The RealReal, Inc.

Good day, and thank you for standing by. Welcome to the Real Reels Q3 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would like To introduce your host for today's call, Caitlin Howe, SVP of Finance. Please go ahead.

Thank you, Operator. Joining me today to discuss our results for the period ended September 30th, 2023, our Chief Executive Officer, John Corral, President and Chief Operating Officer, Rossi Levesque, and Chief Financial Officer, Robert Julian. Before we begin, I would like to remind you that during today's call, we will make forward-looking statements which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties, and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q. Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking, for which historical financial measures we have provided reconciliation to the most comparable GAAP measures in our earnings press release. In addition to the earnings press release, we issued a stockholder letter earlier today, both of which are available on our investor relations website. I would now like to turn the call over to John Correll, Chief Executive Officer of The RealReal.

Thanks, Caitlin, and welcome to our earnings call. Today we reported financial results for the third quarter of 2023. Revenue and adjusted EBITDA exceeded the high end of our Q3 guidance range, and GMV exceeded the midpoint of our guidance range. The third quarter of 2023 was our best quarter of adjusted EBITDA since the company's IPO in 2019. The improvement in our financial performance was largely driven by the consignor commission structure update we made late last year, our strategic decision to reduce direct revenue, and continued improvements in operational efficiency. If you recall, we overhauled our consignor rate card in November of 2022. This change helped us to do a couple of things. First, we were able to limit lower priced items, which in turn reduced our variable costs and improved our contribution margin per item. On the remaining portion of the lower value items and our mid-value items, we increased our take rate. You can see the impact of this change flowing through our P&L. The result in Q3 was that we grew consignment revenue by 10% while we purposely limited direct revenue, which over the course of the past few quarters has dramatically shifted the mix of our business and driven significantly higher gross margins. Finally, Our operations team in our authentication centers delivered efficiencies through improved processes. In Q3, these actions combined to deliver a higher average order value, higher gross margin rate, higher gross profit dollars, lower variable costs, reduced company-owned inventory, and a significantly improved adjusted EBITDA result compared to the prior year. Over the past few quarters, we have made significant changes to our business strategy and tactics, and we are seeing the benefits of these changes in our operational and financial results. I couldn't be more proud of this team for the fantastic work they have put together throughout this year. In September, we announced that Robert Julian will step down from his role as CFO at the end of January or when a new CFO assumes the position. As a result, this will likely be Robert's last earnings call. I want to personally thank Robert for his many contributions to the business and wish him the best in his future endeavors. I am pleased to report that the search for his replacement is well underway. Looking forward, we continue to project that we are on track to deliver positive adjusted EBITDA on a full year basis in 2024. In summary, our strategic shift to refocus on higher margin portion of the consignment business is delivering significant progress in our results. Overall, I'm excited about the trajectory of our business. We are well positioned to capitalize on our consignment business model as we continue to be the market-making leader in luxury resale. With that, let's open the call for questions.