Q3 2026 TheRealReal Inc Earnings Call

October 29, 2026

Operator: Good afternoon, everyone. My name is Michael, and I will be your conference operator today. At this time, I would like to welcome you to The RealReal Q3 2026 Earnings Call. All lines have been placed on mute. After the speaker's remarks, there will be a question and answer session. At this time, I would like to turn the call over to Emily Gacka, Senior Director of Investor Relations.

Speaker #1: Good afternoon, everyone. My name is Michael, and I'll be your conference operator today. At this time, I would like to welcome you to The RealReal Q3 2026 earnings call. All lines have been placed on mute.

Speaker #1: After the speaker's remarks, there'll be a question-and-answer session. At this time, I would like to turn the call over to Emily Gakka, Senior Director of Investor Relations.

Emily Gacka: Thank you, operator. Joining me today to discuss our results for the period ended 30 September 2026 are Chief Executive Officer and President, Rati Levesque, and Chief Financial Officer, Ajay Gopal. 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. You can find more information about these risks, uncertainties, and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q. Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking. We have provided reconciliations for historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our investor relations website.

Speaker #2: Thank you, operator. Joining me today to discuss our results for the period ended September 30, 2026, our Chief Executive Officer, and President Rati Levesque, and Chief Financial Officer Ajay Gopal.

Speaker #2: 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 #2: Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties, and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q.

Speaker #2: Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking. We have provided reconciliations for historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our investor relations website.

Emily Gacka: I would like to turn the call over now to Rati Levesque, Chief Executive Officer of The RealReal.

Speaker #2: I would like to turn the call over now to Rati Levesque, Chief Executive Officer of the RealReal.

Rati Levesque: Good afternoon, and thank you for joining us. Q3 was another record quarter for The RealReal, with all-time quarterly highs across GMV, revenue, and orders, reflecting the strength of our business and our continued focus on disciplined execution and profitable growth. We delivered GMV growth of 23% with adjusted EBITDA margin up 290 basis points versus last year. Revenue grew 19% year over year. Trailing 12-month active buyers accelerated, up 13% year over year, and those buyers placed 15% more orders, our strongest order growth since 2022. These results point to a resilient customer base buying more across a range of price points. Our Q3 execution gives us the confidence to raise our full-year outlook today. Underlying our results is a fundamental change in how people shop for luxury fashion, and our purpose-built platform is helping to drive it.

Rati Levesque: Good afternoon, and thank you for joining us. Q3 was another record quarter for The RealReal, with all-time quarterly highs across GMV, revenue, and orders, reflecting the strength of our business and our continued focus on disciplined execution and profitable growth. We delivered GMV growth of 23% with adjusted EBITDA margin up 290 basis points versus last year. Revenue grew 19% year-over-year. Trailing 12-month active buyers accelerated, up 13% year-over-year, and those buyers placed 15% more orders, our strongest order growth since 2022. These results point to a resilient customer base buying more across a range of price points. Our Q3 execution gives us the confidence to raise our full-year outlook today. Underlying our results is a fundamental change in how people shop for luxury fashion, and our purpose-built platform is helping to drive it.

Speaker #3: Good afternoon, and thank you for joining us. Q3 was another record quarter for the RealReal. With all-time quarterly highs across GMV, revenue, and orders, reflecting the strength of our business and our continued focus on disciplined execution and profitable growth.

Speaker #3: We delivered GMV growth of 23% with adjusted EBITDA margin up 290 basis points versus last year. Revenue grew 19% year over year. Trailing 12-month active buyers accelerated, up 13% year over year, and those buyers placed 15% more orders.

Speaker #3: Our strongest order growth since 2022. These results point to a resilient customer base buying more across a range of price points. Our Q3 execution gives us the confidence to raise our full-year outlook today.

Speaker #3: Underlying our results is a fundamental change in how people shop for luxury fashion. And our purpose-built platform is helping to drive it. Increasingly, customers are starting their journey with us, and engaging well beyond a transaction.

Rati Levesque: Increasingly, customers are starting their journey with us and engaging well beyond a transaction to discover what to buy, to track what items are worth, to decide what to sell, and then to discover again. That is the new operating system for luxury ownership, and we are building it. Entering the year, we said 2026 would be the year our advantages began to compound. Three quarters in, you can see it across our business. First, we are deepening our community engagement. Second, we are unlocking supply and accelerating our flywheel. Third, we are accelerating innovation and efficiency through technology. Let's start with deepening our community engagement. Every year, we add a new cohort of customers who make us a long-term part of how they own luxury. In Q3, 47% of our GMV came from buyers who have been with us for 5 years or longer.

Speaker #3: To discover what to buy, to track what items are worth, to decide what to sell, and then to discover again, that is the new operating system for luxury ownership.

Speaker #3: And we are building it. Entering the year, we said 2026 would be the year our advantages began to compound. Three quarters in, you can see it across our business.

Speaker #3: First, we are deepening our community engagement. Second, we are unlocking supply and accelerating our flywheel. And third, we are accelerating innovation and efficiency through technology.

Speaker #3: Let's start with deepening our community engagement. Every year, we add a new cohort of customers who make us a long-term part of how they own luxury.

Speaker #3: In the third quarter, 47% of our GMV came from buyers who have been with us for 5 years or longer. And at the same time, new buyers grew over 20%.

Rati Levesque: At the same time, new buyers grew over 20%. Across our broad customer base, order values and units per order are up, and we are seeing strong growth across categories and price points. Gen Z is our fastest-growing cohort, with buyers up more than 60% since 2023. They care about trust, authenticity, and community, and those are all at the core of what we offer. They are pre-wired for resale, with Gen Z already making up 4 in 10 secondhand sellers across the US, according to a 2026 report by Bank of America. Increasingly, we see them graduate onto The RealReal as buyers and consignors, and we are built to grow with them. Because of the depth of our catalog, we are as relevant to someone at 25 as we are to someone over 50. As a customer's style evolves, we evolve with it.

Speaker #3: Across our broad customer base, order values and units per order are up, and we're seeing strong growth across categories and price points. Gen Z is our fastest-growing cohort, with buyers up more than 60% since 2023.

Speaker #3: They care about trust, authenticity, and community. And those are all at the core of what we offer. They are pre-wired for resale, with Gen Z already making up 4.1 secondhand sellers across the US, according to a 2026 report by Bank of America.

Speaker #3: Increasingly, we see them graduate onto the RealReal as buyers and consignors, and we are built to grow with them. Because of the depth of our catalog, we are as relevant to someone at 25 as we are to someone over 50.

Speaker #3: As a customer-style evolves, we evolve with it. We see what people buy, what they sell, and how they search at scale. This gives us data expertise and authority to have a clear view on style and, in Q3, we put it to work.

Rati Levesque: We see what people buy, what they sell, and how they search at scale. This gives us data, expertise, and authority to have a clear view on style, and in Q3, we put it to work. In August, we published our annual resale report. In addition to searching by brand, our customers are looking for a designer's name, specific collection, or a particular year. Vintage has become a category in its own right, with demand up more than 400% since 2020. This month, we also published "Real Style," our book about discovering personal style and building a wardrobe with intention. More than a book, it reflects our point of view. Style is personal. Great wardrobes evolve over time, and resale is an essential part of the luxury life cycle. Second, turning to unlocking supply and accelerating our flywheel.

Speaker #3: In August, we published our annual resale report. In addition to searching by brand, our customers are looking for a designer's name, specific collection, or a particular year.

Speaker #3: Vintage has become a category in its own right, with demand up more than 400% since 2020. This month, we also published RealStyle, our book about discovering personal style and building a wardrobe with intention.

Speaker #3: More than a book, it reflects our point of view: style is personal, great wardrobes evolve over time, and resale is an essential part of the luxury life cycle.

Speaker #3: Second, turning to unlocking supply and accelerating our flywheel. This year, we diversified how we source supply, strengthening the core but also adding layers around it: trust and estates, partnerships, contractors, international vendors, and our retail stores.

Rati Levesque: This year, we diversified how we source supply, strengthening the core, but also adding layers around it. Trusts and estates, partnerships, contractors, international vendors, and our retail stores, resulting in double-digit supply growth in the quarter. Our core differentiator is our sales team and the relationships they build. We have invested in the team, reshaping how it is structured and how it works with our diverse consignor base. We are testing a targeted approach. One group is focused on attracting new consignors to The RealReal, and a second works with repeat consignors who engage more often and bring more of their closets each time. Beyond the core, the new layers are already showing strength. Our trusts and estates team delivered 35% more units in Q3 than a year ago, and we are building partnerships with organizations that give us access to new consignors.

Speaker #3: Resulting in doubled digit supply growth in the quarter. Our core differentiator is our sales team, and the relationships they build. We've invested in the team, reshaping how it's structured, and how it works with our diverse consignor base.

Speaker #3: We are testing a targeted approach, one group is focused on attracting new consignors to the RealReal, and a second works with repeat consignors who engage more often and bring more of their closets each time.

Speaker #3: Beyond the core, the new layers are already showing strength. Our trust and estates team delivered 35% more units in Q3 than a year ago.

Speaker #3: And we are building partnerships with organizations that give us access to new consignors. We also expanded our contractor program into markets our team does not currently cover.

