Q3 2024 The RealReal Inc Earnings Call

Good day. Thank you for standing by. Welcome to the Real Will 3rd Quarter 2020 Fall Financial Results Conference Call. At this time, I'll participants on a list and only mode.

After this big presentation, I'll be a question and answer session. So as a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising your hand is raised.

Please know that today's conference is being recorded. I will now hand a conference of a guest speaker, Caitlin Howe, Senior Vice President of Finance, please go ahead.

Caitlin Howe: Thank you operator, joining me today to discuss our results for the period ended September 30, 2024, our Chief Executive Officer and President, Rott T. LeVec, and Chief Financial Officer, a J. Go Paul.

Caitlin Howe: Before we begin, I would like to remind you that during today's call we will make forward-looking statements which involve known and unknown, risk, fandom, certainties.

Caitlin Howe: Our actual results may differ materially from those suggested in such statements.

Caitlin Howe: You can find more information about these risks on certainties and other factors that could affect our operating results in the company's most recent form 10K and subsequent quarterly reports on form 10K.

Caitlin Howe: Today's presentation will also include certain non-gap financial measures, both historical and forward-looking.

Caitlin Howe: We have provided reconciliations for historical, non-gap financial measures to the most comparable gap measures in our earnings press release, which is available on our Investor Relations website.

Speaker Change: I would now like to turn the call over to Rossi Levek, chief executive officer of the Real Real.

Rossi Levek: Thank you Caitlin, good afternoon everyone and welcome to the real Reel 3rd Quarter earnings conference call.

Rossi Levek: I'm honored to speak with you today as the new CEO of the Real Real.

Speaker Change: I've spent the last 13 years at this company working with some of the best, most talented people in the industry.

Speaker Change: We built the world's largest online marketplace for authenticated, resale, luxury goods on a foundation of trust, expertise and unmatched customer service.

Our team are executing well against the company's vision to change the way people shop for the better.

Speaker Change: We are creating a unique, circular, shopping experience, built on technical expertise and high-touch human service.

Speaker Change: I've been deeply involved with the foundational changes we've made to the business and I'm looking forward to continuing to champion our strategies, obsessing over service, operational excellence, and scaling the business through our growth playbook.

Speaker Change: I'm proud of the progress we've made and am pleased to report strong third quarter results.

Speaker Change: GMB, revenue, and adjust to the EBITDA exceeded our expectations for the third quarter, increasing confidence in the momentum of our business and enabling us to raise our full-year guidance.

Speaker Change: 3rd quarter GMB, group 6% versus last year, an acceleration from the second quarter.

Speaker Change: Revenue of $148 million increase, 11% driven by strength in consignment revenue. 14% versus last year, and an increase of more than 20% on a two year basis.

Speaker Change: We also achieved solid progress on our path to profitability.

Speaker Change: 3rd quarter adjusted EBITDA, a positive 2.3 million marks our 2nd quarter of positive adjusted EBITDA.

Speaker Change: And importantly, we delivered positive free cash flow for the quarter.

Speaker Change: Supply metrics are strong with both units and value increasing versus last year.

Speaker Change: As we've highlighted before, we believe there's $200 billion in untapped value for luxury retail items in the U.S. alone.

Speaker Change: Our growth is driven by unlocking that supply for our platform.

Speaker Change: Over the years, we built a unique multi-channel approach that includes luxury managers, stores, and the power of our marketing to unlock the profitable supply.

Speaker Change: We refer to this approach as our growth playbook.

Speaker Change: We often mention that we are a supply constrained business.

Speaker Change: Essentially, what this means is that if we can procure the supplies, we can sell it.

Speaker Change: Our lifetime self-rerate is over 90%.

Speaker Change: Success in executing against our growth playbook relies on driving supply through three key areas. Fails, marketing, and our retail stores.

Speaker Change: The first of these key areas is our sales team.

Speaker Change: Comprised Primarily of our luxury managers.

Speaker Change: This team is responsible for building and maintaining relationships with our confiners and providing education about selling with the real real.

Speaker Change: Our luxury managers also serve as trusted consultants, helping to assess the value of their clients' current assets, and advising on purchases of luxury goods in the primary market.

Speaker Change: Our top luxury managers generate up to $10 million in supply annually through their client relationship.

Speaker Change: We've been working on providing them with a tool to do their jobs efficiently.

Speaker Change: And we created an incentive structure to drive profitable supply.

