The RealReal Announces Second Quarter 2019 Results

Q2 Total Revenue Increased 51% Year over Year to $71.0 million
Q2 Gross Merchandise Value Increased 40% Year over Year to $228.5 million

SAN FRANCISCO, Aug. 13, 2019 (GLOBE NEWSWIRE) -- The RealReal (Nasdaq: REAL)--the world’s largest online marketplace for authenticated, consigned luxury goods--today reported financial results for its second quarter ended June 30, 2019.

Second Quarter Financial Highlights

Gross Merchandise Volume (GMV) increased $65.5 million to $228.5 million, up 40% year over year.
Total Revenue increased $24.0 million to $71.0 million, up 51% year over year.
Consignment and Service Revenue increased $18.5 million to $60.7 million, up 44% year over year.
Direct Revenue increased $5.5 million to $10.3 million, up 114% year over year.
Gross Profit increased $15.3 million to $46.1 million, up 50% year over year.
Adjusted EBITDA was $(20.9) million or (29.4%) of total revenue.
GAAP basic and diluted net loss per share was ($2.83).
Non-GAAP diluted net loss per share was ($2.50). Assuming the pro-forma share count is the outstanding common shares immediately after the IPO, Non-GAAP diluted net loss per share was ($0.28).
Free cash flow was ($32.1) million.
At the end of the second quarter, cash, cash equivalents and short-term investments totaled $66.7 million. Our IPO raised $320.9 million in net proceeds after deducting underwriting discounts and commissions. Inclusive of the IPO net proceeds, our pro-forma cash balance was $387.6 million at the end of the second quarter.
The RealReal’s Registration Statement was declared effective on June 27, 2019. Our IPO closed on July 2, 2019.

“We are thrilled to report our first quarter as a public company. We generated 51% year-over-year revenue growth and 40% year-over-year GMV growth while driving marketing leverage and making progress with key strategic initiatives,” said Julie Wainwright, CEO and founder. “As we continue to unlock supply, invest in our technology platform, and instill trust in our marketplace, we are revolutionizing luxury resale and delivering tremendous value to our consignors and buyers.”

Other Second Quarter Highlights

Trailing twelve months active buyers reached 492,440, up 40% year over year.
Orders reached 504,820, up 40% year over year.
Average Order Value was $452.61 compared to $453.32 in the second quarter of 2018.
Take Rate increased 110bps year over year to 36.6%.
GMV from repeat buyers was 83.1% compared to 82.9% in the second quarter of 2018.

3Q and 2019 Financial Outlook
Based on information available as of Aug. 13, 2019, we are providing the following financial guidance for the third quarter and full year 2019.

	(In Millions)
	Third Quarter 2019	Full Year 2019
Expected GMV range	$233mn - $239mn	$974mn - $988mn
Expected EBITDA Margin range	(30%) - (28%)	(25%) - (24%)

Webcast and Conference Call
The RealReal will host a conference call and webcast to discuss its second quarter 2019 financial results today at 2 p.m. (PDT). Investors and participants can access the call by dialing (866) 996-5385 in the U.S. and (270) 215-9574 internationally. The passcode for the conference line is 9864827. The call will also be available via live webcast at investor.therealreal.com along with supporting slides. An archive of the webcast conference call will be available shortly after the call ends. The archived webcast will be available at investor.therealreal.com

About The RealReal, Inc.
The RealReal is the world’s largest online marketplace for authenticated, consigned luxury goods. With an expert behind every item, we provide a safe and reliable platform for consumers to buy and sell their luxury items. We have 100+ in-house gemologists, horologists and brand authenticators who inspect thousands of items available online each day. As a sustainable company, we give new life to pieces by brands from Gucci to Cartier, and hundreds more, supporting the circular economy. We make consigning effortless with free in-home pickup, drop-off service and direct shipping for both individual consignors and estates. At our stores in Los Angeles as well as SoHo and the Upper East Side NYC, customers can shop and consign and meet with our experts to learn more about luxury authenticity and sustainability. At our 11 Luxury Consignment Offices, three of which are located in our retail stores, our expert staff provides free valuations for high-value pieces.

