The RealReal, Inc.

Good afternoon, everyone. My name is Megan and I will be your conference operator today. At this time, I would like to welcome you to the RealReal First Quarter 2026 earnings call. All lines have been placed on mute. After the speaker's remarks, there will be a question and answer session. At this time, I would like to turn the call over to Caitlin Howe, Senior Vice President of Finance.

Thank you, Operator. Joining me today to discuss our results for the period ended March 31st, 2026, our Chief Executive Officer and President, Rati Levesque, and Chief Financial Officer, Ajay Gopal. 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. We have provided reconciliations for historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our investor relations website. I would now like to turn the call over to Rod T. Levesque, Chief Executive Officer of The RealReal.

Good afternoon and thank you for joining us on today's call. Q1 demonstrated the strength of our platform as our financial and operating results exceeded expectations. I'm very proud of the team's execution during the quarter. Q1 was our fourth consecutive quarter of double-digit top-line growth and our third consecutive quarter of growth exceeding 20%. We also expanded adjusted EBITDA margin by over 400 basis points year-over-year. Trailing 12-month active buyers grew double digits year-over-year, which reflects higher levels of trust and an acceleration in engagement with our platform. I want to take a step back to provide perspective on where we've been, where we are, and where we're headed. 2024 was about stabilization. We defined our strategic direction and got to work executing against it. We stabilized operations, improved unit economics, and validated our transformation. 2025 was about optimization. Last year, we articulated our growth playbook and go-to-market engine to unlock supply and drive profitable growth. The results validated our approach. We surpassed $2 billion in GMB, accelerated top line, and delivered positive adjusted EBITDA in every quarter. 2026 and beyond is about compounding. We've laid a solid foundation and the mechanics are working. Now our customer relationships, our data, our brand, and our scale are reinforcing each other, each one making the next stronger. compounding our advantages. We've become the barometer of the luxury industry. We capture luxury demand in real time. The categories, brands, and looks trending on our platform are often the earliest signal of where the market is moving. Our customers come to us first to see what's trending, what their items are worth, and where fashion is heading. A customer's relationship with TRR begins before the transaction and continues long after it. When you consider that about 50% of our customer base is Gen Z and millennial, it's clear that resale is not a passing trend. It's a core component of the future of luxury. And with 47% of luxury consumers considering resale value when purchasing in the primary market, we're changing how people shop. Our business helped to drive this shift. We've created a full service managed marketplace with the authentication, logistics, and trust luxury requires. By modernizing how consumers think about fashion and the value of their closet, we're cementing the operating system for luxury ownership. We are leaning into this vision through three strategic pillars. First, our growth playbook, which is how we unlock supply and drive flywheel behavior as we become the default luxury resale destination. Second, obsessing over service, which informs our mindset in every customer interaction and turns transactions into relationships. And third, operational excellence, which is how we use AI automation, and data to improve unit economics and enable scale. Our first pillar is our growth playbook, and the mechanics are working. Our sales team remains a key competitive asset. We are actively deepening our moat, empowering our sales team to act as trusted advisors helping to manage our consignor's closet. Our algorithmic pricing tools equip our sales team with data-driven earnings estimates, giving consignors clarity and confidence. In a brand-forward marketplace, this trust deepens engagement and loyalty, which keeps consignors coming back. We're also extending the reach of our sales team through our referral programs. With the Real Partners program, we're building a network of stylists, closet organizers, and real estate agents, the professionals closest to luxury closets, who refer their clients to TRR and earn commission. It's an efficient way to reach high-value consignors, and we see significant long-term potential to expand our partner base. Turning to stores, our stores continue to deepen the consigner relationship and we're excited about the new markets we're adding for 2026 in San Francisco and Boston. Stores play an important role in generating supply. Sellers who engage with a store deliver 40% more value. In terms of newer supply channels, our dropship and vendor channels are expanding. We're building an asset-light international supply network and starting to develop a partner base in places like Italy, France, and Japan. Building on our success with Dropship in the U.S., we see significant runway to grow this channel over the medium term. These supply strategies are successfully driving the compounding mechanics of our platform and accelerating our network effects. As buyers become consignors, our flywheel spins. These flywheelers, whom we affectionately refer to as real reelers, spend 50% more time with us than the average customer, and the flywheel accelerates. The next strategic pillar, obsessing over service, propels the growth playbook forward. Service and data insights for both sellers and buyers helps turn a one-time transaction into a relationship. The full My Closet suite is the product manifestation of our vision to become the personal advisor to the closet, creating the system of record for our customers' luxury assets. My Closet will provide real-time estimated value, price tracking, and trend intelligence. This further removes friction for the seller and engages customers beyond the transaction. On the buyer experience, our product roadmap includes AI recommendations in the near term, followed by enhancements in search and discovery. Every item on our platform is unique, which makes agentic and conversational search powerful, and we're excited to continue rolling out features in 2026. Through our growth playbook and obsessing over service, we are building the infrastructure layer for luxury and efficiently connecting buyers to consigners. Our third pillar, operational excellence, drives profitability and scalability. Our AI-enabled intake system, Athena, is automating the repetitive data-driven parts of intake, freeing up our experts to focus on the valuable work that requires specialized expertise and judgment. We're targeting to end 2026 with nearly 50% of items fully flowing through Athena, improving processing times, speed to site, and our unit economics. Beyond intake, our pricing strategy is also getting smarter. Building on our foundation of structured market signals to inform pricing, we've recently introduced AI-powered image embedding. By incorporating image data, our models better account for visual characteristics when determining market value. These visual details give us better comparables to price against and help maximize earnings for our consignors. Later this year, we're rolling out an automated storage and retrieval system at our Perth Amboy Authentication Center, adding automation and increasing our capacity by 35%. This lets us efficiently handle growing volume at higher speeds without opening additional warehouses. More throughput in the same footprint. Together, these three strategic pillars are compounding our advantages and extending our leadership position in the growing luxury resale market. None of this is possible without our consignors. Over the past 15 years, we've paid out more than $6 billion to our consignors who trust us with pieces that carry real meaning and real value. I also want to sincerely thank our team. None of this happens without you. Together, we built a strong foundation and I'm excited about where we're headed next. I will now turn the call over to Ajay.

