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spk07: Good afternoon, and thank you for joining us on today's conference call to discuss ThredUP's fourth quarter and full year 2021 financial results. With us are James Reinhart, ThredUP's CEO and co-founder, and Sean Sobers, CFO. We posted our press release and supplemental financial information on our investor relations website at ir.thredup.com. This call is also being webcast on our IR website, and a replay of this call will be available on the site shortly. Before we begin, I'd like to remind you that we will make forward-looking statements during the course of this call, including, but not limited to, statements regarding our guidance and future financial performance, markets on demand, growth prospects, business strategies, and plans. These forward-looking statements involve known and unknown risks and uncertainties, and our actual results could differ materially. Words such as anticipate, believe, estimate, and expect, as well as similar expressions, are intended to identify forward-looking statements. You can find more about these risks, uncertainties, and other factors that can affect our operating results in our FCC filings, earnings press release, and supplemental information posted on our IR website. In addition, during the call, we will present certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from GAAP measures. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our earnings release. Now, I'd like to turn the call over to James Reinhart.
spk14: Good afternoon, everyone. I'm James Reinhart, CEO and co-founder of ThredUp. Thank you for joining us for ThredUp's fourth quarter of 2021 and fiscal year 2021 earnings call. We're excited to share another quarter of strong financial results and business highlights. In addition to our financial results, we will offer some perspective on the performance of Remix, the European resale company we acquired last year, as well as progress in our resale-as-a-service RAS offerings. Beyond our results, given we're one year into being a public company, I thought it would also be useful to remind investors of our strategy, sustainable competitive advantages, and the investments we're making to widen our moat and strengthen our leadership position in the still-nascent resale market. To conclude today's call, Sean Sobers, our Chief Financial Officer, will talk through our fourth quarter and fiscal year 2021 financials in more detail and provide our outlook for the first quarter and full year 2022. We'll close out today's call with a question and answer session. Let me start by acknowledging that since we last reported earnings in November, the world and investor sentiment have changed significantly. I want you to know that we get it. We are operating in a different macro context. While volatility like this can stress a young public company, we welcome this increased scrutiny. I believe great companies with winning strategies in high-growth markets with strong management teams Always outperform when times are difficult. We at ThredUp are committed to being the kind of team you can count on for predictability and transparency. I also want to make it clear that we are on a mission to build a generation-defining company that changes the way the world shops and ushers in a new era of sustainable shopping. We will always aim to balance the demands of near-term scrutiny with our commitment to investing for long-term value creation. Now to the results. For the fourth consecutive quarter, we achieved record revenue, record gross profit, record active buyers, and record orders. Our revenue of $72.9 million is an increase of 68% year over year. This is our fourth consecutive quarter of accelerating revenue growth. We finished the quarter with active buyers and orders increasing 36% and 69% year over year, respectively. We also expanded year over year EBITDA margins by a record 1,400 basis points in Q4, shrinking our EBITDA loss from minus 28% to minus 14% in a quarter that still included heavy operations investments. Now let me talk about Remix. In Q4, we closed the agreement to acquire Remix, one of Europe's leading fashion resale companies. Since the acquisition, we have moved swiftly to consolidate all of our thredUP learnings in support of Remix's growth and margin expansion. Dan DeMeyer, one of ThredUp's first employees and formerly our SVP of Engineering and Chief Product Officer, now leads our international effort alongside Lubo Klenov, Remix's founder and CEO. Rebecca Ullman, who reported to me while leading ThredUp's new Ventures Department and who helped incubate our resale-as-a-service business here in the U.S., is supporting Dan and Remix as we drive supply growth and expand further into Western Europe early next year. To expand beyond Remix's current operations in nine Central and Eastern European countries, we are building a new facility in the EU with processing and storage capacity to sustain broader European growth. We remain confident our acquisition of Remix will accelerate ThredUP's European growth plans and enable us to capture share in the emerging European resale market, a market that Global Data estimates will grow to 39 billion by 2025. Turning to ThredUP's Resell as a Service, or RAS, business, we recently launched a number of new resale shops and clean-out kit programs, bringing our total number of RAS brand clients to 28, making us by far the leading provider of resale services to brands in the U.S. We have visibility to adding as many as a dozen more brand clients by year-end, with some very prominent and large brands moving onto our platform. Keep in mind, our RAS platform enables us to power white-label enterprise solutions for global brands like Walmart and Adidas, as well as lightweight solutions for smaller brands like Madewell and heritage brands like Michael Starrs. With RAS, brands and retailers are empowered to deliver quality and seamless resale experiences to their customers across three main service modules, our clean-out service, our cash-out marketplace, and our full-service resale shops. This suite of offerings is called Resale 360, and our new core offering now allows brands to get started in resale for free, in some cases within 30 days. RAS enables brands to drive revenue, drive customer growth, and circularity in ways that were previously not possible. RAS has also begun to exhibit the flywheel network effect that we expected would come over time as more brands join our platform. we gain access to a greater share of closet clean-outs happening across America. This supply that comes in from our varied RAS clients can then be sorted and used to power the growth of branded resale shops of other clients, which is to say the more RAS clients, the wider the sources of supply, and the larger the potential growth of each client's resale shop. Recall that ThredUp benefits from RAS not only because it amplifies our ongoing supply advantage, but also because it increases our