GlobeNewswire Inc | Nov 8, 2021 04:06PM EST

November 08, 2021

Third Quarter Gross Merchandise Value Increased 50% Year-Over-Year to $368 millionThird Quarter Total Revenue Increased 53% Year-Over-Year to $119 millionThird Quarter Gross Profit Per Order Improved $4 Year-Over-Year to $94 Per Order

SAN FRANCISCO, Nov. 08, 2021 (GLOBE NEWSWIRE) -- The RealReal (Nasdaq: REAL)the worlds largest online marketplace for authenticated, resale luxury goodstoday reported financial results for its third quarter ended Sept. 30, 2021. The company reported strong top-line growth as well as solid bottom-line improvements. Gross merchandise value (GMV) increased 50% and 46% compared to the same periods in 2020 and 2019, respectively. Third quarter gross profit per order was approximately $94, an increase of $4 per order, or a 4% improvement year-over-year. In addition, the company achieved leverage in all major expense categories in the third quarter of 2021 compared to prior year.

We are pleased to announce strong results for the third quarter. Our product supply has ramped nicely driven by at-home concierge appointments and our expanded retail footprint. Based on what we know today, we believe the operational and supply impacts to our business from COVID-19 are effectively behind us, and we are well-positioned for a strong holiday season. Additionally, we believe The RealReals unique business model is largely insulated from the supply chain shortages and certain of the inflationary impacts many retailers are experiencing, said Julie Wainwright, founder and CEO of The RealReal.

Wainwright continued, Like many retailers, we experienced certain pressures to our operations during the third quarter, namely elevated shipping costs and staffing challenges in our authentication centers. To address, we implemented multiple initiatives, including shipping diversification and last-mile optimization as well as training and development programs and a continued focus on automation. The investments we made in 2019 and 2020 to move toward expanded automation in our authentication centers have already begun to show a strong return on investment.

During the third quarter, The RealReal announced a new Chief Financial Officer, Robert Julian. As an operations- and strategy-focused CFO, Julian has a track record of driving shareholder value and building world-class finance organizations.

Overall, our business is experiencing very positive trends and we believe these trends will continue through the end of the year and into 2022. While we are in the early innings of delivering operating expense leverage, we believe the company is starting to see the benefits of our previous investments, which will create leverage as we drive toward profitability in the coming quarters, said Wainwright.

In mid-2021, the company began reporting GMV and average order value (AOV) results, among other top-line metrics, and the company committed to providing these results on a monthly basis through the end of 2021. The company intends to resume a more typical annual and quarterly guidance cadence in 2022 along with committing to a timeline to reach Adjusted EBITDA profitability.

Third Quarter Financial Highlights

-- GMV was $368 million, an increase of 50% and 46% compared to the same periods in 2020 and 2019, respectively. -- Total Revenue was $119 million, an increase of 53% and 46% compared to the same periods in 2020 and 2019, respectively. -- Net Loss was ($57 million) for the third quarter of 2021, compared to ($44 million) and ($25 million) in the same periods in 2020 and 2019, respectively. -- Adjusted EBITDA was ($31.5 million) or (26.5%) of total revenue compared to (37.6%) of total revenue in the third quarter of 2020 and (26.0%) of total revenue in the third quarter of 2019. Adjusted EBITDA includes $0.4 million of COVID-related expenses and $1.4 million of redundant occupancy expenses and productivity ramp associated with our relocation of our authentication center from Brisbane, Calif., to Phoenix. -- GAAP basic and diluted net loss per share was ($0.62). -- Non-GAAP basic and diluted net loss per share was ($0.47). -- At the end of the third quarter, cash and cash equivalents totaled $445 million. -- GMV growth driven by strong supply growth and buyer engagement in the third quarter of 2021Trailing 12-months (TTM) active buyers reached 772,000, an increase of 25% compared to the same period in 2020.Orders reached 757,000, an increase of 38% compared to the same period in 2020.AOV was $486, an increase of 9% compared to the same period in 2020. Higher AOV was driven by a 10% year-over-year increase in units per transaction (UPT), partially offset by slightly lower average selling price (ASP). UPT benefited from a seasonal shift toward womens ready-to-wear categories.GMV from repeat buyers was 84% compared to 83% in the third quarter of 2020. -- Revenue growth driven by GMV growth and higher direct sales, partially offset by lower take rateConsignment and Service Revenue was $89.5 million, an increase of 39% and 30% compared to the same periods in 2020 and 2019, respectively.Direct Revenue was $29.4 million, an increase of 115% and 139% compared to the same periods in 2020 and 2019, respectively.Consignment Take Rate decreased 50 basis points year-over-year to 34.9%, but increased 40 basis points sequentially compared to the second quarter of 2021, reflecting normalized category mix partially offset by certain adjustments in the period. -- Gross Profit per Order increases 4% year-over-year due to higher AOV and higher direct gross margins Gross Profit was $71.1 million, an increase of 44% compared to the same period in 2020.Gross Profit per Order improved $4 year-over-year to $94 per order. -- Reducing fashions impactSince The RealReals inception in 2011 through Sept. 30, 2021, consignment with The RealReal saved nearly 22,000 metric tons of carbon and more than 1 billion liters of water.

