Q4 2024 The RealReal Inc Earnings Call
Good day, and thank you for standing by him to the real real fourth quarter 2024 financial results Conference call. 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 this session you will need to press star one on your telephone.
Didn't hear an automated message advising you. Your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Kaitlyn help. Please go ahead.
Okay.
Speaker Change: Thank you operator, joining me today to discuss our results for the period ended December 31, 2024, our Chief Executive Officer, and President Rocky Labatt.
Speaker Change: And Chief Financial Officer of Jacob Paul.
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: 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 and 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 of historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our Investor Relations website.
Ross: I would now like to turn the call over to Ross you hold that Chief Executive officer of the real real.
Ross: Thank you Caitlin and good afternoon, everyone and welcome to the real real fourth quarter and full year 2024 earnings conference call.
Ross: Today I am pleased to report strong Q4 and full year results.
Ross: We accelerated growth through the year, culminating in 14% revenue growth in Q4.
Ross: We reached important financial milestones in 2024, we delivered positive adjusted EBITDA and positive free cash flow for the full year.
Ross: The real real is at the intersection of luxury and value.
Ross: This position has never been stronger or more relevant cut.
Customers come back to the real real again, and again to find one of a kind pieces and to monetize their closet.
Ross: Confident that we are the experts in luxury resell we.
Ross: We built relationships with our buyers and confine Earth founded on trust.
We exited 2024 from a position of strength.
Ross: These supply trends strong buyer engagement and operational excellence enabled us to achieve GMT and adjusted EBITDA above our guidance range for Q4.
Ross: We also delivered positive results on several customer kpis, including conversion retention and engagement.
Ross: Ajay will provide more details on our financial results for the fourth quarter and full year later in the call.
Ross: I'd like to highlight a few notable achievements as 2024 marked an important inflection point for the real real.
Ross: We delivered our first full year of profitable adjusted EBITDA as a business.
Ross: Free cash flow improved $104 million versus last year, resulting in our first full year of positive free cash flow.
Ross: 2024 also marked a return to profitable growth.
Ross: <unk> was $1 $8 billion up 6% year over year.
Ross: Consignment revenue was up 14% for the year with particular success in unlocking mid and high value supply.
Ross: And active buyers on a trailing 12 month basis, we're up 5% year over year.
Ross: These achievements are the results of foundational changes we've implemented we've sharpened our focus on our core business and return to growth with improved unit economics.
Ross: Today I'll talk through the ways, we're making progress on our three strategic pillars.
Ross: Unlocking supply through our growth playbook, driving operational efficiencies and obsessing over surface.
Ross: Let's start with the growth playbook.
Ross: The first component of our growth playbook is our sales team.
Ross: Which is a strategic differentiator.
Ross: As a reminder, our sales team is made up of our luxury managers, who work directly with our consignor to build trust and maximize supply.
Ross: Over the course of 2024, we spent time optimizing our incentive structure and elevating our sales teams experience.
Ross: We better aligned the teams compensation with our overall company goal of driving profitable supply.
Ross: Focusing the team on value rather than units.
Ross: Compensation alignment and elevating the employee experience have resulted in more supply value per luxury manager lower attrition and higher sales team retention compared to last year.
Today more than half of our sales team has now been with the real real for over two years.
Ross: We expect these changes to drive results through deeper relationships with sellers higher approval rating and a better seller experience.
Ross: Notably the value generated per sales rep in 2024 was up roughly 15% compared to the prior year.
Ross: In 2025, we will further improve our sales teams' best in class service.
Ross: While using technology to drive efficiency.
Ross: We are excited to expand our smart sales AI initiatives.
Ross: This initiative Leverages customer data and external data to help luxury managers assess which clients are most likely to confined at any time.
Ross: Tools like smart cells allow our luxury managers to service more consignor and improve efficiency early results of this initiative had been very encouraging and we are planning a broader rollout in 2025.
Ross: The second piece of our growth playbook is marketing.
Ross: Our marketing and brand teams unlock supplied by driving brand heat and relevance that translates into customer acquisition and retention.
Ross: We've refined our marketing channel investments to better target engage with and acquire more high value confine Earth.
Ross: Our marketing technology team has adopted new tools that increase our precision targeting.
Ross: We have an attractive consignor demographic, it's a diverse group that skews younger affluent and fashion focused.
Ross: About half of our Consignors are millennials or Gen Z and their loyal selling with us multiple times per year.
Ross: <unk> strong early results and our evolved approach to acquisition and we'll continue to optimize our targeting throughout the year.
Ross: In 2020 for our brand marketing highlighted trust and authenticity.
Ross: We continue to be active on social channels generating buzz for our brands.
Ross: For example, during the past holiday season, our journey of a bad video and engaging take on our authentication and fashion expertise drove increased followers more traffic and elevated new member sign ups.
Ross: The third and final piece of our growth playbook in stores.
Ross: As a part of our neighborhood store strategy reposition stores and affluent residential areas to create a frictionless experience for our consignors.
Ross: Stores generate supply and drive awareness.
Ross: In 2020 for nearly 25% of new Consignors were acquired through our retail locations.
In Q4, we added two new stores to our fleet in Miami and Houston We're.
Ross: We're off to a great start in both markets and are excited to be a part of these communities.
Ross: We are seeing the benefits from our growth playbook, showing up in strong supply metrics and momentum in the top line.
Ross: Moving to our next strategic pillar operational efficiency.
Ross: As a reminder, our rich data and tech capabilities enable us to benefit from recent advancements in AI.
Ross: We've used these capabilities to drive efficiency and accelerate our path to profitability.
Ross: Cost leverage from improvements in automation took hold in 2024, helping our teams to process units quickly and efficiently cutting over one full day of processing time.
Ross: Through increased productivity, we kept head count steady while driving growth.
Ross: In 2025, we are launching our Athena AI initiatives.
Ross: Dressing the processes that happen from the time, an item arrives in our authentication center to the time, it's launched on our site.
Athena Leverages, our data assets and the AI capabilities to drive significant efficiencies.
Ross: This enhancement aims to optimize our workflow and uses sophisticated image recognition to authenticate and pre populate key item attribute.
More accurate item attribution results in improved search higher customer satisfaction lower returns.
Ross: Better pricing accuracy and quicker time to launch.
Ross: And we are just getting started by the end of the year, we expect Athena to touch almost half of the items coming into our authentication centers.
Ross: Turning to our third strategic pillar obsess over service.
Ross: The real real obsessing over service is a key part of our brand from day, one we were clear that bringing a luxury experience to resale is important to this category.
Ross: This focus has resulted in the real real leadership position in luxury resale is a high trust high NPS high engagement platform.
We are a modern luxury marketplace built on service trust and authenticity.
Ross: We have done this by fostering a deep connection with our community of 38 million members listening to their feedback and evolving our platform to meet their needs.
Ross: For our buyers in Q4, we launched obsession sharing feature that gives our members the ability to share their favorite items with their family friends and followers.
Ross: We are excited to see our members use this feature as a way to express their personal style.
Ross: Inspire others to engage with our brand and deepen their connection with the real real.
Ross: For a consignor, we obsess over service through reducing friction in the consignment process balancing their needs on convenience price and speed.
Ross: The real real is known for rapid sell through nearly all of our items sell within 90 days.
Ross: And we work to ensure that items fell for the highest price the market will bear.
Ross: Our AI driven pricing engine helps us do this at the end of 2024, 85% of our total units were launched using our pricing algorithm.
Ross: This data driven approach has been central to our efforts to improve pricing transparency and important element in building further trust with our sellers.
Ross: Obsessing over service will continue to be a key differentiator and shape the evolution of our business.
Ross: In closing our strategic pillars have aligned our company focus and our growth playbook is working.
Ross: We are laser focused on unlocking profitable supply.
Ross: As retail continues to gain momentum there's significant opportunity ahead.
And the real real is well positioned as the market and thought leader in luxury resell.
Ross: With that I'll turn the call over to Ajay to discuss financial results and the outlook for 2025.
Speaker Change: Thank you Rafi.
Speaker Change: It's an exciting time for the rail rail and luxury resale.
Speaker Change: As Rafi mentioned, we expect the resale market to continue to grow and as the market leader the real real is well positioned to take outsized share.
