Q3 2025 TheRealReal Inc Earnings Call
Speaker #1: Of the year.
Speaker #2: Our approach to unlocking supply and driving efficiency is paying off. With adjusted EBITDA of $9.3 million, or 5.4% of total revenue, expanding 380 basis points, and free cash flow of $14 million for the quarter.
Speaker #2: Now, turning to our detailed third-quarter results, beginning with the top line. Q3 GMV of 520 million increased 20% compared to last year. Growth was driven roughly evenly by unit volume and higher average selling prices.
Speaker #2: Q3 revenue of 174 million increased 17%, with consignment revenue of 15% year-over-year. Direct revenue increased 47% compared to Q3 of 2024. And represented 13% of total revenue in the quarter.
Speaker #2: Average order value of $584 increased 12% versus last year. Q3 take rate of 37.9% declined 70 basis points year-over-year due to a mix into higher value items and categories.
Speaker #2: Our active buyer base accelerated sequentially. On a trailing 12-month basis, it increased 7% year-over-year to more than a million active buyers, marking a new all-time high.
Speaker #2: Continuing with our third-quarter results. Third-quarter gross profit of $129 million increased 16% year-over-year. Gross margin was 74.3% in Q3, which was consistent with Q2 of this year, and down 60 basis points compared to the prior year period, due to a higher mix of direct revenue this year.
Speaker #2: In the third quarter, consignment gross margin was 89.3%, an improvement of 70 basis points year-over-year. And direct gross margin was 20.9%, an increase of 370 basis points versus prior year.
Speaker #2: Third-quarter operating expenses of 136 million leveraged 620 basis points year-over-year as a percent of revenue. Excluding stock-based compensation, operating expenses leveraged by 470 basis points, driven by our focus on operating efficiencies, continued gains from AI and automation, and leverage on fixed costs.
Speaker #2: Third-quarter adjusted EBITDA of 9.3 million, or 5.4% of total revenue, increased 7 million versus prior year. Adjusted EBITDA margins increased 380 basis points year-over-year.
Speaker #2: We ended the quarter with 123 million in cash, cash equivalents, and restricted cash. Our operating cash flow in the third quarter was 19 million, a 10 million improvement year-over-year.
Speaker #2: Free cash flow was 14 million in the third quarter, a 12 million improvement year-over-year, demonstrating our business model's favorable cash dynamics as we grow.
Speaker #2: As a reminder, we reduced our debt by 6 million through the strategic debt exchange transaction we announced in August. Since the beginning of 2024, we've reduced our total indebtedness by over 86 million while extending our debt maturity profile, reinforcing our commitment to de-levering and strengthening our balance sheet.
Speaker #2: Capital expenditures on property, plant, and equipment for the third quarter was 6 million, and we continue to anticipate full-year CapEx PP&E to remain within 2 to 3% of total revenue.
Speaker #2: Turning to our P&L outlook for the fourth quarter and full year. We sustained healthy supply trends throughout the third quarter and into the fourth.
Speaker #2: And our raising our outlook for 2025. Fourth-quarter GMV is expected in the range of 585 million to 595 million which represents 17% growth compared to the prior year period at the midpoint of our guidance range.
Speaker #2: Fourth-quarter revenue is expected in the range of $188 million to $191 million. This reflects 16% growth compared to last year at the midpoint of our guidance range.
Speaker #2: Fourth-quarter adjusted EBITDA is expected to be between 17.5 and 18.5 million, approximately 9.5% of total revenue and over 275 basis points of margin expansion year-over-year at the midpoint of our range.
Speaker #2: Moving to our outlook for the full year. We now expect full-year GMV in the range of 2.10 to 2.11 billion up 15% at the midpoint of our guidance range.
Speaker #2: We expect revenue in the range of 687 million to 690 million up 15% at the midpoint of our guidance. And we now expect adjusted EBITDA in the range of 37.7 to 38.7 million with an adjusted EBITDA margin of 5.5% reflecting 400 basis points of improvement versus 2024.