Webcast and Conference Call

The RealReal will post a stockholder letter on its investor relations website atinvestor.therealreal.com/financial-information/quarterly-resultsand host a conference call at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) to answer questions regarding its third quarter and year-to-date results. 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 1875975. The call will also be available via live webcast atinvestor.therealreal.comalong with the stockholder letter and supporting slides.

An archive of the webcast conference call will be available shortly after the call ends atinvestor.therealreal.com.

About The RealReal, Inc.

The RealReal is the worlds largest online marketplace for authenticated, resale luxury goods, with more than 24 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 categoriesincluding women's and men's fashion, fine jewelry and watches, art and homein 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. At our 18 retail locations, including our 15 shoppable stores, customers can sell, meet with our experts and receive free valuations.

Investor Relations Contact:Caitlin HoweVice President, Investor RelationsIR@therealreal.com

Press Contact:Erin SantyHead of Communicationspr@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, 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 for the year ended December 31, 2020, a copy 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 net revenue ("Adjusted EBITDA Margin"), free cash flow, non-GAAP net loss attributable to common stockholders, non-GAAP net loss per share attributable to common stockholders, basic and diluted, and Contribution Profit. 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 EBITDAis 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 calculateAdjusted EBITDAas 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 on employee stock transactions, 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 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 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 flowis 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 dilutedis 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 Nine Months Ended September 30, 30, 2021 2020 2021 2020Revenue: Consignmentand service $ 89,451 $ 64,152 $ 246,985 $ 176,006 revenueDirect revenue 29,387 13,645 75,582 37,111 Total revenue 118,838 77,797 322,567 213,117 Cost of revenue:Cost ofconsignment 22,714 16,304 64,352 47,253 and servicerevenueCost of direct 25,025 11,964 65,365 31,678 revenueTotal cost of 47,739 28,268 129,717 78,931 revenueGross profit 71,099 49,529 192,850 134,186 Operating expenses:Marketing 15,708 15,186 44,378 37,747 Operations and 61,135 40,578 172,906 117,858 technologySelling,general and 44,912 35,384 132,504 101,937 administrativeLegal 500 ? 11,788 1,110 settlementTotaloperating 122,255 91,148 361,576 258,652 expenses ^(1)Loss from (51,156 ) (41,619 ) (168,726 ) (124,466 ) operationsInterest 55 448 249 2,350 incomeInterest (6,072 ) (2,406 ) (15,374 ) (2,810 ) expenseOther income 5 ? 22 (89 ) (expense), netLoss beforeprovision for (57,168 ) (43,577 ) (183,829 ) (125,015 ) income taxesProvision(benefit) for 28 (17 ) 83 38 income taxesNet lossattributable $ (57,196 ) $ (43,560 ) $ (183,912 ) $ (125,053 ) to commonstockholdersNet loss pershareattributableto common $ (0.62 ) $ (0.50 ) $ (2.02 ) $ (1.43 ) stockholders,basic anddilutedWeightedaverage sharesused tocompute netloss per share 91,859,603 87,869,321 90,995,285 87,176,677 attributableto commonstockholders,basic anddiluted ^(1) Includesstock-based compensationas follows:Marketing $ 628 $ 705 $ 1,924 $ 1,228 Operating and 5,543 2,892 15,789 7,222 technologySelling,general and 6,421 3,775 18,611 8,461 administrativeTotal $ 12,592 $ 7,372 $ 36,324 $ 16,911