Speaker Change: Over the course of the last two years, we've completed a strategic refocus and it's exciting to see how the business has returned to $1 8 billion in <unk>.
Speaker Change: A significantly stronger and more profitable company.
Speaker Change: 2024 marked several defining moments for the railroad.
Speaker Change: We achieved positive adjusted EBITDA for the full year.
Speaker Change: An increase of $65 million versus the prior year and an increase of $122 million on a two year basis.
Speaker Change: Free cash flow and operating cash flow were both positive for the full year highlighting the power of our business model as we scale.
Speaker Change: For the year, we expanded gross margin by 600 basis points through optimizing our consignment take rate and driving operational efficiencies.
Speaker Change: We grew active buyers on a trailing 12 month basis and average order values continue to trend well above $500, reaching an all time high of $579 in Q4.
Speaker Change: Today I will walk you through our 2024 financial results and discuss our outlook for 2025.
Speaker Change: Starting with the fourth quarter.
Speaker Change: Q4, <unk> of $504 million increased 12% versus last year.
Speaker Change: Exceeding our guidance range.
Speaker Change: <unk> outperformance was driven by success in unlocking mid and high value supply.
Speaker Change: Revenue of $164 million increased 14% in the quarter benefiting from higher consignment volume and an increase in profitable high value direct revenue.
Speaker Change: Active buyers increased to 408000 up 7% on a trailing three month basis.
Speaker Change: Active buyers on a trailing 12 month basis returns to growth up 5% versus last year at 972000.
Speaker Change: Both quarter gross profit of $122 million improved $16 million year over year, resulting in gross margin of 74, 4%, which increased 40 basis points versus the prior year.
Speaker Change: Fourth quarter operating expenses of $127 million were flat year over year.
Speaker Change: As a percent of total revenue operating expenses leveraged or 100 basis points.
Speaker Change: Excluding stock based compensation and a 6 million charge for restructuring in 2023.
Speaker Change: Operating expenses leveraged 530 basis points, driven by efficiency efforts in marketing and operations.
Speaker Change: Adjusted EBITDA of $11 million or six 7% of total revenue increased $9 6 million versus prior year.
Speaker Change: We generated $27 million in operating cash flow for the quarter, resulting in free cash flow of $19 million.
Speaker Change: We are very pleased with the cash generation that our business model delivers as we scale.
Speaker Change: As a reminder, unlike a typical retailer we don't purchase inventory ahead of the season for our consignment business.
Speaker Change: We pay our consignor after an item sales on our platform.
Speaker Change: This favorable cash conversion cycle creates a benefit to working capital and cash flows as we grow.
Speaker Change: Moving to our full year 2024 results.
Full year GMB of 183 billion increased 6% versus prior year.
Speaker Change: Revenue of $600 million was up 9% versus the prior year, driven by GMB growth and benefiting from changes in our take rate initiated in late 2022.
Speaker Change: Consignment in shipping revenues grew 14% and 15% respectively for the year.
Speaker Change: And direct revenue was down 18% as we established a better baseline for that business.
Speaker Change: Full year gross profit of 448 million improved $71 million year over year.
Speaker Change: Gross margin of 74, 5% increased 600 basis points versus full year 2023.
Speaker Change: We've made tremendous progress on our gross margin over the past two years from 2022 to 2024, the increase gross margins over 600 basis points by overhauling, our take rate structure refining our product mix and driving operational efficiencies.
Speaker Change: Full year operating expenses of 504 million declined $39 million year over year.
Speaker Change: As a percent of total revenue operating expenses leveraged nearly 500 basis points in 2024.
Speaker Change: Excluding stock based compensation and $43 million in 2023 restructuring charges full year operating expense leverage by 550 basis points.
Speaker Change: We achieved a significant milestone in 2020 for delivering our first full year of positive adjusted EBITDA of $9 $3 million.
Speaker Change: A $64 million increase versus 2023.
Speaker Change: This improvement in profitability translated to $27 million in operating cash flow.
Speaker Change: Up $88 million year over year, and free cash flow of positive $1 million up $104 million versus prior year.
Speaker Change: We ended the year with $187 million in cash cash equivalents and restricted cash.
Speaker Change: Turning now to 2025.
Speaker Change: You heard Ralph can you talk about our focus on unlocking profitable supply.
Speaker Change: Our results in 2024 reinforce our confidence that our growth playbook is working.
Speaker Change: We are making progress in unlocking the 200 billion luxury resale time in the U S.
Speaker Change: We believe our strategy can deliver high single digit to low double digit growth over the medium term.
Speaker Change: We are projecting full year <unk> of $1 96 to $1 99 billion for the year, increasing 8% at the midpoint of our guidance.
Speaker Change: Revenue is expected to be between $645 million and $660 million up 9% year over year at our midpoint and aligned with our growth expectations over the medium term.
Speaker Change: For the full year, we expect relatively stable take rate on gross margin compared to the prior year.
Speaker Change: Operating expense seasonality by quarter is also expected to be similar to last year.
Speaker Change: Adjusted EBITDA is expected to be in the range of $20 million to $30 million delivering between 203 hundred basis points of adjusted EBITDA margin expansion year over year.
Speaker Change: Driven by strong flow through from continued topline growth and operating expense leverage.
Speaker Change: Capital expenditures are expected to be roughly 2% to 3% of total revenue for the full year.
Speaker Change: Regarding timing of spend due to the cadence of project deployment and timing of incentive payments, we expect operating cash flow and therefore free cash flow to be back half weighted.
Speaker Change: Moving to our outlook for the first quarter.
Speaker Change: <unk> is expected to be in the range of 484 million to 492 million, which represents 8% growth versus prior year at the midpoint of our guidance.
Speaker Change: First quarter revenue is expected to be in the range of $157 million $261 million.
Speaker Change: This reflects 11% growth versus last year at the midpoint of our guidance driven by growth in both the consignment and direct business.
Speaker Change: As a reminder, 2024 was a leap year. So our first quarter has one less day in 2025, which results in a headwind of approximately one point of GMB and revenue growth for the quarter.
Speaker Change: First quarter adjusted EBITDA is expected to be between 3 million and $4 5 million.
Speaker Change: As we continue on our path to profitability, we've made progress on improving our capital structure on.
On February 10, we announced a strategic debt transaction exchanging $183 million of our 2028 convertible notes for $147 million of new convertible notes due in 2031.
Speaker Change: We believe this transaction strikes the right balance between conversion price.
Speaker Change: And capturing a discount on our 2028.
Speaker Change: Through this transaction, we reduced our total indebtedness by $37 million.
Speaker Change: We're excited about how this transaction enhances our capital structure.
Speaker Change: And gives us flexibility as we continue executing against our strategic pillars.
Speaker Change: In closing I'd like to congratulate our team on reaching these important financial milestones during the year profitable growth.
Speaker Change: <unk> adjusted EBITDA and positive free cash flow.
Speaker Change: Their relentless focus on unlocking supply through our growth playbook driving operational efficiency and obsessing over service are why we were able to meet these important targets in 2024.
Speaker Change: With that I will turn the call back over to the operator to begin Q&A.
Speaker Change: Operator.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile our Q&A roster.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: And our first question comes from the line of Ike <unk> with Wells Fargo. Your line is open. Please go ahead.
Ike: And for one congrats on the results.
Speaker Change: Couple of questions maybe for Jay.
Speaker Change: Sorry, if I missed it.
Speaker Change: Could you give an operating cash flow to free cash flow number for this year based on the guide and.
Speaker Change: The second question would be.
On the marketing spend so it is clearly gaining youre getting an ROI on their marketing.
Speaker Change: Marketing dollars are growing I think a real up 6% in the quarter and what's the plan as we get into the first quarter and beyond or are planning to accelerate.
Speaker Change: The marketing engine, because it's starting to drive better GMB growth, how should we be thinking about that.
Speaker Change: Yes. Thanks for the question Mike to your first question on cash flow, we Didnt, we didnt give any explicit guidance on cash flow I would say that.
Speaker Change: We feel really good about the results in Q4.
Speaker Change: In 2024, we had adjusted EBITDA was positive $9 million that translated to $27 million in operating cash flows for the year.
Speaker Change: And free cash flow against that was positive $1 million so great flow through from adjusted EBITDA down to cash flow metrics. We would expect these trends to continue but we don't have any specific guidance on those on those metrics in 'twenty five.