Thank you, Rathi. Good afternoon, everyone. I am pleased to review our financial results for the first quarter of 2026, which demonstrate a powerful start to the year and the continued disciplined execution of our strategic pillars. We are helping customers view their closets as an asset class. And the RealReal is a trusted destination to manage and monetize those assets. In Q1, we delivered robust top line growth with GMV increasing 24% and revenue up 19% year over year. Beyond the headline numbers, we saw deeper engagement with our platform. In Q1, 43% of our new consignors came from our active buyer base. These flywheelers, or real-realers, as Rathi mentioned, enhance our network effects and are an important driver of our long-term growth. Our approach to unlocking high-quality supply, combined with our focus on operational efficiency, is yielding results. In Q1, we achieved adjusted EBITDA of 13.1 million, or 6.9% of total revenue, and expanded our margins by 430 basis points, which showcases our ability to drive operating leverage. Now, turning to our detailed first quarter results, beginning with top line. Q1 GMV of 606 million increased 24% compared to last year. On a two year stacked basis, GMV was up 32%. Q1 total revenue of 190 million increased 19% year over year. Consignment revenue grew 18% and direct revenue increased 26% compared to Q1 of 2025. Buyer engagement accelerated with trailing 12 month active buyers up 10% year over year. Average order value of 646 increased 15% versus last year. Q1 take rate of 36.4% declined 220 basis points year over year. This was due to a favorable mix into higher value items. As we've explained before, these items carry a lower percentage take rate while generating more profit dollars and improved unit economics. On margins and profitability, first quarter gross profit of 141 million increased 18% year over year. Gross margin of 74.5% decreased 50 basis points compared to the prior year, driven primarily by the mix of products sold. First quarter operating expenses leveraged 730 basis points year over year as a percent of revenue. The improvement was driven by operating efficiencies and volume leverage on fixed costs. As we continue to scale Athena, outbound automation, and other productivity initiatives, we are driving operating leverage. First quarter adjusted EBITDA was 13.1 million, an increase of 9 million versus the prior year, and 6.9% of total revenue, an increase of 430 basis points year over year. Moving to the balance sheet and cash flow. We ended the quarter with 139 million in cash, cash equivalents, and restricted cash. Our operating cash flow in the first quarter was negative 16.6 million, 11.7 million improvement year over year. As a reminder, our cash flow is influenced by seasonal factors, and similar to prior years, we expect our cash flow to be back half-weighted. Moving to our financial outlook. Based on our strong performance, we are increasing our full-year outlook and providing guidance for the second quarter of 2026. We are raising full-year GMB to the range of 2.42 billion to 2.47 billion, representing 14% to 16% growth year-over-year. Revenue is expected to be between 770 million to 784 million, translating to 11% to 13% growth versus last year. Adjusted EBITDA is expected in the range of 59 million to 67 million, which represents 8.1% margin at the midpoint. This is an improvement of approximately 200 basis points versus 2025, and we remain on track to reach our target of 15 to 20% adjusted EBITDA margins over the medium term. Moving to our outlook for the second quarter. We expect GMV in the range of 590 million to 600 million, representing 17% to 19% growth year-over-year, and 32% on a two-year basis at the midpoint. Revenue is expected to be between 186 million to 189 million, representing 13% to 14% growth versus last year. Second quarter adjusted EBITDA is expected to be between 11 million and 12 million, representing 6.1% margin at the midpoint and approximately 200 basis points of margin expansion year over year. In closing, our performance is evidence that our strategy is working. We are driving top line growth while strategic investments in AI and automation are enabling us to expand margins over time. Each year, over 35 million buyers purchase luxury goods in the U.S. primary market, and resale adoption is growing. We are helping to drive that adoption through our unique approach to unlocking supply, removing friction for our sellers, and accelerating the flywheel. I want to extend my gratitude to our entire team for their hard work and execution to start the year. With that, we will move to Q&A. Operator?