Speaker #2: In closing, we believe our third-quarter performance provides compelling evidence that our growth playbook is working to unlock high-quality supply. And our progress on AI initiatives and automation is driving strong unit economics.
Speaker #2: The momentum we are building is clear. As the premier authority in luxury resale, we believe we are poised for sustained profitable growth and consistent cash flow generation.
Speaker #2: Thank you to the entire RealReal team for your dedication and for driving strong third-quarter results. With that, I will now turn the call back over to the operator for Q&A.
Speaker #2: Operator. Thank you. At this time, if you would like to ask a question, please click on the raise hand button which can be found on the black bar at the bottom of your screen.
Speaker #2: When it is your turn to talk, you will receive a message on your screen from the host allowing you to talk. And then you will see your name called.
Speaker #2: Please accept and mute your audio and ask your question. We'll wait a moment for the queue to form. Our first question will come from Ike Burrow-Chao with Wells Fargo.
Speaker #2: Your line is open. Please ask your question.
Speaker #3: Hey, everyone. Can you hear me?
Speaker #4: Yeah, we can hear you, Ike.
Speaker #3: Oh, great. I have one question and one follow-up. I guess solid quarter, I guess I'm more impressed by the 4Q. GMV growth guide, pretty impressive growth rates you're guiding to.
Speaker #3: Maybe just could you speak to the confidence you have in that plan and maybe what are you seeing quarter to date that helps inform your targets?
Speaker #4: Yes. Hi, Ike. Thank you for the question. As far as our Q4 guide and the confidence in the business, a couple of different things.
Speaker #4: We're seeing 17. to about 17% in the mid-range on growth rates. As you know, we're a supply-focused business. And we're seeing our growth playbook work.
Speaker #4: I think we guided We're seeing sales, marketing, retail really coming together. The compensation structure that we launched in Q3 is now accelerated to our entire sales organization, smart sales.
Speaker #4: It's driving conversion. Our team is really focused on relationships that art and science coming together. And then we're seeing some early signs of the referral and affiliate programs, early results are good as we test our way into that.
Speaker #4: The AI smart scoring and prospecting to drive new sellers, we're seeing double-digit new seller growth there. I talked a little bit about my high-value pop-up events.
Speaker #4: In my prepared remarks, that's strengthening our relationship with sellers. So as the market leaders, definitely seeing great momentum. The market's shifting. It's great to see more attention to resale.
Speaker #4: As we change the way people shop.
Speaker #3: Great. And then just one more question about the growth rates you guys have put up this year are pretty phenomenal. You have to lap that, which is a good problem to have.
Speaker #3: Are there any guardrails you can maybe put around next year? I mean, I'm not looking for anything specific, but how should we think about your algo, maybe flow-through rates a day, as you typically will give us?
Speaker #3: Just some guardrails on how to think about next year and how you plan to lap these robust results.
Speaker #2: Yeah. I can answer the question. We're really pleased with the results we're seeing right now. Q3 was up 20% for guiding to 17%. For Q4, at the midpoint, you've heard us talk about how we see a growth rate in between high single digits to low double digits.
Speaker #2: As being the right balance, the optimal balance between growing our top line and expanding our EBITDA margins. We continue to think that is the right range for us in the medium term.
Speaker #2: That said, I would say given the momentum we're experiencing today, we think that in the short term, so let's say a first half of 2026, we'll probably indexing closer to the high end of that range, so closer to low double-digit growth rates.
Speaker #3: Thanks. Thanks, guys.
Speaker #4: Thanks, Ike.
Speaker #2: Thanks.
Speaker #1: Your next question will come from Robert Brooks with Northland Securities. Your line is open. Please ask your question.
Speaker #5: Hey, guys. Thanks for taking my questions. Looking back at my notes, I believe you guys began to expand the drop ship, the drop shipping initiatives last quarter and to find jewelry.
Speaker #5: So, I was curious to hear how that went and maybe looking forward, what are sort of the next milestones to be watching for as drop shipping is further tested and validated before a more full-scale rollout?
And how much of this Supply, how much of the revenue growth maybe is is product is is your ability to process the supply you have coming in quicker and therefore getting those getting those items on the site quicker.