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 within the meaning of federal and state securities laws. All statements other than statements of historical fact contained in this press release, including statements regarding the strength of our product offering, the expansion of our logistics network, our future results of operations and financial position, our business strategy and our plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar expressions. Forward-looking statements are based on current expectations of future events. We cannot guarantee that any forward-looking statement will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Investors should realize that if underlying assumptions prove inaccurate or that known or unknown risks or uncertainties materialize, actual results could vary materially from our expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. These forward-looking statements speak only as of the date of this press release and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise. A list and description of risks, uncertainties and other factors that could cause or contribute to differences in our results can be found in our filings with the Securities and Exchange Commission, including our S-1 filing. We qualify all of our forward-looking statements by these cautionary 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 and non-GAAP net loss and diluted net loss per share. We have provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure 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 net interest expense, income tax provision, depreciation and amortization, and remeasurement of preferred stock warrant liability included in other expense, 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 and Adjusted EBITDA Margin facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of equity-based compensation and related taxes, excludes an item that we do not consider to be indicative of our core operating performance. Investors should, however, understand that equity-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 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 diluted net loss per share is a non-GAAP financial measure that is calculated as GAAP net loss plus equity-based compensation expense and related taxes, (benefit from) provision for income taxes, and nonrecurring items divided by weighted average shares. We believe that adding back equity-based compensation expense and related taxes and (benefit from) provision for income taxes, and non-recurring items as adjustments to our GAAP diluted 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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenue:
Consignment and service revenue	$	60,713		$	42,178		$	116,950		$	83,177
Direct revenue		10,263			4,807			23,281			10,267
Total revenue		70,976			46,985			140,231			93,444
Cost of revenue:
Cost of consignment and service revenue		17,200			12,349			33,147			23,926
Cost of direct revenue		7,726			3,857			18,652			8,134
Total cost of revenue		24,926			16,206			51,799			32,060
Gross profit		46,050			30,779			88,432			61,384
Operating expenses (1):
Marketing		11,715			9,276			23,448			18,910
Operations and technology		34,320			22,997			65,865			44,329
Selling, general and administrative		25,355			14,377			47,674			27,901
Total operating expenses		71,390			46,650			136,987			91,140
Loss from operations		(25,340	)		(15,871	)		(48,555	)		(29,756	)
Interest income		610			81			1,015			165
Interest expense		(380	)		(526	)		(511	)		(723	)
Other expense, net		(1,706	)		(1,279	)		(1,987	)		(1,387	)
Loss before provision for income taxes		(26,816	)		(17,595	)		(50,038	)		(31,701	)
Provision for income taxes		59			—			59			—
Net loss	$	(26,875	)	$	(17,595	)	$	(50,097	)	$	(31,701	)
Accretion of redeemable convertible preferred stock to
redemption value		—		$	(1,342	)	$	(3,355	)	$	(2,451	)
Net loss attributable to common stockholders	$	(26,875	)	$	(18,937	)	$	(53,452	)	$	(34,152	)
Net loss per share attributable to common stockholders, basic
and diluted	$	(2.83	)	$	(2.28	)	$	(5.87	)	$	(4.11	)
Shares used to compute net loss per share attributable to
common stockholders, basic and diluted		9,494,447			8,314,251			9,102,234			8,307,010


(1) Includes stock-based compensation as follows:
Marketing		74			39			143			72
Operating and technology		476			263			966			536
Selling, general and administrative (2)		737			379			2,107			618
Total		1,287			681			3,216			1,226