sell-through and our return on assets. In addition, our premium and enterprise platform solutions are designed to support the expansion of our long-term profitability metrics by creating a recurring high-margin revenue stream. We continue to believe that every brand will have a resale strategy, and ThredUp will be the leading provider of end-to-end resale solutions for the retail industry. This brings me to the next topic I'd like to review, which is ThredUP's sources of ongoing competitive advantage and the investments we're making to extend our leadership in the resale industry. The power of our competitive advantage comes from the compounding effects of three hard problems we've solved. First, we've built a reverse logistics supply chain that has created a massive supply advantage in the resale market. Remember, ThredUP has still never spent any direct marketing dollars acquiring sellers. and yet we have seemingly endless supply in our marketplace. Second, we have built world-class infrastructure, technology, and software to process single SKU apparel at scale. When our Dallas, Texas facility is complete, ThredUP will have network capacity to hold up to 16.5 million unique items in the U.S. alone. Third, we have built a data-driven, managed marketplace that connects buyers and sellers on our platform. Our managed marketplace removes friction between buyers and sellers, enabling us to significantly grow the number of customers we serve over time and to increase the number of orders they place. Importantly, the success of our marketplace is built on the foundation of the proprietary resale data that we've collected over the past decade. We ingest millions of data points on the items we process, sell, and reject, the items that are added or removed from carts and so forth. It's this vast trove of data combined with the algorithms and the models that sit on top of that data, that help us improve our acceptance rate, merchandising, photography, pricing, and marketing capabilities with the goals of consistently growing our active buyers, expanding our margins, and driving increased sell-through. Of course, the not-so-secret, but I think often misunderstood, economic engine that underlies our model is that most of our clothing is listed on consignment. This means we have little inventory risk and we boast a negative working capital cycle measured in months, not weeks. As I have said from our very first public filing, our strategy has been developed with a deeply calculated approach about what it takes to build and sustain competitive advantage over time. We believe that every day our supply advantage increases, our infrastructure mode widens, and the network effects of our marketplace grow. Given this context and my earlier remarks about the greater scrutiny on young companies, regarding capital allocation and path to profitability, I want to specifically call out the investments we're making in service of our strategy. First are three U.S. infrastructure investments. As we discussed last quarter and earlier in my remarks, our flagship distribution center just south of Dallas, Texas, is coming online later this year. We have been making steady progress since commencing the build-out in Q421. The facility is nearly 600,000 square feet and will be our largest and most automated distribution center. When fully scaled, we expect our four-level facility will increase our total network-wide capacity by more than 150%. We expect to begin processing items towards the end of Q2 this year, or early Q3, with demand fulfillment to begin sometime in Q3. Beyond our flagship distribution center, we opened two processing centers, one in Grapevine, Texas, and one in Lebanon, Tennessee. Both of these facilities focus exclusively on clean-out kit processing. and will serve as immediate feeders to our larger facilities in Dallas and Atlanta. As a result of this increased capacity, we are exiting Q1 hitting our internal processing targets after facing some headwinds from Omicron earlier in the quarter. Our bag backlog is trending down nicely and now sits at eight weeks from 12 weeks just a quarter ago. We expect these three U.S. infrastructure investments, Dallas, Grapevine, and Lebanon, will negatively impact our EBITDA by approximately $6 million in 2022. Note that these investments are all in service of growth in 2023 and beyond, as only a small percentage of revenue will flow through our Dallas, Texas facility this year. Importantly, given our expectations for improvements in automation and total throughput capacity, we do not expect to add any new distribution centers to our network until 2025. Second, we will continue to invest in Remix's growth in Europe. Our European investments include a new, larger processing facility in Sofia, Bulgaria, that comes online later this year, in addition to growing the headcount to scale our broader business in Europe. We believe these expenses are essential as we grow ThredUp's European opportunity. Third, we are investing in research, development, and data science capabilities across our network. We believe these investments in new systems, new technologies, and added headcount will yield several benefits. First, we will be able to lower our per unit processing costs. Second, we'll be able to improve our pricing and payout systems to further expand margins. And third, we can upgrade our marketing, merchandising, and direct response capabilities such that we can acquire customers at lower costs while at the same time increasing lifetime value. Fourth and finally, Anticipated headcount growth from 2021 to 2022 is highly concentrated in areas that support being a new public company, like HR, legal, finance, and accounting. We expect these incremental costs to total $3.1 million in 2022. We expect meaningful leverage in SG&A as we digest these costs over time. In conclusion, as I wrap up, let me speak to a bright spot of the last few months, the New York Fashion Act. At its core, this bill aims to hold major retailers accountable for their environmental and social impact. I think this is an important milestone. To me, it indicates that government and policymakers are starting to understand the critical role they play in reducing the fashion industry's environmental impact. Consider this the opening salvo in what is likely to evolve into emission standards for fashion. Whether pushed by government or pulled by consumers, I believe every brand will look to resale as a way to reduce their impact on the environment and to drive fashion circularity. ThredUp's platform will be well-positioned to serve these emerging interests over time. In the meantime, we're going to stay focused on doing what we do best, unlocking high-quality supply, building increasingly automated infrastructure, and leveraging our technology, software, and data to serve our growing base of buyers, sellers, and RAS clients. With that, I'll now turn it over to Sean to walk through our financial results and our guidance. Sean?