Versus how much of it is just overall, more Supply coming through the door.
Yeah, so, thanks Bobby. I mean, it's really around how much Supply is coming through the door, that's really where we're focused. So that's why we talked about the growth Playbook. Um, and again, that sales marketing retail coming, uh, together, we're also seeing some success in, uh, social and seeing some green shoots there. Um, and kind of strengthening that relationship with the seller. So really focused on the supply side, um, of things and, you know, at the end of the day, the cool thing is that, like I mentioned 58% of Shoppers prefer are now prefer the secondary market, and then we're seeing it in the consignor growth numbers. Now, double digit consignor growth numbers. So seeing that strong willingness to spend because of the d, uh, trust we build and because of the, you know, strategic MO
That we built along the way.
Got it. Um, and then just last question for me, is just a year in the scene. You mentioned it in the prepared remarks variety. I was just curious. If you could, you know, speak to the lessons. Maybe learned so far or uh stuff that maybe is exceeded expectations. Just curious to get kind of a high level thought there.
And we're definitely seeing, you know, the market shift, like I said, it's great to see more attention to resale. Um, but I think, you know, 1 year ago, we laid out our foundation, for our free strategic pillars, um, profitable growth operational, uh, efficiencies um, and obsessing over service. And so we're really seeing that work. Um, I'm proud of the progress that we're that we're making, right? The 20% growth, the Eva margin at 5% now and expanding, uh, I'd say, trust is up 8 points, uh, year-over-year, um, and are active, both sellers and buyers are accelerating, we also less than a year ago. Now, um, talked about Athena and launched Athena. And now by the end of the year, it's going to be about 30 to 40% of our inventory. So really, you know, at the end of the day, continuing to become the trusted advisors to our sellers enriching that data, um, for the seller experience and
Um you know closing 2 billion in gmv in our history. Um so building that strong Foundation seeing the momentum and you know we really do believe the best is yet to come.
Our next question will come from Ashley Owens with KeyBank. Your line is open. Please ask your question.
Ition just curious with secondary and resale, becoming a bigger Choice among consumers. How are you seeing the competitive environment? Evolved particularly around new entrance? The Plea acquisition, and then pricing and then additionally, have you observed, any change in competitive or discounting intensity, from peers, thanks.
Yes, thanks, Ashley, for the question. Um, a couple of different things, you know. First, again, the market shift has been great to see. All attention to resales is helpful. The $200 billion TAM is great, and we're able to capitalize on it because we are the market leader. Um, and then really focused on our moat, um, and our, you know, our strategic moats. At the end of the day, around expertise, data, our sales team, all the insights that we have, and the diverse product offering is really important. Um, and that's how we built trust, right? With our community of now over 40 million members. Um, the sales piece, you know, relationships to unlock supply driven by insights that again is an art and science. Um, the infrastructure and data we built to process one-of-one items, single SKU items is hard to replicate, and at this point, we're 14 to 15 years ahead of the curve, so resales are no longer, you know, reacting to the fashion industry.
Um but driving it and I think, you know, at the end of the day, we're able to capitalize that um, being the leaders here.
Okay, got it and then just to follow up to. Um, so for the fourth quarter, Evita could you just help us unpack? What's embedded in the bridge, particularly within, you know, GNA and other Opex, buckets and what Dynamics do you expect to carry through for you? I know often text has been leveraging at a really strong rate for the past level recorders and accelerated with, with some, of the further automation, um, initiative. You've been working on so just any color there would be helpful. Thanks,
Ashley. Thanks for the question. Uh, yeah. So on, on Q4, as it relates to, I would say, you know, we expect a continuation of our focus on operating efficiencies. You've seen this translate into strong operating expense leverage in Q3. Uh, we leveraged, uh, we saw leverage in our operations in techline of 370 basis points as well as on on sgna of 150 basis points, um, going forward opiates. In fact, will continue to be, uh, where we see most of our best leverage coming from. And this is where we bring the power of our AI driven initiatives, like a team or the bear on improving. Um, improving margins. Uh we will also continue to see uh, some of the levels in sgna. Uh, you know, we're investing in in helping our sales, team be more efficient. Uh, you heard Roxy talk about how the value of Supply increased by 12% for existing luxury manager. Uh we need friends like that. We'll we'll continue as we as we
Build on these investments and will be a source of leverage for us going forward as well.