button which can be found on the black bar at the bottom of your screen. When it is your turn to talk, you'll receive a message on your screen from the host allowing you to talk and then you'll hear your name called. Please accept under your audio and ask your question. We'll wait a moment for the queue to form. Our first question will come from Marvin Fong with BTIG. Please unmute your audio and ask your question.

Great. Thank you for taking my questions and congratulations on the strong results. I guess I like to just kind of start. I mean, obviously we can see your guidance is calling for fairly consistent growth on a two-year basis for GMV. But, you know, just in light of, you know, the Middle East conflict and surging fuel prices, just both on the demand and the supply side, is there anything to call out, you know, shifting product mix on buyer demand and on the supply side? might you be seeing any incremental supply coming your way as consumers try to cope with the cost of living?

Thanks, Marvin. Thanks for the question. A couple of things. So, you know, I'm hearing, you know, what is kind of our confidence in the full year. This is now our fourth consecutive quarter of double-digit growth. We're seeing the customer, both buyer and consigner, being quite resilient, actually, and that continues, that trend continues. Our value props are resonating with our customer. And I think at the end of the day, it's that intersection between value and luxury that we can offer. So when value of a dollar becomes top of mind for our customer, you know, that's kind of where we are. And we, of course, have that higher income customer profile as well. Our supply looks quite healthy, all driven from our growth playbook that we talk about, resale becoming mainstream, but also this flywheel. So you saw an acceleration in our buyers and those buyers becoming sellers. So the top of funnel metrics, we're focused more of our marketing dollar and top of funnel, but also around our social channels working and really driven by mostly Gen Z and millennials. So continuing to build trust with our sellers, and continuing to see kind of the top of funnel metrics be quite healthy.

