ThredUp Inc.

Good afternoon, ladies and gentlemen, and welcome to the ThreadUp Q3 2023 results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Monday, November 6, 2023. I would now like to turn the conference over to Lauren Frasch, Senior Director, Investor Relations and Strategic Finance. Please go ahead.

Good afternoon, everyone, and thank you for joining us on today's conference call to discuss ThredUp's third quarter 2023 financial results. With me 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 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 earnings guidance for the fourth fiscal quarter and full year of 2023, future financial performance, including our goal of reaching adjusted EBITDA breakeven, market demand, growth prospects, business strategies, and plans, our ability to attract new buyers, and the effects of inflation, increased interest rates, changing consumer habits, climate change, and general global economic uncertainty. These forward-looking statements are not guarantees of future performance, involve known and unknown risks and uncertainties, and our actual results could differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. 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 and our SEC filings, earnings press release, and supplemental information posted on our IR website. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. 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 press release and supplemental information posted on our website. 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 ThredUP's third quarter 2023 earnings call. We are excited to share ThredUP's financial results and key business highlights from our third quarter. In addition to our financial results, we will provide an update on key company-specific initiatives contributing to our growth, ongoing expansion of adjusted EBITDA, and some early thoughts on 2024. I will then hand it over to Sean Silvers, our Chief Financial Officer, to talk through our third quarter 2023 financials in more detail. and provide our outlook for the fourth quarter and fiscal year 2023. We'll close out today's call with a question and answer session. Let me start with our Q3 results. We achieved another quarter of strong financial performance despite a highly dynamic environment. We delivered accelerating revenue growth, outperformed on gross margin, and inflected our active buyer account for the first time this year to achieve a record number of active buyers. Our revenue of $82 million is an increase of 21% year over year. Our consolidated gross margin exceeded expectations at 69%, driven by another record gross margin in our U.S. business of 78.5%. We are especially proud that our record active buyer count returned to growth in such a competitive retail environment, reaching $1.8 million, up 4% compared to the same quarter last year. We continue to be pleased with our improvements to adjusted EBITDA as we posted a loss of just $3.6 million, an $1,180 basis point improvement year over year, and a sequential improvement of 170 basis points from the prior quarter. Of note, we increased expenses across operations, products, and technology just 4%, while driving 21% revenue growth and 27% gross profit growth. We believe this best illustrates the ability for our marketplace to achieve increasing efficiency at scale. Finally, on top of record gross margins, I want to share that our U.S. business reached adjusted EBITDA break-even and generated free cash flow in Q3, for the first time in our company's history. While we still have some work to do in Europe, we are increasingly confident that executing on our U.S. playbook in Europe will yield similar success. I'd now like to provide an update on our progress towards EBITDA break-even on a consolidated basis and some initial thoughts on 2024. With just one quarter left in our fiscal year, we have clear sight to achieving our goal of reaching quarterly EBITDA break-even, but not on our original Q4 timeline. There are a few primary reasons for this. First, there are accelerating headwinds in Europe. Since our European business is not a consignment-based business yet, there are fewer levers to manage gross margins. We expect this to change over time as we transition to consignment, but in the meantime, it is presenting a headwind to our consolidated margins. Second is an uncertain macro environment that's continuing to pressure discretionary spending in both the US and Europe, resulting in a weaker consumer landscape than we had anticipated. And third, given that challenging backdrop, in order to maintain momentum in our buyer growth into 2024, we've chosen to be incrementally more promotional to set us up for success next year. With active buyer growth returning, we made the decision to fuel our momentum rather than extinguish it in pursuit of short-term goals. We remain committed to building a business for the long term and will not optimize for short-term optics when faced with difficult decisions. It is these types of decisions that enable us to be extremely proud of the continued progress we're making towards our growth and profitability goals, In the face of ongoing consumer uncertainty and a competitive promotional environment, we expect the U.S. business to again be EBITDA positive in Q4, despite Q4 historically being our slowest quarter in the U.S. At the midpoint of our annual guidance for 2023, we expect to grow revenue 11% and expand EBITDA by nearly 1,000 basis points. Quarter after quarter, we've demonstrated that we are one of the best performing companies in 2023 on a revenue growth and margin expansion basis. and we remain confident that we'll be breaking even for the total company on an annual basis in 