Okay. Super helpful colors. Thanks.
For the long.
Our next question.
Is open, please. Ask your question.
Marvin, your line is unmuted. Please unmute and ask your question.
Hi, can you hear me?
Hi, Marvin. Yes, hi. Sorry about that. Um, yes, good evening. Uh, thanks for taking the questions. Congratulations on the strong results. Um,
Maybe could start. Uh, you mentioned how uh, the benefit in aov coming from units, as well, as the other half from ASP. So I think that's, you know, 6 and 6 and both improved versus last quarter. So, um, just maybe a finer point on each of those with, with ASP. I think there was some mixed benefit. There it was there any, anything beneficial coming from from the Tariff side that you call it as well? And then on the units, uh, we'll just kind of love the unpacked. You know what you what you think is kind of driving that other than just the fact that um looks like buyers are are enjoying the the site but anything you're doing there to drive that or um, you know, category wise, uh, that people might be, um, purchasing more of and adding to their baskets.
Thank thanks, Marvin. Um, I'll I'll take this question, you know, we're seeing a healthy balance in how our growth is split into, uh, price and and unit volume. If you unpack our growth rate in Q3 of 20%, uh, we see, we see a pretty even split for roughly half of. It came from growth in ASP and half of it came from growth in volume.
Value items. The other thing that's helping that's helping on the SP uh side is our pricing algorithm so our AI driven pricing algorithm uh has been in place for a while but we've been steadily expanding coverage and expanding it to cover more and more items. And every time we do that we we see how the model uh given its Precision is able to capture you know, incremental price on behalf of our sellers.
The last thing I would point to on on, on that aspect is just, uh, how our investments in authentication and building customer. Trust have allowed us to capitalize on the growing interest and find jewelry. Uh, we've been able to bring in more Supply and we've been able to move that Supply very effectively uh which gives us uh which gives policy changes the mix of our business into a higher price items. Um at the end of the day, you know, Trends are going to come and go. The beauty of our Marketplace is just how quickly we can respond to them and capitalize, on the American Consumer references are shifting.
That's great and my follow-up question. Um, you know, direct Revenue, very strong growth north of 46% growth about, um, could you just kind of unpack that a little bit, you know, in this environment is, is they get paid Now product gaining a lot of traction or, or was it, um, you know, mostly out of policy or, or, or vendor contracts, or, or was it all kind of across the board?
Yeah, thank thanks for that question. Uh, direct revenues were were up 47% uh year on year, but as we've indicated in the past we expect this to be between 10 to 15% of our total revenues and it came in, at 13%. So, right in that range of every expected to be. Uh, the outside growth is really explained by what happened last year as we calm a quarter last year where it was a much smaller proportion of our business going forward. We would expect this to, uh, stay within that within that range. Uh, we we feel really good about that Revenue stream to your point on. What, what, what's behind it. Uh, you know, gross margins have expanded nicely, uh, they were up, 370 basis points at 21% in Q3. Uh, so we feel good about uh, what's moving through that channel and our ability to drive strong profitable growth, through that channel.
Great. Thanks so much AJ. Appreciate it.
Your next question will come from Matt kuranda with Roth Capital Partners your line is open. Please ask your question.
Hey guys, uh, thanks. Um, so it sounds like the luxury managers are are getting more efficient at procuring Supply, um, and it sounds like, maybe the incentive changes were a big part of helping them with that, maybe just wanted to hear about the next. Unlocks ahead for helping the sales team, procure more Supply as we head into the 26th. And should we think about that? As soon as the main channel of Supply growth into 26, or are there other levers to pull on
On the the retailer marketing side.