Rati Levesque: We also expanded our contractor program into markets our team does not currently cover. We grew our Japanese drop ship vendor network to 7, up from 2 last quarter. We opened a new store in Boston in October, and our Los Angeles store in Glendale is next. During the quarter, we also hosted pop-up events in test markets, averaging nearly $1 million per market in supply in a single weekend. Our diversified approach is working. In Q3, the number of consignors who sold with us grew double digits, with 44% of new consignors coming from our buyer base, highlighting the strong network effects powering our flywheel. Finally, as a tech-enabled marketplace, we are accelerating innovation and efficiency through technology. Our platform is built on the largest authenticated luxury data set in the world. 15 years, more than 55 million items, over 100 attributes on each.

Speaker #3: And we grew our Japanese dropship vendor network to 7, up from 2 last quarter. We opened a new store in Boston in October, and our Los Angeles store in Glendale is next.

Speaker #3: During the quarter, we also hosted pop-up events and test markets, averaging nearly 1 million dollars per market in supply in a single weekend. Our diversified approach is working.

Speaker #3: In the third quarter, the number of consignors who sold with us grew double digits, with 44% of new consignors coming from our buyer base highlighting the strong network effects powering our flywheel.

Speaker #3: And finally, as a tech-enabled marketplace, we are accelerating innovation and efficiency through technology. Our platform is built on the largest authenticated luxury dataset in the world.

Speaker #3: Fifteen years, more than 55 million items, over 100 attributes on each. Accelerated by AI, that data is helping us innovate faster than we ever have.

Rati Levesque: Accelerated by AI, that data is helping us innovate faster than we ever have. On the consignor side, our new seller experience is one example. Our product teams ran weekly experiments throughout the summer, iterating at a pace we could not have sustained previously, and our seller sign-up completion rates are up over 30% with the new experience. Next year, drawing on the same data that powers Athena, we expect My Closet to enable a customer to send us a photo or a few words about an item to add it to their closet and get an estimate of what it's worth. Shifting to the buyer side, we lead when consumers turn to AI to look for pre-owned luxury. On our platform, Ask TRR, our conversational shopping experience built in partnership with Google, is now live.

Speaker #3: On the consignor side, our new seller experience is one example. Our product teams ran weekly experiments throughout the summer, iterating at a pace we could not have sustained previously.

Speaker #3: And our seller sign-up completion rates are up over 30% with the new experience. Next year, drawing on the same data that powers Athena, we expect MyCloset to enable a customer to send us a photo or a few words about an item to add it to their closet and get an estimate of what it's worth.

Speaker #3: Shifting to the buyer side, we lead when consumers turn to AI to look for pre-owned luxury. On our platform, STRR, our conversational shopping experience built in partnership with Google is now live.

Rati Levesque: Customers describe what they want and receive personalized results curated from more than 1 million one-of-one items. Adoption is still building, and our early adopters spend 20% more per transaction. On agentic commerce, as customers test agentic shopping, we are building technology and structuring our data to interface with these agents. Every item in our catalog is authenticated, attributed, and priced in a form those platforms can read and recommend. We believe we are well-positioned to capitalize on this evolving trend. Within operations, we have brought AI into customer service. Some routine requests, like initiating a return, can now be handled from start to finish through our tools, which means faster answers for customers and more time for our team to spend on the issues that need human judgment.

Speaker #3: Customers describe what they want, and receive a personalized results curated from more than 1 million 1 of 1 items. Adoption is still building, and our early adopters spend 20% more per transaction.

Speaker #3: On agentic commerce, as customers test agentic shopping, we are building technology and structuring our data to interface with these agents. Every item in our catalog is authenticated, attributed, and priced in a form those platforms can read and recommend.

Speaker #3: We believe we are well-positioned to capitalize on this evolving trend. Within operations, we've brought AI into customer service. Some routine requests, like initiating a return, can now be handled from start to finish through our tools, which means faster answers for customers and more time for our team to spend on the issues that need human judgment.

Rati Levesque: Athena remains on track to handle nearly 50% of all items by the end of the year, and we are extending it into high-value fashion this quarter. In September, our automated storage and retrieval system successfully went live in our Perth Amboy authentication center ahead of schedule. When an item sells, a robot retrieves it, and it moves through automated packing and shipping. For items in the ASRS system, this has tripled the number of units picked per hour, allowing us to process growing volumes with minimal incremental costs. It is initiatives like these that drive continued operations and technology leverage in our results and are expected to shorten the time to launch and ship products while pulling multiple dollars per unit out of our processing costs. In closing, Q3 shows what we have been building toward. Growth and profitability moving together, and advantages that compound.

Speaker #3: Athena remains on track to handle nearly 50% of all items by the end of the year. And we are extending it into high-value fashion this quarter.

Speaker #3: And in September, our automated storage and retrieval system successfully went live in our Perth Amboy authentication center, ahead of schedule. When an item sells, a robot retrieves it, and it moves through automated packing and shipping.

Speaker #3: For items in the ASRS system, this has tripled the number of units picked per hour, allowing us to process growing volumes with minimal incremental costs.

Speaker #3: It is initiatives like these that drive continued operations and technology leverage in our results, and are expected to shorten the time to launch and ship products while pulling multiple dollars per unit out of our processing costs.

Speaker #3: In closing, Q3 shows what we have been building toward: growth and profitability moving together. An advantages that compound. At the center of all of it are our customers.

Rati Levesque: At the center of all of it are our customers, who see their closets as a portfolio of assets to be tracked, managed, and sold, and increasingly, The RealReal is where that happens. Before I turn it over to Ajay, I want to thank our team for a quarter in which we delivered results and built for the future at the same time. Doing both at once is what a first-class team looks like. To everyone at The RealReal, thank you. You are why our consignors and buyers trust us, and you are why I am so confident in what comes next. With that, I will turn the call over to Ajay.

Speaker #3: Who see their closets as a portfolio of assets. To be tracked, managed, and sold. And increasingly, the RealReal is where that happens. Before I turn it over to Ajay, I want to thank our team for a quarter in which we delivered results and built for the future at the same time.

Speaker #3: Doing both at once is what a first-class team looks like. To everyone at the RealReal, thank you. You are why our consignors and buyers trust us.

Speaker #3: And you are why I'm so confident in what comes next. With that, I'll turn the call over to Ajay.

Ajay Gopal: Thank you, Rati. Good afternoon, everyone. Q3 was a strong quarter with accelerating top-line growth, expanding margins, and meaningful cash generation. Q3 GMV of $642 million increased 23% year over year and accelerated to more than 40% on a two-year stacked basis, reflecting a healthy balance between units and price. Orders grew 15%, and average order value was $629, up 8% year over year. Total revenue of $206 million increased 19%, with consignment revenue up 18% and direct revenue up 19%. Trailing 12-month active buyers exceeded 1.15 million, up 13% year over year. Customer engagement continues to deepen, with 52% of our consignors during the trailing 12 months also making purchases on the platform, which we believe is a meaningful signal of the platform's compounding network effects.

Ajay Gopal: Thank you, Rati. Good afternoon, everyone. Q3 was a strong quarter with accelerating top-line growth, expanding margins, and meaningful cash generation. Q3 GMV of $642 million increased 23% year-over-year and accelerated to more than 40% on a two-year stacked basis, reflecting a healthy balance between units and price. Orders grew 15%, and average order value was $629, up 8% year-over-year. Total revenue of $206 million increased 19%, with consignment revenue up 18% and direct revenue up 19%. Trailing 12-month active buyers exceeded 1.15 million, up 13% year-over-year. Customer engagement continues to deepen, with 52% of our consignors during the trailing 12 months also making purchases on the platform, which we believe is a meaningful signal of the platform's compounding network effects.

Speaker #2: Thank you, Rati. Good afternoon, everyone. Q3 was a strong quarter with accelerating top-line growth, expanding margins, and meaningful cash generation. Q3 GMV of $642 million increased 23% year over year.

Speaker #2: And accelerated to more than 40% on a two-year stacked basis, reflecting a healthy balance between units and price. Orders grew 15%, and average order value was $629, up 8% year over year.

Speaker #2: Total revenue of 206 million increased 19%, with consignment revenue up 18% and direct revenue up 19%. Trailing 12-month active buyers exceeded 1.15 million, up 13% year over year.

Speaker #2: Customer engagement continues to deepen, with 52% of our consignors during the trailing 12 months also making purchases on the platform. Which we believe is a meaningful signal of the platform's compounding network effects.

Ajay Gopal: In the quarter, we continued to see strong flywheel trends, with 44% of new consignors coming from our buyer base, a direct result of the investments Rati described in how we attract, engage, and retain both sides of our marketplace. Our Q3 take rate of 36.8% was down approximately 110 basis points year over year due to the ongoing mix shift towards higher-value items. Sequentially, compared to Q2, take rate increased 90 basis points. Our model is designed to generate strong unit economics across a wide range of products and price points. We can move with our customers wherever they transact. Gross margin of 74.9% expanded approximately 60 basis points year over year. Gross profit of $154 million was up $25 million versus last year. Total operating expenses leveraged approximately 440 basis points year over year, driven by strong leverage in ops and tech and SG&A, partially offset by investments in marketing.

Speaker #2: In the quarter, we continued to see strong flywheel trends, with 44% of new consignors coming from our buyer base. A direct result of the investments Rati described in how we attract, engage, and retain both sides of our marketplace.

Speaker #2: Our Q3 take rate of 36.8% was down approximately 110 basis points year over year, due to the ongoing mix shift towards higher value items.