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

September 30, December 31, 2021 2020Assets Current assets Cash and cash equivalents $ 444,809 $ 350,846 Short-term investments ? 4,017 Accounts receivable, net 6,770 7,213 Inventory 63,876 42,321 Prepaid expenses and other current assets 22,319 17,072 Total current assets 537,774 421,469 Property and equipment, net 83,928 63,454 Operating lease right-of-use assets 146,852 118,136 Other assets 2,857 2,050 Total assets $ 771,411 $ 605,109 Liabilities and Stockholders? Equity Current liabilities Accounts payable $ 8,246 $ 14,346 Accrued consignor payable 60,366 57,053 Operating lease liabilities, current portion 15,229 14,999 Other accrued and current liabilities 84,921 61,862 Total current liabilities 168,762 148,260 Operating lease liabilities, net of current 145,787 115,084 portionConvertible senior notes, net 344,245 149,188 Other noncurrent liabilities 1,900 1,284 Total liabilities 660,694 413,816 Stockholders? equity: Common stock, $0.00001 par value; 500,000,000shares authorized as of September 30, 2021 andDecember 31, 2020; 1 1 92,289,799 and 89,301,664 shares issued andoutstanding as of September 30, 2021 and December 31, 2020, respectivelyAdditional paid-in capital 826,649 723,302 Accumulated other comprehensive income ? 11 Accumulated deficit (715,933 ) (532,021 ) Total stockholders? equity 110,717 191,293 Total liabilities and stockholders? equity $ 771,411 $ 605,109

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

Nine Months Ended September 30, 2021 2020Cash flows from operating activities: Net loss $ (183,912 ) $ (125,053 ) Adjustments to reconcile net loss to cash used in operating activities:Depreciation and amortization 17,840 13,673 Stock-based compensation expense 36,324 16,911 Reduction of operating lease right-of-use 14,765 12,003 assetsBad debt expense 637 661 Accrued interest on convertible notes 1,525 1,496 Accretion of debt discounts and issuance costs 9,854 1,268 Loss on retirement of property and equipment 404 ? Other adjustments 10 (75 ) Changes in operating assets and liabilities: Accounts receivable, net (194 ) 2,559 Inventory (21,555 ) 4,927 Prepaid expenses and other current assets (5,330 ) (4,626 ) Other assets (807 ) 578 Operating lease liability (12,548 ) (8,710 ) Accounts payable (6,220 ) (4,164 ) Accrued consignor payable 3,313 (8,330 ) Other accrued and current liabilities 21,951 1,015 Other noncurrent liabilities 556 (150 ) Net cash used in operating activities (123,387 ) (96,017 ) Cash flow from investing activities: Purchases of short-term investments ? (73,280 ) Proceeds from maturities of short-term 4,000 222,217 investmentsProceeds from sale of short-term investments ? 7,932 Capitalized proprietary software development (7,455 ) (6,640 ) costsPurchases of property and equipment (30,303 ) (15,685 ) Net cash (used in) provided by investing (33,758 ) 134,544 activitiesCash flow from financing activities: Proceeds from issuance of 2025 convertible ? 166,278 senior notes, net of issuance costsPurchase of capped calls in conjunction withthe issuance of the 2025 convertible senior ? (22,546 ) notesProceeds from issuance of 2028 convertible 278,234 ? senior notes, net of issuance costsPurchase of capped calls in conjunction withthe issuance of the 2028 convertible senior (33,666 ) ? notesProceeds from exercise of stock options 5,452 7,135 Proceeds from issuance of stock in connection 1,092 ? with the Employee Stock Purchase ProgramTaxes paid related to restricted stock vesting (4 ) (748 ) Net cash provided by financing activities 251,108 150,119 Net increase in cash and cash equivalents 93,963 188,646 Cash and cash equivalents Beginning of period 350,846 154,446 End of period $ 444,809 $ 343,092

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

Three Months Ended September Nine Months Ended September 30, 30, 2021 2020 2021 2020Adjusted EBITDA Reconciliation:Net loss $ (57,196 ) $ (43,560 ) $ (183,912 ) $ (125,053 ) Depreciationand 6,034 4,917 17,840 13,673 amortizationStock-based 12,592 7,372 36,324 16,911 compensationPayroll taxexpense onemployee stock 245 ? 967 ? transactions^(1)Legal feesreimbursement (500 ) ? (500 ) ? benefit ^(2)Legal 500 ? 11,788 1,110 settlement ^(3)Restructuring 811 72 2,314 514 charges ^(4)Interest income (55 ) (448 ) (249 ) (2,350 ) Interest 6,072 2,406 15,374 2,810 expenseOther (income) (5 ) ? (22 ) 89 expense, netProvision for 28 (17 ) 83 38 income taxesAdjusted EBITDA $ (31,474 ) $ (29,258 ) $ (99,993 ) $ (92,258 )