Yeah, sure. Hi, Matt. Thanks for the question. Um, I want to be really clear, you know, the growth playbook for our supply folks business. Like I said, the growth playbook on unlocking supply wasn't just sales, right? It was sales, marketing, and retail coming together, deepening and strengthening our relationship with sellers. Um, the compensation structure was one tactic. We've also, um, really been focused on flywheelers in marketing, um, and they're 2 to 3 times more valuable for us, and that's starting to work. Um, we're getting early days, but I talked a little bit about the referral and affiliate program, um, and there's a much supply to unlock there, that's sales and marketing working together. Um, AI smart scoring and prospecting to bring on new sellers. Um, again, really early days there and we're testing our way into that, but seeing some green shoots, um, success in social or influencer campaigns. Um, I talked about these high-value events again, and we're...
Seeing, you know, just over. You know, these events are 2 to 3 days and and bringing in um, sometimes a million over a million dollars over just a couple of days. So it's another way to kind of, like I said, strengthen our relationship with sellers. So, you know, that along with, um, resale becoming more mainstream or the market shifting and the great momentum that we're seeing around, you know, like I mentioned before, 58% of shop.
First prefer the secondary Market out right now and almost 50% look to resale um pricing um before they even buy in the primary Market. Um so all of this gives us you know a lot of confidence, go forward.
Hey Matt, thanks for the uh, thanks for the question. Um, you're right. Athena is a key driver behind the efficiencies that we're seeing. In operations in Tech. We got about 370 basis points of Leverage on that line and and most of that is coming from efficiencies in our in our operations center. Um, when we think about Athena in at the end of Q3, it was processing about 27% of the items. Um, and we started uh with introducing the model to primarily uh lower value items. Uh, we are going to continue to expand on that number. We expect to the to end the year with Athena touching 30 to 40% of total items and as it scales. Uh, and also as we expanded towards touching mid value and high value items, we see it as continuing to be a source of productivity for us going forward. Um, we think that Athena can can save us, um, you know, a couple of dollars per per item as we, as we continue rolling it out and it will take time, but, uh, it's a source of Leverage going forward.
Okay, very helpful. I'll leave it there. Thank you.
Your next question will come from Anna Glaskin with B. Riley Securities. Your line is open; please ask your question.
Hey, good afternoon. Thanks for taking my questions. Um, really nice to see the GMV growth, you know, notably ahead of the longer term range. You gave a 5% single digit, a low double digit. Just curious, if you could maybe share some perspective on the degree to which this is being driven by, you know, wider consumer acceptance of resale and overall market growth versus relative share gains with the concept. Thanks.
Yeah, so thanks Anna for the question. When we look at a piece of art or growth rate, um, we can map it, uh, all of it back to our growth Playbook. So, this is like I said, um, sales marketing and Retail and some of the tactics, um, that we're working through there. So, that's a nice shift. Um, and of course, we have some of the Tailwind around Market, the market shift, right? Um, around shoppers preferring the secondary Market. Um, so we do feel like it, it's both things there. Um, and then, as we obsess over service in our growth Playbook and really upleveling the experience for the consumer, listening to what they need. Um, really thinking about how to create less friction in the experience. Um, making sure that we're being very transparent on pricing and building that trust with the consumer. Um that's you know we're also seeing that uh directly tie back um to our GMB growth as far as more value coming out of each consignor.
Got it, thanks. And one follow-up on the events or the high-value events. You talked about, um, maybe you could share what inning we are in for rolling this out to the fleet, and maybe how many events you think could be supported per store? Just anything there. Thanks.
Yeah. So
I mean, you know, a quarter of our new sellers are coming from our retail strategy. Of course, they build the Halo, um, and trust much more high value coming in through there really early. As far as you know how many events that we're having right now, um, and we kind of are testing our way into that as well this year. Um, but given the progress that we're seeing and the results there, we will kind of launch that, um, every month, um, to, you know, every major market.
Got it. Thanks guys.
Thanks Santa.
Your next question will come from J. Soul with UBS. Your line is open. Please ask your question.
Super, thanks so much. Can you hear me? Okay.
Yes, yes.