Got it. And if I could do a follow up, this obviously saw a surge in AOV and consumers clearly are shopping your higher end items. You know, just why do you believe that's happening and how sustainable that trend? I mean, considering, you know, theoretically the consumer is a bit stressed here, but you guys continue to outperform in handbags, jewelry, and those types of items, it sounds like. So just any thoughts on how sustainable that trend is?

Thanks for the question, Marvin. You know, we've seen a healthy balance between price and volume in our, you know, in over the last few quarters that's been driving our growth. I think the shift to AOV is, you know, it's a testament to the trust that we've built on our platform and the willingness that customers demonstrate on being, you know, being interested in you coming to the real, real for high value product. For us, what's exciting, it really showcases the flexibility of our marketplace, right? As customer preferences shift, you know, from one category of fashion to another, we're able to quickly pivot and meet them and give them exactly what they're looking for.

Got it. Thanks so much. Appreciate it.

Your next question will come from Dylan Cardin with William Blair. Please unmute your audio and ask your question.

Thanks. I hope that worked. I'm curious, you know, you're seeing this really nice balance between customers and AOV. And I'm just kind of curious how you're thinking about that through the balance of the year. And then on marketing and sort of customer acquisition, it seems, you know, you speak to flywheel and this idea of compounding. And I'm just curious if there's sort of also a healthy repeat trend in this business where you're out there acquiring either sellers or buyers. And part of what you're seeing, particularly on sort of the order side or the order value side is to the return of some of the efforts that you made in the last sort of two or three years?

Yeah, hi Dylan, thanks for that question. You know, yes, we are seeing a nice mix of customer growth and sort of their willingness to buy higher priced items. You know, in Q1, we reported an acceleration in active buyers, which came in at 10% on a trailing 12-month basis. And we've seen a lot of success in mixing, in shifting the mix of our products into higher value and capitalizing on that opportunity. I'm going to turn it over to Rathi for the other part of the question around flywheelers, because there's a really exciting story there.

Yeah, so with the flywheelers, you know, you've heard us talk a lot about that, and our strategy there is working. So we're seeing acceleration in buyers, but it's not just about bringing in any buyers. It's bringing in the buyers that are sticky, but also turn into consignors. So as resale is becoming more mainstream, we can kind of target the right flywheelers and bring them into our ecosystem. And again, that's more driven out of Gen Z and millennials. So our marketing investment has very much been focused around that They have a high confidence in our ROI. And then obviously leveraging, you know, AI through our smart engine and more targeted offers as well. And you hear me talk about social, but also things like our affiliate program and referrals are our fastest growing segments. And so we're optimistic in our investment here in Focus.

Would further... retail expansion be a piece of that going forward? Could you accelerate stores? Do you need to accelerate stores?

Stores is always a part of our strategy, our retail locations, you know, and that's the buzzwords. You know, you always hear me talk about the growth playbook, but that's a part of the strategy. It's marketing. It's our sales engine, the IP of our sales team and the retail location. So that trifecta really working together compounds our growth rate and compound supply.

Thanks a lot for the time.

Your next question will come from with Wells Fargo. Your line is open. Please ask your question.

Hey, thanks, everyone. I guess maybe a J. I'm trying to think about how the flow of the model should move from here. Understand what's going on with AOB and take rate. I think you had said three months ago take rate should be pressured in the first half and normalized in the back half. Can you give us some specifics on how you're expecting that to flow? And then kind of a similar question on the direct side of the business, I think up 26%. Does that growth rate moderate further as you move through the year? Just kind of curious on those two line items, how we should be thinking about the model. Thank you.

