The RealReal Announces Third Quarter 2019 Results


Q3 Total Revenue Increased 55% Year over Year to $80.5 million
Q3 Gross Merchandise Value Increased 48% Year over Year to $252.8 million

SAN FRANCISCO, Nov. 04, 2019 (GLOBE NEWSWIRE) -- 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, 2019.

Third Quarter Financial Highlights

  • Gross Merchandise Volume (GMV) increased $81.8 million to $252.8 million, up 48% year over year.
  • Total Revenue increased $28.7 million to $80.5 million, up 55% year over year.
  • Consignment and Service Revenue increased $24.0 million to $69.8 million, up 53% year over year.
  • Direct Revenue increased $4.6 million to $10.7 million, up 75% year over year.
  • Gross Profit increased $18.9 million to $52.2 million, up 57% year over year.
  • Adjusted EBITDA was $(20.9) million or (26.0%) of total revenue.
  • GAAP basic and diluted net loss per share was ($0.30).
  • Non-GAAP diluted net loss per share was ($0.27). 
  • Free cash flow was ($20.8) million.
  • At the end of the third quarter, cash, cash equivalents and short-term investments totaled $370.3 million.

“Q3 was a very strong quarter and speaks to the health and vibrancy of our marketplace. GMV and revenue growth accelerated, and we saw increased leverage in marketing as well as operations and technology,” said Julie Wainwright, CEO and founder. “We are proud of the accelerating growth and operating leverage we demonstrated during the quarter, which we believe speaks to several unique aspects of our model including high buyer repeat rates and our flywheel where buyers become consignors and consignors become buyers.”

Other Third Quarter Highlights

  • Trailing 12 months active buyers reached 542,987, up 43% year over year.
  • Orders reached 577,421, up 41% year over year.
  • Average Order Value was $438 compared to $418 in the third quarter of 2018.
  • Take Rate increased 40bps year over year to 36.8%.
  • GMV from repeat buyers was 81.8% compared to 82.9% in the third quarter of 2018.

4Q and 2019 Financial Outlook
Based on information available as of Nov. 4, 2019, we are providing the following financial guidance for the fourth quarter as well as updated guidance for the full year 2019. 

      
 (in Millions)
 Fourth Quarter 2019 Full Year 2019
 LowHigh LowHigh
Expected GMV Range$292$300 $997$1,005
Implied Y/Y Growth34%37% 40%41%
Expected EBITDA % of Revenue Range(15%)(14%) (24%)(23%)

Webcast and Conference Call
The RealReal will host a conference call and webcast to discuss its third quarter 2019 financial results today at 2 p.m. (PST). 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 8141249. 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 nine 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, including statements about future operating results, our ability to drive revenue growth and our ability to drive operating leverage. 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. Our future results may be different from those described in our forward-looking statements for a variety of reasons, including 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. 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 Form 10Q and 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 September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Revenue:       
Consignment and service revenue$69,790  $45,744  $186,740  $128,921 
Direct revenue 10,695   6,095   33,976   16,362 
Total revenue 80,485   51,839   220,716   145,283 
Cost of revenue:       
Cost of consignment and service revenue 19,446   13,157   52,593   37,083 
Cost of direct revenue 8,811   5,352   27,464   13,486 
Total cost of revenue 28,257   18,509   80,057   50,569 
Gross profit 52,228   33,330   140,659   94,714 
Operating expenses:       
Marketing 13,390   10,624   36,838   29,534 
Operations and technology 37,407   28,257   103,271   72,586 
Selling, general and administrative 28,436   16,325   76,110   44,226 
Total operating expenses (1) 79,233   55,206   216,219   146,346 
Loss from operations (27,005)  (21,876)  (75,560)  (51,632)
Interest income 1,902   437   2,918   602 
Interest expense (60)  (204)  (572)  (927)
Other expense, net (119)  (205)  (2,106)  (1,592)
Loss before provision for income taxes (25,282)  (21,848)  (75,320)  (53,549)
Provision (benefit) for income taxes (8)  37   51   37 
Net loss$(25,274) $(21,885) $(75,371) $(53,586)
Accretion of redeemable convertible preferred stock to redemption value$  $(3,200) $(3,355) $(5,651)
Net loss attributable to common stockholders$(25,274) $(25,085) $(78,726) $(59,237)
Net loss per share attributable to common stockholders, basic and diluted$(0.30) $(3.00) $(2.28) $(7.12)
Shares used to compute net loss per share attributable to common stockholders, basic and diluted 84,634,956   8,349,403   34,556,485   8,321,296 
        