Speaker #2: Sequentially, compared to Q2, take rate increased 90 basis points. Our model is designed to generate strong unit economics across a wide range of products and price points.

Speaker #2: We can move with our customers wherever they transact. Gross margin of 74.9% expanded approximately 60 basis points year over year. Gross profit of 154 million was up 25 million versus last year.

Ajay Gopal: Gross margin of 74.9% expanded approximately 60 basis points year-over-year. Gross profit of $154 million was up $25 million versus last year. Total operating expenses leveraged approximately 440 basis points year-over-year, driven by strong leverage in ops and tech and SG&A, partially offset by investments in marketing.

Speaker #2: Total operating expenses leveraged approximately 440 basis points year over year, driven by strong leverage in ops and tech, and SG&A. Partially offset by investments in marketing.

Ajay Gopal: As the leader in luxury resale, we are investing to drive growth and increase our market share. We are seeing strong returns from these investments reflected in buyer quality, customer lifetime value, and brand awareness. In Q3, marketing investments resulted in approximately 70 basis points of year-over-year deleverage. Operations and technology leveraged approximately 260 basis points year over year, reflecting the impact of Athena, on track to process nearly 50% of all items by year-end. Our ASRS system, now live at Perth Amboy, is already delivering faster throughput and efficiency gains. Within SG&A, we delivered approximately 240 basis points of year-over-year leverage, unlocking supply and benefiting from fixed cost discipline. Together, this drove adjusted EBITDA of $17 million, or 8.3% of revenue, expanding 290 basis points year over year and coming in above the top end of our prior guidance range.

Ajay Gopal: As the leader in luxury resale, we are investing to drive growth and increase our market share. We are seeing strong returns from these investments reflected in buyer quality, customer lifetime value, and brand awareness. In Q3, marketing investments resulted in approximately 70 basis points of year-over-year deleverage. Operations and technology leveraged approximately 260 basis points year-over-year, reflecting the impact of Athena, on track to process nearly 50% of all items by year-end. Our ASRS system, now live at Perth Amboy, is already delivering faster throughput and efficiency gains. Within SG&A, we delivered approximately 240 basis points of year-over-year leverage, unlocking supply and benefiting from fixed cost discipline. Together, this drove adjusted EBITDA of $17 million, or 8.3% of revenue, expanding 290 basis points year-over-year and coming in above the top end of our prior guidance range.

Speaker #2: As the leader in luxury resale, we are investing to drive growth and increase our market share. We are seeing strong returns from these investments, reflected in buyer quality, customer lifetime value, and brand awareness.

Speaker #2: In Q3, marketing investments resulted in approximately 70 basis points of year-over-year deleverage. Operations and technology leveraged approximately 260 basis points year over year, reflecting the impact of Athena.

Speaker #2: On track to process nearly 50% of all items by year-end. And our ASRS system now live at Perth Amboy is already delivering faster throughput and efficiency gains.

Speaker #2: Within SG&A, we delivered approximately 240 basis points of year-over-year leverage, unlocking supply and benefiting from fixed-cost discipline. Together, this drove adjusted EBITDA of 17 million, or 8.3% of revenue, expanding 290 basis points year over year, and coming in above the top end of our prior guidance range.

Ajay Gopal: We ended Q3 with $145 million in cash equivalents, and restricted cash. Q3 free cash flow was $11.3 million. For the first time, we exited the third quarter with positive year-to-date operating cash flow, historically a Q4 milestone for us. With Q4 representing our seasonally strongest period for both revenue and cash generation, we expect full-year operating cash flow to step up meaningfully from where we stand today. Capital expenditures for the quarter were $13.7 million. We continue to anticipate full-year CapEx on PP&E within 2% to 3% of total revenue. Subsequent to quarter end, we refinanced our senior secured notes with a new $150 million term loan and $25 million revolving credit facility, both maturing in October 2033. We expect this transaction to reduce interest expense by approximately $4 million annually, and it extends our maturity profile.

Speaker #2: We ended Q3 with 145 million in cash, cash equivalents, and restricted cash. Q3 free cash flow was 11.3 million. For the first time, we exited the third quarter with positive year-to-date operating cash flow, historically a fourth-quarter milestone for us.

Speaker #2: With Q4 representing our seasonally strongest period for both revenue and cash generation, we expect full-year operating cash flow to step up meaningfully from where we stand today.

Speaker #2: Capital expenditures for the quarter were 13.7 million, we continue to anticipate full-year capex on PP&E within 2 to 3% of total revenue. Subsequent to quarter end, we refinanced our senior secured notes with a new 150 million term loan, and 25 million revolving credit facility.

Speaker #2: Both maturing in October 2033. We expect this transaction to reduce interest expense by approximately 4 million annually, and it extends our maturity profile. More broadly, over the last 2 years, we've lowered total debt by more than 80 million.

Ajay Gopal: More broadly, over the last two years, we have lowered total debt by more than $80 million. With consistent adjusted EBITDA growth and a cash-efficient model that converts that growth into strong free cash flow generation, we believe we are well-positioned to reduce total leverage to $150 million or lower in the medium term. With Q3 results above expectations and supply momentum and buyer engagement continuing to compound, we are raising our full-year outlook. For Q4, we expect GMV of $720 to $735 million, representing approximately 17% to 19% growth year-over-year. Revenue is expected to be between $218 and $222 million, or approximately 12% to 14% growth. Adjusted EBITDA is expected in the range of $27.5 to $29 million, representing a margin of approximately 12.8% at the midpoint. For the full year, we now expect GMV of $2.585 to $2.6 billion, representing approximately 21% to 22% growth year-over-year.

Speaker #2: With consistent adjusted EBITDA growth and a cash-efficient model that converts that growth into strong free cash flow generation, we believe we are well positioned to reduce total leverage to $150 million or lower in the medium term.

Speaker #2: With Q3 results above expectations, and supply momentum and buyer engagement continuing to compound, we are raising our full-year outlook. For the fourth quarter, we expect GMV of $720 million to $735 million, representing approximately 17% to 19% growth year over year.

Speaker #2: Revenue is expected to be between 218 and 222 million, or approximately 12 to 14% growth. Adjusted EBITDA is expected in the range of 27.5 to 29 million, representing a margin of approximately 12.8% at the midpoint.

Speaker #2: For the full year, we now expect GMV of $2.585 to $2.6 billion, representing approximately 21 to 22% growth year over year. Revenue is expected to be between $806 and $810 million, or approximately 16 to 17% growth.

Ajay Gopal: Revenue is expected to be between $806 and $810 million, or approximately 16% to 17% growth. Adjusted EBITDA is expected to be in the range of $71.1 to $72.6 million, representing a margin of approximately 8.9% at the midpoint, an improvement of approximately 280 basis points versus 2025, and we remain on the path to our medium-term 15% to 20% adjusted EBITDA margin target. In closing, Q3 marks a meaningful step in TRR's evolution, record GMV, record revenue, positive free cash flow, and a stronger balance sheet. We enter Q4 with clear momentum, and I want to thank the entire RealReal team for an outstanding quarter.

Speaker #2: Adjusted EBITDA is expected to be in the range of 71.1 to 72.6 million, representing a margin of approximately 8.9% at the midpoint, and improvement of approximately 280 basis points versus 2025.

Speaker #2: And we remain on the path to our medium-term 15 to 20% adjusted EBITDA margin target. In closing, Q3 marks a meaningful step in TRR's evolution, record GMV, record revenue, positive free cash flow, and a stronger balance sheet.

Speaker #2: We enter Q4 with clear momentum, and I want to thank the entire RealReal team for an outstanding quarter.

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. 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 hear your name called. Please accept, unmute your audio, and ask your question. We will wait a moment for the queue to form. Our first question comes from Anna Glaessgen from B. Riley Securities. Please unmute your line and ask your question.

Speaker #1: 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 #1: When it's your turn to talk, you'll receive a message on your screen from the host, allowing you to talk, and then you'll hear your name called.

Speaker #1: Please accept, unmute your audio, and ask your question. We will wait a moment for the queue to form. Our first question comes from Anna Glacian from B.

Speaker #1: Reilly Securities. Please unmute your line and ask your question.

Anna Glaessgen: Hi. Good afternoon. Thanks for taking my questions. I would like to start with gross margin. It was nice to see the step-up and year-over-year expansion in spite of the compression in take rate. Wondering if you could share some perspective on the moving pieces there, particularly we saw a nice benefit in shipping year-over-year. Thanks.

Speaker #3: Hi, good afternoon. Thanks for taking my questions. I'd like to start with gross margin. It was nice to see the step up in year-over-year expansion in spite of the compression and take rate.

Speaker #3: Wondering if you could share some perspective on the moving pieces there, particularly as we saw a nice benefit in shipping year over year. Thanks.

Ajay Gopal: Hi, Anna. Thanks for the question. Yeah, we are pleased with our gross margin results in Q3. We delivered 74.9%, which was up 60 basis points year-over-year. I think at the core of this, it is driven by consignment margins, which were 89.3% and continue to be fairly stable when you look at that trend earlier in the year. Shipping had some one-time adjustments that sort of propped up that margin. I think on a go-forward basis, the rate we have seen in the H1 is more representative of where we are likely to be. For us, gross margins, we expect it to be within the range of 73% to 75% on an ongoing basis, and in Q3, we came pretty close to the high end of that range.

