Q2 2024 Rent the Runway Inc Earnings Call and Business Update
Speaker Change: Welcome to Rent The Runway's second quarter 2024 earnings results conference call. At this time, all participants are on a listen only mode. A question and answer session will follow the form of presentation.
Operator: A question and answer session will follow the phone presentation. If anyone should require operator assistance and a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: If anyone should require operator assistance during the conference, please first star as your only telephone keypad. As a reminder, just conference is being recorded. I would now like to turn a call over to Renter One. Chief Legal and Administrative Officer, Cara Schembri. Thank you. You may be good.
Cara Schembri: I would now like to turn the call over to Rent the Runway's Chief Legal Administrative Officer, Cara Schembri.
Cara Schembri: Thank you. You may begin.
Jen: Good afternoon, everyone, and thanks for joining us today. During this call, we will make references to our Q2 2024 earnings presentation, which can be found in the event and some presentation section of our Investor Relations website.
Speaker Change: Good afternoon everyone and thanks for joining us today. During this call, we will make references to our Q2-2024 earnings presentations, which can be found in the events and presentations section of our Investor Relations website.
Jen: Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include our future expectations and earning financial results, guidance and targets, market opportunities, and our growth. These statements are subject to various risks on certain choosing assumptions, which could cause our actual results to differ materially. These risks on certain choosing assumptions are detailed in this afternoon's press release, as well as our filings at the SEC, including our Form 10-Q that will be filed within the next few days.
Speaker Change: Before we begin, we would like to remind you that this call will include forward-looking statements.
Speaker Change: These statements include our future expectations regarding financial results, guidance and targets, market opportunities, and our growth.
Speaker Change: These statements are subject to various risks on certain keys and assumptions which could cause their actual results to differ materially.
Speaker Change: These risks from certain treatment assumptions are detailed in this afternoon's press release, as well as our violence at the FCC, including our form 10Q that will be filed within the next few days. We undertake no obligation to revise or update any forward-looking statements or information except as required by law.
Jen: We undertake no obligations for a Pfizer update, any forward-looking statements or information, except as required by law.
Jen: During this call, we will also reference our non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliation of GAAP to non-GAAP measures can be found in our press release, slide presentation posted on our Investor website, and in our SEC filings.
Speaker Change: During this call, we will also reference certain non-gap financial information.
Speaker Change: The presentation of this non-gap financial information is not intended to be considered in isolation or of the substitute for financial information presented in accordance with gap.
Speaker Change: Reconciliation with the gap to non-gap measures can be found in our press release.
Jen: With that, I'll turn it over to Jen.
Speaker Change: Slide Presentation Poses on our Investor website and in our SEC filings and with that, I'll turn it over to Jennifer.
Jen: Thanks, Cara, and thank you, everyone, for joining. On our last two earnings calls, I highlighted our two bid goals for 2024: getting to free cash flow break even and returning to growth. I'm excited to report results for Q2 that beat our expectations, and as a result, we're raising revenue guidance for the full year. What you're seeing in our results is momentum. We've dramatically simplified our internal goals and organizational structure so that we can aggressively pursue the biggest opportunity areas for our business. We believe that the business is demonstrating that it's at an exciting inflection where continued growth and free cash flow break even this year are squarely within our reach.
Jennifer: Thanks, Cara and thank you everyone for joining.
Jennifer: On our last two earnings calls, I highlighted our two bid goals for 2024, getting to free cash flow break even and returning to growth.
Jennifer: I'm excited to report results for Q2 that beat our expectations.
Speaker Change: and as a result, we're raising revenue guidance for the full year.
Speaker Change: What you're seeing in our results is momentum. We've dramatically simplified our internal goals and organizational structure so that we can aggressively pursue the biggest opportunity areas for our business.
Speaker Change: We believe that the business is demonstrating that it's adding exciting inflection where continued growth and free cash flow break even this year are squarely within our reach.
Jen: Q2 24 revenue was 78.9 million, up 4.2% year over year, exceeding the high end of our 76 to 78 million dollar guidance. Adjusted to EBITDA was 13.7 million, or 17.4% of revenue. Our 9th consecutive quarter of positive EBITDA and exceeding the high end of our 14 to 15% margin guidance. Moving on to Q3, we are guiding to an acceleration in revenue growth, with Q3 revenue expected to increase 3 to 6% year over year. Finally, we are reiterating our goals to be free cash flow break even in full year 24.
Speaker Change: Q224 revenue, with 78.9 million, up 4.2% year over year, exceeding the high end of our $76-$78 million guidance.
Speaker Change: Adjust to the EBITDA was 13.7 million or 17.4% of revenue, our 9th consecutive quarter of positive EBITDA and exceeding the high end of our 14 to 15% margin guidance.
Speaker Change: Moving on to Q3, we are guiding to an acceleration in revenue growth with Q3 revenue expected to increase 3 to 6% year over year. Finally, we are reiterating our goals to be free cash flow break even in full year 24.
Jen: One of the areas of our business where we believe that the momentum is most palpable is in our special event rental business reserve. The reserve business is what we launched the company with 15 years ago. It's a simple value proposition. Every woman has to buy outfits for events, a wedding, a prom, a gala, a holiday party that she rarely wears again. So we give her the ability to rent dresses and accessories a la carte for around 15 to 15% of the retail price. The addressable market for event rentals is large, and we are still the only company of scales who's operating in this space.
Speaker Change: One of the areas of our business where we believe that the momentum is most palpable is in our special event rental business reserve.
Speaker Change: The Reserve Business is what we launched the company with 15 years ago. It's a simple value proposition. Every woman has to buy outfits for events, a wedding, a prom, a gala, a holiday party.
Speaker Change: That she rarely wears again, so we give her the ability to rent dresses and accessories all a cart for around 15 to 15% of the retail price.
Speaker Change: The addressable market for event rentals is large, and we are still the only company of scales who's operating in this space.
Jen: As we have discussed on past calls, reserve revenue has been declining for a few years, and we've been focused on reinvigorating it. In June, we dedicated a new cross-functional pod under new leadership to focus on building reserve over the next few years. By July, orders were up around 10% year over year, and in August, orders have been up around 20% year over year. And to end customer experience and ensuring that we optimize inventory availability for our customers. customers. Historically, new customer growth into reserve was a healthy source of repeat orders and upsells into subscription. We plan to use our reinvigorated life cycle marketing function to reignite the supply wheel.
Speaker Change: As we've discussed on past calls, reserve revenue has been declining for a few years, and we've been focused on reinvigorating it.
Speaker Change: In June, we dedicated a new cross-functional pod under new leadership to focus on building reserve over the next few years. By July, orders were up around 10% year over year, and in August, orders have been up around 20% year over year.
Speaker Change: Eve will be exciting, new customer growth into reserve is up around 50% year-over-year.
Speaker Change: This is without any marketing changes or incremental marketing dollars whatsoever. Just deep focus on improving the N-to-N customer experience and ensuring that we optimize inventory availability for our customers.
Speaker Change: Historically, new customer growth into reserve was a healthy source of repeat orders and upsells into subscription. We plan to use our reinvigorated life cycle marketing function to reunite the flywheel.
Jen: In 2H, you can also expect to see us focus on SEO for reserve to drive organic traffic here, simplifying the UX of the experience, reinforcing our fit guarantee, improving our upsell experience, and focusing on turning our units as efficiently as possible to maximize revenue. We are very optimistic about continued growth in reserve in H2.
Speaker Change: In 2H, you can also expect to see us focus on SEO for reserves to drive organic traffic here.
Speaker Change: Simplifying the U.S. of the experience, reinforcing our 50th guarantee, improving our upsell experience and focusing on turning our units as efficiently as possible to maximize revenue. We are very optimistic about continued growth in reserve in H2.
Jen: From a product perspective, we completed several big tech projects in Q2 that were aimed at improving important parts of the prospect funnel and making the sites even faster across services. We also made several changes designed to simplify our checkout process that had, in total, almost doubled checkout completion rate compared to the first half of the year. We believe that this should have positive impacts on conversion throughout the second half of the year. We upgraded the speed and performance of all of the key pages on the site significantly. Our grids, for example, are loading almost 10 times faster now than they were at the beginning of the year, which has lowered our bounce rates on these pages by around 30%.
Speaker Change: From a product perspective, we completed several big tech projects in Q2 that were aimed at improving important parts of the prospect funnel and making the sites even faster across services.
Speaker Change: We also made several changes designed to simplify our checkout process that have in total almost doubled checkout completion rate compared to the first half of the year.
Speaker Change: We believe that this should have positive impact on conversion throughout the second half of the year.
Speaker Change: We upgraded the speed and performance of all of the key pages on the site significantly. Our grids, for example, are loading almost 10 times faster now than they were at the beginning of the year, which has lowered our bounce rates on these pages by around 30%.