Speaker Change: Recently, we launched our Smart Fails tool.

Speaker Change: Which leverages consumer, macro, and other data points.

Speaker Change: The tool enables our sales team to understand which clients are most likely to find at a given time and helps our luxury managers direct their efforts efficiently.

Speaker Change: Our sales and merchandise teams are able to curate our platforms' assortment through tech capabilities.

Speaker Change: We are enhancing the ways we leverage, trend information, and historical purchase and confinement data.

Speaker Change: We identify which brands and categories are in high demand and mobilize their sales team to proactively pursue these items.

Speaker Change: We are seeing continued success with our sales team composition and incentive structure update.

Speaker Change: As we've previously discussed, we've shifted our luxury manager profile towards individuals with luxury experience and deeper existing connections with designer target.

Speaker Change: In addition, we focused our sales teams in Census structure on GMV Dollars' versus Units, which has contributed to our growth margin expansion.

Speaker Change: The benefit is showing up in our strong supply trends, top-line growth and historically high retention rates for a field team.

Speaker Change: The second key for growth is marketing.

Speaker Change: As the first mover in our space, we have spent 13 years creating the ultimate intersection of luxury and value, approaching fashion from a position of real authority and real expertise.

Speaker Change: During the turnaround, we may have been a bit quiet in the starting-arroll in the space.

Speaker Change: In 2024, we started leveraging social media platforms like TikTok and Instagram to engage customers and potential confiners.

Speaker Change: We've recently doubled down on social content that makes complicated topics like authentication and sustainability feel relatable.

Speaker Change: Through these efforts, we've realized some of our highest engagement rates on post.

Speaker Change: Furthermore, we recently published our annual Resell report, which uses data to educate both the press and customers about industry trends.

Speaker Change: The Resell report had seven times being age-minute that we've seen previously, helping to showcase the brand's leadership in the luxury Resell space.

Speaker Change: While perception and awareness are up, there's still more work we can do. We view this as an exciting opportunity to talk to customers about what differentiates the real real.

Speaker Change: The third key area to growth is retail. Our stores offer curated experience and provide designers with access to experts for on-the-spot valuations for fine jewelry and watches.

Speaker Change: We are pleased with the performance of our fleet of 16 retail locations, affirming that the neighborhood source strategy is working.

Speaker Change: We position stores in areas where our confiners live versus being solely focused on traditional prime retail areas.

Speaker Change: A unique aspect of our retail strategy is that the stores primary and tense is to generate supply and drive awareness.

Speaker Change: We continue on the path of opening one to three stores per year in key markets and are looking forward to welcoming stores in Miami and Houston to our fleet later this year.

Speaker Change: So to recap as a supply driven business, our growth playbook is centered on generating supply and we are driving results through our sales team marketing and retail stores.

Speaker Change: Moving to operational excellence.

Speaker Change: We continue to improve our operational efficiency, leveraging our robust proprietary data set and AI capabilities to build trust and improve the customer experience.

Speaker Change: In 2023 through increased automation, we reduce processing time by over 10% while keeping head count steady and supporting top line growth.

Speaker Change: Offsaving from this important work have expanded our margins and funded current year investments that drive operational efficiency.

Speaker Change: For years, the real reel has been a leader in authentication. With proprietary tools like vision and shield, helping build customer trust.

Speaker Change: The work we've undertaken in 2024 is re-shaping how we process items.

Speaker Change: We are leveraging AI and technology to improve speed and reduce human intervention. We use our robust data sets to help route items for authentication based on risk level.

Speaker Change: To automate attribution and copywriting and to determine optimal pricing levels.

Speaker Change: The majority of our items are now priced using our proprietary algorithm.

Speaker Change: Through incorporating historical sales data, along with current fashion and pricing trends, we still confident that items will sell quickly and for the highest-spirit price.

Speaker Change: The combination of human expertise and our wealth of data is an important differentiator.

Speaker Change: By pivoting our focus back to our core consignment business, improving our fixed cost structure, and lowering operational costs, we've enabled our return to growth and improved our unit economic.

Speaker Change: GMD and Revenue Growth accelerated as we moved through Q3 and were headed into the important fourth quarter with Ambulance Supplies.

Speaker Change: As we enter the final quarter of the year, we're encouraged by the momentum we're seeing in the business.

Speaker Change: We're planning for strong, hue for sales and positive adjusted EBDA for the year.