(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)
	June 30,			December 31,
	2019			2018
Assets
Current assets
Cash and cash equivalents	$	53,314		$	34,393
Short-term investments		13,372			27,131
Accounts receivable		9,517			7,571
Inventory, net		12,664			10,355
Prepaid expenses and other current assets		10,563			9,696
Total current assets		99,430			89,146
Property and equipment, net		40,427			33,286
Restricted cash		11,700			11,234
Other assets		6,573			1,751
Total assets	$	158,130		$	135,417
Liabilities, Redeemable Convertible Preferred Stock, Convertible Preferred Stock and
Stockholders’ Deficit
Current liabilities
Accounts payable	$	4,469		$	5,149
Accrued consignor payable		33,404			35,259
Other accrued and current liabilities		42,475			41,956
Long-term debt, current portion		6,498			5,990
Total current liabilities		86,846			88,354
Long-term debt, net of current portion		—			3,249
Other noncurrent liabilities		10,076			7,304
Total liabilities		96,922			98,907
Commitments and contingencies
Redeemable convertible preferred stock, $0.00001 par value; 37,403,946 and
31,053,601 shares authorized as of June 30, 2019 and December 31, 2018,
respectively; 37,403,946 and 31,053,601 shares issued and outstanding
as of June 30, 2019 and December 31, 2018, respectively		198,228			151,381
Convertible preferred stock $0.00001 par value; 77,781,921 and 73,950,153
shares authorized as of June 30, 2019 and December 31, 2018,
respectively; 77,556,411 and 73,724,645 shares issued and outstanding
as of June 30, 2019 and December 31, 2018, respectively		169,102			142,819
Stockholders’ deficit:
Common stock, $0.00001 par value; 155,649,887 and 145,467,774 shares
authorized as of June 30, 2019 and December 31, 2018,
respectively; 9,701,266 and 8,593,077 shares issued and outstanding
as of June 30, 2019 and December 31, 2018, respectively		1			—
Additional paid-in capital		1,729			—
Accumulated comprehensive income (loss)		5			(25	)
Accumulated deficit		(307,857	)		(257,665	)
Total stockholders’ deficit		(306,122	)		(257,690	)
Total liabilities, redeemable convertible preferred stock, convertible preferred stock
and stockholders’ deficit	$	158,130		$	135,417

THE REALREAL, INC.
Condensed Statements of Cash Flows
(unaudited)
	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(50,097	)	$	(31,701	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		5,993			4,136
Stock-based compensation expense		2,397			1,226
Change in fair value of convertible note derivative liability		—			1,248
Bad debt expense		681			333
Compensation expense related to stock sales by current and former employees		819			—
Change in fair value of convertible preferred stock warrant liability		2,100			183
Accrued interest on convertible notes		—			223
Accretion of unconditional endowment grant liability		44			53
Accretion of debt discounts		9			97
Amortization of premiums on short-term investments		42			15
Changes in operating assets and liabilities:
Accounts receivable		(2,627	)		918
Inventory, net		(2,309	)		(1,453	)
Prepaid expenses and other current assets		(867	)		(3,913	)
Other assets		411			70
Accounts payable		157			(1,480	)
Accrued consignor payable		(1,855	)		(3,872	)
Other accrued and current liabilities		(1,744	)		4,516
Other noncurrent liabilities		672			695
Net cash used in operating activities		(46,174	)		(28,706	)
Cash flow from investing activities:
Purchases of investments		(9,151	)		(2,211	)
Proceeds from maturities of short-term investments		22,898			7,600
Proceeds from sale of short-term investments		—			7,023
Capitalized proprietary software development costs		(3,887	)		(2,245	)
Purchases of property and equipment		(10,042	)		(4,164	)
Net cash (used in) provided by investing activities		(182	)		6,003
Cash flow from financing activities:
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs		43,492			86,640
Proceeds from issuance of convertible preferred stock, net of issuance costs		26,283			—
Proceeds from issuance convertible notes, net of issuance costs		—			14,273
Proceeds from exercise of stock options and common stock warrants		1,774			63
Payment of deferred offering costs		(3,056	)		—
Issuance cost paid related to conversion of convertible notes		—			(545	)
Repayment of debt		(2,750	)		(1,500	)
Net cash provided by financing activities		65,743			98,931
Net increase in cash, cash equivalents and restricted cash		19,387			76,228
Cash, cash equivalents, and restricted cash
Beginning of period		45,627			20,660
End of period	$	65,014		$	96,888