Speaker #2: Hi Anna. Thanks for the question. Yeah, we're pleased with our gross margin results in Q3. We delivered 74.9%, which was up 60 basis points year over year.

Speaker #2: I think at the core of this, this is it's driven by a consignment margins, which were 89.3%, and continue to be fairly stable when you look at that trend earlier in the year.

Speaker #2: Shipping had some one-time adjustments that sort of propped up that margin. I think on a go-forward basis, the rate we've seen in the first half is more representative of where we are likely to be.

Speaker #2: It's for us, gross margins, we expect it to be within the range of 73 to 75% on an ongoing basis. And in Q3, we came pretty close to the high end of that range.

Anna Glaessgen: Great, thanks. Turning to the growth that we saw, we saw a shift to be more weighted toward order flow, which accelerated nicely in the quarter. Wondering if you could share your perspective going forward, if you expect the balance to be more so driven by this order growth, and what you can share from the new buyers that came into the model over the quarter. Thanks.

Speaker #3: Great. Thanks. And then turning to the growth that we saw, we saw a shift to be more weighted toward order flow, which accelerated nicely in the quarter.

Speaker #3: Wondering if you could share your perspective going forward, if you expect the balance to be more so driven by this order growth, and what you can share from the new buyers that came into the model over the quarter.

Speaker #3: Thanks.

Ajay Gopal: Yeah. Thank you for that question. So Q3 GMV was up 23%, and you are right, we saw about three-quarters of it coming from order volume. Orders were up 15%, and this was actually a high point for us in terms of order growth. We expected the shift. We expected the start to see move towards volume, and it is playing out in line with those expectations. I think we are encouraged by how, when you look at our performance in 2026, we have seen the mix maintain a healthy balance, but shift between units, between orders and average order value. We have demonstrated that we can grow both top line and continue to expand margins as we work through those shifts.

Speaker #2: Yeah, thanks. Thank you for that question. So Q3 GMV was up 23%, and you're right, we saw about three-quarters of it coming from order volume.

Speaker #2: Orders were up 15%, and this was actually a high point for us in terms of order growth. We expected the shift. We expected to start a seed move towards volume, and it's playing out in line with those expectations.

Speaker #2: I think we're encouraged by how, when you look at when you look at our performance in 2026, we've seen the maintain a healthy balance, but shift between units, between orders, and average order value.

Speaker #2: And we have demonstrated that we can grow both top line and continue to expand margins as we work through those shifts. And it's really a testament to our market-based model where we can quickly pivot to wherever our consumer preferences are shifting and bring in the right kind of supply to meet that demand.

Ajay Gopal: It is really a testament to our marketplace model where we can quickly pivot to where our consumer preferences are shifting and bring in the right kind of supply to meet that demand.

Anna Glaessgen: Great. Thanks. Best of luck into holidays.

Speaker #3: Great. Thanks, best of luck in Toledo.

Ajay Gopal: Thank you.

Speaker #2: Thank you.

Operator: Our next question comes from Mark Altschwager from Baird. Please unmute your line and ask your question.

Speaker #1: Our next question comes from Mark Olschwager from VAD. Please unmute your line and ask your question.

Mark Altschwager: Good afternoon. Thank you for taking my question. I wanted to ask also on margin. Ajay, you expanded EBITDA margin 290 basis points in Q2 and again in Q3. I think the high end of the Q4 guide implies something closer to 180. I was hoping you would just talk us through kind of what is holding back the Q4 relative to the recent pace, and also how we should think about the margin algo heading into 2027.

Speaker #4: Good afternoon. Thank you for taking my question. I wanted to ask, also on margin, Ajay, you expanded EBITDA margin 290 basis points in Q2 and again in Q3.

Speaker #4: I think the high end of the fourth quarter guide implies something closer to 180. I was hoping you'd just talk us through kind of what's holding back the fourth quarter relative to the recent pace, and also how we should think about the margin algorithm heading into 2027.

Ajay Gopal: Yeah. Thanks for the question, Mark. Q3 margins expanded, adjusted EBITDA margins expanded by 290 basis points, fairly consistent with what we saw in Q2. You have heard us talk about how we see the business getting to an EBITDA margin range of 15% to 20% over the medium term. In building towards that, we expect to add between 200 to 300 basis points every year. Our guidance for 2026 contemplates that we would end the year adding 280 basis points of margin at the midpoint. So very much in the range of that 200 to 300 basis points. Q4, quarter-to-quarter, this is going to change. It just depends on the timing of our investments and when we start to see the returns.

Speaker #2: Yeah, thanks for the question, Mark. Q3 margins expanded adjusted EBITDA margins expanded by 290 basis points, fairly consistent with what we saw in Q2.

Speaker #2: You've heard us talk about how we see the business getting to an EBITDA margin range of 15% to 20% over the medium term. And in that sort of in building towards that, we expect to add between 200 to 300 basis points every year.

Speaker #2: Our guidance for 2026 contemplates that we would end the year adding 280 basis points of margin at the midpoint. So very much in the range of that 200 to 300 basis points.

Speaker #2: Q4, quarter to quarter, this is going to change. It just depends on the timing of our investments and when we start to see the returns.

Ajay Gopal: Really, we are focused on making sure that we continue to balance growth with profitability, and deliver the paths to that 15% to 20% margins in the medium term.

Speaker #2: So really, we are focused on making sure that we continue to balance growth with profitability and deliver the path to that 15 to 20% margins in the medium term.

Ajay Gopal: Really, we are focused on making sure that we continue to balance growth with profitability, and deliver the paths to that 15% to 20% margins in the medium term.

Mark Altschwager: Okay, thank you. And maybe a follow-up for Rati, just on agentic commerce. As you structure the catalog for third-party shopping agents, how do you think about the economics of those relationships, and how do you keep the buyer coming back to The RealReal, rather than going to the agent? Thank you.

Speaker #4: Okay. Thank you. And maybe a follow-up for Rati, just on agentic commerce. As you structure the catalog for third-party shopping agents, how do you think about the economics of those relationships?

Speaker #4: And how do you keep the buyer coming back to The RealReal rather than going to the agent? Thank you.

Rati Levesque: Yeah. Thanks for the question. We see agentic as kind of another tool, right, to kind of keep the buyer in. We are always looking at the buyer experience end to end. For us, we are testing and learning right now for sure. The agentic traffic is still pretty small, share relative to traditional search, but I will say it is growing. We are, I will say, well positioned because of the depth of products that we have and the depth of data. When you think of one-of-one items, hundreds of attributes behind each item is why we show up so prominently in AI search today. But it is an area of increasing focus for us. We are really focused on building for both sides, making sure AI agents find us, and making the on-site, our own on-site experience, smarter for buyers who come to us directly.

Speaker #3: Yes, thanks for the question. So we see agentic as kind of another tool, right, to kind of keep the buyer in. We're always looking at the buyer experience.

Speaker #3: End-to-end, for us, we're testing and learning right now, for sure. The agentic traffic is still pretty small, share relative to traditional search, but I'll say it's growing.

Speaker #3: And we're, I'll say, well-positioned because of the depth of products that we have and the depth of data when you think of one-for-one items, hundreds of attributes behind each item.

Speaker #3: Is why we show up so prominently in AI search today. But it's an area of increasing focus for us. So we're really focused on building for both sides, making sure AI agents find us and making the on-site, our own on-site experience smarter for buyers who come to us directly.

Rati Levesque: Think about being proactive about how the customer behavior and preferences may just kind of shift over time. But at the end of the day, it is about figuring out how to be open to this, test and learn while protecting our own experience as well.

Speaker #3: So think about being proactive about how the customer behavior and preferences may just kind of shift over time. But at the end of the day, it's about figuring out how to be open to this, test and learn while protecting our own experience as well.

Mark Altschwager: Great. Thank you.

Speaker #4: Great. Thank you.

Operator: Thank you. Our next question comes from Marvin Fong from BTIG. Please unmute your line and ask your question.

Speaker #1: Thank you. Our next question comes from Marvin Fong from US Bangkok. Please unmute your line and ask your question.

Marvin Fong: Hi. Thank you for taking my questions. I would love to ask about the growth in the consignor base, the 11% growth you have cited. I cannot recall if you have mentioned this before as a data point, but it was a very good growth. I would just love to kind of put that in greater context. How does 11% look kind of compared to what we have been doing in kind of prior quarters? Can you also kind of just talk about your outlook in terms of your ability to continue to grow the consignor base and your acquisition costs to accomplish that?

Speaker #4: Hi. Thank you for taking my questions. I'd love to ask about the growth and the consignor base, the 11% growth you've cited. I can't recall if you've mentioned this before, as a data point, but it was a very good growth.

Speaker #4: Just love to kind of put that in greater context. How is 11% look kind of compared to what we've been doing in kind of prior quarters?

Speaker #4: And can you also kind of just talk about your outlook in terms of your ability to continue to grow the consignor base and your acquisition costs, to accomplish that?

Rati Levesque: Yeah, sure. Thanks for the question, Marvin. Firstly, what we shared was the number of active consignors sold over that group, double digits, actually, in Q3. I am not sure where the 11% specifically came from. But the double-digit growth, quite healthy, in line. Really excited about that progress. I think what is most exciting there is that the growth is coming from multiple channels simultaneously. Think about these channels and more of them really focused on diversifying our channels, each reinforcing the others. There is no single channel or no single point of failure, and that is what makes the supply engine more durable as we continue to scale and we continue to grow. Like I said, we do not just see this as adding more supply channels, but building a system where each channel makes the other stronger. It is a compounding system.