        
(1) Includes stock-based compensation as follows:       
Marketing$145  $42  $287  $115 
Operating and technology 1,098   239   2,064   775 
Selling, general and administrative (2) 1,277   1,306   3,384   1,923 
Total$2,520  $1,587  $5,735  $2,813 
        
(2) Includes compensation expense related to stock sales by current and former employees in September 2018 and March 2019.
        



THE REALREAL, INC.
Condensed Balance Sheets
(in thousands, except share and per share data)
(unaudited)
 September 30,
2019
 December 31,
2018
Assets   
Current assets   
Cash and cash equivalents$364,995  $34,393 
Short-term investments 5,290   27,131 
Accounts receivable 8,935   7,571 
Inventory, net 13,846   10,355 
Prepaid expenses and other current assets 13,071   9,696 
Total current assets 406,137   89,146 
Property and equipment, net 45,715   33,286 
Restricted cash    11,234 
Other assets 1,518   1,751 
Total assets$453,370  $135,417 
Liabilities, Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders’ Equity (Deficit)   
Current liabilities   
Accounts payable$5,666  $5,149 
Accrued consignor payable 39,870   35,259 
Other accrued and current liabilities 42,548   41,956 
Long-term debt, current portion    5,990 
Total current liabilities 88,084   88,354 
Long-term debt, net of current portion    3,249 
Other noncurrent liabilities 8,050   7,304 
Total liabilities 96,134   98,907 
Commitments and contingencies    
Redeemable convertible preferred stock, $0.00001 par value; no and 31,053,601 shares authorized as of September 30, 2019 and December 31, 2018, respectively; no and 31,053,601 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively    151,381 
Convertible preferred stock $0.00001 par value; no and 73,950,153 shares authorized as of September 30, 2019 and December 31, 2018, respectively; no and 73,724,645 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively    142,819 
Stockholders’ equity (deficit):   
Common stock, $0.00001 par value; 500,000,000 and 145,467,774 shares authorized as of September 30, 2019 and December 31, 2018, respectively; 85,759,021 and 8,593,077 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively 1    
Additional paid-in capital 690,365    
Accumulated comprehensive income (loss) 1   (25)
Accumulated deficit (333,131)  (257,665)
Total stockholders’ equity (deficit) 357,236   (257,690)
Total liabilities, redeemable convertible preferred stock, convertible preferred stock and stockholders’ equity (deficit)$453,370  $135,417 
    



THE REALREAL, INC.
Condensed Statements of Cash Flows
(unaudited)
 Nine Months Ended September 30,
 2019 2018
Cash flows from operating activities:   
Net loss$(75,371) $(53,586)
Adjustments to reconcile net loss to cash used in operating activities:   
Depreciation and amortization 9,537   6,489 
Stock-based compensation expense 4,916   1,966 
Change in fair value of convertible note derivative liability    1,248 
Bad debt expense 1,208   609 
Compensation expense related to stock sales by current and former employees 819   847 
Change in fair value of convertible preferred stock warrant liability 2,100   388 
Accrued interest on convertible notes    223 
Accretion of unconditional endowment grant liability 70   85 
Accretion of debt discounts 11   104 
Amortization of premiums on short-term investments 38   27 
Changes in operating assets and liabilities:   
Accounts receivable (2,572)  (2,854)
Inventory, net (3,491)  (1,607)
Prepaid expenses and other current assets (3,375)  (10,060)
Other assets 136   445 
Accounts payable 1,394   2,752 
Accrued consignor payable 4,611   1,537 
Other accrued and current liabilities 494   10,000 
Other noncurrent liabilities 1,356   1,762 
Net cash used in operating activities (58,119)  (39,625)
Cash flow from investing activities:   
Purchases of short-term investments (12,169)  (24,237)
Proceeds from maturities of short-term investments 33,998   7,600 
Proceeds from sale of short-term investments    7,023 
Capitalized proprietary software development costs (6,670)  (4,204)
Purchases of property and equipment (16,111)  (8,781)
Net cash used in investing activities (952)  (22,599)
Cash flow from financing activities:   
Proceeds from issuance of common stock in initial public offering, net of issuance costs of $5,428 315,486    
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs of $166 43,492   86,640 
Proceeds from issuance of convertible preferred stock, net of issuance costs of $63 26,283   9,627 
Proceeds from issuance of convertible notes, net of issuance costs of $59    14,273 
Proceeds from exercise of stock options and common stock warrants 2,448   257 
Taxes paid related to net share settlement of equity awards (20)   
Issuance cost paid related to conversion of convertible notes    (545)
Repayment of debt (9,250)  (2,750)
Net cash provided by financing activities 378,439   107,502 
Net increase in cash, cash equivalents and restricted cash 319,368   45,278 
Cash, cash equivalents, and restricted cash   
Beginning of period 45,627   20,660 
End of period$364,995  $65,938 
    