Speaker Change: And then on <unk>.
Speaker Change: On marketing.
Speaker Change: Marketing, we're seeing we're seeing good good leverage on our marketing spend it was.
Speaker Change: In Q4.
Speaker Change: We had a benefit last year for the for the year. We had a we had leverage of 130 basis points in marketing, we like where it's at right. Now if you look at the seasonal patterns that youll notice that as a percentage of revenue in Q4 was slightly higher than it was in Q3, and we will continue to look at marketing as a balance between what we invest in sales what we invest in stores.
Speaker Change: And what we spend in marketing that stopped being a growth playbook for how we go about unlocking supply.
Speaker Change: So I think behind the scenes there is productivity on marketing, we're investing in things that are giving us stronger rois and we're taking that and reinvesting it back into things like social and other.
Speaker Change: All the channels, where I would say, we would probably underrepresented in the past.
Speaker Change: Got it and then just one more follow up.
Speaker Change: Relationship between take rate in <unk>.
Speaker Change: It sounds like take rate.
Speaker Change: You're expecting very kind of flatten out from here should we expect <unk> to continue to increase as you are kind of getting more higher value items.
Speaker Change: The economics of your sellers are getting.
Speaker Change: Yeah, Great Great question. So it will be in Q4 was a was a high point for out of the business. We came in at $579 order, which was.
Speaker Change: And it contributed about six points.
Speaker Change: <unk> growth.
Speaker Change: The relationship between take rate in the OE is really dictated by our rate cards. So if you look at our commission structure.
Speaker Change: We do have a we don't have a reduction in the amount of take rate, we keep as people.
Speaker Change: Sell higher value items, so that relationship will continue.
Speaker Change: Like you saw in Q4 on a sequential basis <unk> jump up as much as they did you do see an effective take rate percent coming down but the dollars are obviously higher in those kind of transactions. So I would expect that our take rate to be relatively stable going forward and what that really means is we're done with lapping and all the changes that we made.
Speaker Change: Do I take rate structure in the past I think from this point onwards, we're going to optimize around the edges, but we'll keep it largely stable going forward.
Speaker Change: Got it thanks, so much.
Speaker Change: Sure.
Speaker Change: Thank you and one moment as we move on to our next question.
Bobby Brooks: And our next question is coming from the line of Bobby Brooks with Northland Capital markets. Your line is open. Please go ahead.
Hey, good afternoon team. Thanks for taking my question.
Bobby Brooks: Wanted to first start could you just give us a sense of your perspective of what will really be driving supply growth going forward. Obviously one of your benefits is that you really have a mosaic approach to supply, but maybe at a high level is it evenly balanced between current and new confines I think one of the interesting things you said and Ravi said in the prepared remarks.
About 25% of the new Consignor came through the retail maybe what was the rest of the mix of that the rest of the 75% how did they kind of come through your channel just really curious about that.
Speaker Change: Yeah. Thanks, Bobby Thanks for the question, so supply growth and unlocking profitable supply you've heard us talk a good amount about that now and that's really marketing sales and retail coming together, making sure that we're creating that friction less experience for a seller that's number one and our objective there.
Speaker Change: But it's also making sure that we're bringing in the right seller right that mid to high value seller.
Speaker Change: Whereas before in the past we were looking at sellers across all price points right. So we've gotten much better at targeting that mid to high value seller, yes.
Speaker Change: Yes, and you're right, 25% of our new sellers do come from retail we also see the average selling price being five to seven times higher on a unit basis coming from retail.
Speaker Change: We're excited because we believe we're just getting started here. So the growth playbook is really starting to work meeting the sellers where they are.
Speaker Change: Being more purposeful about our incremental spend in marketing marketing and really going after again that medium to high.
Speaker Change: Mid and high value consignor being more predictive in how we're thinking about that creating more loyalty to the brand.
Speaker Change: Our trust metrics are also up so thinking about the top of the funnel and on the sales side again, leveraging AI through smart sales you heard me talk through that the sales team retention numbers are really good over half of our luxury managers have now been here two or more years.
Speaker Change: So I'll end there is so much room to go even in the affiliate program and partnership so well.
Speaker Change: We will continue to chip away here, but where as the team pretty excited about the opportunity and Bobby you've heard me say this the Tam is no constraint to our growth there's $200 billion trapped in People's Closets.
Speaker Change: And 80 billion that gets added to that annually. So we're going to continue to change the way people shop.
Speaker Change: For sure yes, it's a huge market that you guys are tapping into I. Just wanted one clarifying question off of that so the average selling price coming in from retail stores is five to seven times higher did I hear that right or am I understanding that right.
Speaker Change: Yeah, that's right Bob.
Speaker Change: I mean by that is when they are meeting with our luxury and the luxury consignment office, we call them L. C O's and Theyre meeting with a gym knowledge is a watchmaker a handbag authenticators, so that's where they're consigning their jewelry watches handbags and those items are usually a much higher rate than a pair of shoes or ready to wear.
Speaker Change: Their item.
Speaker Change: Yes for sure.
And that's why Bobby retail is so important to us it's new but it's also value that comes through there and that goes back to disrupting the space There and building trust with our consignor. So they can meet with that expert.
Speaker Change: Yes for sure that makes perfect sense to me.
Speaker Change: And then maybe just last one for me is.
Speaker Change: Active buyers and <unk> saw a nice sequential step up in.
Speaker Change: That's pretty in line with house with your seasonality given holiday sharper stepping in but we're.
Speaker Change: We're six weeks in the first quarter and so I was just kind of curious like have those new customers.
Speaker Change: Those new customers that you gained in the fourth quarter have you seen them be a bit more sticky given all of the upper the updates and improvements to the platform just kind of curious about that.
Speaker Change: Yes, so I think youre talking about you know consumer health in general Bobby I think is where you're going on that and I think we're seeing buyers be quite resilient as well as our seller base rate your fleet and our average order value, we're seeing fine jewelry watches handbags, I'm quite sticky and the buyers.
Speaker Change: Quite engaged there one of the one of the stats that I'm into is a buyer spending $5000 or more is up 20% year over year, so really kind of educating people on.
Speaker Change: <unk> our value play here, which is that intersection between our value and luxury and making sure people and educating them on.
Speaker Change: What the cost what these items costs in the primary market and the value they're getting from US just becomes more relevant.
Speaker Change: So we are happy to see that the buyers are quite sticky right now in general and highly engaged and resilient.
Speaker Change: Thank you very much I'll return to the queue.
Speaker Change: Thank you one moment as we move on to our next question.
Speaker Change: Our next question is going to come from the line of Jay sole with UBS. Your line is open. Please go ahead.
Speaker Change: Super. Thank you so much Robert you said something interesting that many.
We understand the prepared remarks, one of which was that you are.
Speaker Change: Your sales team it was like 15% more efficient essentially than they had been before and it sounds like you've invested a lot of not just money, but also resources and time to help the sales team you mentioned the retention number.
Speaker Change: If you think about all the different salespeople within your organization or what's the difference between the most experienced salespeople and sort of the newer salespeople, who presumably are just getting started and aren't as efficient yet.
Speaker Change: Okay.
Speaker Change: I ask that because what's the size of like how much productivity you can gain from the sales team as you continue to drive these initiatives going forward.
Speaker Change: Up 15%.
Speaker Change: Is it a possibility that people would be twice as effective three times effective or are we really talking about incremental gains from here. Thank you.
Speaker Change: Yes. Thanks, Jay this is another place where I think we're just getting started as well the comp structure is one thing and it hasnt been even scaled out to the entire entire or great. We played with that last year, we tested iterate it and we're starting to see the fruits of that in small ways.
Speaker Change: This earlier this year.
Speaker Change: Yes, we are seeing 15% more supply year over year per rep, just getting started our highest Rev spring and $10 million plus annually. So theres no reason why we can't even go more in that direction and just focusing them again on the quality of supply versus just the.
Speaker Change: Value, where I start just a units or quantity of supply.
Speaker Change: Are you know, we hire an awesome group of talented people, who really bill.
Speaker Change: Build relationships with our <unk> there.
Speaker Change: Core to what we do and all of that hard work is paying off in a big way.
