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The RealReal Announces Third Quarter 2023 Results

Q3 2023 Gross Profit Increased $8.3 million Year-Over-Year
Q3 2023 Net Income of $(22.9) million or (17.2)% of Total Revenue
Q3 2023 Adjusted EBITDA of $(7.0) million or (5.2)% of Total Revenue

SAN FRANCISCO, Nov. 07, 2023 (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 September 30, 2023. In the third quarter of 2023, revenue and Adjusted EBITDA exceeded the high-end of our guidance range for the quarter and GMV exceeded the mid-point of our guidance. Third quarter 2023 gross merchandise value (GMV) and total revenue decreased 8% and 7% respectively, compared to the third quarter of 2022. During the quarter, consignment revenue grew 10% and direct revenue was 49% lower compared to the same period in 2022.

“Today we reported our best quarter of Adjusted EBITDA since the company’s IPO in 2019. Our strategic shift to re-focus on the higher-margin portion of the consignment business is delivering significant progress in our results,” said John Koryl, Chief Executive Officer of The RealReal.

Koryl continued, “During the third quarter, the consignor commission structure changes we implemented in November 2022 drove higher take rates and, by design, reduced lower-value consignments. Furthermore, we continued to transition away from transactions involving company-owned inventory, which helped to improve our gross margin rate. These actions resulted in a higher take rate, a higher gross margin rate, higher gross profit, reduced company-owned inventory, and a significantly improved Adjusted EBITDA compared to the prior year period. Looking forward, we continue to project we are on track to deliver positive Adjusted EBITDA on a full year basis in 2024.”

Third Quarter Highlights

  • GMV was $408 million, a decrease of 8% compared to the same period in 2022
  • Total Revenue was $133 million, a decrease of 7% compared to the same period in 2022
  • Gross Margin was 70.6%, an increase of 1053 basis points compared to the same period in 2022
  • Net Loss was $(22.9) million or (17.2)% of total revenue compared to $(47.3) million or (33.1)% of total revenue in the same period in 2022
  • Adjusted EBITDA was $(7.0) million or (5.2)% of total revenue compared to $(28.2) million or (19.7)% of total revenue in the same period in 2022
  • GAAP basic and diluted net loss per share was $(0.22) compared to $(0.49) in the same period in 2022
  • Non-GAAP basic and diluted net loss attributable to common shareholders per share was $(0.15) compared to $(0.38) in the same period in 2022
  • Top-line-related Metrics
    • Trailing 12 months (TTM) active buyers was 954,000, an increase of 1% compared to the same period in 2022
    • Orders were 794,000 in the third quarter, a decrease of 17% compared to the same period in 2022
    • Average order value (AOV) was $513, an increase of 11% compared to the same period in 2022
    • Higher AOV was driven by a year-over-year increase in average selling prices (ASPs) driven by a shift toward higher-value items and reduced lower-value items, partially offset by a year-over-year decrease in units per transaction (UPT).
  • The Company has engaged Moelis & Company and Wachtell, Lipton, Rosen & Katz to support the refinancing efforts for the convertible notes.

Q4 and Full Year 2023 Guidance
Based on market conditions as of November 7, 2023, we are updating our full year 2023 guidance and providing guidance for fourth quarter 2023 GMV, total revenue and Adjusted EBITDA, which is a Non-GAAP financial measure.

We have not reconciled forward-looking Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, because we cannot predict with reasonable certainty the ultimate outcome of certain components of such reconciliations including payroll tax expense on employee stock transactions that are not within our control, or other components that may arise, without unreasonable effort. For these reasons, we are unable to assess the probable significance of the unavailable information, which could materially impact the amount of future net income (loss).

 Q4 2023Full Year 2023
GMV$430 - $460 million$1.705 billion - $1.735 billion
Total Revenue$135 - $145 million$540 - $550 million
Adjusted EBITDA$(5) - $0 million$(62) - $(57) million

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 results. Investors and analysts can access the call at https://register.vevent.com/register/BI9869fdaab7a1497a9d2564acdedb4451. 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 34 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.