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,
 2019 2018 2019 2018
Adjusted EBITDA Reconciliation:       
Net loss$(25,274) $(21,885) $(75,371) $(53,586)
Depreciation and amortization 3,545   2,353   9,537   6,489 
Stock-based compensation 2,520   740   4,916   1,966 
Vendor services settlement    2,000      2,000 
Compensation expense related to stock sales by current and former employees    847   819   847 
Interest income (1,902)  (437)  (2,918)  (602)
Interest expense 60   204   572   927 
Other expense, net 119   205   2,106   1,592 
Provision for income taxes (8)  37   51   37 
Adjusted EBITDA$(20,940) $(15,936) $(60,288) $(40,330)
        

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 September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Numerator       
Net loss attributable to common stockholders$(25,274) $(25,085) $(78,726) $(59,237)
Stock-based compensation, including compensation expense related to stock sales by current and former employees 2,520   1,587   5,735   2,813 
Provision for income taxes (8)  37   51   37 
Accretion of redeemable convertible preferred stock    (3,200)  (3,355)  (5,651)
Remeasurement of preferred stock warrant liability    206   2,100   338 
Non-GAAP net loss attributable to common stockholders per share, basic and diluted$(22,762) $(26,455) $(74,195) $(61,700)
Denominator       
Weighted-average common shares outstanding used to calculate Non-GAAP net loss attributable to common stockholders per share, basic and diluted 84,634,956   8,349,403   34,556,485   8,321,296 
Non-GAAP net loss per share, basic and diluted$(0.27) $(3.17) $(2.15) $(7.41)
        

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,
 2019 2018 2019 2018
Net cash used by operating activities$(11,945) $(10,919) $(58,119) $(39,625)
Purchase of property and equipment and capitalized proprietary software development costs (8,852)  (6,576)  (22,781)  (12,985)
Free Cash flow$(20,797) $(17,495) $(80,900) $(52,610)
        

Key Financial and Operating Metrics:

 March 31,
2018
 June 30,
2018
 September 30,
2018
 December 31,
2018
 March 31,
2019
 June 30,
2019
 September 30,
2019
 (In thousands, except AOV and percentages)
GMV$158,378 $162,954 $170,923 $218,495 $224,116 $228,487 $252,765
NMV$113,347 $115,916 $123,550 $153,775 $160,538 $164,782 $186,617
Consignment and Services Revenue$40,999 $42,178 $45,744 $55,070 $56,236 $60,713 $69,790
Direct Revenue$5,460 $4,807 $6,095 $7,023 $13,019 $10,263 $10,695
Number of Orders 356  359  409  471  498  505  577
Take Rate 35.1%  35.5%  36.4%  34.9%  35.3%  36.6%  36.8%
Active Buyers 326  352  379  416  455  492  543
AOV$445 $453 $418 $464 $450 $453 $438
% of GMV from Repeat Buyers 81.5%  82.9%  82.9%  81.6%  82.4%  83.1%  81.8%