Speaker #3: Yeah, sure. Thanks for the question, Marvin. So first, what we shared was the number of active consignors sold with us grew double digits, actually, in Q3.

Speaker #3: I'm not sure where the 11% specifically came from, but the double-digit growth is quite healthy and in line. I'm really excited about that progress. But I think what's most exciting there is that the growth is coming from multiple channels simultaneously.

Speaker #3: So think about these channels and more of them. We really focused on diversifying our channels each reinforcing the others. So now there's no single channel or no single point of failure.

Speaker #3: And that's what makes the supply engine more durable as we continue to scale and continue to grow. So like I said, we don't just see this as adding more supply channels, but building a system where each channel makes the other stronger, it's a compounding system.

Rati Levesque: Think about our core business, for example. We moved, like I said, from a more generalist model, to focused on reps that can go deeper with the customer. Really important, that human connection and that relationship that we build there. We have also launched a contractor program, so think about fashion stylists, closet organizers, people with deep networks, building density and market around our sales team that may not cover now, which just amplifies word of mouth. Another channel would be trusts and estates, working with trade shows, auction houses, and events. Think multi-thousand dollar consignments that could come in. We saw trusts and estates delivering 35% more units this year, so gaining great traction. Our stores, always a piece of that channel mix. Seeing really great halo, and we continue to see that and meaningfully. Then last, drop ship.

Speaker #3: So think about our core business, for example, we moved, like I said, from a more generalist model to focused on reps that can go deeper, with a customer really important that human connection and that relationship that we build there.

Speaker #3: We've also launched a contractor program. So think about fashion stylists, closet organizers, people with deep networks, building density and markets around our sales team that may not cover now, which just amplifies word of mouth.

Speaker #3: Another channel would be trust and estates, working with trade shows, auction houses, and events. Think multi-thousand dollar consignments that can come in. We saw trust and estates delivering 35% more units this year.

Speaker #3: We're gaining great traction. Our stores have always been a key part of that channel mix. We're seeing a really great halo and continue to see that, meaningfully. And then, last—

Speaker #3: Dropship. So we talked a little bit about that in the past. That's starting to become more meaningful, onboarding not just Japanese vendors, but European vendors as well.

Rati Levesque: We talked a little bit about that in the past. That is starting to become more meaningful. Onboarding not just Japanese vendors, but European vendors as well, so high-value watches, handbag, jewelry. By the end of the year, we will actually have launched over $100 million of supply in this channel. So, excited about the progress of diversifying our channel mix here.

Speaker #3: So high-value watches, handbags, jewelry, and so by the end of the year, we'll actually have launched over 100 million dollars of supply in this channel.

Speaker #3: I'm so excited about the progress we're making in diversifying our channel mix here.

Marvin Fong: I got it, yes. You are right, yeah. Jotted down that too fast of you. It was double digits, so thank you for correcting that. A question on AOV, down sequentially. I think that actually kind of fits with normal seasonality. Can you just kind of comment, we did start to see the take rate kind of come back up, so in terms of the product mix, do we kind of start to see that as maybe higher value items kind of returning more to an inline historical mix, things like handbags and watches? Kind of just comment on the trends there.

Speaker #4: I got it. Yes. And you're right. Yeah, jotted down that too fast. It was double digits. So thank you for correcting that. And then a question on AOV.

Speaker #4: Down, sequentially, I think that actually kind of fits with kind of normal seasonality. But can you just kind of comment? We did see the take rate kind of come back up.

Speaker #4: So in terms of the product mix, we kind of see that as maybe higher value items kind of returning more to an inline historical mix, things like handbags and watches, kind of just comment on the trends there.

Ajay Gopal: Yeah. Thanks for that question, Marvin. You are right. We saw growth in average order values, slow down a bit, but they were still up 8%, so a pretty healthy number in terms of still continuing to go up as represented in our shift. I also think you are right on the seasonality. In Q3, our average order values tend to come in slightly lighter because of just the seasonal mix of what sells, then in Q4, we start to see that go the other way as more and more interest grows for holiday shopping and resale. So this is fairly consistent with the changes in the mix that we would expect to see on a quarter-to-quarter basis.

Speaker #2: Yeah. Thanks for that question, Marvin. You're right. We saw growth and average order values slow down a bit, but they were still up 8%.

Speaker #2: So pretty healthy number in terms of still continuing to go up as represented in our shift. I also think you're right on the seasonality.

Speaker #2: In Q3, our average order values tend to come in slightly lighter because of just the seasonal mix of what sells and then in Q4, we see that go the other way as more and more interest grows for holiday shopping and resale.

Speaker #2: So this is fairly consistent with the changes in the mix that we would expect to see on a quarter-to-quarter basis.

Marvin Fong: Okay, awesome. Thanks, Ajay. Thanks, Rati.

Speaker #4: Okay. Awesome. Thanks, Ajay. Thanks, Rati.

Rati Levesque: Yes, thanks.

Speaker #3: Yes. Thanks.

Operator: Our next question comes from Bobby Brooks from Northland Capital Markets. Please unmute your line and ask your question.

Speaker #1: Our next question comes from Bobby Brooks from Northland Capital Markets. Please unmute your line and ask your question.

Bobby Brooks: Hey, good afternoon, team. Thanks for taking my question. Following up on Marvin Fong's piece of the consignor growth, a little bit different edge, though, is really nice growth you talked about on both new buyers as well as the consignors, but just curious to unpack that a little bit more. Are you seeing any in the trends that you might be seeing, like is AOV from new buyers following the same trend as overall business? Curious, what are the typical categories you see as someone's first consignment? Does that greatly vary between a buyer flipping to becoming a consignor versus someone brand new coming into your network? Just really curious to hear more insights there.

Speaker #5: Hey, good afternoon, team. Thanks for taking my question. So kind of following up on Marvin's piece of the consignor growth, a little bit different edge, though, is really nice growth.

Speaker #5: You talked about on both new buyers as well as the consignors, but just curious to unpack that a little bit more. Are you seeing in the trends that you might be seeing?

Speaker #5: Is AOV from new buyers following the same trend as overall business? And curious what are the typical categories you see as someone's first consignment?

Speaker #5: Does that greatly vary between a buyer flipping to becoming a consignor versus someone brand new coming into your network? Just really kind of curious to hear more insights there.

Rati Levesque: Yeah. Maybe I'll start, and I'll let Ajay Gopal weigh in as well. Yes. We're happy to see the progress on both buyers and consignors, the growth there. But really, it's about looking at the full experience, end-to-end, for the buyer and consignor. We have 45 million members and growing active buyers who are increasingly becoming consignors, so we're really focused on the quality of buyers and consignors we're bringing in. In looking at those new cohorts, what gets me excited is that we're seeing them more engaged with us. They're becoming more engaged with our platform, whether that's buying more in the first purchase, whether that's retention of those newer cohorts and so forth. That's again because we're really focused on the experience and that end-to-end experience for the consignor, while still continuing to build trust and community.

Speaker #3: Yeah. Maybe I'll start, and I'll let Ajay weigh in as well. So yes, we're happy to see the progress on both buyers and consignors, the growth there.

Speaker #3: But really, it's about looking at the full experience. End-to-end for the buyer and consignor. We have 45 million members, and growing active buyers. We're increasingly becoming consignors.

Speaker #3: We're really focused on the quality of buyers and consignors we're bringing in. And in looking at those new cohorts, what gets me excited is that we're seeing them more engaged with us.

Speaker #3: They're becoming more engaged with our platform, whether that's buying more in the first purchase, whether that's retention of those newer cohorts and so forth.

Speaker #3: And that's, again, because we're really focused on the experience and that end-to-end experience for the consignor while still continuing to build trust and community.

Ajay Gopal: Yeah. Thanks, Rati Levesque. The only thing I would add there is, we're also seeing really strong progress on Gen Z buyers. They are up more than 60% over three years, and we see these buyers coming into our platform, graduating to The RealReal, as we like to refer to them. They're pre-wired for participating in resale. They move very naturally between buying and selling, and their relationship continues to mature and deepen as they gain more experience on the platform.

Speaker #2: Yeah. Thanks, Rati. The only thing I would add there is we're also seeing really strong progress on Gen Z buyers. They are up more than 60% over three years.

Speaker #2: And we see these buyers coming into our platform, graduating to the real rail, as we like to refer to them. They're pre-wired for participating in resale.

Speaker #2: They move very naturally between buying and selling, and their relationship continues to mature and deepen as they gain more experience on the platform.

Bobby Brooks: Got it. Just excited to hear kind of the steps that you have taken in growing drop ship a little bit more. I think on that last, you mentioned $100 million. Is that by year end, and is that GMV? Just kind of curious to hear a little bit more of what the next year or so looks like on expansion of dropshipping and just adding more international sellers onto the platform.

Speaker #5: Got it. And then I'm just excited to hear kind of about the expanded steps that you've taken and grown dropship a little bit more. I think one number that you mentioned was $100 million.

Speaker #5: Is that by year-end, or is that and is that GMV? But just kind of curious to hear a little bit more of what that what the next year or so looks like on expansion of dropshipping and just adding more international sellers onto the platform.