Jen: As we updated performance, we've been able to more easily update the UI of the site, such as making our product detail pages even more compelling, which is an increase to add to bad rate, and very importantly, allows us to recognize gains in SEO faster. We plan to invest significantly into SEO in the second half of the year, geared towards making recognizable gains to organic traffic as a result. Finally, we've made our photo-review process more seamless, which has continued to dramatically improve the amount of reviews we're receiving per product. Our customer reviews are a critical tool in helping new customers determine whether an item will fit them and increase comfort with sizing, which again drives conversion.
Speaker Change: As we updated performance, we've been able to more easily update the UI at the site, such as making our product detail pages even more compelling, which is an increase that adds to bad rate and very importantly allows us to recognize gains in SEO faster.
Speaker Change: We plan to invest significantly into SEO in the second half of the year geared towards making recognizable gains to organic traffic as a result. Finally, we've made our photo review process more seamless, which has continued to dramatically improve the amount of reviews we're receiving for product.
Speaker Change: Our customer reviews are critical tool in helping new customers determine whether a night and will fit them and increase comfort with sizing, which again drives conversion.
Jen: We believe that the work completed in the first half marks a significant milestone for Render Onway. As many of the major tech projects we embarked on, in some cases several years ago, to upgrade our site and funnel performance have either been completed or in good shape. We therefore feel confident shifting the way we work into a simplified structure where we have aligned behind the top three priorities for the next few years and have aggressively stacked cross-functional teams against these business goals. We also believe that our cross-functional teams are well-positioned and with the right skill sets to execute speed and agility and operate akin to a mini-start-up.
Speaker Change: We believe that the work completed in 1st half marks a significant milestone for Render runway. As many of the major tech projects we embarked on, in some cases several years ago, to upgrade our site and funnel performance.
Speaker Change: Have either been completed or in good shape. We therefore feel confident shifting the way we work into a simplified structure where we have aligned behind the top three priorities for the next few years and have aggressively stacked cross-functional teams against these business goals.
Speaker Change: We also believe that our cross-functional teams are well-positioned and with the right skill sets to execute speed and agility and operate akin to a mini start-up.
Jen: These goals include growing our reserve business and therefore our customer funnel into the company, increasing subscriber loyalty, in particular during her onboarding experience, and increasing organic traffic to Render Onway.
Speaker Change: These goals include growing our reserve business and therefore our customer funnel into the company, increasing subscriber loyalty in particular during her onboarding experience, and increasing organic traffic to rent the runway.
Jen: Turning next to marketing, with a new team in place, we have continued to make quarter-over-quarter progress in diversifying our marketing channels, overhauling and modernizing our creative to make all of our touch points more aspirational and getting the brand back out in front of consumers. We have evolved our content development so that it's more rapid and agile, as we believe that timely and engaging content is critical to improving the performance of all of our channels, including social and our paper. Performance. You can expect to see new organic content launch on our channels with much higher frequency.
Speaker Change: Turning next to marketing, with a new team in place, we have continued to make quarter-over-quarter progress in diversifying our marketing channels, overhauling and modernizing our creative to make all of our touch points more aspirational and getting the brand back out in front of consumers.
Speaker Change: We have evolved our content development so that it is more rapid and agile as we believe that timely and engaging content is critical to improving the performance of all of our channels, including social and our paid performance.
Speaker Change: You can expect to see new organic content launch on our channels with much higher frequency.
Jen: In Q2, we saw tax improved year over year by nearly 15%. Some of this can be attributed to diversifying our channel mix. We've seen some early success marketing on TikTok and Pinterest, given our target demographic. In the second half of the year, we're focused on turning back on brand marketing, which, alongside SEO, we hope will catalyze growth in organic traffic. One of the elements of our strategy is monthly icon campaigns. We plan to partner with buzzies, celebrity talent for activations focused on curating their iconic closets and offering it is rentable to Rent the Runway subscribers.
Speaker Change: In Q2, we saw tax improved year over year by nearly 15%.
Speaker Change: Some of this can be attributed to diversifying our channel mix. We've seen some early success marketing on TikTok and Pinterest given our target demographic.
Speaker Change: In the second half of the year, we're focused on turning back on brand marketing, which alongside SEO we hope will catalyze growth in organic traffic.
Speaker Change: One of the elements of our strategy are monthly icon campaigns. We plan to partner with Busy Celebrity Talent for activations focused on curating their iconic closets and offering it as rentable to rent the runway subscribers. This further is our mission of celebrating real talented, fashionable women all over the world and telling their stories.
Jen: This furthers our mission of celebrating real, talented, fashionable women all over the world and telling their stories.
Jen: Later this month, we're taking Rent the Runway on the road to some of the biggest college campuses in one of our fastest growing regions for RTR, the South. We'll visit campuses like the University of Texas, Ole Miss, and the University of Georgia where the social culture is strong, and we see an opportunity to bring RTR to the women on campus who need a resource for Greek life and their many events. This program is expected to include in real life activations on campus and will involve college influencers and the relaunch of our college ambassador program, which was a source of tremendous brand awareness for Rent the Runway pre-COVID.
Speaker Change: Later this month, we're taking Renter runway on the road to some of the biggest college campuses in one of our fastest growing regions for RTR, the South.
Speaker Change: Well, visit campuses like the University of Texas, Ole Miss, and University of Georgia, where the social culture is strong, and we see an opportunity to bring RTR to the women on campus who need to resource for Greek life and their many events.
Speaker Change: This program is expected to include in real life activations on campus and will involve college influencers and the relaunch of our college ambassador program, which was a source of tremendous brand awareness for Render Runway pre-COVID.
Jen: And right on deck are some fun social-first activations for Fashion Week in New York. We believe our designer assortment is one of the biggest competitive advantages, so reinforcing Rent the Runway's position as the rental company that allows you to rent pieces straight from the runway is important.
Speaker Change: and right on deck are some fun social first activations for fashion week in New York. We believe our designer, Sortman, is one of the biggest competitive advantages. So reinforcing rent the runway's position as the rental company that allows you to rent pieces straight from the runway is important.
Jen: On inventory, this is an important and exciting time of the year where we get to plan our 2025 buy. For 2024, we successfully executed on our depth strategy and have seen outside demand for the 2024 buy in the first half of the year. Looking ahead to 2025, we want to solidify Rent the Runway's position as the fashion leader in the rental space by refreshing our assortment and leaning into our strength and dresses. We plan to overhaul our brand matrix to provide our customer an even more elevated, aspirational, emotional, and fashion-forward experience. We see opportunity across print, color, and emotional pieces and plan to maintain depth but also increase breadth to ensure that we are not only serving our sophisticated core customer but offering an assortment that will attract new customers.
Speaker Change: On Inventory, this is an important and exciting time of the year, where we get to plan our 2025 by. For 2024, we successfully executed on our deaf strategy and have seen outside demand for the 2024 by in the first half of the year.
Speaker Change: Looking ahead to 2025, we want to solidify Renther Runway's position as the fashion leader in the rental space by refreshing our assortment and leaning into our strength and dresses.
Speaker Change: We plan to overhaul our brand matrix to provide our customer and even more elevated aspirational, emotional, and fashion forward experience.
Speaker Change: We see opportunity across print, color, and emotional pieces and plan to maintain depth but also increase breath to ensure that we are not only serving our sophisticated core customer but offering an assortment that will attract new customers.
Jen: In conclusion, I will say the simplification of goals within the company and focus on implementation of the few things that will lead to significant growth has created an energy and excitement inside the company that is palpable and feels great after some difficult years. We're motivated by our momentum and ready to continue growing by continuing to improve our customer offering and experience and getting to our goal of free cash flow break even this year.
Speaker Change: In conclusion, I will say...
Speaker Change: The simplification of goals within the company and focus on the implementation of the few things that will lead to significant growth has created an energy and excitement inside the company that is palpable and feels great after some difficult years.
Speaker Change: We're motivated by our momentum and ready to continue growing by continuing to improve our customer offering and experience and getting to our goal of free cash flow breaks even this year. With that, I'll turn it over to Sid.
Sid: With that, I'll turn it over to Sid.
Sid: Thanks, Jen, and thank you everyone for joining us. We continue to make good progress in the second quarter. Both Q2 revenue and adjusted EBITDA exceeded the high end of a guidance range. On Q3, 2024 revenue guidance of 75 million to 77 million, or 3% to 6% revenue growth versus Q3, 2023, implies a continued acceleration of revenue growth versus Q1 and Q2 of fiscal 2024 at the midpoint of the guidance.
Speaker Change: Thanks Jen, and thank you everyone for joining us. We continue to make good progress in the second quarter, both due to revenue and adjusted EBITDA exceeded the high end of our guidance range.
Sid: A Q3, 2024 revenue guidance of 75 million to 77 million or 3% to 6% revenue growth.
Sid: vs. Q3, 2023, implies a continued acceleration of revenue growth vs. Q1 and Q2 of fiscal 2024 at the midpoint of the guidance range.
