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The RealReal Announces Third Quarter 2020 Results

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The RealReal
·18 min read
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Q3 GMV Growth Improved 17% Q/Q; Decreased 3% Y/Y to $245.4 million
Q3 Total Revenue Improved 16% Q/Q; Decreased 4% Y/Y to $78.1 million
Q3 Gross Profit Improved 18% Q/Q; Decreased 5% Y/Y to $49.8 million

SAN FRANCISCO, Nov. 09, 2020 (GLOBE NEWSWIRE) -- The RealReal (Nasdaq: REAL)—the world’s largest online marketplace for authenticated, consigned luxury goods—today reported financial results for its third quarter ended Sept. 30, 2020.

“Improving trends in New York City and Los Angeles, momentum with virtual appointments and continued strength in the The RealReal B2B vendor program improved our ability to source supply in Q3 and contributed to improving quarter over quarter GMV trends. We were pleased with our GMV performance in Q3 despite the difficult Y/Y comparison and continued COVID headwinds,” said Julie Wainwright, CEO of The RealReal.

Supply trends improved significantly quarter over quarter. Total supply units shipped to our e-commerce facilities improved approximately 32% Q/Q and increased 3% Y/Y in Q3. Excluding NYC and Los Angeles, Q3 supply units shipped increased 7% Y/Y.

On the demand side, traffic trends remained healthy in Q3 with sessions up 18% Y/Y, and the company’s four day sell-through continued to trend at pre-COVID levels, which demonstrates that supply continues to sell quickly.

On National Consignment Day Oct. 5, the company announced its partnership with Gucci to launch an online shop featuring pre-loved Gucci items and promote circularity for luxury fashion. “Together we’re shining a global spotlight on resale that we hope will encourage all consumers to support the circular economy and join us in reducing fashion’s carbon footprint,” commented Wainwright. The partnership marks multiple significant firsts -- it’s the first collaboration with a brand on a dedicated shop on The RealReal.com and the first time a brand partnership has included an incentive to buy resale. The partnership is also grounded in sustainability.

“We are laser focused on making the operational changes and strategic investments that will position us to emerge from COVID a stronger, more agile company prepared to capitalize on the significant luxury resale market opportunity in front of us,” continued Wainwright.

Third Quarter Financial Highlights

  • Gross Merchandise Volume (GMV) was $245.4 million, a 17% Q/Q improvement and a 3% Y/Y decrease.

  • Total Revenue was $78.1 million, a 16% Q/Q improvement and a 4% Y/Y decrease.

  • Consignment and Service Revenue was $64.4 million, a 15% Q/Q improvement and a 7% Y/Y decrease.

  • Direct Revenue was $13.6 million, a 25% Q/Q and 11% Y/Y increase.

  • Gross Profit was $49.8 million, a 18% Q/Q improvement and a 5% Y/Y decrease.

  • Net Loss was ($43.3 million).

  • Adjusted EBITDA was ($29.0) million or (37.2%) of total revenue.

  • Adjusted EBITDA includes $2.2 million of COVID related expenses such as higher payroll expenses, personal protective equipment, deep cleanings, medical personnel at our facilities, transportation services, etc.

  • GAAP basic and diluted net loss per share was ($0.49).

  • Non-GAAP basic and diluted net loss per share was ($0.41).

  • At the end of the third quarter, cash, cash equivalents and short-term investments totaled $395.2 million.

Other Third Quarter Financial Highlights and Key Operating Metrics

  • Trailing 12 months active buyers reached 617,269 an increase of 14% Y/Y.

  • Orders reached 550,084, a 9% Q/Q improvement and a 5% Y/Y decrease.

  • Average Order Value was $446, an increase of 2% Y/Y.

  • Consignment Take Rate decreased 140bps Y/Y to 35.4% reflecting strong performance on a relative basis from lower-take-rate categories (such as handbags, jewelry and sneakers) and a higher mix of consignors earning higher commissions.

  • GMV from repeat buyers was 82.9% compared to 81.8% in the third quarter of 2019.

  • Since inception through Sept. 30, consignment with The RealReal saved 16,105 metric tons of carbon and 756 million liters of water.

Financial Outlook
Given limited near-term visibility, the company elects to not provide a financial outlook.

Webcast and Conference Call
The RealReal will post a stockholder letter on its investor relations website at https://investor.therealreal.com/financial-information/quarterly-results in lieu of a live presentation and host a conference call at 2 p.m. PST to answer questions regarding its third quarter 2020 financial results, the stockholder letter and the supporting slides. Investors and analysts can access the call by dialing (866) 996-5385 in the U.S. or (270) 215-9574 internationally. The passcode for the call is 2136043. The call will also be available via live webcast at https://investor.therealreal.com along with the stockholder letter and the supporting slides. An archive of the webcast conference call will be available shortly after the call ends. The archived webcast will be available at https://investor.therealreal.com.