Absolutely. Thanks for the question. So maybe starting with take rate, you know, our blended take rate in Q1 was 36%. And just as you pointed out, and we'd mentioned earlier, right, we do expect pressure on that take rate just from the shift in the mix, right? We Our take rate is designed in such a way that it gives a strong unit economics across a pretty wide price band. And as we mix into higher value items, the percentage is a little lower, but those items generate better unit economics and stronger profit dollars. So a good trade-off for us at the business. We expect that to continue as you can read into our q2 guidance and we do expect that sort of uh start to those two lines to get a little closer as we get into the second half that's that's our expectation but you know at the end of the day i like i said earlier uh it really depends on where the market preference shifts and our and our ability to be able to capitalize on that on that shift in real time um The direct revenues, we've made some changes to direct revenue last year. And we really took a hard look at the mix of what was in there and improved the margins as well. So in Q1, it grew 26%, slightly higher than the aggregate business, but not by much, right? Because GMB was up 24% for the total business and direct revenues grew 26%. So we think it's in a good place right now. It will scale with the business and we expect it to be in that range of 10 to 15% of total revenues going forward.

Thank you.

Your next question will come from Bobby Brooks with Northland Capital Markets. Please unmute your audio and ask your question.

Hey, good afternoon, team, and thank you for taking my question. So obviously you're seeing excellent buyer growth in the Gen Z and millennial cohorts, but I was curious, is that the same from the consigner growth point of view? I think that a bigger piece of that supply that you guys talk about, or I think kind of we all know that it's just sitting in people's closets, collecting dust, are probably more towards the Gen Xers and even maybe Baby Boomers. And maybe the consigner growth matches the generation mix of the buyer growth. And if that is the case today, could you just discuss your approach to winning the consigners and buyers from that older demographic?

Yes. Thanks for the question, Bobby. So actually many, like I said, many of our new consignors come from our buyer population. And those trends and patterns, we have not seen change. They may be a little more diverse on the supply side, but still driven by millennials and Gen Z as well. As far as tactics specifically to bring on the flywheelers, like I mentioned, reconsign is a big one. So my closet, you heard me talk about that a little bit, but this one-click reconsign strategy. button to get people to consign as first time consignors before, you know, we know when they bought a handbag, for example, and six months later, they're ready to consign it. How do we give them the right signals? And how do we personalize our offerings to bring them on as consignment? That's really working. Pricing estimators are really working. Leveraging our sales team is all really working. Giving them a base of consignors to go after our leads and opportunities is also really working. So all of that kind of together along with our retail locations is bringing on the supply, but also in this kind of those same cohorts as the buyer, very similar to those same cohorts as buyers. Great.

Got it. And then just mentioned building this international pipeline of supply. And I think you specifically called out France and Italy. I just want to unpack that a little. Is that with the kind of individual consignors that you guys are currently your bread and butter in the U.S.? Or is that working with brands directly or manufacturers directly? Just really curious to hear more there.

Yes, so dropship you know still it still continues to be early days here we're continue to learn, I will say it's meaningful growth rates. But not what's driving the growth, so we yes directly able to unlock supply from international vendors or partners. like we talked about in the opening remarks. This enables us to kind of test and learn as we think about a more localized approach to international. So we're kind of taking this crawl, walk, run approach. We're launching cross-border this year. Again, focus on demand there with the idea that we're focused on dropship and bringing on some of these international partners that way. looking to see what kind of product we can get from some of these international partners look like, what does the sell-through look like, before we kind of move into a broader, more localized strategy. The opportunity here is huge. As we know, the TAM is really big, and we're excited about the next steps here.

Got it. And then just one last one for me is, so the implied revenue guide, a little bit of a decel comparatively to 1Q, but 1Q had the easier comp with the California fires from last year, right? And it just seems like listening to the commentary and the tone that things are really accelerating for the business. And maybe that year-over-year 2Q revenue guide at Faith Valley doesn't really express that fully. So I was just curious to hear your thoughts on kind of my line of thinking there. And maybe if I am right, could you just expand a little bit more, like below the numbers on the acceleration or momentum that you're seeing in the business?