spk02: Thanks, James. And again, thanks, everyone, for joining us on our fourth quarter and full year 2021 earnings call. I'll begin with an overview of our results and follow with guidance for the first quarter and full year. I will discuss non-GAAP results throughout my remarks. Our GAAP financials and a reconciliation between GAAP and non-GAAP are found in our earnings release supplemental financials and our upcoming 10-K filings. We are extremely proud of our Q4 results, especially delivering our fourth consecutive quarter of accelerating revenue and gross profit dollar growth on both an organic and consolidated basis. One of the most exciting Q4 developments was our acquisition of Remix. While we plan to report and guide on a consolidated basis going forward, in some cases, we will speak more specifically about ThredUP US and Remix individually during the transitional period. For the fourth quarter of 2021, revenue exceeded our expectations. driven by the acquisition of Remix and growth in ThredUp US. Revenue totaled $72.9 million, an increase of 68% year-over-year. Consignment revenue increased 31% year-over-year, while product revenue grew 205%. Product revenue's outsized growth is largely due to our Q4 acquisition of Remix, a business that currently derives the majority of its revenue from direct sales opportunities. For the full year, we are proud to deliver revenue of $251.8 million, an increase of 35% year over year. Active buyers and orders are amongst the most important KPIs that we've used to track the business, and we finished 2021 achieving record levels for both. For the trailing 12 months, active buyers rose 36% to 1.7 million. We ended the fourth quarter and full year reaching 1.7 million and 5.3 million orders, increasing 69% and 34% year-over-year retrospectively. Since we believe that gross profit improvement is the best way to measure our progress, we will provide additional details this quarter in order to illustrate the strength and opportunities in both of our individual businesses. For the fourth quarter of 21, ThredUP US gross margins expanded to 71.3%, a 280 bps increase over a 68.5% for the same quarter last year. ThredUP US gross profit in the fourth quarter of 2021 totaled $44.1 million, representing growth of 48% year-over-year. Offsetting a $6 million increase in freight, gross margin expansion came as a result of expanded automation, larger distribution centers, and more items per order. Remix gross margins were 37.2%. Remix's structurally lower gross margin profile is primarily due to their direct sales model, wholesale outsourcing, and the lower level of automations. Over time, we plan to migrate the business towards higher margin consignment away from wholesale supply and invest in increased automation in order to be more in line with the current threat of business model. Driven by our fourth quarter acquisition of Remix, consolidated gross margin was 66.1%, a 240 basis point decline over the same quarter last year. Gross profit in the fourth quarter of 2021 totaled $48.2 million, representing growth of 62% year over year. For the fourth quarter of 21, gap net loss was $17.9 million compared to a gap net loss of $17 million for the fourth quarter of 2020. Adjusted EBITDA loss was $10.5 million or 14.5% of revenue for the fourth quarter of 21, an approximately 1,400 basis point improvement compared to the adjusted EBITDA loss of $12.2 million or 28.2% of revenue in the fourth quarter of 2020. This improvement was largely driven by operating leverage at ThredUp U.S. Q4 GAAP operating expenses increased by $20.5 million, or 45% year-over-year. Approximately half of this increase is related to higher operations, product, and technology costs, while the remaining is split equally between marketing and SG&A. Of the total increase, a quarter was related to the addition of Remix. We continue to invest in the expansion of processing capacity, marketing efforts, and technology infrastructure to support our growth. Turning to the balance sheet, we began the fourth quarter with $266.9 million in cash and investments and ended the quarter with $213.1 million. Keep in mind that the acquisition of Remix reduced our cash by approximately $30 million. In addition, we spent about $5 million related to CapEx in Q4. Next, I would like to provide some thoughts on our commitment to top-line growth while walking through our path to profitability. We remain focused on our belief that investing ahead of growth not only fuels our top line in future quarters and years, but is also an investment in our ever-widening competitive mode, the combination of which are the foundation for strong growth and increasing profits over time. Our business model necessitates this approach. In order to grow sales, we must first have the processing and storage capacity in place to support future listings growth and accelerated turns. We believe the investments in technology, data science, and Automation's Day will further strengthen our advantages, which we expect to be the drivers for strong top-line growth and profit improvements over the long term. Just to illustrate that we build out our infrastructure to support our future, not our current demand, I highlight the fact that we ended 2021 with a DC network capacity utilization rate of 77% among our three operational DCs. Put another way, by the end of 2021, we were using only 5 million or so slots of our fully scaled 6.5 million unit total capacity. This includes our 3.5 million unit capacity Atlanta, D.C., currently our most automated D.C., which opened in 2020. This is to say that in 2021, we were carrying the cost of a 6.5 million unit D.C. network, but only using 77% of it. By the end of 2022, when our Texas DC is included in our DC network, we expect to be