Speaker Change: Got it and maybe just one for you is if we think about the growth the growth forecast for Q1 can you just break that down a little bit like how you expect it to be in terms of.
Speaker Change: Units versus GMB pricing what are you what are you forecasting.
Speaker Change: Yes, thanks for the question Jay So.
Speaker Change: We have strong momentum coming into this year event.
Speaker Change: Q4, with <unk> up 12% revenue up 14% and we're seeing we're seeing that strength carried through into into Q1, our guidance for Q1 on revenue is going to be up between 9% to 12%.
Speaker Change: 111%, which is quite comparable I would say to our exit rate from Q4.
Speaker Change: Let me talk about about the leap year impact that plays into our product point of pressure. So so really factoring all of that and we feel pretty good about what we've guided to.
Speaker Change: In Q1.
Speaker Change: Okay.
Speaker Change: Got it okay. Thank you so much.
Speaker Change: Thank you one moment as we move on to our next question.
Speaker Change: And our next question is going to come from the line of Ashley Owens with Keybanc capital markets. Your line is open. Please go ahead.
Ashley Owens: Great. Thanks, so much so really quickly I just wanted to touch on.
Ashley Owens: Cash G&A bucket, so moving into 2025, if you think about the drivers of the continued improvement there I know you mentioned stable gross margins and I've talked a little bit on the marketing side as well. So how should we think about the relative leverage within the remainder of the SG&A buckets. Other specific areas, where you see the most opportunity that we should.
Ashley Owens: Be mindful of and fine tuning our models.
Ashley Owens: Yes, thanks for the question I actually.
Ashley Owens: SG&A was we it.
Ashley Owens: It was a good source of investment for us in 2024, we leverage about 150 basis points as we as we went through the year.
Ashley Owens: The way I would sort of breakdown that bucket.
Ashley Owens: About a third of it is variable about two thirds of it is more fixed in nature or fixed or semi fixed on the variable side Youre, primarily looking at sales and you heard Roger talk about the efficiency gains that we're seeing in sales, we're really excited about R. R.
Ashley Owens: The rollout of smart sales initiatives, which is effectively targeting NII driven targeting mechanism that allows us to make make our reps more productive when they are out targeting can sign out and reaching out to people that would be interested in selling so that will continue to be a source of productivity for us going forward and then on the G&A side, which is mostly the figure.
Speaker Change: Thanks space, we feel really good about our cost base in <unk>.
Speaker Change: From technology as well as other classic G&A functions and we will continue to see leverage from from that bucket of costs as we as we grow going forward.
Speaker Change: Okay.
Speaker Change: Okay, Great and then just quick housekeeping as well.
Speaker Change: How should we think about the pace of store openings for this year of one to three stores are low single digits is still the right number.
Ashley Owens: Yes, Ashley that hasn't changed our strategy on stores, we continue to say, 1% to three stores.
A year or we just opened two in Q4 last.
Ashley Owens: Last year, those are performing quite well they're off to a great store start we'll have one also opening this year and again because of that Halo effect that we're getting in supply once we opened in the market.
Ashley Owens: We're quite happy with the incremental <unk> and the value coming into stores at this time.
Speaker Change: Okay, Great I appreciate the color. Thanks.
Ashley Owens: Thank you.
Speaker Change: As a reminder, if you would like to ask a question at this time. Please press star one on your telephone.
Speaker Change: I would like to our next question is going to come from Kunal <unk> with <unk> Research. Your line is open. Please go ahead.
Kunal: Alright, Thank you for taking my question.
Speaker Change: Couple if I could one.
Speaker Change: One on the on the revenue outlook.
Speaker Change: In terms of direct revenue.
Speaker Change: How much is that factoring into your difference between the growth that you're projecting for <unk> versus growth that you're projecting for revenue.
Speaker Change: And then wanted to dive deeper into the G&A, especially the fixed costs, which is about 120 odd million based on what you just told us so.
Speaker Change: So can you talk about kind of what are the potential opportunities for leverage because of 120 million seems kind of high.
Speaker Change: Based on the on the revenue base that you have.
Speaker Change: Thanks.
Speaker Change: Thanks for your question so on on direct which is the first part of your question.
Speaker Change: If you look at our results last year.
Speaker Change: We right sized direct as a percentage of our portfolio.
Speaker Change: Today, It is about 10%, 15% of total revenues and slightly under 5% of total GMB.
Speaker Change: We expect it to stay there most of what's indirect is.
Speaker Change: Is returns from customer that we end up taking tightened too because they are out of policy and there is a certain element of vendor purchase items are often concerned about just items that we do on a very selective basis. So expect that to be a small part of our business relatively stable going forward, we feel really good about the improvements in margins that we've driven on that revenue stream last.
Speaker Change: At year end I think that's gonna stay at about 15% gross margin on average.
Speaker Change: Sure to your second question on on what.
Speaker Change: The SG&A piece.
Speaker Change: So outside of sales what it does include as a product and tech investment. So that's included in that no sorry.
Speaker Change: I'm sorry can you repeat your question in Oregon.
Speaker Change: I was just looking at days.
Speaker Change: And a part where you mentioned that the G&A part, which was the fixed part was about two thirds of the total number.
Speaker Change: Okay.
Speaker Change: <unk> been on a non-GAAP basis, that's about $170 million.
Speaker Change: Two thirds of that would be about $120 million wanted to understand I mean back to still like 18% of revenue.
Speaker Change: Which is generally higher than what we see other retailers. So just wanted to get a sense of like what's in there and what is the potential for like beverage from this number.
Speaker Change: Got it got it so it is.
Speaker Change: What's in there is causing G&A functions. So it's the back office as public company cost it's finance its analytics.
Speaker Change: Its facilities footprint for our offices and things of that nature.
Speaker Change: I think it does it's going to be a significant source of leverage going forward right.
Build the infrastructure needed for us as a company, we feel really good about but it's not an area of investment for us going forward and as the business continues to grow you will see that come down as a percentage of total revenues.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Thank you and one moment for our next question.
Speaker Change: And we have a follow up question from the line of Bobby Brooks with Northland Capital markets. Your line is open. Please go ahead.
Speaker Change: Hey, guys I, just wanted to jump back on and ask.
Speaker Change: A question on kind of how you mentioned that you see a big opportunity to drive operating leverage and improvements to the consignor experience with AI. So I was just kind of curious could you maybe discuss what that looks like and if these are a few more so future action points in a third more so future action points.
Speaker Change: <unk> timeline of implementing those.
Ashley Owens: Yes, Thanks, Bobby I'll start and then Jay please if I'm missing anything here.
Ashley Owens: Theres so much opportunity over the next couple of years is how I think about it.
Ashley Owens: <unk> sales as one piece, we're just getting started there we will scale that out throughout the year.
Ashley Owens: Athena is another piece you heard me talk about that in the prepared remarks, but not only will that bring better speed to the item to the sites. So think about the service level agreement is how we talk about it internally to our consignor is when I am has launched a site, but it's also more accurate youre also getting better pricing.
Ashley Owens: By it because the attribution becomes better and more predictive. So then your.
Pricing and the more that you can get for the consignor and for <unk>, obviously our objective.
Ashley Owens: One day off completely in the seller experience.
Ashley Owens: So much opportunity.
Ashley Owens: Athena not only works through the attribution, but think about it also as automating a lot of the characteristics that you see.
Ashley Owens: On the site everything from material to condition to size.
Ashley Owens: <unk> touches throughout throughout the full funnel and processes and then on the buyer side, you see better search right. So you're getting an item on the in front of more people, which means better pricing less discounting all the things. So we're really excited about all the opportunities and our roadmap.
Ashley Owens: Really focused on delivering efficiencies and operational excellence.
Ashley Owens: And again delivering product that resonates with that with the consignor.
Ashley Owens: Okay.
Ashley Owens: Yeah.
Ashley Owens: Okay.
Ashley Owens: Thank you and that is going to conclude today's question and answer session. Ladies and gentlemen. This also does conclude today's conference call. Thank you for participating and you may now disconnect everyone have a great day.
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Speaker Change: Good day, and thank you for standing by welcome to the real real fourth quarter 2024 financial results Conference call. 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 this session you will need to press star one on your telephone you will then hear an automated message.
Speaker Change: Devising new your hand is raised to withdraw your question. Please press star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Kaitlyn. Please go ahead.