Investor Relations Contact:
Caitlin Howe
Senior Vice President, Finance
IR@therealreal.com

Press Contact:
Laura Hogya
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,” “target,” “contemplate,” “project,” “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 and financial results, including our strategies, plans, commitments, objectives and goals, in particular in the context of the impacts of recent geopolitical events and uncertainty surrounding macro-economic trends, disruptions in the financial industry, inflation and the COVID-19 pandemic, our ability to achieve anticipated savings in connection with the savings plan we implemented in February 2023, our ability to efficiently drive growth in consignors and buyers through our marketing and advertising activity, our ability to successfully implement our growth strategies and their capacity to help us achieve profitability or generate sustainable revenue and profit, and our financial guidance, timeline to profitability, and long-range financial targets and projections. 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 public health emergencies on our operations and our business environment, inflation, macroeconomic uncertainty, disruptions to the financial industry, geopolitical instability, 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, labor shortages 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, 2022 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, Adjusted EBITDA as a percentage of total revenue (“Adjusted EBITDA Margin”), 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, employer payroll tax expense on employee stock transactions, restructuring, and CEO separation benefits, CEO transition costs, 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 expense 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 expense 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,
  2023   2022   2023   2022 
Revenue:       
Consignment revenue$102,852  $93,874  $302,072  $274,780 
Direct revenue 17,356   34,005   63,196   125,474 
Shipping services revenue 12,964   14,824   40,663   43,584 
Total revenue 133,172   142,703   405,931   443,838 
Cost of revenue:       
Cost of consignment revenue 13,577   15,206   43,681   43,193 
Cost of direct revenue 15,686   28,721   61,162   105,415 
Cost of shipping services revenue 9,837   12,999   30,859   43,149 
Total cost of revenue 39,100   56,926   135,702   191,757 
Gross profit 94,072   85,777   270,229   252,081 
Operating expenses:       
Marketing 11,591   13,511   44,460   48,455 
Operations and technology 61,038   70,782   194,645   207,159 
Selling, general and administrative 44,788   47,012   138,959   147,410 
Restructuring (856)     37,396   275 
Total operating expenses(1) 116,561   131,305   415,460   403,299 
Loss from operations (22,489)  (45,528)  (145,231)  (151,218)
Interest income 2,260   1,002   6,717   1,360 
Interest expense (2,673)  (2,675)  (8,018)  (8,014)
Other income (expense), net    6      133 
Loss before provision for income taxes (22,902)  (47,195)  (146,532)  (157,739)
Provision for income taxes 47   63   247   96 
Net loss attributable to common stockholders$(22,949) $(47,258) $(146,779) $(157,835)
Net loss per share attributable to common stockholders, basic and diluted$(0.22) $(0.49) $(1.45) $(1.66)
Weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted 102,648,790   96,696,417   101,087,793   95,036,618 
        
(1)Includes stock-based compensation as follows:       
Marketing$382  $567  $1,181  $1,774 
Operating and technology 3,115   5,038   10,107   15,903 
Selling, general and administrative 5,039   5,236   15,005   19,343 
Total$8,536  $10,841  $26,293  $37,020 


