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The RealReal Announces Third Quarter 2021 Results

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·21 min read
In this article:
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Third Quarter Gross Merchandise Value Increased 50% Year-Over-Year to $368 million
Third Quarter Total Revenue Increased 53% Year-Over-Year to $119 million
Third Quarter Gross Profit Per Order Improved $4 Year-Over-Year to $94 Per Order

SAN FRANCISCO, Nov. 08, 2021 (GLOBE NEWSWIRE) -- The RealReal (Nasdaq: REAL)—the world’s largest online marketplace for authenticated, resale luxury goods—today reported financial results for its third quarter ended Sept. 30, 2021. The company reported strong top-line growth as well as solid bottom-line improvements. Gross merchandise value (GMV) increased 50% and 46% compared to the same periods in 2020 and 2019, respectively. Third quarter gross profit per order was approximately $94, an increase of $4 per order, or a 4% improvement year-over-year. In addition, the company achieved leverage in all major expense categories in the third quarter of 2021 compared to prior year.

“We are pleased to announce strong results for the third quarter. Our product supply has ramped nicely driven by at-home concierge appointments and our expanded retail footprint. Based on what we know today, we believe the operational and supply impacts to our business from COVID-19 are effectively behind us, and we are well-positioned for a strong holiday season. Additionally, we believe The RealReal’s unique business model is largely insulated from the supply chain shortages and certain of the inflationary impacts many retailers are experiencing,” said Julie Wainwright, founder and CEO of The RealReal.

Wainwright continued, “Like many retailers, we experienced certain pressures to our operations during the third quarter, namely elevated shipping costs and staffing challenges in our authentication centers. To address, we implemented multiple initiatives, including shipping diversification and last-mile optimization as well as training and development programs and a continued focus on automation. The investments we made in 2019 and 2020 to move toward expanded automation in our authentication centers have already begun to show a strong return on investment.”

During the third quarter, The RealReal announced a new Chief Financial Officer, Robert Julian. As an operations- and strategy-focused CFO, Julian has a track record of driving shareholder value and building world-class finance organizations.

“Overall, our business is experiencing very positive trends and we believe these trends will continue through the end of the year and into 2022. While we are in the early innings of delivering operating expense leverage, we believe the company is starting to see the benefits of our previous investments, which will create leverage as we drive toward profitability in the coming quarters,” said Wainwright.

In mid-2021, the company began reporting GMV and average order value (AOV) results, among other top-line metrics, and the company committed to providing these results on a monthly basis through the end of 2021. The company intends to resume a more typical annual and quarterly guidance cadence in 2022 along with committing to a timeline to reach Adjusted EBITDA profitability.

Third Quarter Financial Highlights

  • GMV was $368 million, an increase of 50% and 46% compared to the same periods in 2020 and 2019, respectively.

  • Total Revenue was $119 million, an increase of 53% and 46% compared to the same periods in 2020 and 2019, respectively.

  • Net Loss was ($57 million) for the third quarter of 2021, compared to ($44 million) and ($25 million) in the same periods in 2020 and 2019, respectively.

  • Adjusted EBITDA was ($31.5 million) or (26.5%) of total revenue compared to (37.6%) of total revenue in the third quarter of 2020 and (26.0%) of total revenue in the third quarter of 2019. Adjusted EBITDA includes $0.4 million of COVID-related expenses and $1.4 million of redundant occupancy expenses and productivity ramp associated with our relocation of our authentication center from Brisbane, Calif., to Phoenix.

  • GAAP basic and diluted net loss per share was ($0.62).

  • Non-GAAP basic and diluted net loss per share was ($0.47).

  • At the end of the third quarter, cash and cash equivalents totaled $445 million.

  • GMV growth driven by strong supply growth and buyer engagement in the third quarter of 2021

    • Trailing 12-months (TTM) active buyers reached 772,000, an increase of 25% compared to the same period in 2020.

    • Orders reached 757,000, an increase of 38% compared to the same period in 2020.

    • AOV was $486, an increase of 9% compared to the same period in 2020. Higher AOV was driven by a 10% year-over-year increase in units per transaction (UPT), partially offset by slightly lower average selling price (ASP). UPT benefited from a seasonal shift toward women’s ready-to-wear categories.

    • GMV from repeat buyers was 84% compared to 83% in the third quarter of 2020.

  • Revenue growth driven by GMV growth and higher direct sales, partially offset by lower take rate

    • Consignment and Service Revenue was $89.5 million, an increase of 39% and 30% compared to the same periods in 2020 and 2019, respectively.