Kaitlyn Help: Thank you operator, joining me today to discuss our results for the period ended December 31, 2024, our Chief Executive Officer, and President Ross you are back.
Speaker Change: And Chief Financial Officer, Jay Gould Hall.
Speaker Change: Before we begin I would like to remind you that during today's call. We will make forward looking statements, which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements.
Speaker Change: You can find more information about these risks uncertainties and other factors that could affect our operating results and the company's most recent Form 10-K and subsequent 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 of 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 Ross you revert Chief Executive Officer of the rail rail.
Ross Revert: Thank you Caitlin and good afternoon, everyone and welcome to the real real fourth quarter and full year 2024 earnings conference call.
Speaker Change: Today I am pleased to report strong Q4 and full year results.
Speaker Change: We accelerated growth through the year, culminating in 14% revenue growth in Q4.
Speaker Change: We reached important financial milestones in 2024, we delivered positive adjusted EBITDA and positive free cash flow for the full year.
The real real is at the intersection of luxury and value.
Speaker Change: This position has never been stronger or more relevant.
Speaker Change: Customers come back to the real real again, and again to find one of a kind pieces and to monetize their closet.
Speaker Change: Confident that we are the experts in luxury resale, we built relationships with our buyers and consignor founded on trust.
Speaker Change: We exited 2024 from a position of strength.
Speaker Change: Healthy supply trends strong buyer engagement and operational excellence enabled us to achieve GMB and adjusted EBITDA above our guidance range for Q4.
Speaker Change: We also delivered positive results on several customer kpis, including conversion retention and engagement.
Speaker Change: Ajay will provide more details on our financial results for the fourth quarter and full year later in the call.
Speaker Change: I would like to highlight a few notable achievements as 2024 marked an important inflection point for the rail rail.
Speaker Change: We.
Speaker Change: <unk>, our first full year of profitable adjusted EBITDA as a business.
Speaker Change: Free cash flow improved $104 million versus last year, resulting in our first full year of positive free cash flow.
Speaker Change: 2024 also marked a return to profitable growth <unk>.
Speaker Change: <unk> was $1 8 billion up.
Speaker Change: Up 6% year over year.
Speaker Change: Consignment revenue was up 14% for the year with particular success in unlocking mid and high value supply.
Speaker Change: And active buyers on a trailing 12 month basis, we're up 5% year over year.
Speaker Change: These achievements are the results of foundational changes we've implemented.
Speaker Change: We've sharpened our focus on our core business and return to growth with improved unit economics.
Speaker Change: Today, I will talk through the ways, we're making progress on our three strategic pillars.
Speaker Change: Unlocking supply through our growth playbook driving operational efficiencies.
Speaker Change: And obsessing over survey.
Speaker Change: Let's start with the growth playbook.
Speaker Change: The first component of our growth playbook is our sales team.
Speaker Change: Which is a strategic differentiator as a reminder, our sales team is made up of our luxury managers, who work directly with our consignor to build trust and maximize supply.
Speaker Change: Over the course of 2024, we spent time optimizing our incentive structure and elevating our sales teams experience.
Speaker Change: We better aligned the teams compensation with our overall company goal of driving profitable supply.
Speaker Change: Focusing the team on value rather than unit.
Speaker Change: Better compensation alignment and elevating the employee experience have resulted in more supply value per luxury manager.
Speaker Change: Lower attrition and higher sales team retention compared to last year.
Speaker Change: Today more than half of our sales team has now been with the real real for over two years.
Speaker Change: We expect these changes to drive results through deeper relationships with sellers higher approval rating and a better seller experience.
Notably the value generated per sales rep in 2024 was up roughly 15% compared to the prior year.
In 2025, we will further improve our sales teams' best in class service, while using technology to drive efficiency.
Speaker Change: We are excited to expand our smart sales AI initiatives.
Speaker Change: This initiative Leverages customer data and external data to help luxury managers SaaS, which clients are most likely to confine it anytime.
Speaker Change: Tools like smart sales allow our luxury managers to service more consignor and improve efficiency early results of this initiative have been very encouraging and we are planning a broader rollout in 2025.
Speaker Change: The second piece of our growth playbook is marketing.
Speaker Change: Our marketing and brand teams unlock supplied by driving brand heat and relevance that translates into customer acquisition and retention.
Speaker Change: We've refined our marketing channel investments to better target engage with and acquire more high value confine Earth.
Speaker Change: Our marketing technology team has adopted new tools that increase our precision and targeting.
Speaker Change: We have an attractive consignor demographic, it's a diverse group that skews younger affluent and fashion focused.
Speaker Change: About half of our consignor are millennials or Gen Z and their loyal selling with us multiple times per year. We're.
Speaker Change: We're seeing strong early results and our evolved approach to acquisition and we will continue to optimize our targeting throughout the year.
Speaker Change: In 2020 for our brand marketing highlighted trust and authenticity we.
Speaker Change: We continue to be active on social channels generating buzz for our brand for.
Speaker Change: For example, during the past holiday season, our journey of a bad video and engaging take on our authentication and fashion expertise drove increased followers more traffic and elevated new member sign ups.
Speaker Change: The third and final piece of our growth playbook in stores.
Speaker Change: As a part of our neighborhood store strategy, we positioned stores and affluent residential areas to create a frictionless experience for our consignors.
Speaker Change: Stores generate supply and drive awareness in.
Speaker Change: In 2020 for nearly 25% of new Consignors were acquired through our retail locations.
Speaker Change: In Q4, we added two new stores to our fleet in Miami and Houston.
Speaker Change: Off to a great start in both markets and are excited to be a part of these communities.
Speaker Change: We are seeing the benefits from our growth playbook, showing up in strong supply metrics and momentum in the top line.
Speaker Change: Moving to our next strategic pillar operational efficiency.
Speaker Change: As a reminder, our rich data and tech capabilities enable us to benefit from recent advancements in AI.
Speaker Change: We view these capabilities to drive efficiency and accelerate our path to profitability.
Cost leverage from improvements in automation to call.
Speaker Change: In 2024, helping our teams to process units quickly and efficiently cutting over one full day of processing time.
Speaker Change: Through increased productivity, we kept head count steady while driving growth.
Speaker Change: In 2025, we are launching our Athena AI initiatives.
Speaker Change: Dressing the processes that happen from the time, an item arrives in our authentication center to the time, it's launched on our site.
Speaker Change: Athena Leverages, our data assets and AI capabilities to drive significant efficiencies.
Speaker Change: This enhancement aims to optimize our workflow and uses sophisticated image recognition to authenticate and pre populate key item attribute.
Speaker Change: More accurate item attribution results in improved search higher customer satisfaction lower returns.
Speaker Change: Better pricing accuracy and quicker time to launch.
Speaker Change: And we are just getting started by the end of the year, we expect Athena to touch almost half of the items coming into our authentication centers.
Speaker Change: Turning to our third strategic pillar obsess over service.
Speaker Change: The real real obsessing over service is a key part of our brand from day, one we were clear that bringing a luxury experience to resale is important to this category.
Speaker Change: This focus has resulted in the real real leadership position in luxury resale is a high trust high NPS high engagement platform.
Speaker Change: We are a modern luxury marketplace built on service trust and authenticity.
Speaker Change: We have done this by fostering a deep connection with our community of 38 million members listening to their feedback and evolving our platform to meet their needs.
Speaker Change: For our buyers in Q4, we launched obsession sharing feature that gives our members the ability to share their favorite items with their family friends and followers.
Speaker Change: We are excited to see our members use this feature as a way to express their personal style.
Speaker Change: Inspire others to engage with our brand and deepen their connection with the real real.
Speaker Change: For a consignor, we obsess over serviced through reducing friction in the consignment process balancing their needs on convenience price and speed.
Speaker Change: The real real is known for rapid sell through nearly all of our items sell within 90 days and we work to ensure that item sell for the highest price the market will bear.
Speaker Change: Our AI driven pricing engine helps us do this at the end of 2024, 85% of our total units were launched using our pricing algorithm.
Speaker Change: This data driven approach has been central to our efforts to improve pricing transparency and important element in building further trust with our sellers.
Speaker Change: Obsessing over service will continue to be a key differentiator and shape the evolution of our business.
Speaker Change: In closing our strategic pillars have aligned our company focus and our growth playbook is working.