Speaker Change: It's clear that our growth playbook is working with proof points in both top and bottom line.

Speaker Change: The real reals positioned is a leader in a market with lots of room to scale.

Speaker Change: I'm excited about the future, but right now we are head down focused on execution to close out 2024.

Speaker Change: I'd like to thank our team for their hard work throughout the quarter. I'm looking forward to delivering on our 2024 commitment and starting our next chapter of growth.

Speaker Change: With that, I'll turn over the call to Ajay to discuss our financial results and outlook for the remainder of 2024.

Ajay: Thank you, Roti.

Ajay: Our strong third quarter results are an important step as we focus on scaling our business profitably and strengthening our balance sheet.

Ajay: We will encourage by the acceleration in top line growth throughout the third quarter. As you heard Rathi mentioned earlier, our growth playbook, which is centered on unlocking supply is working.

Ajay: This quote, along with high-aggressed margins, and our focus on driving operational efficiencies resulted in positive adjusted EBITDA for the quarter.

Ajay: Now, turning to our details, two three results, beginning with the top line.

Ajay: GMV of 433 million increased 6% versus last year.

Ajay: This was an acceleration from Q2, led by strength in the consignment business, as strong supply trends helped to fuel increased orders and larger average basket sizes, compared to the prior period.

Ajay: Revenue of 148 million, increase 11% in the quarter due to higher volume, lower returns and a healthy take rate of 38.6% of 50 basis points versus last year.

Speaker Change: Consignment and shipping revenues grew 14% and 17% respectively in the quarter.

Speaker Change: Direct Revenue is downtown descent, as we established a good baseline for our direct business.

Speaker Change: Active buyers has measured on a trailing three-month basis, increased versus last year for the second consecutive quarter, growing 7% to 389,000.

Speaker Change: On a trailing 12-month basis, active buyers at 958,000 were stable versus last year.

Speaker Change: As a reminder, we modified our take rate percentages in late 2022.

Speaker Change: Some of those changes were designed to limit the number of lower priced, lower profit items on our platform.

Speaker Change: We expect it to see an impact to our active bio count as we reduce the number of items available for sale under $100.

Speaker Change: As the Anniversary of these updates, we are beginning to see a positive inflection in the 12-month active barriad data while retaining the gross margin benefits that these changes yielded.

Speaker Change: Third Court of Gross Prophet of 111,000, improved 17,000, year over year.

Speaker Change: Cross margin of 74.9% increased 430 basis points versus the third quarter last year.

Speaker Change: Drivenbinding, increase in our higher margin consignment business as a percentage of total revenue and the improvement in take rate.

Speaker Change: Third quarter operating expenses of 125 million increased 9 million year over year.

Speaker Change: As a descent of children revenue.

Speaker Change: Operating Spence leverage, 270 base points, as our work to drive efficiency resulted in cost leverage across our business.

Speaker Change: A justed EBITDA of 2.3 million, increased the 9.3 million versus last year for the third quarter.

Speaker Change: On an year-to-date basis, we have delivered a 55 million improvement in a just-for-dead-dead-dead versus last year.

Speaker Change: We ended the quarter with a 168 million in cash, cash equivalent and restricted cash. 2 million above our Q2 balance.

Speaker Change: This is a notable milestone as Q3 marked the second time we've achieved positive free cash flow in a quarter.

Speaker Change: These results demonstrate the power of our business model. You've heard us talk about our focus on growing assignment revenues.

Speaker Change: This means that we don't tie up our cash requiring inventory ahead of a season. In fact, we pay our confine as after an item shows an off-platform.

Speaker Change: The resulting favorable cash conversion cycle creates a positive working capital benefit to our cash flows when we grow.

Speaker Change: Turning now to our outlook for the remainder of the year.

Speaker Change: As a result of our strong third quarter performance, we are raising our full year at TMV, revenue and adjusted EBITDA and diet and so on.

Speaker Change: We expect Q4 GMV in the range of 480-4 million to 500 million.

Speaker Change: which represents 9% growth for the prior at the midpoint of our guides.

Speaker Change: Resulting in a full-year GMV range of 1.81 to 1.826 billion.

Speaker Change: Old Quarter revenue is expected to be in the range of 158 million to 165 million, driven by GMB growth and continued take-raid favourability.

Speaker Change: Our folio revenue is now expected to be between 595 million and 602 million, growing in the high single digit range year-old year.