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Adjusted EBITDA Reconciliation:
Net loss	$	(26,875	)	$	(17,595	)	$	(50,097	)	$	(31,701	)
Depreciation and amortization		3,185			2,138			5,993			4,136
Stock-based compensation		1,287			681			2,397			1,226
Compensation expense related to stock sales by current
and former employees		—			—			819			—
Interest income		(610	)		(81	)		(1,015	)		(165	)
Interest expense		380			526			511			723
Other expense, net		1,706			1,279			1,987			1,387
Provision for income taxes		59			—			59			—
Adjusted EBITDA	$	(20,868	)	$	(13,052	)	$	(39,346	)	$	(24,394	)

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Numerator
Net loss	$	(26,875	)	$	(17,595	)	$	(50,097	)	$	(31,701	)
Stock-based compensation, including compensation expense related to stock sales by current and former employees		1,287			681			3,216			1,226
Provision for income taxes		59			—			59			—
Accretion of redeemable convertible preferred stock		—			(1,342	)		(3,355	)		(2,451	)
Remeasurement of preferred stock warrant liability		1,820			79			2,100			183
Non-GAAP net loss attributable to common stockholders per share, basic
and diluted	$	(23,709	)	$	(18,177	)	$	(48,077	)	$	(32,743	)
Denominator
Weighted-average common shares outstanding used to
calculate Non-GAAP net loss attributable to common stockholders per
share, basic and diluted		9,494,447			8,314,251			9,102,234			8,307,010
Non-GAAP net loss per share, basic and diluted	$	(2.50	)	$	(2.19	)	$	(5.28	)	$	(3.94	)
Common shares outstanding used to
calculate Non-GAAP net loss attributable to common stockholders per
share, basic and diluted at the close of the IPO on July 2nd		85,314,872						85,314,872
Non-GAAP net loss per share, basic and diluted	$	(0.28	)				$	(0.56	)

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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net cash used by operating activities	$	(23,603	)	$	(13,734	)	$	(46,174	)	$	(28,706	)
Purchase of property and equipment and capitalized proprietary software development costs		(8,500	)		(3,207	)		(13,929	)		(6,409	)
Free Cash Flow	$	(32,103	)	$	(16,941	)	$	(60,103	)	$	(35,115	)

The following table presents a reconciliation of pro-forma share count as of June 30, 2019:


		Pro Forma Adjustments

	Post-Split	Conversion of	Issuance	Pro Forma
	6/30/19 Actual	Preferred Stock	upon IPO	June 30, 2019
Total Common Stock Issued and Outstanding	9,701,266	58,363,606	17,250,000	85,314,872

Key Financial and Operating Metrics:


	March 31,			June 30,			September 30,			December 31,			March 31,			June 30,
	2018			2018			2018			2018			2019			2019

	(In thousands, except AOV and percentages)

GMV	$	158,378		$	162,954		$	170,923		$	218,495		$	224,116		$	228,487
NMV	$	113,347		$	115,916		$	123,550		$	153,775		$	160,538		$	164,782
Consignment and Services Revenue	$	40,999		$	42,178		$	45,744		$	55,070		$	56,236		$	60,713
Direct Revenue	$	5,460		$	4,807		$	6,095		$	7,023		$	13,019		$	10,263
Number of Orders		356			359			409			471			498			505
Take Rate		35.1	%		35.5	%		36.4	%		34.9	%		35.3	%		36.6	%
Active Buyers		326			352			379			416			455			492
AOV	$	445		$	453		$	418		$	464		$	450		$	453
% of GMV from Repeat Buyers		81.5	%		82.9	%		82.9	%		81.6	%		82.4	%		83.1	%

The RealReal Announces Second Quarter 2019 Results

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