Rati Levesque: Yeah. Thanks, Bobby, for the question. So over $100 million launched this year. We probably will not get in the habit of sharing channel numbers, but I wanted to make sure that you understood that it was a meaningful amount and making some good progress. I think the real thing to take away is, focused on dropship. We will continue to expand our international partners there. We think that there is meaningful business here over the medium term, but really it is about diversifying the mix of supply. Like I said, no one point of failure as we think about trusts and estates and contractor programs, partnerships. We are seeing some really great traction in all of these key areas for ourselves.

Speaker #3: Yes, thanks, Bobby, for the question. Yeah, so we're over $100 million launched this year. We probably won't get in the habit of sharing channel numbers, but I wanted to make sure that you understood that it was a meaningful amount and we're making some good progress.

Speaker #3: I think the real thing to take away is focused on dropship. We'll continue to expand our international partners there. We think that there is meaningful business here over the medium term.

Speaker #3: But really, it's about diversifying the mix of supply. And like I said, no one point of failure, as we think about trust and estates and contractor programs, partnerships, we're seeing some really great traction in all of these key areas for ourselves.

Bobby Brooks: Terrific. Just last one for me. In the prepared remarks, it seemed like you are leaning a little bit more into reshaping the sales force, luxury managers, and kind of investments into them. Just curious to hear kind of what that has looked like, aside from the smart sales tool initiative that you guys rolled out a few quarters ago to help folks kind of plan out their day more efficiently.

Speaker #5: Terrific. And just last one for me. In the prepared remarks, it seemed like leaning a little bit more into the reshaping the salesforce, luxury managers, and kind of investments into them.

Speaker #5: I'm just curious to hear kind of what that's looked like aside from the smart sales tool initiative. You guys rolled out a few quarters ago to help folks kind of plan out their day more efficiently.

Rati Levesque: Yeah. On the sales side, yes, we restructured some of the sales organization to, again, focus on the right kind of supply. With the flywheel that we have in our business, it is also focusing on the right buyers that we bring onto the platform upfront. So we are getting smarter about those quality buyers and consignors that we are bringing in. Think about, we talked about conversational search and our partnership with Google, for example. It is driving higher conversion, deeper buyer engagement, but now they are more likely to become a consignor. So we are really leveraging and expanding Ask TRR. We are leveraging Athena item enrichment to enhance our listings, starting with occasion and trend information. These AI results deliver higher quality listings so that the consignor can get more for their item.

Speaker #3: Yeah. So on the sales side, yes, we restructured some of the sales organization to, again, focus on the right kind of supply. But with the flywheel that we have in our business, it's also focusing on the right buyers that we bring to the platform upfront.

Speaker #3: So we're getting smarter about those quality buyers and consignors that we're bringing in. And think about we talked about conversational search and our partnership with Google for example.

Speaker #3: It's driving higher conversion, deeper buyer engagement. But now they're more likely to become a consignor. So we're really leveraging and expanding STRR. We're leveraging Athena item enrichment, enhance our listings, starting with occasion and trend information.

Speaker #3: And these results, these AI results, deliver higher quality listings so that the consignor can get more for their item. But it also improves discovery on our site.

Rati Levesque: But it also improves discovery on our site, so it helps customers find what they are looking for faster. Think about less discounting. The real focus here is really making sure that we are looking at this customer, consignor, buyer, consignor end to end, and broadening our service on platform to create this unique catalog of discoverable items across the broader AI ecosystem.

Speaker #3: So it helps customers find what they're looking for faster. So think about less discounting. So the real focus here is really making sure that we're looking at this customer consignor buyer consignor end-to-end and broadening our service on platform to kind of create this unique catalog of discoverable items across the broader AI ecosystem.

Bobby Brooks: That is great to hear. Congrats on the strong quarter. I will return to the queue.

Speaker #5: That's great to hear. Congrats on the strong quarter. I'll return to the queue.

Operator: Our next question comes from Ashley Owens from KeyBanc Capital Markets. Please unmute your line and ask your question.

Speaker #1: Oh, next question comes from Ashley Owens from KeyBank Capital Markets. Please unmute your line and ask your question.

Ashley Owens: Hi, good afternoon, and I will add my congrats as well. Maybe just to start on the top line into Q4, you mentioned that the AOV typically comes back in Q4 with holiday, and the orders accelerated really nicely in Q3. But the guide still implies that GMV growth will be moderating from high teens to high teens. I would just be curious as to how much that is tougher compares from last year versus some conservatism, and any color on how trends have looked quarter to date heading into the holiday.

Speaker #6: Hi, good afternoon, and I'll add my congrats as well. Maybe just to start on the top line into the fourth quarter—you mentioned that the AOV typically comes back in Q4 with holiday, and the orders accelerated really nicely in the third quarter.

Speaker #6: But the guide still implies that that GMV growth will be moderating from high teens to high teens. I would just be curious as to how much that is tough for compares from last year versus some conservatism and any color on how trends have looked quarter to date heading into the holiday.

Ajay Gopal: Hi, Ashley. Thanks for that question. Just to clarify, my reference to Q4 versus Q3 is just a sequential change. With what we have seen in our businesses in Q4, average order values tend to be slightly higher versus Q3, and that really reflects growing interest in people coming to The RealReal as they think about holiday shopping and gifting. We would expect that seasonal pattern to play out in Q4 relative to where we find ourselves in Q3. Your other question was on Q4 guidance. Q3 was a really strong quarter for us, 23% growth in GMV, 19% revenue growth, and 290 basis points of adjusted EBITDA margin expansion. We are entering Q4 with strong momentum and high confidence in the business trajectory that we bring.

Speaker #2: Oh, Ashley, thanks for that question. So just to clarify, what my reference to Q4 versus Q3 is just a sequential change, right? With what we have seen in our businesses in Q4, average order values tend to be slightly higher.

Speaker #2: Versus Q3, and that really reflects growing interest in people coming to The RealReal as they think about holiday shopping and gifting.

Speaker #2: So, we would expect that seasonal pattern to play out in Q4 relative to where we find ourselves in Q3. Your other question was on Q4 guidance.

Speaker #2: Q3 was a really strong quarter for us, 23% growth in GMV, 19% revenue growth. And 290 basis points of adjusted EBITDA margin expansion. We are entering Q4 with strong momentum.

Speaker #2: And high confidence in the business trajectory that we bring. And you see that reflected not just in the results in Q3, but also in us raising our guidance for the full year, including Q4, on all three metrics.

Ajay Gopal: You see that reflected not just in the results in Q3, but also in us raising our guidance for the full year, including Q4, on all three metrics.

Ashley Owens: Okay, great. Then just to follow up, on the supply side, historically, some pressure on the consumer can actually be a tailwind as people are looking to monetize their closets. I would just be curious as to if you are seeing any change in the consignor motivation, like more urgency to sell or even consigning items people might normally hold, if that is showing up more or does show up more in mid-value or high-value items. Thank you.

Speaker #6: Okay. Great. And then just a follow-up. So on the supply side, historically, some pressure on the consumer can actually be a tailwind as people are looking to monetize their closets.

Speaker #6: I would just be curious as to if you're seeing any change in the co-signer motivation, like more urgency to sell or even co-signing items people might normally hold, if that is showing up more or does show up more in mid-value or high-value items.

Speaker #6: Thank you.

Rati Levesque: Yeah, sure. I will take that one. Thanks for the question. We are seeing a resilient consumer, I would say, across our platform. I think our advantage is our model sits, we always say, at the intersection of luxury and value. That structural positioning is an advantage of ours. A more expensive, maybe primary market or in the primary market faces pressure. I think the case for TRR does get stronger. So sellers have motivation to maybe unlock value in their closets, and buyers find that value even more compelling. We talked about new buyers growing 20% in Q3. Continue to see this trend. Stronger early cohort and retention, like I mentioned. New buyers spending more, sellers more engaged. But Gen Z being up more than 60% in the last three years is a really great stat for us. But growing adoption as well.

Speaker #3: Yes, sure. I'll take that one. Thanks for the question. So we're seeing a resilient consumer, I would say, across our platform. I think our advantage is our model sits.

Speaker #3: We always say we're at the intersection of luxury and value, and that position—our structural positioning—is an advantage of ours. A more expensive, maybe primary market, or the primary market, faces pressure.

Speaker #3: I think the case for TRR does get stronger. So sellers have motivation to maybe unlock value in their closets and buyers find that value even more compelling.

Speaker #3: So we talked about new buyers growing 20% in Q3. Continue to see this trend, stronger early cohort and retention, like I mentioned. New buyers spending more, sellers more engaged.

Speaker #3: But Gen Z being up more than 60% in the last three years, a really great stat for us. But growing adoption as well. So almost a half of luxury consumers now check the secondary price before they're buying new.

Rati Levesque: Almost half of luxury consumers now check the secondary price before they are buying new. I think one of the great things about our marketplace as well is, I believe, the breadth across thousands of designers, categories, and price points. When consumer preferences may shift, we can shift with them pretty quickly. Our model works well regardless of where the mix demand may land.

Speaker #3: But I think one of the great things about our marketplace as well is, I believe, the breadth across thousands of designers, categories, and price points.

Speaker #3: So when consumer preferences may shift, we can shift with them pretty quickly. So our model works well regardless of where the mix demands may land.

Ashley Owens: Great. Appreciate all the color. Thank you.