Sid: Change. As I will discuss further, we are also raising our revenue guidance for fiscal year 2024 and reiterating our commitment to reach pre-cash register even for the full year. In short, we expect to grow revenue and significantly improve profitability this year.
Sid: As I will discuss further, we are also raising our revenue guidance for fiscal year 2024 and reiterating our commitment to reach free cash flow break even for the full year. In short, we expect to grow revenue and significantly improve profitability this year.
Sid: I would like to take a moment to discuss the Eurovere decline in Q2 ending active subscribers. We believe the primary reason for this Eurovere decline is the significant reductions in promotions this quarter versus last year's second quarter. In fact, excluding subscribers generated from the highest level of promotions in Q2 23, our Eurovere subscriber growth would have been much better than the 6% decline we reported as of Q2 24. Notably, ending active subscribers as of September 1st, 2024, were already roughly flat Eurovere. We also believe that a stronger revenue performance in Q2 2024, despite lower ending active subscribers, demonstrates the success of our strategy to be less promotional.
Speaker Change: I would like to take a moment to discuss the year of your decline in Q2 ending active subscribers.
Speaker Change: We believe the primary reason for this year of your decline is the significant reductions in promotions this quarter versus last year's second quarter.
Speaker Change: In fact, excluding subscribers generated from the highest level of promotions in Q223, a year-old year subscriber growth would have been much better than the 6% decline we reported as of Q224.
Speaker Change: Notably, ending active subscribers as of September 1, 2024 will already roughly flat your rear.
Speaker Change: We also believe that a stronger revenue performance in Q2224 despite lower ending active subscribers demonstrates the success of our strategy to be less promotional.
Sid: As Jen outlined, we are focused on driving innovation and enhancements to the customer experience across nearly every aspect of our business. We are excited by our second half plans.
Jen: As Jen Outline, we are focused on driving innovation and enhancements to the customer experience across nearly every aspect of our business.
Sid: The underlying financial position of the company and our go forward expectations are considerably stronger versus last year, with growing revenue and meaningful improvements in cash flow, which I will walk through in more detail. Our Q3 and full year 2024 guidance are positive indicators of further financial progress. We are growing revenue while spending less on promotions. Our reserve business is demonstrating stronger trends on a Eurovere basis and retail is growing at high levels versus last year.
Speaker Change: We are excited by a second half plan. The underlying financial position of the company and our go forward expectations are considerably stronger versus last year with growing revenue and meaningful improvement in cash flow which I will walk through in more detail.
Speaker Change: A Q3 and full year 2024 guidance, a positive indicators of further financial progress.
Speaker Change: We are growing revenue while spending less than promotion. Our reserve business is demonstrating stronger trends on a Europe-Europe basis and retail is growing at high levels versus last year. Let me now review a financial results for the quarter.
Sid: Let me now review a financial results for the quarter. We ended Q2 24 with 129,073 ending active subscribers, down 6.2% Eurovere. Average active subscribers during the quarter were 137,455 versus 141,393 subscribers in the prior year, a decrease of 2.8%. Ending active subscribers decreased from 145,837 subscribers at the end of Q1 2024 due primarily to seasonally weaker acquisitions. Total revenue for the quarter was 78.9 million dollars, up 3.2 million dollars of 4.2% Eurovere, and up 3.9 million dollars of 5.2% quarter over quarter. Subscription and reserve rental revenue was up slightly Eurovere in Q2 24 primarily due to growth in reserve and higher average revenue per subscriber as a result of lower promotional spending.
Speaker Change: We ended Q224 with 129,073 ending active subscribers down 6.2% year over year.
Speaker Change: Average active subscribers during the quarter for 137,455 versus 141,393 subscribers in the prior year, a decrease of 2.8%.
Speaker Change: Ending active subscribers decreased from 145,837 subscribers at the end of Q1, 2024, do primarily to seasonally weaker acquisition.
Speaker Change: Total revenue for the quarter, with $78.9 million, up to $3.2 million of $4.2 per cent year of year, and up to $3.9 million of $5.2 per cent quarter of a quarter.
Speaker Change: Subscription and Reserve rental revenue was up slightly year over year in Q224 primarily due to growth and reserve and higher average revenue per subscriber as a result of lower promotional spending.
Sid: Other revenue increased 35.1% or 2.7 million dollars Eurovere due to increased focus on a retail business, which drove incremental cash flow and customer loyalty. Full film and costs were 20.6 million dollars in Q2 24 versus 22.5 million dollars in Q2 23 and 20.6 million dollars in Q1 24. Full film and cost as a percentage of revenue a lower Euro year at 26.1% of revenue in Q2 24 compared to 29.7% of revenue in Q2 23. Full film and cost benefit it from a new transportation contract with UPS, continued warehouse efficiencies, and higher revenue per order primarily from our resale.
Speaker Change: Other revenue increased 35.1% or $2.7 million year earlier due to increased focus on our retail business which drove incremental cashflow and customer loyalty.
Speaker Change: Both Irman costs $20.6 million in Q224 versus $22.5 million in Q223 and $20.6 million in Q124.
Speaker Change: Full film and cost of 8% of your revenue will lower your over year at 26.1% of revenue in Q224 compared to 29.7% of revenue in Q223.
Speaker Change: Both women cost benefit it from a new transportation contract with UPS, continued warehouse efficiencies, and higher revenue for order primarily from our resale business.
Sid: Business. Growth margins, but 41.1% in Q224, versus 43.9% in Q223. Q224 growth margins reflect higher rental product costs due to increased investment in inventory in fiscal year 23, offset partially by improved fulfillment costs. Increased investment in inventory reflects last year's death adjustments to increase inventory in stock rates in fiscal 23 and beyond. Q224 growth margins increased quarter of a quarter to 41.1% from 37.9% in Q124 due to seasonally lower revenue share payments and improved fulfillment costs as a percentage of revenue. Operating expenses were 17.7% lower year over year. You primarily to the favorable impact of cost reduction efforts and lower stock-based compensation expenses.
Speaker Change: Growth margins, 41.1% in Q224 versus 43.9% in Q223.
Speaker Change: Q224 Growth Margins reflects higher rental products due to increased investment inventory in fiscal year 23, offset partially by improved fulfillment costs.
Speaker Change: Increased investment in inventory reflects last year's death's adjustments to increase inventory in stock rates in fiscal 23 and beyond.
Speaker Change: Q224 growth margins increased, quarter of a quarter to 41.1% from 37.9% in Q124. Due to seasonally low revenue share payments and improved fulfillment costs as a percentage of revenue.
Speaker Change: Operating expenses were 17.7% lower your over year. You primarily, to the favorable impact of a cost reduction effort and lower stock-based compensation expenses.
Sid: Total operating expenses, which include technology, marketing, and GNA, for 49% of revenue in Q224 versus 62.1% of revenue in Q223 and 55.2% of revenue in Q124. Adjusted EBITDA for the quarter was $13.7 million, or 17.4% of revenue, versus $7.7 million, or 10.2% of revenue in the prior year. Adjusted EBITDA for the six months ending July 31, 2024, was approximately $20.2 million or 13.1% of revenue versus $12.2 million or 8.1% of revenue in the prior year. Adjusted EBITDA improvement year over year reflects the impact of a fixed cost reduction effort, higher revenue, and lower fulfillment costs, partially offset by higher revenue share payments due to a greater proportion of revenue share units.
Speaker Change: Total operating expenses, which include technology, marketing, and G&A, for 49% of revenue in Q224, versus 62.1% of revenue in Q223 and 55.2% of revenue in Q124.
Speaker Change: adjusted EBITDA for the quarter with $13.7 million or $17.4% of revenue versus $7.7 million or $10.2% of revenue in the prior year.
Speaker Change: Adjusted EBITDA for the 6-month ending July 31, 2024, was approximately $20.2 million, or $13.1% of revenue, versus $12.2 million, or $8.1% of revenue in the prior year.
Speaker Change: Adjusted EBITDA Improvement, Europe, Reflex, the impact of a fixed cost reduction efforts, higher revenue and lower fulfillment costs, partially offset by higher revenue share payments due to a greater proportion of revenue share units.
Sid: Re-cashflow for Q224 was negative $4.5 million versus negative $17.5 million in Q223 due primarily to lower cost of rental product and higher profitability. Re-cashflow for the six months ending July 31, 2024, was negative $5.9 million versus negative $29.6 million in the six months ending July 31, 2023. Re-cashflow in the second half of fiscal 2024 is expected to be approximately positive $6 million. We expect that the improvement will primarily be due to lower operating expenses and lower capital expenditures in the second half versus the first half of fiscal 2024. Lower operating expenses are driven largely by first half-weighted marketing expenses.
Speaker Change: 3 cash low for Q224 was negative $4.5 million vs. negative $17.5 million in Q223. You primarily to lower cost of rental product and higher profitability.
