James. Your line is open.

Josh Roos: Hey, this is Josh Roos filling in for Rick. Thanks for taking my question. I was hoping to get just a bit more color on the guidance. I understand that quarter over quarter we're looking at a bit of a spike decline on GMV, but the bottom line's improving, so I was hoping to just get a bit more clarity on the moving pieces there.

Ajay Gopal: Hi, thanks for the question. This is Ajay.

Ajay Gopal: There are a couple of things worth highlighting as additional context behind our guidance. First, let's talk about GMV. We expect our GMV growth in the second half to accelerate versus the first half, and this is as we head into the seasonal peak of our business volume in Q4. To your question, I would characterize our outlook for the second half as being prudent about a potential slowdown in consumer spending. But to be clear, we're only seeing modest pressure today. We saw some compression in prices driven by a preference for more discounted products. This started late in Q2 and has continued into July.

Ajay Gopal: In Q2, our ASP, average selling price, was down 3%. However, this was offset by a comparable increase in items per order, which resulted in AOE being flat versus the prior year. So our guidance for the rest of the year reflects a balanced view on how this dynamic is going to play out in the second half of 2025. Moving to the bottom line, your question on adjusted EBITDA, I would say our guidance reflects an increased confidence in our ability to deliver a year with positive adjusted EBITDA, so that's EBITDA above break-even in 2024. This confidence stems from our strong performance in the first half.

Our guidance reflects an increased confidence in our ability to deliver a year with positive adjusted EBITDA. So that's EBITDA above breakeven in 2024.

Ajay Gopal: It also stems from the resilience of our business model and its ability to mitigate small shifts in consumer spending. It's worth spending some time expanding on this theme of resilience. I call out three factors that contribute to this strength.

This confidence stems from our strong performance in the first half. It also sounds from the resilience of our business model and its ability to mitigate small shifts in consumer spending.

It's worth spending some expanding on this theme of resilience I called out three factors that contribute to this strength firstly, our consignment model. So this means that we don't share any upside or downside in sorry. It just means they sure any upside or downside in prices with our sellers. Unlike a retail, though we do not feel the full impact of the change.

Ajay Gopal: Firstly, our consignment model means that we don't share any upside or downside in prices with our sellers. Unlike a retailer, we do not feel the full impact of a change in price. So that gives us more confidence in the bottom line. The second thing I would point out is our take rate architecture. This gives us a built-in buffer when prices go down. It really helps cover any costs that are independent of price and helps protect our margin.

Price.

So that gives us more confidence in the bottom line.

The second thing I would point to is our take rate architecture.

This gives us a built in buffer when prices go down it really helps cover any costs that are independent of price and helps protect our margins and finally I would I would highlight how we are a full category luxury marketplace.

Ajay Gopal: And finally, I would highlight how we are a full category luxury marketplace. And in doing that, we serve a more resilient customer, and we offer them a full assortment of products that span a wide range of prices, categories, and brands. This breadth helps us meet any shifts in consumer demand. So hopefully that gives you context for what's behind our guidance in the second half.

And in doing that we serve a more resilient customer and we offer them a full assortment of products.

On a wide range of prices categories and brands.

This breath helps us meet any shifts in consumer demand.

So hopefully that gives you a context for what's behind our guidance in the second half there.

Josh Roos: Oh yeah, I really appreciate the caller. Best of luck in a second, I know.

Speaker Change: Oh, Yeah, I really appreciate the color best of luck in the second half.

John Koryl: Thanks, Gil. Thanks for the question.

Speaker Change: Thank you thanks for the question.

Speaker Change: Yeah.

Speaker Change: Thank you.

Operator: Our next call is from Ashley Owens from KeyBank Capital Markets. Your line is open.

Our next call is from Ashley Owens from Keybanc capital markets. Your line is open.

Chandana Madaka: Hi, thanks for taking the question. It's Chandana Madaka on for Ashley today.

Chandana Madaka: So my question was just about the luxury landscape. There's just a lot of chatter around maybe open space, and I was curious maybe kind of what trends you're noting. I know you kind of mentioned your thoughts about the customer, maybe a little bit of a spending slowdown, but maybe any more thoughts around the aspirational customer, like what's emerging and working on the platform.