Speaker Change: We are laser focused on unlocking profitable supply.
As retail continues to gain momentum there is significant opportunity ahead.
Speaker Change: And the real real is well positioned as the market and thought leader in luxury resell.
Speaker Change: With that I'll turn the call over to Ajay to discuss financial results and the outlook for 2025.
Ajay: Thank you Rafi.
Ajay: It's an exciting time for the rail rail and luxury resale.
Ajay: As Rafi mentioned, we expect the resale market to continue to grow and as the market leader the real rail is well positioned to take outsized share.
Ajay: Over the course of the last two years, we've completed a strategic refocus and it's exciting to see how the business has returned to $1 8 billion and GMB as a significantly stronger and more profitable company.
Ajay: 2024 marked several defining moments for the rail rail.
Ajay: We achieved positive adjusted EBITDA for the full year.
Ajay: An increase of $65 million versus the prior year and an increase of $122 million on a two year basis.
Ajay: Free cash flow and operating cash flow were both positive for the full year highlighting the power of our business model as we scale.
Ajay: For the year, we expanded gross margin by 600 basis points through optimizing our consignment take rate and driving operational efficiencies.
Ajay: We grew active buyers on a trailing 12 month basis and average order values continue to trend well above $500, reaching an all time high of $579 in Q4.
Ajay: Today I will walk you through our 2024 financial results and discuss our outlook for 2025.
Ajay: Starting with the fourth quarter.
Ajay: Q4, GMB of $504 million increased 12% versus last year.
Ajay: <unk> our guidance range.
Ajay: <unk> outperformance was driven by success in unlocking mid and high value supply.
Ajay: Revenue of $164 million increased 14% in the quarter benefiting from higher consignment volume and an increase in profitable high value direct revenue.
Ajay: Active buyers increased to 408000 up 7% on a trailing three month basis.
Ajay: Active buyers on a trailing 12 month basis returns to growth up 5% versus last year at 972000.
Ajay: Both quarter gross profit of $122 million improved $16 million year over year, resulting in gross margin of 74, 4%, which increased 40 basis points versus the prior year.
Ajay: Fourth quarter operating expenses of $127 million were flat year over year.
Ajay: As a percent of total revenue operating expenses leveraged over 100 basis points.
Ajay: Excluding stock based compensation and a 6 million charge for restructuring in 2023.
Ajay: Operating expenses leveraged 530 basis points, driven by efficiency efforts in marketing and operations.
Ajay: Adjusted EBITDA of $11 million or six 7% of total revenue increased $9 6 million versus prior year.
Ajay: We generated $27 million in operating cash flow for the quarter, resulting in free cash flow of $19 million.
Ajay: We are very pleased with the cash generation that our business model delivers as we scale.
Ajay: As a reminder, unlike a typical retailer we don't purchase inventory ahead of the season for our consignment business.
Ajay: We pay our consignor after an item sales on our platform.
Ajay: This favorable cash conversion cycle creates a benefit to working capital and cash flows as we grow.
Ajay: Moving to our full year 2024 results.
Ajay: Full year <unk> of $1 83 billion increased 6% versus prior year.
Ajay: Revenue of $600 million was up 9% versus the prior year, driven by GMB growth and benefiting from changes in our take rate initiated in late 2022.
Ajay: Consignment in shipping revenues grew 14% and 15% respectively for the year.
Ajay: And direct revenue was down 18% as we established a better baseline for that business.
Ajay: Full year gross profit of 448 million improved $71 million year over year.
Ajay: Gross margin of 74, 5% increased 600 basis points versus full year 2023.
Ajay: We've made tremendous progress on our gross margin over the past two years from.
Ajay: From 2022 to 2024, the increase gross margins over 600 basis points by overhauling our take rate structure.
Ajay: Finding our product mix and driving operational efficiencies.
Ajay: Full year operating expenses of $504 million declined $39 million year over year.
Ajay: As a percent of total revenue operating expenses leverage nearly 500 basis points in 2024.
Ajay: Excluding stock based compensation and $43 million in 2023 restructuring charges full year operating expense leverage by 550 basis points.
Ajay: We achieved a significant milestone in 2020 for delivering our first full year of positive adjusted EBITDA at $9 $3 million a.
Ajay: A $64 million increase versus 2023.
Ajay: This improvement in profitability translated to $27 million in operating cash flow.
Ajay: Up $88 million year over year, and free cash flow of positive $1 million up $104 million versus prior year.
Ajay: We ended the year with $187 million in cash cash equivalents and restricted cash.
Ajay: Turning now to 2025.
Speaker Change: You heard Ralph you can talk about our focus on unlocking profitable supply.
Speaker Change: Our results in 2024 reinforce our confidence that our growth playbook is working and.
Speaker Change: We are making progress in unlocking the 200 billion luxury resale time in the U S.
Speaker Change: We believe our strategy can deliver high single digit to low double digit growth over the medium term.
Speaker Change: We are projecting full year <unk> of $1 96 to $1 99 billion for the year, increasing 8% at the midpoint of our guidance.
Speaker Change: Revenue is expected to be between $645 million and $660 million up 9% year over year at midpoint and aligned with our growth expectations over the medium term.
Speaker Change: For the full year, we expect relatively stable take rate and gross margin compared to the prior year.
Speaker Change: Operating expense seasonality by quarter is also expected to be similar to last year.
Speaker Change: Adjusted EBITDA is expected to be in the range of $20 million to $30 million delivering between 203 hundred basis points of adjusted EBITDA margin expansion year over year.
Speaker Change: Driven by strong flow through from continued topline growth and operating expense leverage.
Speaker Change: Capital expenditures are expected to be roughly 2% to 3% of total revenue for the full year.
Speaker Change: Regarding timing of spend due to the cadence of project deployment and timing of incentive payments, we expect operating cash flow and therefore free cash flow to be back half weighted.
Speaker Change: Moving to our outlook for the first quarter.
Speaker Change: <unk> is expected to be in the range of 484 million to 492 million, which represents 8% growth versus prior year at the midpoint of our guidance.
Speaker Change: First quarter revenue is expected to be in the range of $157 million to $161 million.
Speaker Change: This reflects 11% growth versus last year at the midpoint of our guidance driven by growth in both the consignment and direct business.
Speaker Change: As a reminder, 2024 was a leap year. So our first quarter has one less day in 2025, which results in a headwind of approximately one point of GMB and revenue growth for the quarter.
Speaker Change: First quarter adjusted EBITDA is expected to be between 3 million and $4 5 million.
Speaker Change: As we continue on our path to profitability, we've made progress on improving our capital structure on.
Speaker Change: On February 10, we announced a strategic debt transaction exchanging $183 million of our 2028 convertible notes for $147 million of new convertible notes due in 2031.
Speaker Change: We believe this transaction strikes the right balance between conversion price.
Speaker Change: Capturing a discount on our 2028 debt.
Speaker Change: Through this transaction, we reduced our total indebtedness by $37 million.
Speaker Change: We're excited about how this transaction enhances our capital structure.
And gives us flexibility as we continue executing against our strategic pillars.
Speaker Change: In closing I'd like to congratulate our team on reaching these important financial milestones during the year profitable growth positive.
Speaker Change: <unk> EBITDA and positive free cash flow.
Speaker Change: Their relentless focus on unlocking supply through our growth playbook driving operational efficiency and obsessing over service are why we were able to meet these important targets in 2024.
Speaker Change: With that I will turn the call back over to the operator to begin Q&A.
Speaker Change: Operator.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile our Q&A roster.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: And our first question comes from the line of Ike <unk> with Wells Fargo. Your line is open. Please go ahead.
Speaker Change: Congrats on the results.
Speaker Change: Couple of questions, maybe for Jay sorry.
Speaker Change: Sorry, if I missed this.
Speaker Change: Did you give an operating cash flow to free cash flow number for this year based on the guide and.
Speaker Change: The second question would be.
Speaker Change: On the marketing expense, so, it's clearly gaming youre getting an ROI on the.
Speaker Change: Marketing dollars are growing I think around 6% in the quarter and what's the plan as we get into the first quarter and beyond or are planning to accelerate.
Speaker Change: The marketing engine, because it's starting to drive better GMB growth, how should we be thinking about that.