utilizing less than 7 million slots of our ultimate 16.5 million unit total capacity, representing a utilization rate of less than 50%. Though we will be carrying many of the costs of a 16.5 million unit network in the near term, we will have ample runway to leverage these costs as we grow into our capacity and expand our utilization over time. This investing for growth dynamic is a prominent theme this year as we take on a number of significant infrastructure investments in both the U.S. and in Europe that will impact our margins before they contribute to the top-line growth. The largest of these is our Texas, D.C., which will more than double our current capacity and eventually be our largest and most automated facility. It is currently in the process of being built out, will begin processing midway through the year, and will ramp toward peak efficiency over time. We also recently opened two processing centers, which can open faster with fewer costs than DCs, while also diversifying the geography of our labor needs. They will be entirely dedicated to processing clean-out kits, which will help us further make progress on our supply backlog, facilitate new listings, and accelerate turns. We are also investing in our European business by expanding the team and building out a larger and more automated distribution center in Sofia, Bulgaria. With all this in mind, I would like to now share our financial outlook for the first quarter of 22. We expect revenue in the range of $70 to $72 million, gross margin in the range of 65 to 67 percent, an adjusted EBITDA loss of 19 to 17 percent of revenue, and basic weighted average shares outstanding of approximately $99.4 million. For the full year of 2022, we expect revenue in the range of $330 to $340 million. gross margin in the range of 64% to 66%, an adjusted EBITDA loss of 15.5% to 13.5% of revenue, and basic weighted average shares outstanding of approximately $100.5 million. In addition to lapping stimulus-driven growth from Q1 of 21, we also expect COVID-related staffing disruptions to pressure in Q1 as well. As you know, listings are a key driver of future revenue in our business. When COVID surged in December of 21 and January of 22, we experienced unprecedented levels of personal leave among our DC team, slowing down processing and thus listings growth, a dynamic that negatively impacted revenue in early Q1. Since then, as the surge has subsided, we have returned to expected processing capacity and plan to exit Q1 processing clean-out kits at record rates. As discussed, we have a number of investments this year that will pressure EBITDA. In Q1, our ramp-up of our Texas DCM processing centers will account for approximately an extra $1.5 million in operations, product, and technology expenses. Finally, we anticipate an incremental $1 million negative impact year-over-year as a result of higher freight costs. For the full year of 2022, we expect revenue growth to be driven both by ThredUP US and Remix. While we continue to expect ThredUP US's gross margins to improve in 2022, As we have done consistently over the past several years, we expect consolidated gross margins to contract year-over-year due to Remix's structurally lower margin profile. We would expect consolidated gross margins to be broadly stable this year, though Remix's offsetting impact will increase throughout the year as it grows as a percentage of sales. We are planning to thoughtfully transition Remix towards a mostly consignment model over the next two to three years, which we would expect to improve gross margin performance over the longer term. We are expecting 2022 EBITDA margins to show a slight improvement year-over-year as we digest a number of expenses associated with our Texas DC build-out, processing investments, and European expansion. We expect that the DC and processing centers will impact EBITDA by approximately $6 million, weighted towards the first half of the year. Additionally, we expect a $6 million negative impact from elevated break costs, which we will partially offset as we expand our automation, scale into larger DCs, and innovate on shipping logistics. We are planning to spend approximately $35 to $40 million in CapEx this year of an estimated $80 to $85 million to support our U.S. infrastructure growth. Given the scale of our 22 investments, we believe this year's capital expenditures and expenses are laying the groundwork for commensurate future revenue growth and ultimately profit growth. As a result, we expect that the step-up change in capacity that we are building out this year should push out the need for another similarly capital-intensive distribution center until 2025. In closing, I want to reiterate that we remain focused on the same strategy we have discussed since our IPO nearly a year ago. We continue to invest in infrastructure that supports our future revenue growth and widens our competitive mode, while at the same time making planned progress towards our long-term margin goals. In line with this, we are making several outside investments in our infrastructure this year. These will result in incremental expenses that will pressure our P&L primarily in the first half of 2022, but we look forward to leveraging those assets as we drive up our capacity utilization rate over time. Finally, our commitment to growing our capacity by 150% with our Texas DC reflects how firmly we believe in the magnitude of the global resale opportunity and should support our planned growth until 2025 before we need to build an additional distribution center in the U.S. We remain confident that we are laying the foundation for steady growth and ultimately increasing profits and are excited for the year ahead. James and I are now ready for your questions. Operator, please open the lines.