Speaker #6: Great. Appreciate all the color. Thank you.

Rati Levesque: Thank you.

Speaker #3: Thank you.

Operator: Our next question comes from Jay Sole from UBS. If you can press star 6 to unmute your line and ask your question.

Speaker #1: Oh, next question comes from Jay Seoul from UBS. If you can press star 6 to unmute your line and ask your question.

Jay Sole: Great. Can you hear me all right?

Speaker #5: Great. Can you hear me all right?

Rati Levesque: Yes.

Speaker #3: Yes. Hi, Jay.

Ajay Gopal: Yes.

Rati Levesque: Hi, Jay.

Jay Sole: Well, thank you. My question is about Athena's next wave of savings. I think last quarter you described that many dollars per item of savings, and that the next iteration of Athena would remove some even more manual intake steps. So maybe beyond reaching roughly 50% penetration, what additional reduction in processing cost per item is achievable next year? And maybe can you separate the opportunity from higher adoption, deeper automation within Athena, and other factors that can help achieve those savings?

Speaker #5: Super. Well, thank you. My question is about Athena's next wave of savings. I think last quarter you described that many dollars per item of savings and that the next iteration of Athena would remove some even more manual intake steps.

Speaker #5: So maybe beyond reaching roughly 50% penetration, what additional reduction in processing costs per item is achievable next year? And maybe can you separate the opportunity from higher adoption, deeper automation within Athena and other factors that can help achieve those savings?

Ajay Gopal: Yeah. Thanks for that question, Jay. So when we think about efficiencies, particularly within the operations part of our income statement, there is two things that we look at as driving that source of productivity and margin expansion. One of it is automation. So the recently launched automated storage and retrieval system, the ASRS system that we put in place, is a great example of how we start to see improvements like that, allowing us to manage greater growing volume without necessarily having that much more incremental cost. So, that is a source of efficiency gains for us. In the past, we have put in automated packaging equipment, and also we redone the layout of the op centers to have more automation and more conveyor belts, et cetera. So, that is one source of margin expansion.

Speaker #2: Yeah. Thanks for that question, Jay. So when we think about efficiencies, particularly in within the operations part of our income statement, there's two things that we look at as driving that source of productivity and margin expansion.

Speaker #2: One of them is automation. The recently launched automated storage and retrieval system, the ASRS system that we put in place, is a great example of how we see improvements like that allowing us to manage greater growing volume without necessarily having that much more incremental cost.

Speaker #2: So that's a source of efficiency gains for us in the past. We've put in automated packaging equipment, and we've also redone the layout of the ops centers to have more automation and more conveyor belts, etc.

Speaker #2: So that's one source of margin expansion. The other one that we talk about quite extensively is Athena. And this is really about how we are using the power of our data and creating custom algorithms that are helping take a lot of manual touches out of the process and finding efficiency as we get more and more items to those through that workflow.

Ajay Gopal: The other one that we talk about quite extensively is Athena, and this is really about how we are using the power of our data and creating custom algorithms that are helping take a lot of manual touches out of the process and finding efficiency as we get more and more items through that workflow. We started Athena last year. At the end of the year, we were successful in expanding it to 35%, and this year we see that getting to nearly 50% of all items that are running through our operations center. The cost savings will grow with the volume of what we process. That's one source of how we continue to drive efficiencies. Last time, we also did touch on how, as we look at the items going through Athena, we see additional opportunities.

Speaker #2: We started Athena last year. At the end of the year, we were successful in expanding it to 35%. And this year, we see that getting to nearly 50% of all items that are running through our operations center.

Speaker #2: The cost savings will grow with the volume of what we process, so that's one source of how we continue to drive efficiencies. Last time, we also touched on how, as we look at the items going through Athena, we see additional opportunities.

Ajay Gopal: Even within the 35% or the 50%, we see other opportunities that we could do to further take cost out. We're not quantifying what that translates to on an annual basis, but it continues to be multiple dollars per item as we move these items onto that process.

Speaker #2: So even within the 35% or maybe 50%, we see other opportunities that we could pursue to further take costs out. We're not quantifying what that translates to on an annual basis, but it continues to be multiple dollars per item as we move these items onto that process.

Jay Sole: Got it. Okay. If I can ask one more on balance sheet, if you don't mind. What's the minimum liquidity cushion

Speaker #5: Got it. Okay, if I can ask one more on the balance sheet, if you don't mind. What's the minimum liquidity cushion that you want to maintain ahead of the 2028 repayment?

Jay Sole: you want to maintain ahead of the 2028 repayment, and what's the contingency if the 2031 notes don't convert?

Speaker #5: And what's the contingency if the 2031 notes don't convert?

Ajay Gopal: Yeah. Thanks for that question. I would say we are pretty far away from any sort of minimum liquidity covenant, like the business is in a great place, and our model is extremely cash efficient. As we continue to grow the business, we get a net working capital benefit. You are also seeing, particularly in some of the remarks I made in my script around how we are now at a, we have crossed the threshold of adjusted EBITDA, where we are seeing strong cash flow generation from growing EBITDA. So that is our focus. Going forward, we see the business continuing to generate stronger cash flows, stronger operating cash flows, as we continue to grow top line and expand margins going forward.

Speaker #2: Yeah, thanks for that question. So, I would say we're pretty far away from any sort of minimum liquidity covenant. The business is in a great place.

Speaker #2: And our model is extremely cash efficient. As we continue to grow the business, we get a net working capital benefit. And you're also seeing, particularly in some of the remarks I made in my script, around how we've now crossed the threshold of adjusted EBITDA.

Speaker #2: We are seeing strong cash flow generation from growing EBITDA. So that's our focus. Going forward, we see the business continuing to generate stronger cash flow, stronger operating cash flows as we continue to grow both top line and expand margins.

Speaker #2: Going forward.

Jay Sole: Well, maybe just to follow up quickly. How should we model cash interest and sort of like the pricing and the step-downs under the new facility?

Speaker #5: Yeah. Well, maybe just to follow up quickly—I mean, how should we model cash interest and sort of the pricing and the step-downs under the new facility?

Speaker #2: The well, I'll just describe sort of how the facility works, but I'm happy to take a follow-up if you want, if I can help draw more clarity to it.

Ajay Gopal: I will just describe sort of how the facility works, but happy to take a follow-up if you want, if I can have some more clarity to it. The new, what we recently announced, is $150 million of debt that is priced at an interest rate of SOFR plus 5.75%. That rate does have the option to drop down to SOFR plus 5.5% based on us achieving certain net leverage ratios. The rate is locked for the next year at 575 basis points. It will float a bit if and when the underlying SOFR rate changes. I think the headline for us with the change we just announced is, we expect that to bring down interest costs on an annual basis.

Speaker #2: So the new, what we recently announced is 150 million dollars of debt. That is priced at an interest rate of so far plus 5.75%.

Speaker #2: That rate does have the option to drop down to so far plus 5.5% based on us achieving certain net leverage ratios. The rate is locked for the next year at 575 basis points.

Speaker #2: It will float a bit. If and when the underlying SOFR rate changes, I think the headline for us, with the change we just announced, is we expect that to bring down interest costs on an annual basis.

Ajay Gopal: The comparison versus what I just described is our prior $150 million of debt, which had an interest rate of 13%, and that was split between a PIK as well as a cash component. Essentially, we are going from that 13 to a lower rate of interest, which is going to bring down our annual interest burden going forward. For next year, we expect that to be roughly $4 million.

Speaker #2: The comparison versus what I just described is our prior $150 million of debt, which had an interest rate of 13%. That was split between a PIK as well as a cash component.

Speaker #2: So essentially, we're going from that 13 to a lower rate of interest, which is going to bring down on an annual interest burden going forward for next year.

Speaker #2: We expect that to be roughly 4 million.

Jay Sole: Got it. Super helpful. Okay, thank you so much.

Speaker #5: Got it. Super helpful. Okay. Thank you so much.

Operator: Our next question comes from Ike Boruchow from Wells Fargo. Please unmute your line and ask your question.

Speaker #1: Oh, next question comes from Ike Barrichell from Wells Fargo. Please unmute your line and ask your question.

Ike Boruchow: Hey, good afternoon, everyone. Ajay, a couple for you. On the model, AOV up a good amount in Q3, a little bit less than the H1. Have you seen any price resistance from your consumer to any degree? How should we be thinking about the direction of AOV go forward from here?

Speaker #6: Hey, good afternoon, everyone. Jay, a couple for you. On the model, AOV was up a good amount in the third quarter, a little bit less than the first half.

Speaker #6: Have you seen any price resistance from your consumer to any degree? And how should we be thinking about the direction of AOV go forward from here?

Ajay Gopal: Yeah. Thanks for the question. You are right, AOV in Q3 grew 8%. I think in the prior quarter, it was up 13%, so a few points lower than what it was in Q2. We are not seeing what you described, price resistance from customers. We are seeing a shift in mix, and part of it is seasonal. We always see a shift in mix in Q3 towards the mid-value. So we are seeing a bit of that play out in Q3. Jewelry still continues to grow really strong, but in the past, we have highlighted that it has been our fastest-growing category. Today, it is growing in line with the rest of the business, so fairly strong, but no longer over-indexing as a source of growth.

Speaker #2: Yeah. Thanks for the question. You're right. AOV in Q3 grew 8%. I think in the prior quarter it was up 13%. So a few points lower than what it was in Q2.