Speaker Change: 3 cash flow for the 6 months ending July 31, 2024, was negative $5.9 million versus negative $29.6 million in the 6 months ending July 31, 2023.
Speaker Change: Precache Flow in the second half of fiscal 2024 is expected to be approximately positive $6 million.
Speaker Change: We expect that the improvements will primarily be due to lower operating expenses and lower capital expenditures in the second half versus the first half of fiscal 2024. Lower operating expenses are driven largely by first half weighted marketing expenses.
Sid: We also expect improved working capital and higher revenue in the second half of fiscal 24 versus the first half of fiscal 24. We expected the majority of the improvement in second half re-cashflow where we've driven by timing of operating in capital expenditures where we have good visibility.
Speaker Change: We also expect improved working capital and higher revenue in the second half of fiscal 24 versus the first half of fiscal 24.
Speaker Change: We expect that the majority of the improvement in second half free cash flow will be driven by timing of operating in capital expenditures where we have good visibility.
Sid: I will now discuss guidance for Q324 and fiscal year 2024. Let me start for Q3. We expect revenue to be between $75 million and $77 million, and adjusted EBITDA margins to be between 13% and 15% of revenue. Revenue. As outlined earlier, Q3 revenue guidance implies 3% to 6% growth versus Q3 23, continuing an improving revenue growth trajectory at the midpoint of the guidance range. As a reminder, revenue growth was negative 6.3% Eurovere in Q323, approximately flat Eurovere in Q423, positive 1.1% Eurovere in Q124, positive 4.2% Eurovere in Q224, and is expected to be between 3% and 6% Eurovere in Q324.
Speaker Change: I will now discuss guidance for Q324 and fiscal year 2024. Let me start with Q3.
Speaker Change: We expect revenue to be between 75 million and 77 million dollars, and adjusted Eva Dalmargin's to be between 13% and 15% of revenue.
Speaker Change: As outlined earlier, Q3 revenue guidance implies 3% to 6% growth versus Q3-23, continuing and improving revenue growth trajectory as a midpoint of the guidance range.
Speaker Change: As a reminder, revenue growth was negative 6.3% Eurover year in Q323, approximately flat Eurover year in Q423
Speaker Change: positive 1.1% year over year in Q124, positive 4.2% year over year in Q224, and is expected to be between 3% and 6% year over year in Q324.
Sid: Our current business performance gives us the confidence to increase a full-year 2024 revenue guidance to between 2% and 6% growth versus fiscal 23. This increase reflects improving trends in our reserve business, solid progress on growing our retail business, and improved revenue per subscriber versus fiscal 23. We continue to expect adjusted EBITDA margins of between 15% and 16% of revenue. We also continue to expect to be three cash flow break even for fiscal 24, as mentioned previously.
Speaker Change: A current business performance gives us the confidence to increase a full year 2024 revenue guidance to between 2% and 6% growth versus fiscal 23. This increase reflects improving trends in our reserve business.
Speaker Change: Solid progress on growing our resale business and improve revenue per subscriber versus fiscal 23.
Speaker Change: We continue to expect adjusted EBITDA margins of between 15% and 16% of revenue. We also continue to expect to be free cash flow break even for fiscal 24 as mentioned previously. Thank you and we will now take your question.
Sid: Thank you, and we will now take your question.
Sid: Thank you.
Operator: We will now be conducting a question-in-answer session. If you would like to ask a question, please press star 1 on your telephone e-pad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove yourself from the queue.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask the question, please first start one or your telephone feedback. A confirmation tone will indicate your line is in the question, you may first start to if you like to remove yourself from the queue.
Operator: The participants use the speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Siddharth Thacker: The part of Siddharth Thacker equipment, and maybe next Saturday, pick up your handset before pressing the star keys.
Siddharth Thacker: One moment please allow me to pull over for questions.
Operator: A question and answer session will follow the phone presentation. If anyone should require operator assistance there in the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Matthew Condon: One moment, please from the line of the condon with citizens, JMPs, and 30.
Matthew Condon: Please proceed with your question. Great. Thank you for taking my questions. My first one is just on resurrecting past users. Can you just talk about what you're seeing there currently, and then maybe just talk about the broader opportunity? So we're seeing strength in rejoin rates of past customers. I think that we've always seen that as we make improvements in customer experience, the first people to notice are people who are actively engaged on our marketing kind of commsless people who have been customers before. So we're seeing that that's actually a tremendous source of growth for us now, our rejoiners.
Speaker Change: Our first question comes from the line of contact on with citizens, Jambi Siddharthy, please receive a short question.
Cara Schembri: I would now like to turn the call over to Renta Oneway's Chief Legal Administrative Officer, Cara Schembri. Thank you. You may begin.
Siddharth Thacker: Great, thank you for taking my questions. My first one is just on resurrecting path users. Do you just talk about what you're seeing there currently and then maybe just talk about the broader opportunity?
Cara Schembri: Good afternoon everyone and thanks for joining us today. During this call we will make references to our Q2 2024 earnings presentation, which can be found in the event and some presentation section of our investor relations website. Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include our future expectations and earning financial results, guidance and targets, market opportunities, and our growth. These statements are subject to various risks and certain choosing assumptions, which could cause our actual results to differ materially.
Speaker Change: I'm going to make a video for you guys to see what you're doing.
Speaker Change: So we're seeing this.
Speaker Change: Straits in rejoin race of past customers. I think that we've always seen that as we make improvements in customer experience, the first people to notice are people who are actively engaged on our marketing kind of consulates, people who have been customers before, so we're seeing that.
Cara Schembri: These risks and certain choosing assumptions are detailed in this afternoon's press release as well as our filings at the FCC, including our form 10Q that will be filed within the next few days. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. During this call, we will also reference our non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or the substitute for financial information presented in accordance with GAAP. Reconciliation of GAAP to non-GAAP measures can be found in our press release, slide presentation posted on our investor website in our FCC filings.
Jen: And then just the opportunity for us is big. Obviously, this market is growing very quickly. It has gone from being an early adopter behavior to being a behavior rental, being a behavior that's way more mainstream. And over the past few years that Rent the Runway until 2024, we had been heavily focused on costs and profitability. Now, we have that clear vision to pre-tash flow break even, and we've reoriented the entire company around growth. We've hired the right people. We've reignited marketing creative. We've simplified our goals. And these actions give me the confidence. And you can see it demonstrated in our metrics that growth is coming for RTR.
Speaker Change: That's actually a tremendous source of growth for us now, our rejoiners.
Speaker Change: And then just the opportunity for us is big. You know, obviously the market is growing very quickly.
Speaker Change: It has gone from being an early adopter behavior, to being a behavioral rental being a behavior that's way more mainstream.
Speaker Change: and over the past few years that rent the runway until 2024, we've been heavily focused on cost and profitability.
Speaker Change: Now, we have that clear vision to free cash flow break even and we've reoriented the entire company around growth. We've hired the right people, we've reignited marketing, creative, we've simplified our goals and these...
Jen: With that, I'll turn it over to Jen. Thanks, Cara, and thank you everyone for joining. On our last two earnings calls, I highlighted our two bid goals for 2024, getting to free cash flow break even and returning to growth.
Speaker Change: Actions give me the confidence and you can see it demonstrated in our metrics that...
Jen: We have momentum. And we have momentum across all different aspects of our business right now. It's not just in one area.
Jen: I'm excited to report results for Q2 that beat our expectations and as a result, we're raising revenue guidance for the full year. What you're seeing in our results is momentum. We've dramatically simplified our internal goals and organizational structure so that we can aggressively pursue the biggest opportunity areas for our business. We believe that the business is demonstrating that it's at an exciting inflection where continued growth and free cash flow break even this year are squarely within our reach.
Speaker Change: Growth
Speaker Change: He is.
Speaker Change: Coming for RTR, we have momentum and we have momentum across all different aspects of our business right now. It's not just in one area, so I'm really excited about second half and I'm particularly excited about how our strategies.
Matthew Condon: So I'm really excited about the second half, and I'm particularly excited about how our strategies that we've deployed, where we put these cross-functional mini startups on really simplified business goals, are going to help us into 2025 and 2026 ignite tremendous growth for RTR. Great, that's very helpful.
Speaker Change: That we've deployed where we put these cross-functional mini start-ups on really simplified business goals are going to help us into 2025 and 2025 Ignite tremendous growth for RTR.
Jen: Q2 24 revenue was 78.9 million up 4.2% year over year exceeding the high end of our 76 to 78 million dollar guidance. Adjusted to EBITDA was 13.7 million or 17.4% of revenue are 9th consecutive quarter of positive EBITDA and exceeding the high end of our 14 to 15% margin guidance. Moving on to Q3, we are guiding to an acceleration in revenue growth with Q3 revenue expected to increase 3 to 6% year over year.