spk05: Thank you. If you'd like to ask a question, please do by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, that is star 1 if you would like to ask a question. We'll take our first question from Ike with Wells Fargo. Please go ahead.
spk09: Hey, guys. How you doing? Two from me. Within Europe, I think, I think you guys gave the remix gross margin for the quarter. Could you give the revenue contribution for fourth quarter as well? And then within the European business, any insight over the past week or two on consumer sentiment or behavior that you guys would call out? And then second question for Sean, just the EBITDA progression through the year seems like you're expecting things to kind of smooth out. Just anything we should keep in mind quarter to quarter would be great.
spk02: Yeah, okay, this is Sean. Yeah, from a Remix revenue perspective, I think the last kind of information we gave you guys was 2020 was about $34 million. They've been growing since then. We're not going to get real specific about what their revenue is, but you can assume that, you know, they're growing, we're growing, kind of do some math there. I'll let James give you a little view on kind of the sentiment in Europe.
spk14: Yeah, I mean, I think, you know, I think Europe has been, you know, under a lot of pressure, Eastern Europe, obviously, but Nothing that I think is changing our point of view on the broader kind of long-term European strategy, but obviously we have a team in Ukraine. Our hearts go out to them. We've been monitoring them, but I don't think that we have any more information provided at this point, but certainly something we're keeping a close eye on. And then I'll let Sean talk about EBITDA progression over the rest of the year.
spk02: Yeah. And then from an EBITDA perspective, like the rate overall, expect a slight improvement quarter over quarter as we go throughout the year. You know, DC07 won't really come online for revenue until about Q3. So you have some headwinds as you go through the first half that we talked about in the prepared remarks. And you'll start to see that benefit more in Q4 as we get more up to speed in generating revenue out of DC07 or the Dallas DC.
spk04: Got it. Thanks, guys.
spk05: Thank you. We'll take our next question from Ross Fanler with Barclays.
spk01: Hey, guys. Sean, just a little housekeeping on all those numbers you rattled out, but I think you said core ThredUp gross profit was $44.1 million, which would make the Remix gross profit $4.1 million, and at a 37% margin, revenue would be $11 million in the quarter. And if I annualize that, your gross profit for core thredUP in 22, based on the high end of your guidance, is below 20% growth. So I guess the question is, are those numbers right, or am I just way off? And why is the core growing less than 20%? What's going on with kind of core US consignment? And then the second question is, how do we bridge from the mid-60s up to your long-term gross profit margin target of 75 to 78. Can you help us get there given the remix impact? Thanks.
spk02: Yeah. From a growth margin perspective, I think you'll see the evolution from where we are today consolidated to kind of migrate more towards what DredUp was standalone pre-remix. So we'll get back into the 70s as we move towards more of a consignment-based model throughout Europe. That'll start to give us a little tailwind from where we are today. In addition to all the improvements that we will be having from an automation perspective and the scale we'll get as we move into DC07 in the processing centers. I think that's kind of the overall march as we go from where we are today, get back to where ThreadUp was standalone, and then move towards the longer-term model that we laid out in front of you. And then from a thread up versus remix, I think you can kind of back your way into revenue. I think we gave enough of that. And I don't know on your percentage and growth for the full year. It is a different number than that.
spk04: Thank you. Thank you.
spk05: We'll take our next question from Dylan Carden with William and Blair.