Speaker Change: Okay.
Speaker Change: Yes. Thanks for the question Mike to your first question on cash flow, we Didnt, we didnt give any explicit guidance on cash flow I would say that.
Speaker Change: We feel really good about the results in Q4.
Speaker Change: And 2024, we had adjusted EBITDA of positive $9 million that translated to $27 million in operating cash flows for the year.
Speaker Change: And free cash flow against that was positive $1 million so great flow through from adjusted EBITDA down to cash flow metrics. We would expect these trends to continue but we don't have any specific guidance on those on those metrics in 'twenty five.
Speaker Change: And then on.
Speaker Change: On marketing.
Speaker Change: Marketing, we're seeing we're seeing good good leverage on our marketing spend it was.
Speaker Change: In Q4, we.
Speaker Change: We had a benefit for that for the year, we had a we had leverage of 130 basis points in marketing, we like where it's at right. Now if you look at the seasonal patterns that youll notice that as a percentage of revenue in Q4 was slightly higher than it was in Q3, and we will continue to look at marketing as a balance between what we invest in sales what we invest in stores.
Speaker Change: And what we spend in marketing that stopped being a growth playbook for how we go about unlocking supply.
Speaker Change: So I think behind the scenes there is productivity on marketing, we're investing in things that are giving us stronger rois and we're taking that and reinvesting it back into things like social and.
Speaker Change: Other channels, where I would say that it will probably underrepresented in the past.
Speaker Change: Got it and then just one more follow up.
Speaker Change: The relationship between take rate so it sounds like take rate.
Speaker Change: Do you expect will kind of flatten out from here should we expect <unk> to continue to increase as youre kind of getting more higher value items.
Speaker Change: The economics of your sellers are getting.
Yes, great Great question. So in Q4 was a was a high point for us as a business. We came in at $579 order, which was.
And it contributed about six points.
Speaker Change: <unk> growth.
Speaker Change: The relationship between take rate in the OE is is really dictated by our rate cards. So if you look at our commission structure.
Speaker Change: We do have we do have a reduction in the amount of take rate, we keep as people.
Speaker Change: Sell higher value items, so that relationship will continue.
Like you saw in Q4 on a sequential basis <unk> jump up as much as they did you do see an effective take rate percent coming down but the dollars are obviously higher in those kind of transactions. So I would expect that our take rate to be relatively stable going forward and what that really means is we were done with lapping and all the changes that we made.
Speaker Change: Two our take rate structure and the cost I think from this point onwards, we're going to optimize around the edges, but we'll keep it largely stable going forward.
Speaker Change: Got it thanks, so much.
Speaker Change: Sure.
Thank you and one moment as we move on to our next question.
Bobby Brooks: And our next question is coming from the line of Bobby Brooks with Northland Capital markets. Your line is open. Please go ahead.
Bobby Brooks: Hey, good afternoon team. Thanks for taking my question.
Bobby Brooks: Wanted to first start could you just give us a sense of your perspective of what will really be driving supply growth going forward. Obviously one of your benefits is that you really have a mosaic approach to supply, but maybe at a high level is it evenly evenly balanced between current and new confines I think one of the interesting things you said and Ravi said in the prepared remarks.
Bobby Brooks: It's about 25% of the new Consignor came through the retail maybe what was the rest of the mix of that the rest of the 75% how did they kind of come through your channel just really curious about that.
Speaker Change: Yes, thanks, Bobby Thanks for the question so.
Speaker Change: Supply growth and unlocking profitable supply you've heard us talk a good amount about that now and thats really marketing sales and retail coming together, making sure that we're creating that frictionless experience for our seller that's number one and our objective there, but it's also making sure that we're bringing in the right seller right that.
Speaker Change: Mid to high value seller.
Speaker Change: Whereas before in the past we were looking at sellers across all price points right. So we've gotten much better at targeting that mid to high value seller, yes.
Speaker Change: Yes, and you're right, 25% of our new sellers do come from retail we also see the average selling price being five to seven times higher on a unit basis coming from retail.
Speaker Change: We're excited because we believe we're just getting started here. So the growth playbook is really starting to work meeting the sellers where they are.
Speaker Change: Being more purposeful about our incremental spend in marketing marketing and really going after again that medium to high.
Speaker Change: Mid and high value consignor being more predictive in how we're thinking about that creating more loyalty to the brand.
Speaker Change: Our trust metrics are also up so thinking about the top of the funnel and on the sales side again, leveraging AI through smart sales you heard me talk through that the sales team retention numbers are really good over half of our luxury managers have now been here two or more years.
Speaker Change: So I'll end there is so much room to go even in the affiliate program and partnerships so well.
Speaker Change: We'll continue to chip away here, but where as the team pretty excited about the opportunity and Bobby you've heard me say this the Tam is no constraint to our growth there's $200 billion trapped in People's Closets.
Speaker Change: And 80 billion that gets added to that annually. So we're going to continue to change the way people shop.
Speaker Change: For sure yes, it's a huge market that you guys are tapping into I. Just wanted one clarifying question off of that so the average selling price coming in from retail stores is five to seven times higher did I hear that right or am I understanding that right.
Yes, that's right Bob.
I mean by that is when they are meeting with our luxury and luxury consignment office, we call them <unk> and Theyre meeting with a gym knowledge is a watchmaker a handbag authenticators, so that's where they're consigning their jewelry watches handbags and those items are usually much higher rate than a pair of shoes or already.
Speaker Change: Air item.
Speaker Change: Yes for sure.
Speaker Change: And Thats why Bob retail is so important to us it's new but it's also value that comes through there and that goes back to disrupting the space There and building trust with our consignor. So they can meet with that expert.
Speaker Change: Yes for sure that makes perfect sense to me.
Speaker Change: And then maybe just last one for me is.
Speaker Change: Active buyers and <unk> saw a nice sequential step up in.
Speaker Change: Yes.
Speaker Change: It's pretty inline with house with your seasonality given holiday shoppers stepping in but we're six weeks into the first quarter.
Speaker Change: So I was just kind of curious like have those new customers.
Speaker Change: Those new customers that you gained in the fourth quarter have you seen them be a bit more sticky given all the upper the updates and improvements to the platform just kind of curious about that.
Speaker Change: Yes, so I think youre talking about consumer health in general Bobby I think is where youre going on that and I think we're seeing buyers be quite resilient as well as our seller base rate you fleet in our average order value, we're seeing buying jewelry watches handbags.
Speaker Change: Sticky and the buyers quite engaged there.
One of the one of the stats that I meant to us.
Speaker Change: Higher spending by $1000 or more is up 20% year over year.
Speaker Change: So really kind of educating people on <unk>.
Speaker Change: Our value play here, which is that intersection between value and luxury and making sure people and educating them on.
Speaker Change: What what the cost for these items costs in the primary market and the value they're getting from US just becomes more relevant.
Speaker Change: We are happy to see that the buyers are quite sticky right now in general and highly engaged and resilient.
Speaker Change: Yes.
Speaker Change: Thank you very much I'll return to the queue.
Speaker Change: Thank you one moment as we move on to our next question.
Speaker Change: And our next question is going to come from the line of Jay sole with UBS. Your line is open. Please go ahead.
Jay Sole: Super. Thank you so much Robert you said something interesting that many things that were interesting in the prepared remarks, one of which was that you are.
Jay Sole: Your sales team it was like 15% more efficient essentially than they had been before and it sounds like you've invested a lot of not just money, but also resources and time to help the sales team you mentioned the retention number.
Jay Sole: If you think about all the different salespeople within your organization or what's the difference between the most experienced salespeople and sort of the newer salespeople, who presumably are just getting started and aren't as efficient yet.
Jay Sole: And I ask that because what's it sounded like how much productivity you can gain from the sales team as you continue to drive these initiatives going forward.
Jay Sole: It was up 15% like is there a possibility that people can be twice as effective three times effective or are we really talking about incremental gains from here. Thank you.
Jay Sole: Yes, Thanks Jay.
Jay Sole: Another place, where I think we're just getting started as well the comp structure is one thing and it hasnt been even scaled out to the entire entire or great. We played with that last year, we tested iterate it.
Jay Sole: And we're starting to see the fruits of that in small ways. This earlier this year.