Speaker #2: We're not seeing what you described. Price resistance from customers. We are seeing a shift in mix. And part of it is seasonal. We always see a shift in mix in Q3 towards the mid-value.

Speaker #2: So we're seeing a bit of that play out in Q3. Dual resale continues to grow really strong, but in the past week while I had that, it's been our fastest growing category.

Speaker #2: Today, it's growing in line with the rest of the business. So fairly strong, but no longer over-indexing as a source of growth.

Ike Boruchow: Got it. Thank you.

Speaker #6: Got it.

Ajay Gopal: To your question on how do you model it out forward?

Speaker #2: To your question, how do you model that forward?

Ike Boruchow: Yep.

Speaker #6: Yep.

Ajay Gopal: I think we will expect to continue to see a healthy balance between average order value and order volume growth in the business. That was tilted a little more towards the AOV component the H1, and we think Q4 is going to look more similar to Q3. At the end of the day, though, I will point out that we are indifferent to how that mix plays out. As a marketplace, our take rate protects our unit economics regardless of how people mix in and out of categories and price points. You can see that in our results. We have been successful in growing both top line and expanding margins in Q3, just as we were in Q1 and Q2.

Speaker #2: Sorry. I think we will continue to see a healthy balance between average order value and order volume growth in the business. That was tilted a little more toward the AOV component in the first half.

Speaker #2: And we think Q4 is going to look more similar to Q3. At the end of the day, though, I will point out that we are indifferent to how that plays out, right?

Speaker #2: As a marketplace, our take rate protects our unit economics regardless of how people mix in and out of categories and price points. And you can see that in our results.

Speaker #2: We've been successful in growing both top line and expanding margins. In Q3, just as we were in Q1 and Q2.

Ike Boruchow: Got it. Thanks, Ajay. Then a follow-up. You referenced some interesting points on operating cash flow, free cash flow at the beginning of the call. You have one quarter left. Not sure if you would be so kind as to offer a free cash flow guide for the year that we should expect. Then my last question would be, I know it is early and we are not in next year yet, but you continue to expand EBITDA at the high end or above the high end of your 200 to 300 bps annual algo. Any thoughts on how we should be thinking about 2027? Thanks.

Speaker #6: Got it. Thanks to Ajay. And then a follow-up: you referenced some interesting points on operating cash flow and free cash flow at the beginning of the call.

Speaker #6: You have one quarter left. Not sure if you'd be so kind as to offer a free cash flow guide for the year that we should expect.

Speaker #6: And then my last question would be, I know it's early and we're not in next year yet, but you continue to expand EBITDA at the high end or above the high end of your 200 to 300 bps annual algo.

Speaker #6: Any thoughts on how we should be thinking about 2027? Thanks.

Ajay Gopal: Thanks for the questions. On cash flow, we are very pleased with the milestone we accomplished in Q3. We are operating cash flow positive three quarters in. Typically, we would not get to that until the end of the year. So we have $10 million of operating cash flow, and we expect that number to grow, just given Q4 and then the role it plays in our typical annual cash cycle. I do not have a free cash flow number for you for the year, but we are excited with the progress we are making, and we expect it to be meaningful compared to what we had last year. What was your second question?

Speaker #2: Thanks for the question. Questions. So on cash flow, yeah, we're very pleased with the milestone we accomplished in Q3. We are operating cash flow positive three quarters in.

Speaker #2: Typically, we wouldn't get to that until the end of the year. So we have 10 million dollars of operating cash flow. And that number, we expect that number to grow just given Q4 and then the role it plays in our typical annual cash cycle.

Speaker #2: I don't have a free cash flow number for you for the year, but we are excited with the progress we're making. And we expect it to be meaningful compared to what we had last year.

Speaker #2: What was your second question? Sorry.

Ike Boruchow: You continue to generate EBITDA expansion at the high end or above the high end

Speaker #6: You continue to consistently generate EBITDA expansion at the high end, or even above the high end, of your 200 to 300 basis points algorithm. I'm just curious how we should be thinking about that for the near term.

Ajay Gopal: Yes

Ike Boruchow: of your 200 to 300 basis points algo. Just curious how we should be thinking about that in the near term.

Ajay Gopal: Yeah. Thanks for the reminder. This year, we expect to expand EBITDA margins by 280 basis points. We are on a path to get to that 15% to 20% EBITDA margin over the medium term, and that, to us, translates to a range of 200 to 300 basis points. Within that range, we will pace our investments. We will make sure we are achieving a healthy balance between growth and expanding margins.

Speaker #2: Yeah. No. Thanks for the reminder. So this year, we expect to expand EBITDA margins by 280 basis points. We are on a path to get to that 15 to 20 percent EBITDA margin over the medium term.

Speaker #2: And that, to us, translates to a range of 200 to 300 basis points. Within that range, we will pace our investments. We'll make sure we are achieving a healthy balance between growth and expanding margins.

Ike Boruchow: Great. Thanks, guys.

Speaker #6: Great. Thanks, guys.

Operator: Our final question comes from Matt Koranda from Roth Capital Partners. Please unmute your line and ask your question.

Speaker #1: Oh, final question comes from Matt Kurada from Roth Capital Partners. Please unmute your line and ask your question.

[Analyst] (Roth Capital Partners): Good afternoon, guys. It's Joseph on for Matt. Just a couple from me. Looking across your supply channels, I guess, could you guys speak about which channels the teams are excited about as the biggest supply growth drivers heading into Q4 and 2027?

Joseph Reagor: Good afternoon, guys. It's Joseph on for Matt. Just a couple from me. Looking across your supply channels, I guess, could you guys speak about which channels the teams are excited about as the biggest supply growth drivers heading into Q4 and 2027?

Speaker #4: Good afternoon, guys. It's Joseph on for Matt. Just a couple for me. Looking across your supply channels, I guess, could you guys speak about which channels the teams are excited about as the biggest supply growth drivers heading into 4Q and 2027?

Rati Levesque: Yeah, sure. Thanks for the question. Like I mentioned before, we're really excited about the results and supply that we're seeing come through our system. We're really focused on the end-to-end seller experience. We're seeing engagement go up, especially with our most value consigners that mix from high to low when they're giving us their basket, and so forth. But the main thing is, like I said, we're really focused on diversifying our channel mix, that there's no single point of failure. The team's really excited about some of these newer pieces that we've talked about, like trusts and estates, seeing more products come from some of these auction houses or trade shows. The pop-up events, that's something a little bit newer for us.

Speaker #3: Yeah, sure. Thanks for the question. Like I mentioned before, we're really excited about the results and the supply that we're seeing come through our system.

Speaker #3: We're really focused on the end-to-end seller experience, and we're seeing engagement go up, especially with our most valued consignors that mix from high to low when they're giving us their basket.

Speaker #3: And so forth. But the main thing is, like I said, we're really focused on diversifying our channel mix if there's no single point of failure.

Speaker #3: The teams really excited about some of these newer pieces that we talked about, like trust and estates, seeing more product come from some of these auction houses or trade shows.

Speaker #3: The pop-up events, that's something a little bit newer for us. It's a part of our retail strategy, but instead of having to commit to a retail location right away, it's a way to kind of for us to test new regions, to see if we still continue to see the halo effect.

Rati Levesque: It's a part of our retail strategy, but instead of having to commit to a retail location right away, it's a way for us to test new regions to see if we still continue to see the halo effect there. Of course, some of the international vendors that we're onboarding. Excited about some of the higher value products coming through. The demand that we're seeing for some of these channels are also quite exciting.

Speaker #3: There. And then, of course, some of the international vendors that we're onboarding are excited about some of the higher-value products coming through. The demands that we're seeing for some of these channels are also quite exciting.

[Analyst] (Roth Capital Partners): Got it. Thank you. I guess it's still very early, but just any thoughts on Athena implementation as we look out to 2027, anything that you can share on the impact to margins? Thank you.

Joseph Reagor: Got it. Thank you. I guess it's still very early, but just any thoughts on Athena implementation as we look out to 2027, anything that you can share on the impact to margins? Thank you.

Speaker #4: Got it, thank you. And then, I guess it's still very early, but just any thoughts on Athena implementation as we look out to 2027? And then, anything that you can share on the impact to margins?

Speaker #4: Thank you.

Ajay Gopal: Thanks for that question. We're making good progress on expanding Athena's coverage. Last year was 35%. This year, we expect to end at nearly 50%. Over the longer term, we will continue to work on expanding its coverage. We see no reason why it couldn't extend to nearly every item that comes into our fulfillment center. You're already seeing the impact on our margins in Q3, as well as in prior quarters. We generated about 250 basis points of leverage from our ops and tech line. Within that, Athena is a key contributor to how operations is contributing to our margin expansion story.

Speaker #2: Thank you for that. Thanks for the question. We've been making good progress on expanding Athena's coverage. Last year, it was 35%; this year, we expect to end at nearly 50%.

Speaker #2: Over the longer term, we will continue to work on expanding its coverage. There's no reason why it couldn't extend to nearly every item that comes into our fulfillment center.

Speaker #2: You're already seeing the impact on our margins. In Q3, as well as in prior quarters, we generated about 250 basis points of leverage from our ops and tech line.

Speaker #2: Within that, Athena is a key contributor to how operations is contributing to our margin expansion story.

Operator: The meeting has now concluded. Thank you for joining. You may now disconnect.