spk11: Thanks a lot. Just curious, the utilization rate for Atlanta specifically, I would imagine it's below that 77% number you gave. And then the not needing distribution capacity until 2025, I think, I thought that you'd said to around the IPO that you're sort of 18 to 24 months build out cycle. Just curious if I have that right, if there's a change there, maybe balancing profitability in tandem with growth investment. And then, sorry, just to add to it just on distribution, the new clean-out kit processing centers, can you just speak to the strategy there, you know, what that allows for from maybe a, you know, speed, lead time standpoint and sort of any sort of economic or margin implications of expanding that? Thanks.
spk14: Yeah, hey, Dylan, it's James. Yeah, I mean, I think when we went public, I think we were planning – on every 18 to 24 months for these distribution centers because that had been a historical trend. But we did not anticipate at that point the opportunity to build a bigger facility in Dallas. So the facility in Dallas is three times, more than three times the size of Atlanta, right, which was more than two and a half times the size of our previous facility. And so I think, as we probably signaled previously, we were sort of evaluating whether we would need to continue building facilities of that scale at that rate. And I think what we've been able to see with our pricing strategies and our turnover, that we can maintain strong growth rates within the constraints of that facility, which makes us think we don't really need to start biting off a new one until 2025. So I think that gives us a lot of confidence in how the business leverages you know, over the next year or two. And then, you know, I think that's the natural segue into your question about processing centers. You know, because those are a much more of a lightweight facility build out and they operate near our bigger hubs, we can turn those on, access, you know, more processing power, you know, shorter lease durations. but ways that I think really diversify our ability to process bags over time. And I think, you know, as you might have caught in my remarks, you know, because of that, we're seeing the bag backlog processing times come down. So we think the whole recipe for how ops is scaling and leveraging, I think it's in a really good place.
spk11: Awesome. I'll save the rest. Thanks a lot, guys.
spk05: Thank you. We'll take our next question from Ana Andriva with Needleman Company.
spk08: Great. Thanks so much. Good afternoon, guys. Two questions. First, really strong growth in buyers. Can you talk about what drove that, and how are you thinking about buyer growth implied in guidance, either for 1Q or for the full year? And then secondly, just looking at the growth margins, the low end of the guide, I think you're implying a bigger decline for the year versus what you expect for 1Q, despite the new DCs coming online. I think you said in 3Q. I just wanted to make sure what's driving that. Thank you so much.
spk14: Yeah. Hey, Ana. It's James. I think just on both of those points, it's really the Remix contribution. So the growth in active buyers in Q4, because we consolidated Remix in Q4, closed the deal in October. So that showed kind of outsized growth relative to where we would have been throughout up standalone. But I think you can probably think about the next year as sort of more steady growth rates across both of our businesses. And remix consolidation in 2022 is actually what drives the gross margin number. Because remember, their business is totally direct product revenue. And that business operates at much lower gross margins than ThredUp does as a consignment business. And so as Remix continues to grow, it's a much smaller business than ThredUp is today, it will make up a slightly larger portion of our revenue as we grow throughout the year. And so that will just, from the math, structurally bring down margins. And then the plan, obviously, is to transition Remix to consignment as the ThredUp business is on consignment. That's just going to take a couple of years. We obviously don't want to do anything that would... shake that business up in a negative way. But that transition will happen, and so I think we feel very confident in the long-term gross margins of the business and the combined entity, but we're going to have to digest and remix in the near term.
spk02: Yeah, and just to be clear, though, we expect active buyers as a threat of standalone U.S. business to grow throughout 2022 as well.
spk04: All right. Thank you, guys.
spk05: Thank you. We'll take our next question from Lauren Schenk with Morgan Stanley.
spk13: Hi, this is Nathan Featherhunker, Lauren. You know, just looking at your guidance implies a bit of an acceleration from 1Q to the rest of the year. Was that just due to the processing limitations due to Omicron or any other puts or takes you can talk to there? And then obviously, you know, an investment year in fiscal 22. Kind of laying the groundwork for future leverage. Can you talk through how that changes the path to profitability versus what you had laid out at IPM?
spk12: Thanks.
spk14: Hey, Nathan. Yeah, I mean, I think on the first quarter, I think as Sean and I mentioned, we definitely had real processing headwinds in December into January with Omicron. And so, you know, that obviously, you know, as we've been consistent, you know, hurt our ability to put those items online and drive that revenue. And our new two, both of our processing centers that we mentioned in Lebanon and then in Grapevine, Texas, both of those have come on just in the last month or so. That adds a lot of processing capacity to our business as we move throughout the year. Again, as our business, as we process more goods, that allows us to grow even faster. I think that's part of why the numbers that you see suggest an acceleration throughout the year. as it relates the path to profitability, you know, I think we remain consistent, which is we want to make these investments to drive, you know, sustainable growth, you know, and profits over time. And I think we're making the right ones, you know, right now to take advantage of what we believe is a massive market. And so, but I think importantly, those infrastructure investments leverage over the next couple of years that I think will make it very clear to investors, you know, how profits come over time.