Jen: And then my second one is just on the reserve business and going off of your points on just the cross-functional teams. Understood that that's contributing to this success which you guys are having there, but maybe just for a product perspective, you know, what do you see that these teams are coming up with that's really driving the acceleration that business? So the teams are focused on the full end-to-end experience for reserve. So, to be clear, until quite recently, until June, there had been no dedicated focus of a cross-functional team to reserve in many years. And we had seen that business decline for the past few years.
Speaker Change: Great, that's very helpful. And then my second one is just on the reserve business and going off of your points on just the cross functional teams understood that that's contributing to this success which you guys are having there. But maybe just from a product perspective, you know, what do you see that these teams are coming up with that's really driving the acceleration that business.
Speaker Change: So the teams are focused on the full end-to-end experience for reserves, so to be clear.
Speaker Change: In Tilt quite recently, until June, there had been no dedicated focus of a cross-functional team to reserve in many years, and we had seen that business decline for the past few years.
Jen: Finally, we are reiterating our goals to be free cash flow break even in full year 24. One of the areas of our business where we believe that the momentum is most palpable is in our special event rental business reserve. The reserve business is what we launched the company with 15 years ago. It's a simple value proposition. Every woman has to buy outfits for events, a wedding, a prom, a gala, a holiday party that she rarely wears again.
Jen: So we give her the ability to rent dresses and accessories a la carte for around 15 to 15% of the retail price. The addressable market for event rentals is large and we are still the only company of scales who's operating in this space. As we've discussed on past calls reserve revenue has been declining for a few years and we've been focused on reinvigorating it. In June, we dedicated a new cross functional pod under new leadership to focus on building reserve over the next few years.
Jen: Just by nature of focus on our special event business, we were able to go from declining year-over-year revenues to up 10% year-over-year in July. And what I mentioned up 20% year-over-year in August, with new customers importantly up, you know, close to 50% year-over-year. Some of the things that the team are focused on are maximizing our inventory availability to make sure that our units can turn as many times as possible and hit as many customers as possible. They're focused on our booking windows. They're focused on the UX and UI of the experience. They're focused on making sure that all of our customers understand that we give them a fit guarantee.
Speaker Change: Just by nature of...
Speaker Change: Focus on our special event business, we were able to go from declining year-over-year revenues to up 10% year-over-year in July. And what I mentioned up 20% year-over-year in August, with new customers, importantly up, you know, close to 50% year-over-year.
Speaker Change: Some of the things that the team are focused on are maximizing our inventory availability to make sure that our units can turn as many times as possible and hate as many customers as possible. They're focused on our booking window, they're focused on the UX and UI of the experience. They're focused on making sure that all of our customers understand that we give them a fit guarantee. So they have nothing to fear in coming to RTR, we'll always ensure that they have something awesome to wear for their event.
Jen: So they have nothing to fear in coming to RTR. We'll always ensure that they have something awesome to wear for their event. So you will see us make agile changes to this business over a second half. And I feel very confident in improved momentum in this business. And importantly, having this be a tremendous funnel of new customers into RTR. Thank you so much.
Jen: By July, orders were up around 10% year over year and in August orders have been up around 20% year over year. And to end customer experience and ensuring that we optimize inventory availability for our customers, customers. Historically, new customer growth into reserve was a healthy source of repeat orders and upsells into subscription. We plan to use our reinvigorated life cycle marketing function to reignite the supply wheel. In 2H, you can also expect to see us focus on SEO for reserve to drive organic traffic here, simplifying the UX of the experience, reinforcing our fit guarantee, improving our upsell experience, and focusing on turning our units as efficiently as possible to maximize revenue.
Speaker Change: So you will see us make agile changes to this business over second half and I feel very confident in improved momentum in this business and in importantly having this be a tremendous funnel of new customers into RTR.
Speaker Change: Thank you so much.
Ashley Helgins: Our next question comes from the line of Ashley Helgins with Jeffries. Please talk about several different exciting marketing initiatives. Can you discuss your willingness to lean into marketing to stimulate sales growth, kind of depending on what ROI is you see. And maybe if you could kind of talk about what you're most excited about in terms of your marketing initiatives in the second half.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Ashley Helgins with Jeffries. Please for me with your question.
Speaker Change: Hi, it's Blake Yon for Ashley, thanks for taking our question. When I start off with marketing, you talked about several different exciting marketing initiatives. And you discussed your willingness to lead into marketing to stimulate sales growth, kind of depending on what ROI you see, and maybe if you could kind of...
Speaker Change: Talk about what you're most excited about in terms of your marketing initiatives in the second half.
Jen: Yeah, look, I think the important thing to realize here is we historically have never even achieved Marketing Officer. We have not really had people focused on this area in a way that considers the entirety of the marketing experience. It's not marketing for us. Historically, has been very heavily focused on paid channels on, you know, few paid channels in particular. And I think what we're trying to do now is evaluate very critically what is the return we're getting on each of those paid channels. How much can we broaden out those channels to increase the kind of returns we're getting there?
Jen: We are very optimistic about continued growth in reserve in H2. From a product perspective, we completed several big tech projects in Q2 that were aimed at improving important parts of the prospect funnel and making the sites even faster across services. We also made several changes designed to simplify our checkout process that had in total almost doubled checkout completion rate compared to the first half of the year. We believe that this should have positive impacts on conversion throughout the second half of the year.
Speaker Change: Yeah, look, I think the important thing to realize here is we historically have never even had a cheap marketing officer, we have not really had people focused on this area in a way that...
Speaker Change: Consider the entirety of the marketing experience. It's not marketing for us.
Speaker Change: Historically, has been very heavily focused on page channels, on, you know, few page channels in particular. And I think what we're trying to do now is evaluate very critically, what is the return we're getting on each of those page channels.
Jen: Can we build out new channels using whether it's affiliates, whether it's central and such, new ways in which we can reduce customers? Now, as a result of doing some of this work, what we're finding is that there are opportunities to improve efficiency, take some of the dollars that we're probably not working as hard for us, and reinvest those in exciting brand initiatives and other initiatives that Jen mentioned, our college, Trock, and so on, that really allow us to go on to the world and get people excited about what we have to offer. Yeah, and just to clarify one thing that said, we very much did have chief marketing officers and a full funnel marketing approach really until COVID.
Jen: We upgraded the speed and performance of all of the key pages on the site significantly. Our grids, for example, are loading almost 10 times faster now than they were at the beginning of the year, which has lowered our bounce rates on these pages by around 30%. As we updated performance, we've been able to more easily update the UI of the site, such as making our product detail pages even more compelling, which is an increase to add to bad rate, and very importantly, allows us to recognize gains in SEO faster.
Speaker Change: How much can we broaden out those channels to increase the kind of returns we're getting there? Can we build out new channels using whether it's affiliates, whether it's dental insert, just new ways in which we can reduce customers? Now, as a result of doing some of this work, what we're finding is that there are opportunities to improve efficiency, take some of the dollars that we're probably not working as hard for us, and reinvest those in exciting brand initiatives. And others, other initiatives that Jen mentioned, a college, struck and so on, that really allow us to go on to the world and get people excited about what we have to offer. Yeah, and just to clarify one thing that says that we...
Jen: We plan to invest significantly into SEO in the second half of the year geared towards making recognizable gains to organic traffic as a result. Finally, we've made our photo-review process more seamless, which has continued to dramatically improve the amount of reviews we're receiving per product. Our customer reviews are a critical tool in helping new customers determine whether an item will fit them and increase comfort with sizing, which again drives conversion. We believe that the work completed in first half marks a significant milestone for Render Onway.
Speaker Change: Um, very much did have cheap marketing officers and full funnel marketing approach, really until COVID and it's in the post-COVID years that the focus had really been, as I've mentioned in previous called, more on bottom of the funnel and on things that we knew with the ROI was the very next day.
Jen: And it's in the post-COVID years that the focus had really been, as I've mentioned in previous calls, more on bottom of the funnel and on things that we knew what the ROI was the very next day. By nature of hiring new talent here, new leadership, new team, that was the first indication of our desire and willingness to reinvest into marketing in a new way. And reinvesting means diversifying our channels. It means pulling up from being a solely bottom of funnel marketer to now being mid funnel and full funnel, which is what we did, you know, for the first 10, 11, 12 years of the business.
Speaker Change: We, you know, by nature, tiring, new talent here, new leadership, new team, that was the first indication of our...
Jen: As many of the major tech projects we embarked on, in some cases several years ago to upgrade our site and funnel performance have either been completed or in good shape. We therefore feel confident shifting the way we work into a simplified structure where we have aligned behind the top three priorities for the next few years and have aggressively stacked cross-functional teams against these business goals. We also believe that our cross-functional teams are well-positioned and with the right skill sets to execute speed and agility and operate akin to a mini-start-up.
Speaker Change: and designer and willingness to reinvest into marketing in a new way. And reinvesting means...