Thanks for that question. I can take that one. So Q1 was really strong. GMV was up 24%. And it was also our fourth consecutive quarter of accelerating GMV. When we look at what's driving that strength and what's driving that performance, it's a lot of the fundamentals, right? It's the growing interest in resale as a category. It's our ability through our strategic initiatives to unlock supply and bring that supply onto a high-trust marketplace. And we're seeing that translate into strong growth of the business, attracting more buyers, which also came in at a nice 10% growth on an active basis. So when we look at Q2, all of those fundamentals continue to be true, right? We have high confidence in the guide that we've provided. We're starting the quarter strong. And when I, you know, it gives that confidence also translates into the full year guide where we've increased the midpoint of our guidance from 13.5% GMV growth to 15% GMV growth. So we'll keep executing and delivering against that plan.

All right, thank you for the time. I'll turn to the queue.

Your next question will come from Matt Coranda with Roth Capital. Your line is open. Please ask your question.

Hey, guys. A lot of the demand stuff has been covered, but I wanted to dig a little bit more into the ONT expense. You leveraged that nicely in the quarter, but I guess on a per-order basis, it was kind of flattish. As Athena penetrates further into the business later this year, I guess... How should we be thinking about per order sort of ONT expense and whether we get leverage later in the year?

Yeah, thank you for that question. Operations and tech was a significant source of operating leverage for us. It was true in last year when it leveraged 330 basis points, and in Q1, it drove 320 basis points of leverage. We think it continues to be a source of where our margin expansion is going to come from. When you look at our full year expectation to... to expand EBITDA by 200 basis points as we balance our expanding margins with delivering growth, ops and tech will continue to be a key component of that margin expansion.

Okay, and then just philosophically, if you get upside from efficiency around Athena implementation, is that Are those dollars that you would consider reinvesting in marketing to speed up customer acquisition? Or is that something you'd let flow to the bottom line? Maybe just a little bit on your thought process around how you think about upside as you implement Athena.

Yeah, great question. I mean, we love that question. Definitely see it being reinvested back into growth, right? You've seen us put more money into marketing as we are able to gain more confidence on the return against that spend. The ROI is definitely there. We're also excited to invest a little in product and technology. There's been some very impressive gains in the world of artificial intelligence, and we see an opportunity to translate those gains in AI into our business model. So we will continue to lean into things that drive growth and balance that with expanding margins. I think we are set up to do both.

Okay, I appreciate it, guys. Thanks.

Your next question will come from Mark Altshwager with Baird. Your line is open. Please ask your question.

Great. Thank you for taking my question. I just wanted to ask about the supply pipeline. Watches, jewelry, handbags, that's really been the AOV story for a few quarters now. Can you talk us through the supply visibility as you look six, 12 months out? I mean, are you seeing any signs of tightening in those particular categories, or is it still feeling pretty robust there? And then relatedly, but Jay, just bringing it back to the model, we do begin to cycle the step up in AOV from last year. I think the revenue guide seems to imply some moderating AOV growth in the back half. I mean, is that the right expectation or is there a view that you could still be in the early innings of this AOV momentum?

Thanks, Mark, for the question. I'll take the first one before I hand it over to Ajay. So on the supply side, what are we seeing? Watches, jewelry, handbags, high value items in general, seeing strong supply coming in through their strong inventory. Again, this is because of our retail locations. because of our incentives for the sales teams and how we really prioritize this area. Our NPS is great for the mid and high value product as well. So we're seeing like all of that top of funnel metrics, our investment in marketing really pay off and bring in the right type of supply. The interesting thing about us is all this data that we have, right? The 15 years of proprietary data to help us leverage AI. So what that means is we have this agility to our business so we can scale up supply in the areas where customers want very quickly. And we see those trends very quickly and we can take that out to the sales team and make sure that they're incentivized the right way. So we're not seeing any slowdown in high value, if anything, that's picked up pretty nicely and obviously has a lot to do with how big the TAM is. But the top of the metrics are solid and just tactically, you know, I brought up the flywheel, but also real partners and affiliates. So this, these closet organizers, these stylists, we're really starting to see momentum there with the type of product they're bringing in that again, gets is a mix of a really nice high and mid value product. You know, the, the agentic kind of search on the discovery sides of things selling through in a nice way gets more money for our consigner and kind of accelerates that flywheel.