2024. We still view breakeven as a waypoint to our future and will continue to make decisions based on what's best for building a sustainable and generation-defining company that endures long beyond arriving at this milestone. Though retail has been grappling with an extended consumer malaise, this challenging backdrop has only strengthened the underlying engine of our business. Thrive is executing at a high level, and returning to active buyer growth while expanding margins is key proof of this. As we look into 2024, we plan to pursue the clear opportunity to accelerate our current momentum in both the U.S. and Europe while achieving breakeven on a full-year basis. While the consumer landscape continues to be choppy and retail remains highly competitive, we believe resale benefits as consumers continue to prioritize value and seek deals, and we're confident in the team's ability to manage the business in this environment. As we head into the final quarter of the year, we will maintain our focus and steady approach in controlling the controllables, how we spend our time, the quality of the decisions we make during times of uncertainty, the urgency we have to invent on behalf of our customers, and the willingness to keep learning what's different this time around. I'm grateful to the exceptional team at ThredUP who shows commitment and grit every day in service of delivering on our goals. I'd now like to provide an update on some of the key company initiatives that are enabling us to drive revenue growth, active buyer growth, and margin expansion. First, we're continuing to make progress towards our vision to create a marketplace experience that achieves the highest levels of customer satisfaction. Over the last few quarters, I've shared initial tactics related to our thrift promise, which aims to do right by the customer with every order. And in Q3, we debuted our delivery promise with the goal of delivering purchase to doorstep shipping in three days or less. Our dedication to delivering a delightful post-order experience is not only improving retention, but also improving the margin profile of our business. Our return rate in Q3 decreased by more than 700 basis points compared to the same quarter last year. And since we first launched Thrift Promise, we've generated millions of dollars in logistics savings. Second, we're deepening our commitment to our community of sellers with a renewed focus on providing the easiest and most convenient way for people to resell apparel online. We have a diverse seller base, But whether you're an everyday seller who wants to just get it out of the house, a VIP seller seeking expedited processing times, or a resell-as-a-service client customer interested in getting credit to your favorite brands, we're expanding our offering to cement ThredUp as the go-to destination for all types of sellers. Third, as we continue to apply learnings from our U.S. business to our European business, we're driving more active buyers in Europe. Of note, we've rolled out keep for credit to our primary European markets after seeing success in the U.S., and we've made meaningful progress with the shift to consignment sales. Short-term, the transition to consignment will present a real headwind to revenue due to the accounting treatment, which Sean will discuss more in a minute. Long-term, consignment will significantly improve gross margins, expand the selection of high-quality supply, and ultimately yield ongoing net revenue growth. Fourth. A resale-as-a-service business, or RAS, has added several new brands to its client roster, including Beyond Yoga, part of the Levi Strauss Company, Smartwool, part of VF Corporation, and Journeys. As a reminder, RAS enables brands and retailers to deliver customizable and scalable resale experiences to their customers. By leveraging ThredUp's 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. Finally, we're continuing to deploy artificial intelligence across our distribution center network and our product experience, seeking new applications that lower processing costs and lead to greater economic value. To give an example, we're using AI to build a robust product catalog with millions of unique items and to surface a more personalized selection from that inventory. all allowing customers to seamlessly shift through our vast assortment to find items they love faster. By evolving and executing against these initiatives, we believe we will create enterprise value over time. Turning to impact, in our pursuit of enterprise value creation and profitability, we're also proud of the social impact our business has on our people, our communities, and the planet. In Q3, ThredUP was named to Time's 100 Most Influential Companies of 2023, And Digiday recognized us for exemplary workplace and company culture in its Work Like 50 awards. As a team, we aim to balance purpose and profit and believe holding these with equal importance is critical in furthering our mission to inspire a new generation of consumers to think secondhand first. Before I turn it over to Sean, I want to reemphasize the strength of our Q3 performance and our commitment to balancing the demands of short-term scrutiny and long-term value creation. The macro environment remains uncertain and the retail landscape is highly promotional. but we've never been afraid of a challenge and have always persevered when things get tough. We believe we're focused on the right strategic initiative as we close out the year and expect positive momentum into 2024. I'm excited about how far we've come, but more importantly, I'm excited about where we're headed next. With that, I will now turn it over to Sean to go through our financial results and guidance in more detail.