Speaker Change: Diversifying our channel, it means pulling up from being a solely bottom of funnel marketer to now being mid funnel and full funnel, which is what we did for the first 10-11, 12 years of the business.
Jen: It is fundamentally to us, one of the key goals of our company, as I mentioned, we have three goals we're aligning behind. One of those three goals is increasing organic traffic. The way that you increase organic traffic is yes, SEO is a component of it, but the other larger component is making customers fall in love with you again so that they come to your site directly. How do you do that? It's via investment into brand. It's via investment into real life events, into investor networks, into influencer networks, into things that we did very successfully in the past that we're bringing back, modernizing them for 2020 more.
Speaker Change: It is fundamentally to us one of the key goals of our company as I mentioned we have three goals we're aligning behind. One of those three goals is increasing organic traffic.
Jen: These goals include growing our reserve business and therefore our customer funnel into the company, increasing subscriber loyalty in particular during her onboarding experience and increasing organic traffic to Render Onway. Turning next to marketing, with a new team in place, we have continued to make quarter-over-quarter progress in diversifying our marketing channels, overhauling and modernizing our creative to make all of our touch points more aspirational and getting the brand back out in front of consumers.
Speaker Change: The way that you increase organic traffic is, yes.
Speaker Change: SEO is a component of it, but the other larger component is making customer's fall and love with you again.
Speaker Change: So that they come to your site directly.
Speaker Change: How do you do that? It's via investment into brand. It's via investment into in real life events, into ambassador networks, into influencer networks, into things that we did very successfully in the past that we're bringing back modernizing them for 20, 20 more.
Jen: And we're really excited because the brand awareness of Brent the Runways is extremely high. The brand love for this company is incredibly high. And we're just looking to reactivate some of that kind of latent love that's out there. We mentioned on the last call that we had done these in real life events in New York and Atlanta. And we saw hundreds and hundreds and hundreds of women standing online around the block to get into an RTR event. That is just a demonstration of the palpable emotion that people have towards this brand. We haven't given our customers a way to demonstrate that palpable emotion over the last few years because of how bottom-of-the-funnel focus we have been.
Speaker Change: and we're really excited because the brand awareness of Brent's runways extremely high. The brand love for this company is incredibly high and we're just...
Jen: We have evolved our content development so that it's more rapid and agile as we believe that timely and engaging content is critical to improving the performance of all of our channels, including social and our paper. Performance. You can expect to see new organic content launch on our channels with much higher frequency. In Q2, we saw tax-improved year over year by nearly 15%. Some of this can be attributed to diversifying our channel mix.
Speaker Change: Looking to reactivate some of that kind of late and love the South there.
Speaker Change: We mentioned on the last call that we had done these in real life events in New York in Atlanta and we saw hundreds and hundreds and hundreds of women standing online around the block to get into an RKR event.
Speaker Change: That is just demonstration of the palpable emotion that people have towards this brand. We haven't given our customers a way to demonstrate that palpable emotion over the last few years because of how bottom of the funnel focus we have been. And so by re-igniting everything around marketing, I think that it drives not will not only drive higher organic traffic, but higher customer engagement and higher customer morality.
Jen: We've seen some early success marketing on TikTok and Pinterest, given our target demographic. In the second half of the year, we're focused on turning back on brand marketing, which alongside SEO, we hope will catalyze growth in organic traffic. One of the elements of our strategy are monthly icon campaigns. We plan to partner with Buzzy Celebrity Talent for activations focused on curating their iconic closets and offering it as rentable to rent the runway subscribers.
Jen: And so by reigniting everything around marketing, I think that it drives not only higher organic traffic, but higher customer engagement and higher customer virality. So just be on the lookout for an enormous amount of activity in the second half of the year that we mentioned in the call is on deck.
Speaker Change: So just beyond the lookout for any enormous amount of activity in the second half of the year that we mentioned in the call is on deck and we're back.
Jen: This furthers our mission of celebrating real talented, fashionable women all over the world and telling their stories. Later this month, we're taking rent the runway on the road to some of the biggest college campuses in one of our fastest growing regions for RTR, the South. We'll visit campuses like the University of Texas, Ole Miss, and University of Georgia, where the social culture is strong, and we see an opportunity to bring RTR to the women on campus who need a resource for Greek life and their many events.
Sid: And we're back. I think the main one interesting point to highlight here is if you actually examine all of the decisions we've made in the past, we spend a lot of time addressing costs, addressing the cost structure. We spend a lot of time thinking about inventory and making sure inventory in stock rates were appropriate for our customers in fiscal, Fiscal 23. If you look at all of the decisions we've made post that point in time, it should give you a pretty good indication of how much we're interested in leaning into growth and into marketing and into the kinds of things that will make customers fall in love with.
Speaker Change: I think it is your or the me, it's the mean.
Speaker Change: One interesting point to highlight here is if you actually examine all of the decisions we've made in the past, we spend a lot of time
Speaker Change: addressing cost, addressing the cost structure. We spend a lot of time thinking about inventory and making sure inventory in-stop rates will appropriate for our customers in fiscal 2023. If you look at all of the decisions we've made,
Jen: This program is expected to include in real life activations on campus and will involve college influencers and the relaunch of our college ambassador program, which was a source of tremendous brand awareness for RTR pre-COVID. And right on deck are some fun social first activations for Fashion Week in New York. We believe our designer assortment is one of the biggest competitive advantages. So reinforcing rent the runway's position as the rental company that allows you to rent pieces straight from the runway is important.
Speaker Change: Post that point in time, it should give you a pretty good indication of how much we're interested in leaning into growth at into marketing and into the kinds of things that will make customers fall in love with. So if you think about the events we're doing in real life, if you think about the New York City store, if you think about the college tour, I mean all of the things that are running out channel, all of the work we're doing.
Sid: So if you think about the events we're doing in real life, if you think about the New York City store, if you think about the college tour, I mean all of the things that broadening out channel, all of the work we're doing is really and critically focused on just growth and driving growth.
Speaker Change: It is really...
Speaker Change: Critically focused on just growth and driving growth.
Sid: And then wanted to revisit, in light of kind of the challenge consumer, wanted to revisit your decision to reduce promos and just kind of talk about learnings from that decision so far and how you're thinking about your price points. Sure.
Jen: On inventory, this is an important and exciting time of the year, where we get to plan our 2025 buy. For 2024, we successfully executed on our depth strategy and have seen outside demand for the 2024 buy in the first half of the year. Looking ahead to 2025, we want to solidify rent the runway's position as the fashion leader in the rental space by refreshing our assortment and leaning into our strength and dresses.
Speaker Change: That's really helpful and then wanted to revisit and light up kind of the challenge consumer. Wanted to revisit your decision to reduce promos and just kind of talk about learning from that decisions so far and higher thinking about your your price points.
Sid: So just a quick recap of what we've discussed previously. Historically, we used to have a lot of promotions that were multi-month in nature, so we would do two and three month promotions. We have gone out and changed all of those promotions to largely be single month-focused, so one month-focused promotion. The other thing we discussed when last year at this time was, we tested a variety of different promotional strategies, some low, some high, in Q2 of 23. And what we have learned is to discontinue some of the promotions that were not returning adequate dollars to us, that were not beneficial to retention, and so on.
Speaker Change: Chore. So, just a quick recap of what we've discussed previously. Historically, we used to have a lot of promotions that were multi-month in nature, so we would do two and three month promotions. We have gone out and...
Jen: We plan to overhaul our brand matrix to provide our customer an even more elevated aspirational, emotional, and fashion-forward experience. We see opportunity across print, color, and emotional pieces and plan to maintain depth but also increase breadth to ensure that we are not only serving our sophisticated core customer, but offering an assortment that will attract new customers.
Speaker Change: Change all of those promotions to largely be single month focus, so one month focus for locations.
Speaker Change: The other thing we discussed when last year the time was...
Speaker Change: We tested a variety of different promotional strategies, some low, some high in Q2 of 23.
Jen: In conclusion, I will say the simplification of goals within the company and focus on implementation of the few things that will lead to significant growth has created an energy and excitement inside the company that is palpable and feels great after some difficult years. We're motivated by our momentum and ready to continue growing by continuing to improve our customer offering and experience and getting to our goal of free cash flow break even this year.
Speaker Change: and what we have learned is...
Speaker Change: To discontinue some of the promotions that were not returning adequate dollars to us, that were not beneficial to retention and so on. And to continue promotions to target the customer segments that we thought were beneficial to bringing customers in. And so what you're seeing in terms of the subcount for Q224 versus Q223 is really just a reflection of discontinuing or not repeating some of the particularly high levels of promotions that we weren't particularly satisfied with. And so as we pointed out in September subcount is roughly flat over a year, so clearly those promotions didn't have a strong retention element to them. And I think where we are now is...