I can take the second question, Mark, around sort of AOV for the second half. I think it really goes back to this concept of balance between price and volume growth for us. We've seen a healthy balance between the two, and there are quarters where one tends to be a little higher than the other. When you read into our implied second half guidance, yes, we do expect the balance to shift a little bit versus Q1 to a more, you know, less on AOE, more on units. But really, it comes down to what the customer is looking for and where fashion preferences shift. You know, we have the ability to quickly move in that direction. And just as you saw us capitalize on that trend with jewelry and watches to your point last year, we'll do the same, you know, regardless of where that shifts.

Thank you.

Your next question will come from Ashley Owens with KeyBank. Your line is open. Please ask your question.

Hi, guys. It's Victoria on for Ashley. Given the recent increase in oil and gas prices and the pressure we're seeing on the lower income consumers, are you seeing any divergence in activity between higher value customers and the more aspirational buyers on the platform?

Thanks, Victoria. Yeah, we're not seeing any kind of change in trends when I'm looking at the health of the consumer. Right now, like I said, the buyer and consigner continues to be resilient, headed into the quarter. And I really think, again, testimony to our trust, but also, again, that intersection between value and luxury. So that dollar going a lot farther with us. The resale continues to become mainstream. And we're seeing, you know, as far as trends go, we talk about high value, but also emerging brands and vintage. So we're much more now the place where people are discovering new brands as well. And if anything, we're also seeing, because of the trust that we built and the testimony to our trust, we're seeing first-time buyers spending more in their first purchase. So that's the great thing about our marketplace. And I'd say one other thing that I am seeing is I'd say resale in the past was maybe one transaction. It's becoming, it's less of a trend and a fad now and more we're developing this deeper connection with our customer. And, you know, we talk about it a lot in the metrics, right? Almost 50% of customers consider the resale value before purchasing in the primary market now and almost 60%. prefer the secondary market outright. So we're seeing definitely a change in the behaviors as people are changing the way they shop.

Okay, great. Thanks. And then just concerning the consumer pressure, I was curious about how prior cycles went. Has this helped grow adoption for resale in the past?

Yeah, so we haven't been through like a recession, for example, a macro. I would say that we were built out of a recession. We say that quite often. The question is, do people want to monetize their closet if they're feeling a little bit of pressure? Again, I don't know. But what I do know is and what I can tell you is what we're seeing right now. And supply pipeline looks really good. new consignors, new buyers. We are seeing people wanting to monetize their closet right now. We're seeing people really buy into the value play. And like I said, that intersection between value and luxury really works in our favor right now.

Great. Thank you. Your next question will come from Jay Sol with UBS. Your line is open. Please ask your question.

Hi there. Hope you can hear me. My question's on just AI and operational throughput. I guess, how much of the margin expansion in Q1 was driven by Athena and some of the smart sales impacted by smarter AI pricing? That's the first question. And then sort of any color on AI rollouts versus any kind of seasonal tailwinds. Specifically, are you seeing a measurable decrease in time to site for unique SKUs?

Yeah, thanks for that question, Jay. I'll take the first part of it and then hand it to Rathi to talk about the broader sort of AI strategy that we see on our business. As it relates to Athena, it is a pretty material component of the source of efficiencies that we are seeing in operations and technology. At the end of the year, with 35% of items being processed through that workflow, and we see that getting close to 50% towards the end of this year. So it will continue to be a source of efficiency for us. We also have other things we're working on within the operations line. One of our investments this year is in implementing an automated storage and retrieval system in one of our fulfillment centers. And we're excited about that because it's going to allow us to move things faster through our fulfillment centers. And it also allows us to get more out of our existing capacity footprint. So 35% more from the fulfillment center where we would be putting in this technology. So that's as it relates to what we're doing around operations in Athena. I'll turn it to Rathi to talk about the broader AI strategy in our business.