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

 September 30,
2023
 December 31,
2022
Assets   
Current assets   
Cash and cash equivalents$170,811  $293,793 
Accounts receivable, net 13,564   12,207 
Inventory, net 24,657   42,967 
Prepaid expenses and other current assets 20,933   23,291 
Total current assets 229,965   372,258 
Property and equipment, net 106,806   112,679 
Operating lease right-of-use assets 94,680   127,955 
Restricted cash 15,757    
Other assets 5,473   2,749 
Total assets$452,681  $615,641 
Liabilities and Stockholders’ Deficit   
Current liabilities   
Accounts payable$8,088  $11,902 
Accrued consignor payable 66,525   81,543 
Operating lease liabilities, current portion 19,856   20,776 
Other accrued and current liabilities 82,459   93,292 
Total current liabilities 176,928   207,513 
Operating lease liabilities, net of current portion 109,907   125,118 
Convertible senior notes, net 451,768   449,848 
Other noncurrent liabilities 4,097   3,254 
Total liabilities 742,700   785,733 
Stockholders’ deficit:   
Common stock, $0.00001 par value; 500,000,000 shares authorized as of September 30, 2023, and December 31, 2022; 103,310,783 and 99,088,172 shares issued and outstanding as of September 30, 2023, and December 31, 2022, respectively 1   1 
Additional paid-in capital 807,912   781,060 
Accumulated deficit (1,097,932)  (951,153)
Total stockholders’ deficit (290,019)  (170,092)
Total liabilities and stockholders’ deficit$452,681  $615,641 
    

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

 Nine Months Ended September 30,
  2023   2022 
Cash flows from operating activities:   
Net loss$(146,779) $(157,835)
Adjustments to reconcile net loss to cash used in operating activities:   
Depreciation and amortization 23,530   20,255 
Stock-based compensation expense 26,293   37,020 
Reduction of operating lease right-of-use assets 12,999   14,598 
Bad debt expense 1,565   1,133 
Accrued interest on convertible notes 575   575 
Accretion of debt discounts and issuance costs 1,920   1,942 
Loss on disposal/sale of property and equipment and impairment of capitalized proprietary software 182   432 
Property, plant, equipment, and right-of-use asset impairments 33,817    
Provision for inventory write-downs and shrinkage 8,836   1,798 
Gain on lease termination (738)   
Changes in operating assets and liabilities:   
Accounts receivable, net (2,922)  (2,119)
Inventory, net 9,474   6,243 
Prepaid expenses and other current assets 1,897   (6,543)
Other assets (2,856)  (391)
Operating lease liability (21,399)  (13,074)
Accounts payable (1,550)  4,067 
Accrued consignor payable (15,018)  729 
Other accrued and current liabilities (1,499)  (4,494)
Other noncurrent liabilities (118)  409 
Net cash used in operating activities (71,791)  (95,255)
Cash flow from investing activities:   
Capitalized proprietary software development costs (9,870)  (9,847)
Purchases of property and equipment (25,528)  (16,408)
Net cash used in investing activities (35,398)  (26,255)
Cash flow from financing activities:   
Proceeds from exercise of stock options 19   2,906 
Proceeds from issuance of stock in connection with the Employee Stock Purchase Program 446   900 
Taxes paid related to restricted stock vesting (501)  (28)
Net cash provided by financing activities (36)  3,778 
Net decrease in cash, cash equivalents and restricted cash (107,225)  (117,732)
Cash, cash equivalents and restricted cash   
Beginning of period 293,793   418,171 
End of period$186,568  $300,439 


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,
  2023   2022   2023   2022 
Adjusted EBITDA Reconciliation:       
Net loss$(22,949) $(47,258) $(146,779) $(157,835)
Depreciation and amortization 7,744   7,195   23,530   20,255 
Interest income (2,260)  (1,002)  (6,717)  (1,360)
Interest expense 2,673   2,675   8,018   8,014 
Provision for income taxes 47   63   247   96 
EBITDA (14,745)  (38,327)  (121,701)  (130,830)
Stock-based compensation(1) 8,536   10,841   26,293   37,020 
CEO separation benefits(2)          902 
CEO transition costs(3)    452   159   1,018 
Payroll taxes expense on employee stock transactions 74   137   142   412 
Legal fees reimbursement benefit(4)    (1,400)     (1,400)
Legal settlement    152   1,100   456 
Restructuring(5) (856)     37,396   275 
Other (income) expense, net    (6)     (133)
Adjusted EBITDA$(6,991) $(28,151) $(56,611) $(92,280)

(1) The stock-based compensation expense for the nine months ended September 30, 2022 includes a one-time charge of $1.0 million related to the modification of certain equity awards pursuant to the terms of the transition and separation agreement entered into with our founder, Julie Wainwright, in connection with her resignation as Chief Executive Officer (“CEO”) on June 6, 2022 (the “Separation Agreement”).