About The RealReal, Inc.
The RealReal is the world’s largest online marketplace for authenticated, consigned luxury goods. With a rigorous authentication process overseen by experts, The RealReal provides a safe and reliable platform for consumers to buy and sell their luxury items. We have 150+ in-house gemologists, horologists and brand authenticators who inspect thousands of items each day. As a sustainable company, we give new life to pieces by hundreds of brands, from Gucci to Cartier, supporting the circular economy. We make consigning effortless with free in-home pickup, drop-off service, virtual appointments and direct shipping for individual consignors and estates. At our stores in Chicago, Los Angeles, New York City and San Francisco, customers can shop, consign, and meet with our experts. At our 10 Luxury Consignment Offices, five of which are in our retail stores, our expert staff provides free valuations.

Investor Relations Contact:
Paul Bieber
Head of Investor Relations
paul.bieber@therealreal.com

Press Contact:
Erin Santy
Head of Communications
pr@therealreal.com

Forward Looking Statements
This press release contains forward-looking statements relating to, among other things, the future performance of The RealReal that are based on the company's current expectations, forecasts and assumptions and involve risks and uncertainties. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology. These statements include, but are not limited to, statements about future operating results, including the amounts of our operating expense and capital expenditure investments or reductions and our strategies, plans, commitments, objectives and goals, in particular in the context of the impacts of the COVID-19 pandemic and the recent social unrest. Actual results could differ materially from those predicted or implied and reported results should not be considered as an indication of future performance. Other factors that could cause or contribute to such differences include, but are not limited to, the impact of the COVID-19 pandemic and the recent social unrest on our operations and our business environment, any failure to generate a supply of consigned goods, pricing pressure on the consignment market resulting from discounting in the market for new goods, failure to efficiently and effectively operate our merchandising and fulfillment operations and other reasons.

More information about factors that could affect the company's operating results is included under the captions “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the company's most recent Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting the company's Investor Relations website at https://investor.therealreal.com or the SEC's website at www.sec.gov. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to the company on the date hereof. The company assumes no obligation to update such statements.

Non-GAAP Financial Measures
To supplement our unaudited and condensed financial statements presented in accordance with generally accepted accounting principles ("GAAP"), this earnings release and the accompanying tables and the related earnings conference call contain certain non-GAAP financial measures, including Adjusted EBITDA, free cash flow, non-GAAP net loss attributable to common stockholders, and non-GAAP net loss per share attributable to common stockholders, basic and diluted. We have provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in this earnings release.

We do not, nor do we suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors should also note that non-GAAP financial measures we use may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as that of other companies, including other companies in our industry.

Adjusted EBITDA is a key performance measure that our management uses to assess our operating performance. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure as an overall assessment of our performance, to evaluate the effectiveness of our business strategies and for business planning purposes. Adjusted EBITDA may not be comparable to similarly titled metrics of other companies.

We calculate Adjusted EBITDA as net loss before interest income, interest expense, other (income) expense net, provision (benefit) for income taxes, depreciation and amortization, further adjusted to exclude stock-based compensation, and certain one-time expenses. Adjusted EBITDA has certain limitations as the measure excludes the impact of certain expenses that are included in our statements of operations that are necessary to run our business and should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP.

In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of stock-based compensation, excludes an item that we do not consider to be indicative of our core operating performance. Investors should, however, understand that stock-based compensation will be a significant recurring expense in our business and an important part of the compensation provided to our employees. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Free cash flow is a non-GAAP financial measure that is calculated as net cash used in operating activities less net cash used to purchase property and equipment and capitalized proprietary software development costs. We believe free cash flow is an important indicator of our business performance, as it measures the amount of cash we generate. Accordingly, we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management.

Non-GAAP net loss per share attributable to common stockholders, basic and diluted is a non-GAAP financial measure that is calculated as GAAP net loss plus stock-based compensation expense, provision (benefit) for income taxes, and non-recurring items divided by weighted average shares outstanding. We believe that adding back stock-based compensation expense, provision (benefit) for income taxes, and non-recurring items as adjustments to our GAAP net loss, before calculating per share amounts for all periods presented provides a more meaningful comparison between our operating results from period to period.

THE REALREAL, INC.

Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Revenue:

Consignment and service revenue

$

64,407

$

69,245

$

176,570

$

184,890

Direct revenue

13,645

12,271

37,111

39,417

Total revenue

78,052

81,516

213,681

224,307

Cost of revenue:

Cost of consignment and service revenue

16,304

19,446

47,253

52,592

Cost of direct revenue

11,964

9,842

31,678

31,056

Total cost of revenue

28,268

29,288

78,931

83,648

Gross profit

49,784

52,228

134,750

140,659

Operating expenses:

Marketing

15,186

13,390

37,747

36,838

Operations and technology

40,578

37,407

117,858

103,271

Selling, general and administrative

35,384

28,436

103,047

76,110

Total operating expenses (1)

91,148

79,233

258,652

216,219

Loss from operations

(41,364

)

(27,005

)

(123,902

)

(75,560

)

Interest income

448

1,902

2,350

2,918

Interest expense

(2,406

)

(60

)

(2,810

)

(572

)

Other income (expense), net

(119

)

(89

)

(2,106

)

Loss before provision for income taxes

(43,322

)

(25,282

)

(124,451

)

(75,320

)

Provision (benefit) for income taxes

(17

)

(8

)

38

51

Net loss

$

(43,305

)

$

(25,274

)

$

(124,489

)

$

(75,371

)

Accretion of redeemable convertible preferred stock to redemption value

$

$

$

$

(3,355

)

Net loss attributable to common stockholders

$

(43,305

)

$

(25,274

)

$

(124,489

)

$

(78,726

)

Net loss per share attributable to common stockholders, basic and diluted

$

(0.49

)

$

(0.30

)

$

(1.43

)

$

(2.28

)

Weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted

87,869,321

84,634,956

87,176,677

34,556,485

(1) Includes stock-based compensation as follows:

Marketing

$

705

$

145

$

1,228

$

287

Operating and technology

2,892

1,098

7,222

2,064

Selling, general and administrative (2)

3,775

1,277

8,461

3,384

Total

$

7,372

$

2,520

$

16,911

$

5,735

(2) Includes compensation expense related to stock sales by current and former employees in March 2019.

THE REALREAL, INC.

Condensed Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

September 30, 2020

December 31, 2019

Assets

Current assets:

Cash and cash equivalents

$

343,092

$

154,446

Short-term investments

52,156

208,811

Accounts receivable

4,559

7,779

Inventory, net

19,236

23,599

Prepaid expenses and other current assets

18,255

13,804

Total current assets

437,298

408,439

Property and equipment, net

61,944

55,831

Operating lease right-of-use assets

115,013

Other assets

2,020

2,660

Total assets

$

616,275

$

466,930

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

5,410

$

11,159

Accrued consignor payable

44,490

52,820

Operating lease liabilities, current portion

15,263

Other accrued and current liabilities

55,767

54,567

Total current liabilities

120,930

118,546

Operating lease liabilities, net of current portion

111,680

Convertible senior notes, net

148,057

Other noncurrent liabilities

1,300

9,456

Total liabilities

381,967

128,002

Stockholders’ equity:

Common stock, $0.00001 par value; 500,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 88,532,457 and 85,872,320 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

1

1

Additional paid-in capital

713,195

693,426

Accumulated other comprehensive income

107

7

Accumulated deficit

(478,995

)

(354,506

)

Total stockholders’ equity

234,308

338,928

Total liabilities and stockholders’ equity

$

616,275

$

466,930

THE REALREAL, INC.

Condensed Statements of Cash Flows

(In thousands)

(Unaudited)

Nine Months Ended September 30,

2020

2019

Cash flows from operating activities:

Net loss

$

(124,489

)

$

(75,371

)

Adjustments to reconcile net loss to cash used in operating activities:

Depreciation and amortization

13,673

9,537

Stock-based compensation expense

16,911

4,916

Reduction of operating lease right-of-use assets

12,003

Bad debt expense

661

1,208

Compensation expense related to stock sales by current and former employees

819

Change in fair value of convertible preferred stock warrant liability

2,100

Accretion of unconditional endowment grant liability

39

70

Accretion of debt discounts and issuance costs

1,268

11

Amortization of premiums (discounts) on short-term investments

(114

)

38

Changes in operating assets and liabilities:

Accounts receivable

2,559

(2,572

)

Inventory, net

4,363

(3,491

)

Prepaid expenses and other current assets

(4,626

)

(3,375

)

Other assets

578

136

Operating lease liability

(8,710

)

Accounts payable

(4,164

)

1,394

Accrued consignor payable

(8,330

)

4,611

Other accrued and current liabilities

2,511

494

Other noncurrent liabilities

(150

)

1,356

Net cash used in operating activities

(96,017

)

(58,119

)

Cash flow from investing activities:

Purchases of short-term investments

(73,280

)

(12,169

)