Yes. Thanks. Thanks, Jay. So I mentioned this earlier, but I think what, you know, puts us in a really great position is we have this these 15 years of proprietary data to position us and leverage AI. So at the end of the day, it's about removing friction, unlocking supply, lowering fixed and variable costs. Our objective, you know, is to find these efficiencies, also shorten our SLA, service level agreement with our customer, but while also taking dollars out of the unit cost. So Athena is one way that we do that, but also, you know, how else do we get to 15, 20% adjusted EBITDA margins? It's leveraging our moat, so our expertise, authentication, pricing and data or sales teams. We're well positioned to kind of take advantage of these efficiencies. So examples might be smart sales, which you've heard us talk about in the past. Authentication as well. An automated storage and retrieval system we're launching right now that will really help a lot of the OPEX costs. And then, you know, leveraging across our corporate functions as well. And then on the site experience side, you know, we think about improving discovery or conversational search via agentic AI. So we're pretty excited to test and start using agentic AI as human agent collaboration. And, you know, it's early innings of capitalizing on, you know, the significant and growing TAMs.

Got it. Okay. That's super helpful. Thank you so much.

Your next question will come from Marnie Shapiro with the Retail Tracker. Your line is open. Please ask your question.

Hey, guys. Congratulations on a fantastic quarter. I'm curious. I know we love talking about technology and everything, but I'm kind of curious about the customer side of things just a little bit more. I have a couple of friends, several friends who actually consign with you and buy with you. And a few of them have said that the experience has been a lot better. So I'm curious about what you're doing to enhance that experience on the buyer side, on the consigner side. And, you know, how is it, I guess, rolling out and what should we expect the rest of the year?

Yes. Thank you for the question. As a team and as a company, we've really been focused around obsessing over service. You know, you hear me talk a lot about that in our script. So whether that is a pricing estimator that we've launched, reconciling. Our operational excellence, really looking at kind of the exceptions and making sure that they're going down the right path. My closet is another one, right? Or just that deeper connection that we have now with the consumer to build trust with our sellers. empowering them with that rich data that we have. And then search and discovery is something else that we're working on this year. So really thinking about both the consigner and seller, sorry, the consigner and the buyer experience. And really kind of listening in on what the pain points are and addressing them as a team. So still, you know, we get really excited about talking about that. And how do we kind of continue to increase our NPS? The price estimator is actually launching today to select group of sellers. So check that out. And we'll continue to do our hard work here.

Can I ask a follow-up on that? Because I feel like there are a lot of places to consign or try and sell your pre-loved merchandise. Are you hearing from your customers, whether it's consigners and or buyers, that the trust factor is the thing that's most important? We all know that there's a lot of dupes out there. We all know it's hard to verify some of them. Is that the kind of... the moat, I guess, that you guys have. I know it's not digital, but I feel like trust is almost more important than making it easy in a weird way.

Yeah, so it's definitely around our trust is really important. And the way that we kind of cement our trust is through our sales organization, our pricing and data, our expertise that we have. It's great to see growing interest in the category, but it validates that resale is not just a trend, but really here to stay and cemented into the infrastructure layer of the fashion industry or marketplace. Our value props really resonate with our customer. And like I said, the IP of the sales team, the authentication and expertise, and just building that trust in community, again, driven by Gen Z and mostly millennials. But we are definitely unique and really doubling down on our competitive modes here.

That's great. And also, like, Loki, I know this wasn't you, but but amazing that Andy was wearing thrifted and pre-loved items throughout Devil Wears Prada too. I was like, oh my God, this is just genius for you guys. So congratulations.

Thank you. Thank you.

Thank you. That concludes the Q&A session and today's call. You may now disconnect. Good afternoon, everyone. My name is Megan and I will be your conference operator today. At this time, I would like to welcome you to the RealReal First Quarter 2026 earnings call. All lines have been placed on mute. After the speaker's remarks, there will be a question and answer session. At this time, I would like to turn the call over to Caitlin Howe, Senior Vice President of Finance.

Thank you, Operator. Joining me today to discuss our results for the period ended March 31st, 2026 are Chief Executive Officer and President Rati Levesque and Chief Financial Officer Ajay Gopal. 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.