(2) The CEO separation benefit charges for the nine months ended September 30, 2022 consists of base salary, bonus and benefits for the 2022 fiscal year, as well as an additional twelve months of base salary and benefits payable to Julie Wainwright pursuant to the Separation Agreement.

(3) The CEO transition charges for the three and nine months ended September 30, 2022 consist of general and administrative fees, including legal and recruiting expenses, as well as retention bonuses for certain executives incurred in connection with our founder's resignation. The CEO transition charges for the nine months ended September 30, 2023 consists of retention bonuses for certain executives incurred in connection with our founder's resignation on June 6, 2022.

(4) During the three and nine months ended September 30, 2022, we received insurance reimbursement of $1.4 million related to a legal settlement expense.

(5) Restructuring for the three and nine months ended September 30, 2022 consists of employee severance payments and benefits. Restructuring for the three and nine months ended September 30, 2023 consists of impairment of right-of-use assets and property and equipment, employee severance charges, gain on lease terminations, and other charges, including legal and transportation expenses.

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,
  2023   2022   2023   2022 
Net loss$(22,949) $(47,258) $(146,779) $(157,835)
Stock-based compensation 8,536   10,841   26,293   37,020 
CEO separation benefits          902 
CEO transition costs    452   159   1,018 
Payroll tax expense on employee stock transactions 74   137   142   412 
Legal settlement    152   1,100   456 
Legal fees reimbursement benefit    (1,400)     (1,400)
Restructuring (856)     37,396   275 
Provision for income taxes 47   63   247   96 
Non-GAAP net loss attributable to common stockholders$(15,148) $(37,013) $(81,442) $(119,056)
Weighted-average common shares outstanding used to calculate Non-GAAP net loss attributable to common stockholders per share, basic and diluted 102,648,790   96,696,417   101,087,793   95,036,618 
Non-GAAP net loss attributable to common stockholders per share, basic and diluted$(0.15) $(0.38) $(0.81) $(1.25)

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,
  2023   2022   2023   2022 
Net cash used in operating activities$(10,933) $(7,351) $(71,791) $(95,255)
Purchase of property and equipment and capitalized proprietary software development costs (8,120)  (10,036)  (35,398)  (26,255)
Free Cash Flow$(19,053) $(17,387) $(107,189) $(121,510)

Key Financial and Operating Metrics:

 September 30,
2021
 December 31,
2021
 March 31,
2022
 June 30,
2022
 September 30,
2022
 December 31,
2022
 March 31,
2023
 June 30,
2023
 September 30, 2023
 (in thousands, except AOV and percentages)  
GMV$367,925  $437,179  $428,206  $454,163  $440,659  $492,955  $444,366  $423,341  $407,608 
NMV$273,417  $318,265  $310,511  $332,508  $325,105  $367,382  $327,805  $303,918  $302,912 
Consignment Revenue$78,373  $86,508  $83,989  $96,917  $93,874  $110,199  $102,643  $96,577  $102,852 
Direct Revenue$29,387  $45,262  $48,823  $42,646  $34,005  $33,252  $24,953  $20,887  $17,356 
Shipping Services Revenue$11,078  $13,355  $13,888  $14,872  $14,824  $16,204  $14,308  $13,391  $12,964 
Number of Orders 757   861   878   934   952   993   891   789   794 
Take Rate 34.9%  35.0%  35.7%  36.1%  36.0%  35.7%  37.4%  36.7%  38.1%
Active Buyers 772   797   828   889   950   998   1,014   985   954 
AOV$486  $508  $487  $486  $463  $496  $499  $537  $513 
% of GMV from Repeat Buyers 84.1%  83.8%  85.0%  84.7%  84.2%  84.0%  86.2%  87.3%  87.4%

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