real-ex991

SAN FRANCISCO, Nov. 9, 2020 — 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.

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

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.

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.

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.

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.

	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.

	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

	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):

	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	%

	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	)