spk02: Yeah, keep in mind the statement we said, we won't need another distribution center like Dallas until the earliest, like 2025. So all that investment now is going to continue to pay off through 23, 24, until it gets to 25. Okay, great.
spk13: Thank you.
spk05: Thank you. We'll take our next question from Mike Ng with Goldman Sachs.
spk15: Hey, good afternoon. Thank you very much for the question. I just have two. First, could you just talk a little bit about the parallels that you see for Remix in Europe relative to ThredUP in the US and what gives you confidence about the opportunities for Remix to follow in that ThredUP maturity curve? And then second, I just wonder if you could talk about what you view as the constraints on growth. I think it historically has been a supply-side constraint And on that supply side, it seems like labor is the biggest constraint now. Is that right? And how do you see that evolving throughout 2022? Thank you.
spk14: Yeah. Hey, Michael. I think on Remix, I think as we said last quarter, it looks a lot like ThredUp did six, seven years ago from a revenue and growth profile. And so I think our ability to run a similar playbook as we have in ThredUp over the last few years, but deploy that with all of the things that we've learned, to me, feels like we have a lot of confidence that Remix can end up on a very similar track to thredUP, not just in its sustainable growth, but also just its ability to kind of capture, you know, this ongoing expanding TAM and be able to do that at, you know, in a consignment margin profile that looks very similar to thredUP. But I think, you know, we said that that's going to take two to three years as we transition that business from when we closed the deal in October. So, you know, I think we continue to feel confident in Remix looking a lot like ThredUP over the next few years. As for like constraints of growth, yeah, I mean, it's often in two-sided markets like this one, it's supply that drives that. And for us, it's really about supply processing power. And so part of our investments in bringing on a new DC in Dallas and adding the processing centers is to really accelerate that processing. And I think that gets back to, you know, Nathan's questions earlier, right? That's what really drives acceleration. You know, as we move through the year is our ability to process more and more goods. So I think that story is very consistent to how it's been a threat over the last few years.
spk15: Great. Thanks, James.
spk05: Thank you. We'll take our next question from Tom Ninkich with Wedbush Securities.
spk03: Hey, guys. Thanks for taking my question. I wanted to ask about, I guess, the building blocks for EBITDA for 2022. I think based on the margin rates and revenue that you gave, the actual loss in dollars should be about $10 to $15 million more in 2022 than it was in 2021. I think you said $6 million comes from the DCs and processing centers. I think you said $3 million of incremental public company costs. Is the remainder just losses from Remix, or is there anything else, any other sources of investment that we should be thinking about?
spk02: No, you have a piece related to the increased costs and logistics as well. That's kind of the missing piece I think you have.
spk03: Okay, got it. That loan in Q1 was a million dollars. Okay. Got it. Is there any way we should think about like what the core sort of improvement would kind of be without these investments?
spk02: Well, I think you can take those out. I mean, in Q1 alone, the $1.5 million related to DC07 is about 2% of EBITDA. If you look at the $6 million for that, it's approximately 2% for the full year as well. That's going to be front-end loaded, so you're going to have similar numbers, maybe 2.5% that would impact Q2. So if you're thinking it through that way, just related to the DCs, I think this is great because it's an investment for the long-term future. And then the impacts of some of the things we're doing in SC&A, as well as just kind of increased logistics.
spk03: understood that problem. Thanks very much, guys. Thank you.
spk05: Thank you. We'll now take our next question from Dana Telsey with Telsey Advisory Group.
spk06: Hi, good afternoon, everyone. I think in the last quarter you had mentioned strategically lowering prices, and it was, I think, around 15% in the third quarter. What does it look like in the fourth quarter, and how do you think about your go-forward game plan?
spk14: Yeah, hey Dana, it's James. Yeah, I mean, I think as I said last quarter, we really let the data help dictate for us, you know, where the pricing opportunities are. And as I said, you know, I don't think, you know, not all prices at ThredUp went down 15%. It was, you know, it's on average across 35,000 brands that we sell. You know, and I would say right now we're doing the same calculation. So I don't think we have any new news to break. on pricing, I think we're going to let the data, you know, point to the best way to, you know, drive performance in our business and serve the customer. And I think that's the thing we've always been doing, we'll continue to do.
spk06: Got it. And it's night processing time. What is your expectation as we go through 2022 in terms of what it looks like?
