ThredUp Inc.

Good afternoon, and thank you for joining us on today's conference call to discuss ThredUP's first quarter 2022 financial results. With us are James Reinhart, 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 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, market 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 information about these risks, uncertainties, and other factors that could affect our operating results in our SEC 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.

Good afternoon, everyone. I'm James Reinhart, CEO and co-founder of ThredUP. Thank you for joining us for ThredUP's first quarter 2022 earnings call. We're excited to share financial results and key business highlights from our first quarter. In addition to our financial results, we will discuss progress in Europe following last year's acquisition of resale leader Remix and updates on our resale as a service RAS offering. I'll also share a reminder of our strategy and the investments we're making to strengthen our position in the growing resale market, as well as how we were thinking about the consumer in the balance of the year. I will then hand it over to Sean Sobers, our Chief Financial Officer, to talk through our first quarter of 2022 financials in more detail and provide our outlook for the second quarter of 2022. We'll close out today's call with a question and answer session. Let's turn to the results. I'm proud to report that we kicked off 2022 with a strong Q1, achieving record results from multiple metrics. Our revenue of $73 million is an increase of 31% year over year, while our gross profits grew 26% to a record $50 million. Our gross margins were exceptionally strong at 69.1%, a 300 basis improvement over Q4. We attribute our strong gross margin performance to improvements in our logistics strategy as we push to consolidate orders. as well as progress within our European business. As expected, we posted an adjusted EBITDA loss of $13 million as we made planned investments across our operating infrastructure and technology stack. We finished the quarter with record active buyers and orders increasing 33% and 45% year-over-year, respectively. Even as we face rising inputs, labor costs, and logistics surcharges, our first quarter results reflect that our business model continues to benefit from the competitive advantages that we've developed in our supply chain and our culture of continuous improvement. I'd now like to take some time to acknowledge the current environment and its impact on the American consumer. As has been well documented, U.S. consumer prices jumped 8.5% year over year in March, the biggest year over year increase in more than 40 years. GDP declined in Q1, adding to already significant recessionary concerns. The conflict between Russia and Ukraine has continued. There are just a multitude of disruptive forces at play, squeezing consumers in many areas of their lives, from gas to food to housing to apparel. In addition, unpredictable category shifts in discretionary consumer spending are occurring as our lives are returning to a surge of social activity, travel, in-person events, and experiences this year. Regardless of how these crosswinds impact the threat of customer in the near term, we will relentlessly focus on providing great brands at great prices in a sustainable way. leveraging our unrivaled access to high quality supply speaking of great brands at great prices in april shoppers came to thread up for a variety of apparel needs workday wardrobe refreshes were in full effect sell through of wool pants wool blazers and formal skirts were all up more than 50 year over year 2022 is also expected to be the biggest year for weddings since 1984 And as a result, we saw sell-through of cocktail dresses and heels were both also up more than 50% year over year. And lastly, with sunny days ahead, the consumer appears to be ready for warm weather, with sell-through for sandals, halter tops, sunglasses, and sun hats all up over 65% year over year. The trends we observed in April we believe to be indicative of how customers are likely to shop resale today and into the future, which is to say trends and transitional moments may come and go, but we believe resale is increasingly becoming a go-to destination for more and more people each year. Yet at the same time that our customer is feeling pressure, the cost of doing business is rising for us as well. We've long discussed rising freight and wages, but as gas prices surge and the labor market remains tight, we continue to see rates increase, along with the cost of many other inputs in our business. There is much we cannot control in this environment, so we are proceeding carefully as we plan for the balance of the year. and staying focused on the same strategy we have discussed on every one of our earnings calls, investing to support our future revenue growth and widen our competitive mode in the U.S. and internationally, while at the same time making methodical progress towards our long-term margin goals. Despite the near-term uncertainty resulting from this dynamic macro environment, we view these challenges as transitory. We have always been a company that is focused on building for the long term. And as a result, we do not expect that what we are seeing today should alter our path towards profitability or our long-term targets. As Sean will discuss in more detail later, we are making significant headway in our path to profitability. Now I would like to provide an update on a few of these long-term growth initiatives. First, let's start in Europe. Our international efforts remain focused on Remix, the European fashion resale company that we acquired in Q4. As mentioned on last quarter's call, since the acquisition, we have moved swiftly to consolidate all of our ThredUp learning and are focused on driving supply growth and margin expansion. We've continued to leverage the ThredUp playbook that we've built over the past decade and are thrilled about the progress we've made since acquiring Remix two quarters ago. Specifically, we've generated meaningful wins around pricing, product optimization, sell-through, and data science that have yielded promising performance in our European business. The build-out for the new EU facility in Bulgaria is also well underway, and we're confident that the additional processing and storage capacity will further