Speaker Change: Fourth quarter adjusted EBITDA is expected to be between positive 6.5 million and 9.5 million.

Speaker Change: and would mark our most profitable quarter ever by a significant margin. So let it find the path to a positive, full-year adjusted e-mitter.

Speaker Change: Currently expected to be in the range of 4.7 million to 7.7 million.

Speaker Change: In closing, I share Rathi's enthusiasm about our current performance and operational performance.

Speaker Change: Across the organization, we are executing on our growth playbook, obsessing over service and reducing friction in the consignment process.

Speaker Change: While using technology as an accelerator to our flywheel.

Speaker Change: I would also like to extend my thanks to the teams across our business for their dedication and work in driving our Q3 financial results.

Speaker Change: We expect to close out this year on a strong footing with accelerating sales growth and positive adjusted either the dust.

Speaker Change: With that, I will turn the call back over to the operator to begin Q&A. All credit?

Speaker Change: Thank you. Please send Jellman to ask a question you wanted to best start one one on yourself on and wait for your name to be announced. To enjoy a question simply press star one one again. Please stand by while we compile the K&A roster.

Speaker Change: Okay?

Speaker Change: and our first question coming from the lineup. Mark also had a with Bear to get on his album.

Speaker Change: Thank you, good afternoon.

Mark: So guidance implies continued acceleration in DMB Q4. Can you give us some additional context on supply trends or other factors you're seeing in order to date that give you confidence in that outlook?

Speaker Change: And then separately, Ratti, just in any thoughts you can share on any new strategic initiatives on the agenda or any changes you're planning now that you're in the CECEOC. Thank you.

Speaker Change: Thank you, Mark. Thanks for the questions.

Speaker Change: So I heard two questions there. What gives us confidence in our Q4 guidance and some of the supply trends we're seeing.

Mark: So I'll start with that one. I will say the place quite healthy right now. We're feeling really good about supply and where we're at and you know we're a supply driven business. So that's really important when looking at the following quarters.

Mark: It's driven out of three names, strategies, which we've talked about in the past, which we talked about in the growth playbook. You heard that in the script. And it's really the sales marketing and retail coming together, working together, really nicely. And so the sales side we see, we're seeing all time, lows or highs on retention, we're seeing the compensation structure really work for them. The referral program that we launched.

Mark: Really working there as well, we're spending to other key markets.

Mark: on the marketing front personalization, really targeting that mid-in-high value designer. And on the retail side, you know, we've talked about this in the past.

Mark: We're seeing this halo effect. Some of these stores bring in up to $40 million a year. And so we're also seeing that high average selling price even up to five times higher. So we have a lot of confidence in supply right now. We're seeing people want to monetize their closet. We know the cams really big.

Mark: 200 million in people's closets and these three things really coming together that we're calling our growth playbook as we operationalize that and scale that seeing some really good momentum there in our business.

Speaker Change: And then as far as our strategic, my strategic initiative, you know, the strategy is working. So I'd say two years ago when, you know, I came in as co-interim CEO, I made some changes. We looked at our take rates and we, you know, right-sized our take rates, making sure that everything is now profitable. We moved out the direct business, that's the product that we're buying, got rid of unprofitable categories.

Speaker Change: I see that sticky and not changing, right? So feeling really good about that strategy. You're seeing it work, you're seeing it in Q3, you're seeing it in Q4 of an implied guidance of 9% in Q4. So all of those things are great working. Return to growth is a big kind of, you know, talking point for us internally and we'll continue to change the way people shop.

Mark: And then, you know, as far as innovation goes, you know, we'll expand on that with the idea that we'll continue to be supply-driven when we think about new ways to also acquire supply.

Speaker Change: It's all super helpful. Thank you. Maybe a quick follow-up for Ajay. Some gross margin, continue to see some nice gains in consignment gross margin. Is there further opportunity there as we look beyond 2024?

Mark: Thanks for the question, Mark. You know, we feel really good about our results in Q3 on gross margin. I know you pointed out consignment margins coming in at 86.6% 86.6%

Mark: A couple of things I would say that really drove our gross margin performance as a business in Q3, 74.9%, nearly 75, that was the highest we've reported as a business.

Mark: One big driver there really is the mix of consignment revenues. When you look sequentially, we had a strong quarter with a lot more of our revenues coming from consignment revenues, and that drove the aggregate gross margin of our business higher.