spk14: Yeah, I mean, I think, well, we've made a huge, huge progress, you know, since last quarter and the new processing centers coming online, GCO7 coming online. So I think we're feeling confident that it's moving in the right direction. As I said last time, though, there's always this elasticity experience where as our processing times come down, consumers, sellers, you know, pile into our business. So I think it's too soon to say, Dana, when it's going to be back down to our steady rate of two to three weeks. But I have a lot of confidence that the investments that we're making right now to drive processing are the right ones. I mean, the customer is going to respond positively to that.
spk06: Just lastly, last time you were seeing an uptick in terms of dress-up wear for the holiday season, any new trends out there that you're seeing in terms of product sell-through categories?
spk14: Well, you know, we're definitely seeing like consumers, you know, really seeing the shift to, you know, warm weather come earlier. You know, just like some, you know, vacation staples like maxi dresses, for example, Dana, they were up 55% year over year in February. We saw shorts were up 68% year over year in February. Mini skirts were up 58% year over year in February. So I think a number of these categories that suggest consumers are ready to kind of get out in the world, like continue to be true. And so those were sort of a few of the trends that we saw.
spk06: Thank you.
spk05: Thank you. We'll take our next question from Matthew Egger with Piper Sandler.
spk12: Hey guys, thanks for taking my question. Just two quick ones from me. One, can you kind of explain to us the rationale and scaling international this early in the story and maybe speak to how you view kind of category expansion versus geographic expansion? And then secondly, kind of when you all were going public and in your IPO models, I think you said RAS was not a part of your forecast. Is that still not contemplated in your model or your guidance going forward? Thanks.
spk14: Yeah. Hey, Matt. Look, I think we believe that the international opportunity in resale is massive. You know, the European resale market is very large. And so we felt like it was a great opportunity with a business like Remix that was very similar to ThredUP in lots of ways. We thought it was the right time to do that. You know, I don't necessarily want to comment on other categories. you know, at this point, but continue to feel very confident in the decision to buy Remix and expand into Europe, essentially doubles the TAM for ThredUp. You know, as for kind of the, you know, IPO modeling forecast... Yeah, we're past that.
spk02: So, yeah, anything that we know about RAS is in our forecast.
spk04: Yeah. Okay, thank you.
spk05: Thank you. Once again, that's Star 1. If you'd like to ask a question, we'll take our next question from Brian McNamara with Vandenberg Capital Market.
spk10: Hey, good afternoon, guys. Thanks for taking my question. Can you give me a little more color on your expectations for Europe in Q1 and this year and how that's perhaps changed over the last few weeks? If this call was a month ago, is your top client guidance for the year materially higher?
spk14: Hey, Brian. Yeah, I mean, look, we continue to think that Europe's a great opportunity for us. You know, I think what's happening in the Russia and war in Ukraine, like, you know, we don't expect that to be a huge drag on the business, you know, over the course of the year. But look, we acknowledge that there's some uncertainty there. there, but I don't think that it's going to materially change our point of view that international growth is a big opportunity for us and that Remix is a great business that we have in Europe. So yeah, I think we're watching it closely, but I don't think our point of view on the opportunity in Europe has really changed.
spk02: Yeah, specifically, Brian, just like, you know, we generate no revenue from Ukraine. We get no supply from Ukraine. But obviously the burden on what's happening in Europe is hanging on the consumer. So, you know, we're paying close attention to that.
spk10: Got it. And just a quick follow up. So the stock in your peers has had a tough few months here. What do you think you're not getting enough credit for? What's your long term investors be most excited about?
spk14: I think people fundamentally misunderstand some of the competitive advantages that we're building. And all the dollars that go into building infrastructure growth create real compounding returns over time. So I think as we've been consistent, we think when you're building infrastructure, you're widening your moat, you're deepening your advantage. And that really materializes over a number of years. And I always point to people that this is very much the same playbook that Amazon ran very early in its life, which was to build real infrastructure that really delivers for the consumer and then to be able to ride that out over time. And I'm a big believer that that strategy pays off, but it takes some time to pay off. But we're not going to waver from making the right decisions. on how to build those competitive advantages to serve the customer. And I think that's the thing, Brian, people often don't quite appreciate.
spk10: Great. Thanks, guys. Best of luck.
spk14: Thanks.
spk05: Thank you. And that does conclude today's question and answer session. I would like to turn the conference back over to management for an additional or closing remarks.
spk14: Thanks, everyone, for joining us for our conference call. Thank you for the great questions. Thank you to the ThredUp team. for all their hard work and just to call out to acknowledge, you know, all the folks we have in the Ukraine that are suffering through a really difficult time. We want to give them a shout out and appreciate all their incredible hard work in service of our customers. So with that, we'll wrap it up. Thank you.
spk05: Thank you. That does conclude today's conference. We thank you all for your participation and you may now disconnect.
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