Jay Sole: So yes, we are seeing 15% more supply year over year per rep, just getting started our highest Rev spring and $10 million plus annually. So theres no reason why we can't even go more in that direction and just focusing them again on the quality of supply versus.
Jay Sole: Just the value of our sorry, just the units or quantity of supply.
Jay Sole: We hire an awesome group of talented people, who really build.
Jay Sole: Build relationships with our consignor there.
Jay Sole: Core to what we do and all of that hard work is paying off in a big way.
Jay Sole: Got it and maybe one for you if we think about the growth the growth forecast for Q1 can you just break that down a little bit like how you expect it to be in terms of.
Jay Sole: Units versus GMB pricing what are you what are you forecasting.
Jay Sole: Yes, thanks for the question Jay So.
Jay Sole: We have strong momentum coming into this year.
Jay Sole: Q4, with <unk> up 12% revenue up 14% and we're seeing we're seeing that strength carried through into into Q1, our guidance for Q1 on revenue is going to be up between 9% to 12%.
Jay Sole: One of 11%, which is quite comparable I would say to our exit rate from Q4.
Jay Sole: Let me talk about about the leap year impact that plays into our product point of pressure. So it's really factoring all of that and we feel pretty good about what we've guided to.
Jay Sole: In Q1.
Jay Sole: Yeah.
Jay Sole: Got it okay. Thank you so much.
Jay Sole: Thank you one moment as we move on to our next question.
And our next question is going to come from the line of Ashley Owens with Keybanc capital markets. Your line is open. Please go ahead.
Ashley Owens: Great. Thanks, so much so really quickly I just wanted to touch on.
Ashley Owens: Cash G&A bucket, so moving into 2025 as you think about the drivers of the continued improvement there I know you mentioned stable gross margins and have talked a little bit on the marketing side as well. So how should we think about the relative leverage within the remainder of the SG&A buckets are there specific areas, where you see the most opportunity that we should.
Ashley Owens: Be mindful of and fine tuning our models.
Speaker Change: Yes, thanks for the question I actually.
Ashley Owens: SG&A was we it.
It was a good source of investment for us in 2024, we leverage about 150 basis points as we as we went through the year.
Ashley Owens: The way I would sort of breakdown that bucket.
Ashley Owens: About a third of it is variable about two thirds of it is more fixed in nature or fixed or semi fixed on the variable side youre, primarily looking at sales.
Speaker Change: Rob can you talk about the efficiency gains that we're seeing in sales, we're really excited about R. R.
Speaker Change: Rollout of smart sales initiatives, which is effectively a targeting NII driven targeting mechanism that allows us to make make our reps more productive when they are out targeting can sign out and reaching out to people that would be interested in selling so that will continue to be a source of productivity for us going forward and then on the G&A side, which is mostly the <unk>.
Speaker Change: Thanks space, we feel really good about our cost base.
Speaker Change: Awesome technology as well as other classic G&A functions and we will continue to see leverage from from that bucket of costs as we as we grow going forward.
Speaker Change: Okay.
Speaker Change: Okay, Great and then just quick housekeeping as well.
Speaker Change: How should we think about the pace of store openings for this year of one to three stores are low single digits is still the right number.
Speaker Change: Yes, Ashley that Hasnt changed our strategy on stores, we continue to say, 1% to three stores.
Speaker Change: A year, we just opened two in Q4.
Speaker Change: Last year, those are performing quite well they're off to a great store start we'll have one also opening this year and again because of that Halo effect that we're getting in supply once we opened in the market.
Speaker Change: We're quite happy with the incremental <unk> and the value coming into stores at this time.
Speaker Change: Okay, Great I appreciate the color. Thanks.
Speaker Change: Thank you.
Speaker Change: As a reminder, if you would like to ask a question at this time. Please press star one on your telephone.
Speaker Change: I would like to our next question is going to come from Kunal <unk> with <unk> Research. Your line is open. Please go ahead.
Kunal: Alright, Thank you for taking my question.
Kunal: A couple if I could one on the on the revenue outlook.
Kunal: In terms of revenue.
Kunal: How much is that factoring into your difference between the growth that you're projecting for <unk> versus growth that you're projecting for revenue.
Kunal: And then I wanted to dive deeper into the G&A, especially the fixed costs, which is about $120 million based on what you just told us so.
Kunal: So can you talk about kind of what are the potential opportunities for leverage because of $120 million seems kind of high.
Kunal: Based on the on the revenue base that you have.
Kunal: Thanks.
Kunal: Thanks for your question so on <unk> direct which is the first part of your question.
Kunal: If you look at our results last year.
Kunal: We right sized direct as a percentage of our portfolio.
Kunal: Today, It is about 10%, 15% of total revenues and slightly under 5% of total GMB.
Kunal: We expect it to stay there most of what's indirect is.
Kunal: Is returns from customers at the end up taking title to because they are out of policy and there is a certain element of vendor purchased items are on consignment purchase items that we do on a very selective basis. So expect that to be a small part of our business relatively stable going forward, we feel really good about the improvements in margins that we've driven on that revenue stream last.
Kunal: At year end, I think thats going to stay at about 15% gross margin on average.
Kunal: Sure to your second question on on what the.
Kunal: The SG&A piece.
Kunal: So outside of sales what it does include as a product and tech investment. So that's included in that.
Kunal: No sorry.
Kunal: I'm sorry can you repeat your question in Oregon.
Kunal: I was just looking at days.
Speaker Change: SG&A part, where you mentioned that the G&A part, which was the fixed part was about two thirds of the total number so when I looked at SG&A.
On a non-GAAP basis, that's about $170 million. So two thirds of that would be about $120 million wanted to understand I mean that is still in <unk>.
Speaker Change: <unk> of revenue.
Speaker Change: Which is generally higher than what we see other retailers. So just wanted to get a sense of like what's in there and what is the potential for like beverage from this number.
Speaker Change: Got it got it so it is.
Speaker Change: Whats in there is causing G&A functions. So it's back office as public company cost it's finance its analytics.
Speaker Change: Eight facilities footprint for our offices and things of that nature.
Speaker Change: I think it's going to be a significant source of leverage going forward right.
Speaker Change: We've built the infrastructure needed for us as a company, we feel really good about but it's not an area of investment for us going forward and as the business continues to grow you will see that come down as a percentage of total revenues.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Thank you and one moment for our next question.
Speaker Change: And we have a follow up question from the line of Bobby <unk> with Northland Capital markets. Your line is open. Please go ahead.
Speaker Change: Hey, guys I, just wanted to jump back on and ask.
Speaker Change: A question on kind of how you mentioned that you see a big opportunity to drive operating leverage and improvements to the consignor experience with AI. So I was just kind of curious could you maybe discuss what that looks like and if these are a few more so future action points in a third more so future action points, what's the anticipated.
Speaker Change: Pay the timeline of implementing those.
Speaker Change: Yes, Thanks, Bobby I'll start and then Jay please if I'm missing anything here.
Speaker Change: Theres so much opportunity over the next couple of years is how I think about it smart sales as one piece. We're just getting started there we'll scale that out throughout the year.
Speaker Change: <unk> is another piece you heard me talk about that in the prepared remarks, but not only will that bring better speed to the item to the site. So think about the service level agreement is how we talk about it internally to our consignor when an item is launched a site, but it's also more accurate youre also getting better pricing.
Speaker Change: By it because the attribution becomes better and more predictive. So then your.
Speaker Change: Your pricing and the more that you can get for the consignor and <unk>, obviously, our objective youre, taking one day off completely in the seller experience.
Speaker Change: So so much opportunity.
Speaker Change: And Athena not only are we.
Speaker Change: Works through the attribution, but think about it also as automating a lot of the characteristics that you see.
Speaker Change: On the site everything from.
Speaker Change: Material to condition to size.
Speaker Change: Less touches throughout throughout the full funnel and processes and then on the buyer side, you see better search right. So youre getting an item on the in front of more people, which means better pricing less discounting all the things. So we're really excited about all the opportunities in our roadmap.
Speaker Change: <unk> really focused on delivering efficiencies and operational excellence.
Speaker Change: And again delivering product that resonates with the with the consignor.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Hi.
Speaker Change: Thank you and that is going to conclude today's question and answer session. Ladies and gentlemen. This also does conclude today's conference call. Thank you for participating and you may now disconnect everyone have a great day.