The RealReal, Inc. (NASDAQ:REAL) Q3 2023 Earnings Call Transcript
The RealReal, Inc. (NASDAQ:REAL) Q3 2023 Earnings Call Transcript November 7, 2023
Operator: Good day and thank you for standing by. Welcome to The RealReal's Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. I would like to introduce your host for today’s call Caitlin Howe, SVP of Finance. Please go ahead.
Caitlin Howe: Thank you, operator. Joining me today to discuss our results for the period ended September 30, 2023 are our Chief Executive Officer, John Koryl; President and Chief Operating Officer, Rati Levesque; and Chief Financial Officer, Robert Julian. 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 to 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 for which historical financial measures, we have provided reconciliations to the most comparable GAAP measures in our earnings press release.
In addition to the earnings press release, we issued a stockholder letter earlier today which are available on our Investor Relations website. I would now like to turn the call over to John Koryl, Chief Executive Officer of The RealReal.
John Koryl: Thanks, Caitlin and welcome to our earnings call. Today, we reported financial results for the third quarter of 2023. Today, we reported financial results for the third quarter of 2023. Revenue and adjusted EBITDA exceeded the highend of our Q3 guidance range and GMV exceeded the midpoint of our guidance range. The third quarter of 2023 was our best quarter of adjusted EBITDA since the company's IPO in 2019. The improvement in our financial performance was largely driven by the consignor commission structure update we made late last year, our strategic decision to reduce direct revenue, and continued improvements in operational efficiency. If you recall, we overhauled our consignor break card in November of 2022.
This change helped us to do a couple of things. First, we were able to limit lower priced items, which in turn reduced our variable costs and improved our contribution margin per item. Second, on the remaining portion of the lower value items and our mid value items, we increased our take rate. You can see the impact of this change flowing through our P&L. The result in Q3 was that we grew consignment revenue by 10% while we purposely limited direct revenue, which over the course of the past few quarters has dramatically shifted the mix of our business and driven significantly higher gross margin. Finally, our operations team and our authentications centers delivered efficiencies through improved processes. In Q3 these actions combined to deliver a higher average order value, higher gross margin rate, higher gross profit dollars, lower variable costs, reduced company owned inventory, and a significantly improved adjusted EBITDA result compared to the prior year.
Over the past few quarters, we have made significant changes to our business strategy and tactics, and we are seeing the benefits of these changes and our operational and financial results. I couldn't be more proud of this team for the fantastic work they have put together throughout this year. In September, we announced that Robert Julian will step down from his role as CFO at the end of January or when a new CFO assumes the position. As a result, this will likely be Robert's last earnings call. I want to personally thank Robert for his many contributions to the business and wish him the best in his future endeavors. I am pleased to report that the search for his replacement is well underway. Looking forward, we continue to project that we are on track to deliver positive adjusted EBITDA on a full year basis in 2024.
In summary, our strategic shift to refocus on higher margin portion of the consignment business is delivering significant progress in our results. Overall, I'm excited about the trajectory of our business. We are well positioned to capitalize on our consignment business model as we continue to be the market making leader in luxury resale. With that, let's open the call for questions.
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