    • Direct Revenue was $29.4 million, an increase of 115% and 139% compared to the same periods in 2020 and 2019, respectively.

    • Consignment Take Rate decreased 50 basis points year-over-year to 34.9%, but increased 40 basis points sequentially compared to the second quarter of 2021, reflecting normalized category mix partially offset by certain adjustments in the period.

  • Gross Profit per Order increases 4% year-over-year due to higher AOV and higher direct gross margins

    • Gross Profit was $71.1 million, an increase of 44% compared to the same period in 2020.

    • Gross Profit per Order improved $4 year-over-year to $94 per order.

  • Reducing fashion’s impact

    • Since The RealReal’s inception in 2011 through Sept. 30, 2021, consignment with The RealReal saved nearly 22,000 metric tons of carbon and more than 1 billion liters of water.

Webcast and Conference Call

The RealReal will post a stockholder letter on its investor relations website at investor.therealreal.com/financial-information/quarterly-results and host a conference call at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) to answer questions regarding its third quarter and year-to-date results. 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 1875975. The call will also be available via live webcast at investor.therealreal.com along with the stockholder letter and supporting slides.

An archive of the webcast conference call will be available shortly after the call ends at investor.therealreal.com.

About The RealReal, Inc.

The RealReal is the world’s largest online marketplace for authenticated, resale luxury goods, with more than 24 million members. 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 hundreds of 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 thousands of brands across numerous categories—including women's and men's fashion, fine jewelry and watches, art and home—in support of the circular economy. We make selling effortless with free virtual appointments, in-home pickup, drop-off and direct shipping. We do all of the work for consignors, including authenticating, using AI and machine learning to determine optimal pricing, photographing and listing their items, as well as handling shipping and customer service. At our 18 retail locations, including our 15 shoppable stores, customers can sell, meet with our experts and receive free valuations.

Investor Relations Contact:
Caitlin Howe
Vice President, Investor Relations
IR@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 for the year ended December 31, 2020, a copy 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, Adjusted EBITDA as a percentage of total net revenue ("Adjusted EBITDA Margin"), free cash flow, non-GAAP net loss attributable to common stockholders, non-GAAP net loss per share attributable to common stockholders, basic and diluted, and Contribution Profit. 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, employer payroll tax on employee stock transactions, and certain one-time expenses. The employer payroll tax expense related to employee stock transactions are tied to the vesting or exercise of underlying equity awards and the price of our common stock at the time of vesting, which may vary from period to period independent of the operating performance of our business. 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 and Adjusted EBITDA Margin facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of stock-based compensation and the related employer payroll tax on employee stock transactions, excludes an item that we do not consider to be indicative of our core operating performance. Investors should, however, understand that stock-based compensation and the related employer payroll tax 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 and Adjusted EBITDA Margin provide 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) provided by 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 and related payroll tax, 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,

2021

2020

2021

2020

Revenue:

Consignment and service revenue

$

89,451

$

64,152

$

246,985

$

176,006

Direct revenue

29,387

13,645

75,582

37,111

Total revenue

118,838

77,797

322,567

213,117

Cost of revenue:

Cost of consignment and service revenue

22,714

16,304

64,352

47,253

Cost of direct revenue

25,025

11,964

65,365

31,678

Total cost of revenue

47,739

28,268

129,717

78,931

Gross profit

71,099

49,529

192,850

134,186

Operating expenses:

Marketing

15,708

15,186

44,378

37,747

Operations and technology

61,135

40,578

172,906

117,858

Selling, general and administrative

44,912

35,384

132,504

101,937

Legal settlement

500

11,788

1,110

Total operating expenses (1)

122,255

91,148

361,576

258,652

Loss from operations

(51,156

)

(41,619

)

(168,726

)

(124,466

)

Interest income

55

448

249

2,350

Interest expense

(6,072

)

(2,406

)

(15,374

)

(2,810

)

Other income (expense), net

5

22

(89

)

Loss before provision for income taxes

(57,168

)

(43,577

)

(183,829

)

(125,015

)

Provision (benefit) for income taxes

28

(17

)

83

38

Net loss attributable to common stockholders

$

(57,196

)

$

(43,560

)

$

(183,912

)

$

(125,053

)

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

$

(0.62

)

$

(0.50

)

$

(2.02

)

$

(1.43

)

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

91,859,603

87,869,321

90,995,285

87,176,677

(1) Includes stock-based compensation as follows:

Marketing

$

628

$

705

$

1,924

$

1,228

Operating and technology

5,543

2,892

15,789

7,222

Selling, general and administrative

6,421

3,775

18,611

8,461

Total

$

12,592

$

7,372

$

36,324

$

16,911


THE REALREAL, INC.
Condensed Balance Sheets
(In thousands, except share and per share data)
(Unaudited)

September 30,
2021

December 31,
2020

Assets

Current assets

Cash and cash equivalents

$

444,809

$

350,846

Short-term investments

4,017

Accounts receivable, net

6,770

7,213

Inventory

63,876

42,321

Prepaid expenses and other current assets

22,319

17,072

Total current assets

537,774

421,469

Property and equipment, net

83,928

63,454

Operating lease right-of-use assets

146,852

118,136

Other assets

2,857

2,050

Total assets

$

771,411

$

605,109

Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable

$

8,246

$

14,346

Accrued consignor payable

60,366

57,053

Operating lease liabilities, current portion

15,229

14,999

Other accrued and current liabilities

84,921

61,862

Total current liabilities

168,762

148,260

Operating lease liabilities, net of current portion

145,787

115,084

Convertible senior notes, net

344,245

149,188

Other noncurrent liabilities

1,900

1,284

Total liabilities

660,694

413,816

Stockholders’ equity:

Common stock, $0.00001 par value; 500,000,000 shares
authorized as of September 30, 2021 and December 31, 2020;
92,289,799 and 89,301,664 shares issued and outstanding
as of September 30, 2021 and December 31, 2020,
respectively

1

1

Additional paid-in capital

826,649

723,302

Accumulated other comprehensive income

11

Accumulated deficit

(715,933

)

(532,021

)

Total stockholders’ equity

110,717

191,293

Total liabilities and stockholders’ equity

$

771,411

$

605,109


THE REALREAL, INC.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)

Nine Months Ended September 30,

2021

2020

Cash flows from operating activities:

Net loss

$

(183,912

)

$

(125,053

)

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

Depreciation and amortization

17,840

13,673

Stock-based compensation expense

36,324

16,911

Reduction of operating lease right-of-use assets

14,765

12,003

Bad debt expense

637

661

Accrued interest on convertible notes

1,525

1,496

Accretion of debt discounts and issuance costs

9,854

1,268

Loss on retirement of property and equipment

404

Other adjustments

10

(75

)

Changes in operating assets and liabilities:

Accounts receivable, net

(194

)

2,559

Inventory

(21,555

)

4,927

Prepaid expenses and other current assets

(5,330

)

(4,626

)

Other assets

(807

)

578

Operating lease liability

(12,548

)

(8,710

)

Accounts payable

(6,220

)

(4,164

)

Accrued consignor payable

3,313

(8,330

)

Other accrued and current liabilities

21,951

1,015

Other noncurrent liabilities

556

(150

)

Net cash used in operating activities

(123,387

)

(96,017

)

Cash flow from investing activities:

Purchases of short-term investments

(73,280

)

Proceeds from maturities of short-term investments

4,000

222,217

Proceeds from sale of short-term investments

7,932

Capitalized proprietary software development costs

(7,455

)

(6,640

)

Purchases of property and equipment

(30,303

)

(15,685

)

Net cash (used in) provided by investing activities

(33,758

)

134,544

Cash flow from financing activities:

Proceeds from issuance of 2025 convertible senior notes, net of issuance costs

166,278

Purchase of capped calls in conjunction with the issuance of the 2025 convertible senior notes

(22,546

)

Proceeds from issuance of 2028 convertible senior notes, net of issuance costs

278,234

Purchase of capped calls in conjunction with the issuance of the 2028 convertible senior notes

(33,666

)

Proceeds from exercise of stock options

5,452

7,135

Proceeds from issuance of stock in connection with the Employee Stock Purchase Program

1,092

Taxes paid related to restricted stock vesting

(4

)

(748

)

Net cash provided by financing activities

251,108

150,119

Net increase in cash and cash equivalents

93,963

188,646

Cash and cash equivalents

Beginning of period

350,846

154,446

End of period

$

444,809

$

343,092

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,

2021

2020

2021

2020

Adjusted EBITDA Reconciliation:

Net loss

$

(57,196

)

$

(43,560

)

$

(183,912

)

$

(125,053

)

Depreciation and amortization

6,034

4,917

17,840

13,673

Stock-based compensation

12,592

7,372

36,324

16,911

Payroll tax expense on employee stock transactions (1)

245

967

Legal fees reimbursement benefit (2)

(500

)

(500

)

Legal settlement (3)

500

11,788

1,110

Restructuring charges (4)

811

72

2,314

514

Interest income

(55

)