Sid: And to continue promotions to target the customer segments that we thought were beneficial to bringing customers in. And so what you're seeing in terms of the subcount for Q2 24 versus Q2 23 is really just a reflection of discontinuing or not repeating some of the particularly high levels of promotions that we weren't particularly satisfied with. And so, as we pointed out in September, subcount is roughly flat year over year, so clearly those promotions didn't have a strong retention element to them. And I think where we are now is pretty satisfied with where the promotional cadence to the business is.
Siddharth Thacker: With that, I'll turn it over to said. Thanks, Jen, and thank you everyone for joining us. We continue to make good progress in the second quarter, both Q2 revenue and adjusted EBITDA exceeded the high end of a guidance range. A Q3-2024 revenue guidance of 75 million to 77 million or 3% to 6% revenue growth versus Q3-2023 implies a continued acceleration of revenue growth versus Q1 and Q2 of fiscal 2024 at the midpoint of the guidance.
Sid: We think it's in a healthy place, and we're really spending all of that time not focused on promotions, but really focused on all of the other ways to drive growth and retention for our customers. And I think that the reserve business and the momentum that we've had there where, again, we've seen 50% new customer growth into that business in August is testament that, without incremental marketing dollars, without promotions, without detrimental price in those arenas. By nature of improving the customer experience and focusing on maximizing our inventory availability, you can drive a lot more customers into RTR.
Speaker Change: Pretty satisfied with where the promotional cadence to the business is. We think it's in a healthy place and we're really spending all of that time not focus on promotions, but really focus on all of the other ways to drive growth and retention for our customers. And I think that the reserve business in the momentum that we've had there were again we've seen.
Siddharth Thacker: Change. As I will discuss further, we are also raising our revenue guidance for fiscal year 2024 and reiterating our commitment to reach pre-cashlo break even for the full year. In short, we expect to grow revenue and significantly improve profitability this year.
Speaker Change: 50% new customer grows into that business in August, it's testament that
Speaker Change: Without Incremental Marketing Dollars, without...
Speaker Change: Promotions without decrementing price in those arenas by nature of improving the customer experience and focusing on maximizing our inventory availability. You can drive a lot more customers into RTR. And I think that that's due to the product market fit of
Siddharth Thacker: I would like to take a moment to discuss the Eurovere decline in Q2 ending active subscribers. We believe the primary reason for this Eurovere decline is the significant reductions in promotions this quarter versus last year's second quarter. In fact, excluding subscribers generated from the highest level of promotions in Q2 23, a Eurovere subscriber growth would have been much better than the 6% decline we reported as of Q2 24. Notably, ending active subscribers as of September 1st, 2024 were already roughly flat Eurovere.
Sid: And I think that that's due to the product market fit of this business. And it's due to the values that we already give the customer by nature of enabling her to rent a designer dress for around 10 to 15 percent of the retail price. That is huge value that makes our price points more competitive with fast fashion than with traditional designer fashion.
Speaker Change: This business and its due to the values that we already give the customer by nature of enabling her to rent a designer dress for around 10 to 15% of the retail price.
Speaker Change: Huge value that makes our price points more competitive with fast fashion than with traditional designer fashion.
Ashley Helgins: That's great color. Thanks so much, and best of luck for the second half. Thank you.
Siddharth Thacker: We also believe that a stronger revenue performance in Q2 2024 despite lower ending active subscribers demonstrates the success of our strategy to be less promotional. As Jen outlined, we are focused on driving innovation and enhancements to the customer experience across nearly every aspect of our business.
Speaker Change: That's great color, thanks so much and best of luck with this second app.
Operator: There are no further questions at this time.
Jen: I would now like to turn the call back over to the management for any closing comments. Thanks for joining us today. We're really excited about the second half of the year and hope you stay tuned.
Speaker Change: Thank you. There are no further questions at this time. I would now like to turn the call back over to the management for any closing comments.
Speaker Change: Thanks for joining us today. We're really excited about the second half of the year and hope you stay tuned.
Jen: Thank you so much.
Siddharth Thacker: We are excited by our second half plans. The underlying financial position of the company and our go forward expectations are considerably stronger versus last year with growing revenue and meaningful improvements in cash flow which I will walk through in more detail. Our Q3 and full year 2024 guidance are positive indicators of further financial progress. We are growing revenue while spending less on promotions. Our reserve business is demonstrating stronger trends on a Eurovere basis and resale is growing at high levels versus last year.
Operator: I just concludes today's conference, and you may disconnect your at this time. Good bye.
Speaker Change: Thank you so much.
Speaker Change: And this concludes today's conference and you may disconnect your lives at this time. Goodbye.
Siddharth Thacker: Let me now review a financial results for the quarter. We ended Q2 24 with 129,073 ending active subscribers, down 6.2% Eurovere. Average active subscribers during the quarter were 137,455 versus 141,393 subscribers in the prior year. A decrease of 2.8%. Ending active subscribers decreased from 145,837 subscribers at the end of Q1 2024 due primarily to seasonally weaker acquisitions. Total revenue for the quarter was 78.9 million dollars, up 3.2 million dollars of 4.2% Eurovere and up 3.9 million dollars of 5.2% quarter over quarter.
Siddharth Thacker: Subscription and reserve rental revenue was up slightly Eurovere in Q2 24 primarily due to growth and reserve and higher average revenue per subscriber as a result of lower promotional spending. Other revenue increased 35.1% or 2.7 million dollars Eurovere due to increased focus on our resale business which drove incremental cash flow and customer loyalty. Full film and costs were 20.6 million dollars in Q2 24 versus 22.5 million dollars in Q2 23 and 20.6 million dollars in Q1 24.
Siddharth Thacker: Full film and cost as a percentage of revenue will lower Euro year at 26.1% of revenue in Q2 24 compared to 29.7% of revenue in Q2 23. Full film and cost benefited from our new transportation contracts with UPS, continued warehouse efficiencies and higher revenue per order primarily from our resale business.
Siddharth Thacker: Business. Growth margins were 41.1% in Q224 versus 43.9% in Q223. Q224 growth margins reflect higher rental product costs due to increased investment in inventory in fiscal year 23, offset partially by improved fulfillment costs. Increased investment in inventory reflects last year's depth adjustments to increased inventory in stock rates in fiscal 23 and beyond. Q224 growth margins increased quarter of a quarter to 41.1% from 37.9% in Q124 due to seasonally lower revenue share payments and improved fulfillment costs as a percentage of revenue.
Siddharth Thacker: Operating expenses were 17.7% lower due primarily to the favorable impact of a cost reduction effort and lower stock base compensation expenses. Total operating expenses which include technology, marketing and GNA were 49% of revenue in Q224 versus 62.1% of revenue in Q223 and 55.2% of revenue in Q124. Adjusted EBITDA for the quarter was $13.7 million or $17.4% of revenue versus $7.7 million or $10.2% of revenue in the prior year. Adjusted EBITDA for the six months ending July 31, 2024 was approximately $20.2 million or $13.1% of revenue versus $12.2 million or $8.1% of revenue in the prior year.
Siddharth Thacker: Adjusted EBITDA improvement year over year reflects the impact of a fixed cost reduction effort, higher revenue and lower fulfillment costs partially offset by higher revenue share payments due to a greater proportion of revenue share units. Re-cash low for Q224 was negative $4.5 million versus negative $17.5 million in Q223 due primarily to lower cost of rental product and higher profitability. Re-cash low for the six months ending July 31, 2024 was negative $5.9 million versus negative $29.6 million in the six months ending July 31, 2023.
Siddharth Thacker: Re-cash low in the second half of fiscal 2024 is expected to be approximately positive $6 million. We expect that the improvement will primarily be due to lower operating expenses and lower capital expenditures in the second half versus the first half of fiscal 2024. Lower operating expenses are driven largely by first half weighted marketing expenses. We also expect improved working capital and higher revenue in the second half of fiscal 2024 versus the first half of fiscal 2024. We expect that the majority of the improvement in second half free cash low will be driven by timing of operating in capital expenditures where we have good visibility.
Siddharth Thacker: I will now discuss guidance for Q324 and fiscal year 2024. Let me start with Q3. We expect revenue to be between $75 million and $77 million. An adjusted EBITDA margins to be between 13% and 15% of revenue. Revenue. As outlined earlier, Q3 revenue guidance implies 3% to 6% growth versus Q323, continuing an improving revenue growth trajectory at the midpoint of the guidance range. As a reminder, revenue growth was negative 6.3% Eurovere in Q323, approximately flat Eurovere in Q423, positive 1.1% Eurovere in Q124, positive 4.2% Eurovere in Q224, and is expected to be between 3% and 6% Eurovere in Q324.
Siddharth Thacker: Our current business performance gives us the confidence to increase a full-year 2024 revenue guidance to between 2% and 6% growth versus fiscal 23. This increase reflects improving trends in our reserve business, solid progress on growing our retail business, and improved revenue per subscriber versus fiscal 23. We continue to expect adjusted EBITDA margins of between 15% and 16% of revenue. We also continue to expect to be free cash flow break even for fiscal 24 as mentioned previously.