Great. Um, I want to follow up on, uh, under your comments about the operations and Technology line. I know you touched on this before. But uh, can you just talk about what the right rate of growth just in terms of total dollars off that line because it's been pretty steady 6% growth now for about a year? Um, is that the right way to think about growth in this line going forward,
Contributor to that margin expansion.
Uh yes maybe if I have to say a different way like what drives growth in that line because I mean because the you know, the dollars went up sequentially, this quarter um I guess based on the guidance for fourth quarter the dollars will go sequentially again. Uh what you know what are the are you investing there? Like he just tell us about what drives dollar growth in that line.
Yeah, yeah well thanks for that clarification. So about 2 thirds of that line is is tied to our operations. Uh and really that is driven by unit volumes. So while we get more efficient on a per unit basis at processing items, as the business grows, you would expect to see an absolute increase in the car. And the dollar is going to that particular line.
Understood. And I guess just remind us that at this point, Athena can touch what percentage of the assortment of things sold when she, you know, scales it to where you envision it to be.
Oh, I don't know if we've put a, I've got an upper limit on it as, as we think about it and today, it's touching 27% of the items. We think we all like the year at 30 to 4030 because there's no reason why it couldn't touch all the items as we continue to um, to get better at at running it through our models.
And then at the end of the day AJ we're on track for taking out, right, multiple dollars and costs per unit um in the medium term, and that's really where we're focused.
Understood and then I guess as you can just update us, you know, based on the guidance again for 4 cubits, like the cash flow for 4, q would be pretty solid. What, what are your plans for cash uses, um, in the balance sheet, going forward?
Yeah, thanks for the question. You know, we are a very cash efficient business, unlike unlike a traditional retailer, we don't we don't trap any of our cash purchasing inventory. In, in a head of a season, the primary use of our cash really goes into Investments that we make, uh, in our fulfillment centers. So it's automation tax, uh, or it's, uh, you know, implementing technology like Athena where we can get efficiencies out of it. Um, Q3 was a strong, uh, cache performance quarter for us. We generated 19 million in operating cash flows and 14 million dollars in in free cash flow. Um, we expect Q4 to be stronger just like you saw last year and it really showcases, how our business model um, has a has positive working capital benefits When We Grow
Got it. Thank you so much.
Your next question will come from.
Bears. Your line is open. Please ask your question.
Great. Thank you for taking my question. Um, I wanted to follow up on marketing. Um, looks like it it was a bigger investment this quarter was hoping to get just give us more color on on what you're seeing there in terms of the fishies and then just how we should think about marketing as a percentage of sales um, both in Q4 and and in the medium term.
Yes. Hi Mark. I'm I'll start with that question there. Yes. Um, definitely made a little bit more of an investment in marketing, um, to drive some of the growth numbers. The key lever for us in our growth, Playbook drives new sellers, obviously brand Affinity you are seeing a couple of 1-time costs in that number for Q3. Um, but at the end of the day, you know, if we see investment opportunities, we take them. We do have a high confidence in the ROI of our spend, um, and we're seeing validation of that obviously in Q3 and then our Q4 guide. But we make sure to always balance, you know, growth and profitability.
Excellent. Uh thank you and separately any color you can share on customer Behavior by age cohort.
Um, we have not, uh, shared customer cohort by age. Um, we are seeing um, you know, strong willingness to spend, like I said built by, you know, the trust um that we've built over the last 15 years. Seeing uh more Fine Jewelry watches handbags more higher value comes through. We are seeing this newer, cohort has a higher LTV. Um, we do see um, we we tend to skew younger more Millennials and gen z, um, over half of of our customer demographic and the other way that we cut the data. And I think I've shared this in the past is looking at, you know, our higher value to designers
Because we're supply constrained, we're always looking at the supply and the seller side of things. Um, seeing more value come in from our higher value and mid-value consignors. So those tiers on the higher end of our loyalty program. Um, and then obviously, you know, like I mentioned, focused on the flywheeler, which is 2 to 3 times more valuable for us.
Learning years of their life. And they look at us as an actual platform for acquiring items, and then that relationship continues to grow and evolve as they age.
Thank you.
That concludes the Q&A session and the call. Thank you for joining you may now. Disconnect