(1) We exclude employer payroll tax expense related to employee stock-based transactions because we believe that excluding this item provides meaningful supplemental information regarding our operating results. In particular, this expense is dependent on the price of our common stock at the time of vesting or exercise, which may vary from period to period, and other factors that are beyond our control and do not correlate to the operation of the business. When evaluating the performance of our business and making operating plans, we do not consider these items. Similar charges were not adjusted in prior periods as they were not material.(2) During the nine months ended 9/30/21, we received insurance reimbursementof $3.2 million related to legal fees for a certain matter, of which $2.7 million have been applied to the current year's legal expenses. (3) On November 5, 2021, a stipulation of settlement was filed with the federal court to settle the putative shareholder class action filed against us, our officers and directors, and the underwriters for the Companys initial public offering. The stipulation of settlement is subject to preliminary and final approval by the court. The financial terms of the settlement stipulation provide that the Company will pay $11.0 million within thirty (30) days of the later of preliminary approval of the settlement or plaintiffs counsel providing payment instructions. Also on November 5, 2021, a stipulation of settlement was filed in the derivative case filed against us as a nominal defendant and our officers and directors as defendants. The stipulation of settlement is subject to preliminary and final approval by the court. The financial terms of the settlement stipulation provide that the Company will pay $0.5 million within thirty (30) days of the later of preliminary approval of the settlement or plaintiffs counsel providing payment instructions. (4) The restructuring charges for the three and nine months ended September 30, 2021 comprise of the costs to transition operations from the Brisbane warehouse to our new Phoenix warehouse. The restructuring charges for the three and nine months ended September 30, 2020 consist of COVID-19 related costs including employee severance.

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 Nine Months Ended September 30, 30, 2021 2020 2021 2020Net loss $ (57,196 ) $ (43,560 ) $ (183,912 ) $ (125,053 ) Stock-based 12,592 7,372 36,324 16,911 compensationPayroll taxexpense on 245 ? 967 ? employee stocktransactionsLegal feesreimbursement (500 ) ? (500 ) ? benefitLegal settlement 500 ? 11,788 1,110 Restructuring 811 72 2,314 514 chargesProvision for 28 (17 ) 83 38 income taxesNon-GAAP netlossattributable to $ (43,520 ) $ (36,133 ) $ (132,936 ) $ (106,480 ) commonstockholdersWeighted-averagecommon sharesoutstanding usedto calculateNon-GAAP netloss 91,859,603 87,869,321 90,995,285 87,176,677 attributable tocommonstockholders pershare, basic anddilutedNon-GAAP netlossattributable tocommon $ (0.47 ) $ (0.41 ) $ (1.46 ) $ (1.22 ) stockholders pershare, basic anddiluted

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, 2021 2020 2021 2020Net cashused in $ (35,071 ) $ (9,436 ) $ (123,387 ) $ (96,017 ) operatingactivitiesPurchase ofpropertyandequipmentand (12,295 ) (7,685 ) (37,758 ) (22,325 ) capitalizedproprietarysoftwaredevelopmentcostsFree Cash $ (47,366 ) $ (17,121 ) $ (161,145 ) $ (118,342 ) Flow

Key Financial and Operating Metrics:

September December 31, March 31, June 30, September December 31, March 31, June 30, September 30, 2019 2020 2020 30, 2020 2021 2021 30, 2019 2020 2021 GMV $ 252,766 $ 302,975 $ 257,606 $ 182,771 $ 245,355 $ 301,219 $ 327,327 $ 350,001 $ 367,925 NMV $ 186,617 $ 219,508 $ 184,625 $ 139,797 $ 189,059 $ 223,390 $ 244,162 $ 256,509 $ 273,417 Consignmentand $ 69,067 $ 81,386 $ 65,086 $ 46,768 $ 64,152 $ 71,320 $ 75,082 $ 82,452 $ 89,451 ServicesRevenueDirect $ 12,271 $ 11,209 $ 12,942 $ 10,523 $ 13,645 $ 15,512 $ 23,735 $ 22,460 $ 29,387 RevenueNumber of 577 637 574 438 550 671 690 673 757 OrdersTake Rate 36.8 % 36.2 % 36.2 % 36.0 % 35.4 % 35.7 % 34.3 % 34.5 % 34.9 %Active 543 582 602 612 617 649 687 730 772 BuyersAOV $ 438 $ 476 $ 449 $ 417 $ 446 $ 449 $ 474 $ 520 $ 486 % of GMVfrom Repeat 81.8 % 82.9 % 84.4 % 82.3 % 82.9 % 82.4 % 83.6 % 84.5 % 84.1 %Buyers