enable us to sustain broader European growth for years to come. The resale opportunity is a global one, and these investments will position us to capture market share outside of the US as the first phase of ThredUP's international expansion efforts. Finally, I would like to mention that while we do not sell to or source supply from Russia or Ukraine, we believe we may be subject to some volatility in our European business as the Russia-Ukraine war persists. Next, I'd like to share an update on ThredUp's resale-as-a-service business, also known as RAS. Given ongoing sales momentum, we expect roughly 40 brands on our RAS platform by year-end. As the leading provider of resale services to brands in the U.S., ThredUp is empowering brands and retailers to deliver quality, seamless resale experiences to their customers. We provide three main service modules – our clean-out service, our cash-out marketplace, and our full-service resale shops. This suite of offerings is called Resale360, and our core offering allows brands to get started in resale for free, in some cases within 30 days. As a reminder on how to think about RAS as it relates to ThredUp's core business, I'd like to reiterate two key elements. First, our clean-out kit and resale shop offerings for brands leverage our existing infrastructure, and amplify the competitive advantages that we've built in our marketplace. As more brands sign on as Clean Out Kit clients, we deepen our long-term supply advantages at lower cost. As more brands launch online resale shops powered by our technology, we drive faster sell-through and higher returns on the same asset base. Second, for brands who wish to launch premium or enterprise resale services, either on the Clean Out side or on the resale shop side, we charge recurring platform and usage fees. Some examples of premium or enterprise offerings may include deeper data intelligence, marketing, branding, pricing control, packaging, repair, or omni-channel integration. To summarize, by leveraging our marketplace infrastructure, RAS amplifies our supply advantage, increases our sell-through and return on assets, and expands our long-term profitability metrics by adding sources of recurring high-margin revenue. This brings me to the next topic I'd like to review, which is one you've heard me speak about each quarter, given its importance to our strategy. It's threat of 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 that we've solved. First, we've built a reverse logistics supply chain that has created a massive and seemingly endless supply advantage in the resale market. Second, We've built world-class infrastructure, technology, and software to process single SKU apparel at scale. Third, we've built a data-driven managed marketplace that connects buyers and sellers on our platform and gets smarter with each item that we process. Now more than 125 million items and counting. With our model, most of our clothing is listed on consignment, meaning we have little inventory risk and we boast a negative working capital cycle that's measured in months instead of weeks. Of course, every strategy needs to evolve as conditions on the ground change, and we continue to pay attention to macro conditions and their impact on market volatility. We will always aim to balance the demands of near-term scrutiny with our commitment to investing for long-term value creation. ThredUp remains a team that will provide transparency and remain focused as we forge ahead on our mission to build a generation-defining company, a company that changes the way the world shops and ushers in a new era of sustainable shopping. Let's turn for a moment to our investments. I'd like to spend the next few minutes reiterating where our investments are being made to widen our moat and strengthen our position in the growing resale market. First, we're investing in our infrastructure with four new facilities coming online across the business in 2022. In the U.S., the build-out for our new 600,000 square foot flagship distribution center outside of Dallas, Texas is making steady progress and remains on track to come online and begin processing this summer. Upon full completion, the new four-level facility will bring ThredUP's total network-wide capacity to 16.5 million items, a 150% increase from our current capacity. In addition, two new processing centers in the U.S., one in Grapevine, Texas, and one in Lebanon, Tennessee, are focused exclusively on clean out kit processing and have been up and running successfully since January. Both facilities will eventually serve as immediate feeders to our larger facilities in Dallas and Atlanta. With so much new processing power online, we have begun accepting more clean-out kits and have seen a surge in supply. In the first two weeks of reopening bag requests to our wider seller base, we received more than 150,000 requests, double what we expected. As inbound supply continues to exceed our expectation, our bag backlog has held at eight weeks, even as our processing power has reached all-time highs. We are confident we're unlocking ever higher steady state processing, a critical input to future steady growth. In Europe, we're building out our new larger processing facility in Sofia, Bulgaria, which is expected to come online later this year. This new facility will position us to more aggressively pursue the European resale opportunity, estimated to reach $39 billion by 2025, according to global data. Second, we're allocating capital towards research, development, and data science capabilities across our network. Ongoing investments in new systems is a key driver behind our ability to lower our per-unit processing costs, improve our pricing and payout systems to further expand margins, and upgrade our marketing, merchandising, and direct response expertise to supercharge customer acquisition at lower costs with higher lifetime value. I know that the consumer environment and macroeconomic conditions feel uncertain in the near term, but the tailwinds in the resale industry continue to blow, and capturing this momentum as volatility subsides will be dependent on the calculated investments we're making over subsequent quarters. I am very proud of the progress that our team is making across our investment portfolio, and am confident that each of these investments will ultimately translate into long-term value creation.

So let me wrap up.