Mark: To your point on, you know, what you should expect going forward, I think we're sort of in the right place right now. You know, mixed may have a small impact on our margins on a go-forward basis, but be really good about where we stand today and expect that to be in that same range.

Speaker Change: Great, thanks for taking my questions.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of Ashley Owens with Key Bank Capital Markets. Your line is now open.

Ashley Owens: All right, good afternoon, and thanks for taking our questions. I just wanted to start on the price sensitivity within the consumer. Circle back on this in the last quarter, just given it was called out as a make-up and volume to offset some of this.

Speaker Change: We saw a slight improvement in the AOV year over year growth from 2Q, so maybe just an update there and if you could help us on how we should be thinking about growth in volume versus AOV in the fourth quarter.

Speaker Change: the most important thing. We talked about supply being strong, but demand is also strong. This intersection of value and luxury is really resonating with our consumer. And, you know, as we continue to focus on trust and our three pillars around our growth playbook, operational excellence, and assessing over service, I'm really giving that seller and that buyer what they want. So, we're going in heavy on making sure people understand that we are a value play, you know, and that goes, you know, I can give you some tactics on that, but that's making sure that every item shows the primary list price. You can really see that value come in on the product listing detail.

Speaker Change: Thank you. Bye.

Speaker Change: Okay, great. And then just one follow up with marketing leveraging a little bit more in the quarter, wanted to click down a bit on the strategy there heading into holiday, how we should be thinking about that as a percent of sales on a go-toward basis and what the right level should be.

Speaker Change: Yeah, so the marketing piece, you know, this goes back to the three-legged stool with marketing. We'll continue to see efficiencies. You should expect some seasonality there. Q3 is a lower spend quarter based on the summer months, Q4 being the holiday. You'll see a higher spend quarter. That said, we feel confident continuing to drive efficiencies. We've invested in talent there. Our acquisition costs going down, SEO, better attribution, really understanding where that dollar is going and is it incremental to our P&L. They're also launching some lookalike campaigns and personalization in marketing. So we're excited about the opportunity.

Speaker Change: and other entities there over the next years.

Speaker Change: And maybe just to add to that, I would say that what you're seeing in our Q3 results and marketing is a combination of the investments that Rathi just highlighted, and them being funded by our ability to find efficiencies and productivity and how we've been spending our money and, you know, compared to the past.

Speaker Change: You might remember we brought in a new CMO fairly recently and we were just, our investments in improving the technology behind it and how we think about approaching marketing is really helping pay for some of the investments that are driving the total volume.

Speaker Change: Great, I'll pass it along. Thank you.

Speaker Change: Thanks Ashley. Thanks Ashley.

Ashley: Thank you.

Speaker Change: And our next question coming from the lineup, Bobby Brooks with Northern Capital Markets. Your line is now open.

Bobby Brooks: Hey, good afternoon everyone. Thanks for taking the call. So first question is some luxury houses whose products fill your shelves have seen weaker results recently.

Bobby Brooks: and that's really in strong contrast to your great three key results and the guidance raised for the year.

Bobby Brooks: So obviously a big difference between those brands, they have a large exposure to Chinese consumer, which RealReal does not. But outside of that, could you talk, could you maybe just remind us all

Bobby Brooks: How real can still grow despite headwinds being faced in the first hand love

Speaker Change: Yeah, thank you, Bobby. Thanks for the question. You know, I will just...

Speaker Change: double down on, we really do have a resilient business model. We're very different from the primary market. And you heard me say this, and I'm going to say it again, the intersection between value and luxury and even sustainability is really resonating with our consumer. We're in a really great place with supply. The supply growth book is working. We've grown the business in the past. We know what this playbook looks like. And then the demand piece we talked about, that value play, the consumer is really, you know, you look at our average order value. You look at our average selling price.

Speaker Change: quite strong conversion, all of these metrics and KPIs from top to bottom. So it gives us, we have, we have a lot of momentum in the business and we're feeling excited about that. And I think that's what you're hearing. What we're really focused on to continue to drive that is those

Bobby Brooks: three pillars, right? It's the growth playbook that you heard me talk about, sales, marketing, retail, all coming together. It's operational excellence, and it's assessing over service and really delivering products that resonates with our consumer base, making the service fast, easy, where they can earn more. We're doubling down there as well. So, and you know, the idea that we have a diversified product mix also really works in our favor as well.