Proceeds from maturities of short-term investments

222,217

33,998

Proceeds from sale of short-term investments

7,932

Capitalized proprietary software development costs

(6,640

)

(6,670

)

Purchases of property and equipment

(15,685

)

(16,111

)

Net cash provided by (used in) investing activities

134,544

(952

)

Cash flow from financing activities:

Proceeds from issuance of common stock in initial public offering, net of issuance costs

315,486

Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs

43,492

Proceeds from issuance of convertible preferred stock, net of issuance costs

26,283

Proceeds from issuance of convertible senior notes, net of issuance costs

166,278

Purchase of capped calls

(22,546

)

Proceeds from exercise of stock options and common stock warrants

7,135

2,448

Taxes paid related to restricted stock vesting

(748

)

(20

)

Repayment of debt

(9,250

)

Net cash provided by financing activities

150,119

378,439

Net increase in cash, cash equivalents and restricted cash

188,646

319,368

Cash, cash equivalents, and restricted cash:

Beginning of period

154,446

45,627

End of period

$

343,092

$

364,995

The following table reflects the reconciliation of net loss to Adjusted EBITDA for each of the periods indicated (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Adjusted EBITDA Reconciliation:

Net loss

$

(43,305

)

$

(25,274

)

$

(124,489

)

$

(75,371

)

Depreciation and amortization

4,917

3,545

13,673

9,537

Stock-based compensation

7,372

2,520

16,911

4,916

Legal settlement

1,110

Restructuring charges

72

514

Compensation expense related to stock sales by current and former employees

819

Interest income

(448

)

(1,902

)

(2,350

)

(2,918

)

Interest expense

2,406

60

2,810

572

Other (income) expense, net

119

89

2,106

Provision for income taxes

(17

)

(8

)

38

51

Adjusted EBITDA

$

(29,003

)

$

(20,940

)

$

(91,694

)

$

(60,288

)


A reconciliation of GAAP net loss to non-GAAP net loss attributable to common stockholders, the most directly comparable GAAP financial measure, in order to calculate non-GAAP net loss attributable to common stockholders per share, basic and diluted, is as follows (in thousands, except share and per share data):

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Net loss

$

(43,305

)

$

(25,274

)

$

(124,489

)

$

(75,371

)

Stock-based compensation

7,372

2,520

16,911

4,916

Compensation expense related to stock sales by current and former employees

819

Accretion of redeemable convertible preferred stock

(3,355

)

Remeasurement of preferred stock warrant liability

2,100

Legal settlement

1,110

Restructuring charges

72

514

Provision for income taxes

(17

)

(8

)

38

51

Non-GAAP net loss attributable to common stockholders

$

(35,878

)

$

(22,762

)

$

(105,916

)

$

(70,840

)

Weighted-average common shares outstanding used to calculate Non-GAAP net loss attributable to common stockholders per share, basic and diluted

87,869,321

84,634,956

87,176,677

34,556,485

Non-GAAP net loss attributable to common stockholders per share, basic and diluted

$

(0.41

)

$

(0.27

)

$

(1.21

)

$

(2.05

)

The following table presents a reconciliation of net cash used in operating activities to free cash flow for each of the periods indicated (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Net cash used in operating activities

$

(9,436

)

$

(11,945

)

$

(96,017

)

$

(58,119

)

Purchase of property and equipment and capitalized proprietary software development costs

(7,685

)

(8,852

)

(22,325

)

(22,781

)

Free Cash Flow

$

(17,121

)

$

(20,797

)

$

(118,342

)

$

(80,900

)

Key Financial and Operating Metrics:

March 31,
2019

June 30,
2019

September 30,
2019

December 31,
2019

March 31,
2020

June 30,
2020

September 30,
2020

(In thousands, except AOV and percentages)

GMV

$

224,116

$

228,487

$

252,766

$

302,975

$

257,606

$

182,771

$

245,355

NMV

$

160,538

$

164,782

$

186,617

$

219,508

$

184,625

$

139,797

$

189,059

Consignment and Services Revenue

$

55,575

$

60,070

$

69,245

$

82,522

$

65,297

$

46,866

$

64,407

Direct Revenue

$

15,007

$

12,139

$

12,271

$

11,209

$

12,942

$

10,523

$

13,645

Number of Orders

498

505

577

637

574

438

550

Take Rate

35.3

%

36.6

%

36.8

%

36.2

%

36.2

%

36.0

%

35.4

%

Active Buyers

456

492

543

582

602

612

617

AOV

$

450

$

453

$

438

$

476

$

449

$

417

$

446

% of GMV from Repeat Buyers

82.4

%

83.1

%

81.8

%

82.9

%

84.4

%

82.3

%

82.9

%