Operator: Thank you and we will now take your question. Thank you.
Operator: We will now be conducting a question and answer session. If you would like to ask the question, please first start one on your telephone feedback. A confirmation tone will indicate your line is in the question Q. You may first start two if you like to rule yourself from the Q. The participants use the speaker equipment and may be necessary to pick up their handset before pressing these start keys.
Operator: One moment please while we pull for questions.
Blake Anderson: Our first question comes from the line of Condon with citizens JMPs and 30. Please for seat with your question. Great. Thank you for taking my questions. My first one is just on resurrecting past users. Can you just talk about what you're seeing there currently and then maybe just talk about the broader opportunity. So we're seeing strength in rejoin rates of past customers. I think that we've always seen that as we make improvements in customer experience, the first people to notice are people who are actively engaged on our marketing kind of comms less people who have been customers before.
Blake Anderson: So we're seeing that that's actually a tremendous source of growth for us now are rejoiners. And then just the opportunity for us is big. Obviously, this market is growing very quickly. It has gone from being an early adopter behavior to being a behavior rental being a behavior that's way more mainstream. And over the past few years that rent the runway until 2024, we've been heavily focused on cost and profitability. Now we have that clear vision to free cash flow break even.
Blake Anderson: And we've reoriented the entire company around growth. We've hired the right people. We've reignited marketing creative. We've simplified our goals. And these actions give me the confidence and you can see it demonstrated in our metrics that growth is coming for RTR. We have momentum. And we have momentum across all different aspects of our business right now. It's not just in one area.
Jen: So I'm really excited about second half. And I'm particularly excited about how our strategies that we've deployed where we've put these cross functional mini startups on really simplified business goals are going to help us into 2025 and 2026 ignite tremendous growth for RTR. Great, that's very helpful.
Jen: And then my second one is just on the reserve business. And going off of your points on just the cross-functional teams, understood that that's contributing to this success which you guys are having there, but maybe just for a product perspective. You know, what do you see that these teams are coming up with that's really driving the acceleration that business? So the teams are focused on the full end-to-end experience for reserve.
Jen: So to be clear, until quite recently, until June, there had been no dedicated focus of a cross-functional team to reserve in many years. And we had seen that business decline for the past few years. Just by nature of focus on our special event business, we were able to go from declining year-over-year revenues to up 10% year-over-year in July. And when I mentioned up 20% year-over-year in August, with new customers importantly up close to 50% year-over-year.
Jen: Some of the things that the team are focused on are maximizing our inventory availability to make sure that our units can turn as many times as possible and hit as many customers as possible. They're focused on our booking windows. They're focused on the UX and UI of the experience. They're focused on making sure that all of our customers understand that we give them a fit guarantee. So they have nothing to fear in coming to RTR will always ensure that they have something awesome to wear for their event.
Jen: So you will see us make agile changes to this business over second half. And I feel very confident in improved momentum in this business and in importantly having this be a tremendous funnel of new customers into RTR. Thank you so much. Thank you.
Blake Anderson: Our next question comes from the line of actually elegance with Jeffries. Please proceed with your question. Hi, it's Blake gone for asking. Thanks for taking our question. Wanted to start off with marketing. You talked about several different exciting marketing initiatives. And you discussed your willingness to lean into marketing to stimulate sales growth, kind of depending on what ROI as you see. And maybe if you could kind of talk about what you're most excited about in terms of your marketing initiatives in the second half.
Jen: Yeah, look, I think the important thing to realize here is we historically have never even had achieved marketing officer. We have not really had people focused on this area in a way that considered the entirety of the marketing experience. It's not marketing for us historically has been very heavily focused on pay channels on you know few pay channels in particular. And I think what we're trying to do now is evaluate very critically what is the return we're getting on each of those pay channels.
Jen: How much can we broaden out those channels to increase the kind of returns we're getting there. Can we build out new channels using whether it's affiliates whether it's influence or just new ways in which we can reduce customers now as a result of doing some of this work. What we're finding is that there are opportunities to improve efficiency. Take some of the dollars that we're probably not working as hard for us and reinvest those in exciting brand initiatives and other other initiatives that Jen mentioned.
Jen: And a college truck and so on that really allow us to go on to the world and and get people excited about what we have to offer. Yeah, and just to clarify one thing that said said we very much did have chief marketing officers and full funnel marketing approach really until COVID. And it's in the post COVID years that the focus had really been as I've mentioned in previous call more on bottom of the funnel and on things that we knew what the ROI was the very next day.
Jen: We you know by nature hiring new talent here new leadership new team. We are that that was the first indication of our desire and willingness to reinvest into marketing in a new way and reinvesting means diversifying our channels. It means pulling up from being a solely bottom of funnel marketer to now being mid funnel and full funnel which is what we did you know for the first 10 11 12 years of the business.
Jen: It is fundamentally to us one of the key goals of our company as I mentioned we have three goals we're aligning behind one of those three goals is increasing organic traffic. The way that you increase organic traffic is yes SEO is a component of it, but the other larger component is making customers fall in love with you again so that they come to your site directly. How do you do that it's via investment into brand it's via investment into in real life events into ambassador networks into influencer networks into things that we did very successfully in the past that we're bringing back modernizing them for 2020 more.
Jen: And we're really excited because the brand awareness of rent the runways extremely high the brand love for this company is incredibly high and we're just looking to reactivate some of that kind of latent love that's out there. We mentioned on the last call that we had done these in real life events in New York and Atlanta and we saw hundreds and hundreds and hundreds of women standing on lines around the block to get into an RTR event.
Jen: That is just demonstration of the palpable emotion that people have towards this brand. We haven't given our customers a way to demonstrate that palpable emotion over the last few years because of how bottom of the funnel focus we have been. And so by reigniting everything around marketing I think that it drives not will not only drive higher organic traffic, but higher customer engagement and higher customer of morality. So just be on the lookout for an enormous amount of activity in the second half of the year that we mentioned in the call is on deck and we're back.
Jen: I think you know the main one interesting point to highlight here is if you actually examine all the decisions we've made in the past. We spent a lot of time addressing costs addressing the cost structure we spent a lot of time thinking about inventory and making sure inventory in stock rates were appropriate for our customers and fiscal fiscal 23 if you look at all of the decisions we've made. Post that point in time it should give you a pretty good indication of how much we're interested in leaning into growth and into marketing and into the kinds of things that will make customers fall in love with.
Jen: So if you think about the events we're doing in real life if you think about the New York City store if you think about the college tour. I mean all of the things that broadening out channel all of the work we're doing is really, and critically focused on just growth and driving growth.
Blake Anderson: That's really helpful.
Siddharth Thacker: And then wanted to revisit, in light of kind of the challenge consumer, wanted to revisit your decision to reduce promos and just kind of talk about learnings from that decision so far and how you're thinking about your price points. Sure. So just a quick recap of what we've discussed previously. Historically, we used to have a lot of promotions that were multi-month in nature, so we would do two and three month promotions.
Siddharth Thacker: We have gone out and changed all of those promotions to largely be single month focused, so one month focused promotion. The other thing we discussed when last year this time was, we tested a variety of different promotional strategies, some low, some high in Q2 of 23. And what we have learned is to discontinue some of the promotions that were not returning adequate dollars to us, that were not beneficial to retention and so on.
Siddharth Thacker: And to continue promotions to target the customer segments that we thought were beneficial to bringing customers in. And so what you're seeing in terms of the subcount for Q2 24 versus Q2 23 is really just a reflection of discontinuing or not repeating some of the particularly high levels of promotions that we weren't particularly satisfied with. And so as we pointed out in September, subcount is roughly flat year over year, so clearly those promotions didn't have a strong retention element to them.
Siddharth Thacker: And I think where we are now is pretty satisfied with where the promotional cadence to the business is. We think it's in a healthy place and we're really spending all of that time, not focused on promotions, but really focused on all of the other ways to drive growth and retention for our customers. And I think that the reserve business and the momentum that we've had there where again we've seen 50% new customer growth into that business in August is testament that without incremental marketing dollars, without promotions, without maximizing our inventory availability, you can drive a lot more customers into RTR.
Siddharth Thacker: And I think that that's due to the product market fit of this business. And it's due to the values that we already give the customer by nature of enabling her to rent a designer dress for around 10 to 15% of the retail price. That is huge value that makes our price points more competitive with fast fashion than with traditional designer fashion. That's great color. Thanks so much and best of luck for the second half. Thank you.
Siddharth Thacker: There are no further questions at this time. I would now like to turn the call back over to the management for any closing comments. Thanks for joining us today. We're really excited about the second half of the year and hope you stay tuned. Thank you so much. I just concludes today's conference and you may disconnect your ladder, at this time.
Operator: Good bye.