Speaker Change: Thank you.

Speaker Change: And our next question, coming from the lineup, Marvin Fung with BTIG, your line is now open.

Marvin Fung: Thank you.

Marvin Fung: Good evening, thanks for taking my questions and congratulations, Roxy, on the, on the, on the.

Marvin Fung: We got a lot of questions from investors, kind of more looking kind of long-term. So perhaps a question for Ajay, but throw this out to anyone. Just about sort of the...

Marvin Fung: the algorithm we should think about in terms of sort of like flow through, or you might want to call it incremental margin, as we sort of think about 2026 or beyond, you know, so it looks like for instance,

Marvin Fung: incremental margins in the third quarter were over 60%, but dropping off a bit here in the fourth quarter based on your guidance. But just what's a good incremental margin to kind of use, you know, once we sort of hit like 2026 and beyond.

Speaker Change: Thanks for the question, Marvin.

Speaker Change: Here's how I think about margins over the long term. I think it's helpful to frame where we are today.

Marvin Fung: You know, we made a number of business changes starting back in late 2022. These changes were primarily directed as a first step of getting the business to being EBITDA breakeven, adjusted EBITDA breakeven. And I'm really pleased with how that has played out. You know, you've seen the proof points in our results so far, and that positions us really well looking forward. I think going forward, we have a clear path to growing both dollars and margins at the real real.

Marvin Fung: We're going to see strong flow through on growth. Our gross margin is at 74.9% for the total business, and in particular 88.6% for consignment revenues, that being the focus areas of our growth, combined with unit economics are going to give us...

Marvin Fung: strong flow throughs on incremental growth from here.

Marvin Fung: Rathi highlighted our focus on operational excellence.

Marvin Fung: We believe there's opportunities to further improve on our unit economics, and we continue to work on those areas. We continue to work on finding efficiencies in sales and marketing, in logistics, in authentication, and we think our rich data set really gives us a comparative advantage in how we can drive efficiencies across our business. So we expect that.

Marvin Fung: to further improve the flow-through going forward.

Marvin Fung: And the last thing I would say, Marvin, in terms of where we get leverage from, it's our operating expenses. You know, we've got the right, we feel like we've got the right investments in product and technology in our fixed cost facilities, footprints, and we expect to see strong operating leverage from incremental growth on that line as well.

Marvin Fung: Thank you.

Marvin: Great. And my follow-up question, I think you were calling out that the return rate was improved and by my math it seems like it was a lot better in the third quarter. What kind of drove that and is that sustainable?

Speaker Change: And then, you know, as a corollary to that, I believe you're now, you know, allowing people to, you know, pay a fee to return items that are, that are like final sale. Could you maybe comment on uptake of that and some of your other...

Marvin: on Monetization Initiatives. Thanks.

Speaker Change: Thank you, Marvin. So return rates are lower. It really is driven out of mix. That's the primary reason that they're lower. Operational efficiencies is also a factor. So that's the assessing over service, making sure that the attribution

Marvin: that are driven by AI faster.

Marvin: The listing more efficient. So we're happy about that. But, you know, again, it's driven out of mix. So it depends on what the mix looks like within the quarter. As far as return insurance goes, that is something that we are testing our way into super early days. We'll definitely have a read over the next couple of quarters. And it's mostly on a final sale items as well as handbags. So happy to give you more information as we continue to test this initiative.

Speaker Change: Got it. Thanks so much. Appreciate it.

Marvin Fung: Thanks Marvin. Thank you.

Speaker Change: And our next question coming from the line of Ibarrajo with Wells Fargo. Your line is now open.

Robert: Hey, this is Robert. I'm sorry, I'm sticking to a question most of my friends already, but Just maybe you can talk a little bit about the consumer trends you saw through the quarter But the last quarter you were talking about, you know, it's going a little bit You're a little bit more promotional, but you kind of blew it out of the park this quarter So, you know any color you can give on that and how it looks

Speaker Change: Yes, sure, Robert. I can answer that. You know, I take this back to the consumer health and our business model being quite resilient, so I'm going to double down on that message there. We are seeing, you know, we said this before, we're a supply driven company, and it's all about supply. Supply is in a very good place.

Speaker Change: because of the initiatives that we've been running over the last couple of years. Sales, the retention numbers of the sales team, the referral programs really working.