Rati Levesque: Yes, thank you for the question. This is Rati.

Rati Levesque: So a couple of different things, and you know, I mentioned this last quarter as well, saw a little bit more price sensitivity with our consumer or with the health of our consumer. But I will say that we were able to make up for it in volume. So what I mean by that is, we're a supply-constrained business; we brought in more supply, and we're able to sell through that supply. So again, we're able to make up for it in volume.

Rati Levesque: I will also say that our buyers are up 9% year-over-year active buyers. Fine Jewelry is one of our top growing categories in Q2, and I look at year-over-year growth driven by higher value consumers. So there's a lot of optimism.

Rati Levesque: that we're seeing; we're really pushing the value play of our business.

Chandana Madaka: Awesome, Thank you.

Operator: Thank you. Our next question comes from Marvin Fong with DTIG. Your line is open.

Marvin Fong: Great. Good evening. Thanks for taking my question. Excuse me.

Marvin Fong: Just maybe to start with on the guidance, you know, obviously we can draw an inference on what the implied fourth quarter GMV guidance is, and, you know, it looks like you're guiding at the midpoint to something around 17% quarter over quarter. And if I just kind of look at the past couple of years, you know, it wasn't as large of a sequential increase. But certainly, if you go back further in time, you were able to kind of deliver that kind of sequential growth. So could you just kind of clue in?

Ajay Gopal: Thanks for the question, Marjin. Let me start and then, you know, I'll invite Rati to weigh in on what she's seeing.

Ajay Gopal: So we are expecting the usual seasonal pattern, the usual seasonal pattern of our business going into Q4. From Q3 to Q4, we do see a significant increase. If you look at our growth rate, the midpoint of our guidance would imply that we expect Q4 to grow 9% year on year. We see that as, you know, good acceleration versus where we are today and versus where we expect to be in Q3. You know, I think I will add more color to what gives us confidence in that call.

Rati Levesque: Right. I mean, to double down on that, like you mentioned, Ajay, we do see the same seasonal trends in the summer. We saw it last year, and then we saw Q4 pick up. You know, we're a Q4 story or H2 hat back half of the story in many ways, and then like many other retailers. What gives us confidence and some more confidence is the amount of supply that has been coming in at the top of the funnel. And when we look at that by price point, by consigner growth, by category, again, we're seeing that quite healthy. So we're in a good place to win in the back half.

Marvin Fong: Got it. Great. And on direct revenue, a pretty nice step up quarter over quarter. You know, is this kind of the right level to expect in the coming quarters, or should we expect it to kind of fall back more to where it was in the first quarter? Thanks.

Ajay Gopal: Yeah, I can, I can take that question. So our direct revenue, you know, we see that staying within the nine to 10% of total revenue on a go forward basis. Q2 was at the high end of that, but still within the range that we would expect it to be. The point I would make there is that we've been through a period where we were defocusing on that revenue stream.

Ajay Gopal: We think now it's in a healthy place, and it's where you would expect it to be. I would also draw your attention to the margins, which were a notable improvement versus what we've seen in the past. The margin rate, on a go-forward basis, we would expect it to be in the mid-teens. We think Q2 was a good sort of starting point for us and really gives us the right foundation for how this business, how this revenue stream is going to perform going forward.

Marvin Fong: Got it. Thanks so much, Ajay. Thanks, everyone.

John Koryl: Thank you. We are showing no further questions at this time, so I would like to turn it back to John Koryl for closing remarks.

John Koryl: Thank you for joining us today. Before closing the call, I want to give a sincere thank you to all of our employees for their exceptional performance in 2024 so far. We also want to thank our more than 37 million members as they join us on our mission to extend the life of luxury and make fashion more sustainable. Thank you.

Speaker Change: Okay.

Speaker Change: Yeah.

Operator: Thank you, everyone, for participating in today's conference. This does conclude the program, and you may now disconnect.

Speaker Change: Yeah.

Speaker Change: Thank you everyone for participating in today's conference.

Speaker Change: This does conclude the program and you may now disconnect.

Speaker Change: Yeah.

Operator: Everyone else has left the call.

Speaker Change: Everyone else has left the call.

Operator: ? music playing ?

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].