(448

)

(249

)

(2,350

)

Interest expense

6,072

2,406

15,374

2,810

Other (income) expense, net

(5

)

(22

)

89

Provision for income taxes

28

(17

)

83

38

Adjusted EBITDA

$

(31,474

)

$

(29,258

)

$

(99,993

)

$

(92,258

)

(1) We exclude employer payroll tax expense related to employee stock-based transactions because we believe that excluding this item provides meaningful supplemental information regarding our operating results. In particular, this expense is dependent on the price of our common stock at the time of vesting or exercise, which may vary from period to period, and other factors that are beyond our control and do not correlate to the operation of the business. When evaluating the performance of our business and making operating plans, we do not consider these items. Similar charges were not adjusted in prior periods as they were not material.
(2) During the nine months ended 9/30/21, we received insurance reimbursement of $3.2 million related to legal fees for a certain matter, of which $2.7 million have been applied to the current year's legal expenses.
(3) On November 5, 2021, a stipulation of settlement was filed with the federal court to settle the putative shareholder class action filed against us, our officers and directors, and the underwriters for the Company’s initial public offering. The stipulation of settlement is subject to preliminary and final approval by the court. The financial terms of the settlement stipulation provide that the Company will pay $11.0 million within thirty (30) days of the later of preliminary approval of the settlement or plaintiff’s counsel providing payment instructions. Also on November 5, 2021, a stipulation of settlement was filed in the derivative case filed against us as a nominal defendant and our officers and directors as defendants. The stipulation of settlement is subject to preliminary and final approval by the court. The financial terms of the settlement stipulation provide that the Company will pay $0.5 million within thirty (30) days of the later of preliminary approval of the settlement or plaintiff’s counsel providing payment instructions.
(4) The restructuring charges for the three and nine months ended September 30, 2021 comprise of the costs to transition operations from the Brisbane warehouse to our new Phoenix warehouse. The restructuring charges for the three and nine months ended September 30, 2020 consist of COVID-19 related costs including employee severance.


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,

2021

2020

2021

2020

Net loss

$

(57,196

)

$

(43,560

)

$

(183,912

)

$

(125,053

)

Stock-based compensation

12,592

7,372

36,324

16,911

Payroll tax expense on employee stock transactions

245

967

Legal fees reimbursement benefit

(500

)

(500

)

Legal settlement

500

11,788

1,110

Restructuring charges

811

72

2,314

514

Provision for income taxes

28

(17

)

83

38

Non-GAAP net loss attributable to common stockholders

$

(43,520

)

$

(36,133

)

$

(132,936

)

$

(106,480

)

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

91,859,603

87,869,321

90,995,285

87,176,677

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

$

(0.47

)

$

(0.41

)

$

(1.46

)

$

(1.22

)


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,

2021

2020

2021

2020

Net cash used in operating activities

$

(35,071

)

$

(9,436

)

$

(123,387

)

$

(96,017

)

Purchase of property and equipment and capitalized proprietary software development costs

(12,295

)

(7,685

)

(37,758

)

(22,325

)

Free Cash Flow

$

(47,366

)

$

(17,121

)

$

(161,145

)

$

(118,342

)


Key Financial and Operating Metrics:

September 30,
2019

December 31,
2019

March 31,
2020

June 30,
2020

September 30,
2020

December 31, 2020

March 31,
2021

June 30,
2021

September 30,
2021

GMV

$

252,766

$

302,975

$

257,606

$

182,771

$

245,355

$

301,219

$

327,327

$

350,001

$

367,925

NMV

$

186,617

$

219,508

$

184,625

$

139,797

$

189,059

$

223,390

$

244,162

$

256,509

$

273,417

Consignment and Services Revenue

$

69,067

$

81,386

$

65,086

$

46,768

$

64,152

$

71,320

$

75,082

$

82,452

$

89,451

Direct Revenue

$

12,271

$

11,209

$

12,942

$

10,523

$

13,645

$

15,512

$

23,735

$

22,460

$

29,387

Number of Orders

577

637

574

438

550

671

690

673

757

Take Rate

36.8

%

36.2

%

36.2

%

36.0

%

35.4

%

35.7

%

34.3

%

34.5

%

34.9

%

Active Buyers

543

582

602

612

617

649

687

730

772

AOV

$

438

$

476

$

449

$

417

$

446

$

449

$

474

$

520

$

486

% of GMV from Repeat Buyers

81.8

%

82.9

%

84.4

%

82.3

%

82.9

%

82.4

%

83.6

%

84.5

%

84.1

%