Speaker Change: around marketing and our personalized promotion strategy, as well as retail and meeting the seller where they are. We're offering now van pickups for supply. So if supply is in a good place, you will see the demands follow. And even in a harder environment, we found that to be true. And because people are looking for that value play. So for us, it's really about

Speaker Change: Doubling down on our core business, our moat, building trust with our consumer, focusing on the growth playbook, operational excellence, and obsessing over service, and meeting the seller where they are. So we're going to continue down that path.

Speaker Change: Thanks for the question. Let me add a couple of points to Rathi's answer. We did see acceleration through Q3. I think the very beginning was a little soft, and then we saw gradual improvements from there. And we feel really good about how that momentum has continued into Q4.

Speaker Change: We look forward to hearing from you.

Speaker Change: We look at average order values as an indication of, you know, consumer sort of preference to your question, and our average order values

Speaker Change: In Q3 at 522 were strong, they were resilient, they've stayed above $500 for us on a consistent basis and they were actually up, when you compared versus prior year, by about 2%.

Speaker Change: So, I think all in we feel really good about how the quarter played out and what that means for us going forward.

Speaker Change: Thanks, really appreciate it.

Speaker Change: Thanks, Robert.

Speaker Change: Thank you. And our next question, coming from the line of Jaisal with UBS, your line is now open.

Jaisal: Great, thank you so much. My question is if you could really clarify what's driven the upside to the guidance of all the different growth initiatives that you've talked about. What is it that's really changed from not just last quarter to this quarter but really from the beginning of the year until now? Thank you.

Speaker Change: Thanks for the question, Jay. You know, I think on Q3 in particular, the story on the story versus expectations for us was driven by a few things.

Speaker Change: First and foremost, I would point out to volume. Rathi mentioned our growth playbook. We've always described our business as being driven by supply. And we're really feeling good about how that combination of sales and marketing and stores is unlocking supply. And once we find the supply in our business, our sell-through rate is really strong. We have over 90% lifetime supply. So volume.

Speaker Change: driven by our growth playbook on locking supply was one big factor in expectations in Q3.

Speaker Change: The other point I would make on Q3 is gross margin. You'll notice that sequentially we were up on gross margins and at 74.9%, this was our highest ever gross margin as a company. That was driven by a favorable shift in mixed stewards consignment revenues. When that happens, it lists the overall gross margin for our business, and that was another source of upside for us in Q3.

Speaker Change: And the last thing I would say is our focus on operational excellence. We continue to look at opportunities where we can drive efficiencies in the business.

Speaker Change: and that resulted in strong bottom line performance. We reported positive $2.3 million in EBITDA, which was also the second time we've done that. And more notably, I think in Q3, it's particularly pleasing because it's not a seasonal high quota for us. We managed to do that.

Speaker Change: You know, I've got a point which is, which, you know, we would, previously I would say we were probably not quite there yet.

Speaker Change: Got it. Okay. Very helpful. Thank you so much.

Speaker Change: Thank you.

Speaker Change: Thanks. Thanks, Jay.

Speaker Change: Thank you. Ladies and gentlemen, at this time, we have no further questions in the queue. This will conclude today's conference call. Thank you all for your participation, and you may now disconnect.

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Speaker Change: Good day. Thank you for standing by. Welcome to the Railroad 3rd Quarter 2024 Financial Results Conference Call.

Speaker Change: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-1-1 on your telephone. You will then hear an automatic message advising your hand is raised.

Speaker Change: Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Kathleen Howe, Senior Vice President of Finance. Please go ahead.

Speaker Change: Thank you for watching!

Kathleen Howe: Thank you, Operator, joining me today to discuss our results for the period ended September 30, 2024, our Chief Executive Officer and President, Razi Leveque, and Chief Financial Officer, Ajay Gopal.

Speaker Change: Before we begin, I would like to remind you that during today's call, we will make forward-looking statements which involve known and unknown risks and uncertainties.

Speaker Change: Our actual results may differ materially from those suggested in such statements.

Speaker Change: 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.

Speaker Change: Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking.

Speaker Change: We have provided reconciliations for historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our Investor Relations website.

Speaker Change: I would now like to turn the call over to Rati Leveque, Chief Executive Officer of The RealReal.

Rati Leveque: Thank you, Caitlin. Good afternoon, everyone, and welcome to the RealReal's third quarter earnings conference call.

Rati Leveque: I'm honored to speak with you today as the new CEO of The RealReal.