ThredUp Inc.

Good day, everyone, and welcome to today's ThredUP Q1 2024 earnings call. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star 2. Please note this call is being recorded. I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Lauren Fresh, Head of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss ThredUP's first quarter 2024 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 be making forward-looking statements during the course of this call, including but not limited to statements regarding our earnings guidance for the second fiscal quarter and full year of 2024, future financial performance, market demand, growth prospects, business strategies and plans, investments in AI technologies, reorganization activities, and our ability to cost-effectively attract new buyers. Words such as anticipate, believe, estimate, and expect, as well as similar expressions, are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, involve known and unknown risks and uncertainties, including our ability to effectively deploy new and evolving technologies, such as artificial intelligence and machine learning, in our offerings and the effects of inflation, increased interest rates, changing consumer habits, climate change, and general global economic uncertainty. Our actual results could differ materially from any projections, be it performance or result expressed or implied by such 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. 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'll 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 reconciliation, comparable GAAP measures, in our earnings press release and supplemental information posted on our IR website. Now, I'd like to return 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 first quarter 2024 earnings call. We are pleased to share ThredUP's financial results for Q1 and have important news to share about how we expect our business financials to improve in the back half of the year. We will provide an update on adjusted EBITDA margin expansion, expectations for free cash flow in 2024, and key company-specific initiatives around AI that we are excited to announce today for the first time. I will then hand it over to Sean Sobers, our Chief Financial Officer, talk through our first quarter 2024 financials in more detail, and provide our outlook for the second quarter of 2024 and the remainder of the year. We'll close out today's call with a question and answer session. Let me start with our Q1 results, which were in line with our expectations, despite an ongoing difficult consumer backdrop. Our revenue was $79.6 million, representing a year-over-year increase of 5%. Consolidated gross margin came in at 69.5%, representing 8% gross profit growth year over year. Recall, we believe gross profit growth is the best way to measure the underlying growth in our business due to our continued transition to consignment, especially in Europe. U.S. gross margins reached a record high of 80.1%. Active buyers reached 1.7 million, increasing 4% year over year, while orders reached 1.7 million, growing 9% compared to the same time period last year. Of note, adjusted EBITDA totaled negative $736,000, or minus 0.9% of revenue, due to ongoing leverage in our business, as well as some reorganizing that we did in March. Our U.S. business was adjusted EBITDA positive for the third quarter in a row and was free cash flow positive for the quarter. Now let me turn to the future, as we have important context to share about how our business is transforming into an AI-powered resale company and what the year ahead will look like. In March, we reduced headcount and reorganized several parts of the business, enabling us to invest more in AI product development, boost processing in our distribution centers, and increase marketing spend. We cut approximately $13 million in operating expenses and reinvested roughly half of those savings into high potential growth areas. The result of these changes is that we expect to achieve positive adjusted EBITDA on Q2, nearly triple our full-year adjusted EBITDA results compared to our last outlook, and to generate free cash flow on a full year basis in 2024. We have now pulled forward our free cash flow expectations by a full year. We view this to be an important milestone for the company as we turn the page from answering questions about profitability to focusing on how we expect to invest earnings over time in growing our business to capture the long-term opportunity in resale. With that in mind, let me turn to the progress we've made across our product investments that are improving the customer experience and planting new seeds for sustainable long-term growth. In just the last 60 days, we have launched a new AI search experience and created two new AI-powered tools that allow consumers to thrift any style that inspires them. These tools make ThredUP the easiest place to thrift, no matter when the inspiration strikes, whether that's from the high street, when they see their favorite outfits, when shopping online at any of their favorite stores, or even if they want to tell us about an event they're shopping for and have us do the work to inspire them. All three of these features are now live in beta form. You can try the new visual search in our search bar, and you can visit our ThredUp concept store on your smartphone at thredup.com forward slash concept to see the other new tools in action. The competitive advantages that we have been talking about for many years are supply chain infrastructure, proprietary data, and marketplace dynamics. are now being amplified by AI technology breakthroughs that have only recently started to take shape. I want to emphasize my belief that AI strengthens the advantages we already have in place and deepens the long-term defensibility in our business. With our business expected to generate free cash flow this year, we remain ever committed to investing in new vectors of opportunity to grow our business faster with an eye towards creating stronger long-term earnings. And this goes beyond just AI. In Europe, The transition to consignment continues, and we are making progress across our key strategic areas. Of note, we set new records in Q1 for the number of bag requests in a week, the number of bags returned in a week, and the number of consignment bags processed in a week. We processed more consignment bags in Q1 than we did in all of 2023 combined. After concluding our write-off at the end of 2023, we believe our assortment strategy is paying off. our sell-through rates are among the strongest they have been since we acquired Remix in late 2021. We also announced last week that we have hired Florin Filote as our GM of Europe. He is relocating to our European headquarters in Sofia, Bulgaria. Florin brings two decades of experience building and scaling marketplaces, and we believe he is absolutely the right person to continue scaling top-line revenue and driving margin expansion in Europe. He will run our EU business, while sitting on our U.S.-based executive team. I'm also just as excited that Dan Demeyer, who previously was running our EU business while being based in the U.S., will return to the U.S. business as Chief Product and Technology Officer as we scale all of our tech and AI products. Next, we've continued to scale our Resell as a Service, or RAS, business. In Q1, we added eight new brands to our client roster, and you can now get a ThredUP co-branded clean-out kit in 800 retail stores across the country. And with some clients, we've begun natively integrating the ability to order a clean-out kit right from their e-commerce checkout page. We are also looking to expand our RAS footprint in Europe and believe commercial agreements with brands and retailers there can further accelerate our transition to consignment. Now let me turn to our impact. As we remain committed to balancing purpose and profits, it's also worth noting how we're driving impact beyond our core business. We've recently started to see our advocacy efforts take shape at the federal level. As a founding member of the American Circular Textiles Coalition, we helped advocate for the inclusion of $14 billion in incentives for textile circularity in the Americas Act, a bipartisan trade bill that was introduced by U.S. Senators Bill Cassidy and Michael Bennett in March. This is a historic moment, as it's the first time federal legislation has contemplated circular fashion. We believe recognizing circularity's potential to strengthen the U.S. economy from both an environmental and international trade perspective is a huge step forward for the industry. Until fashion is no longer one of the most damaging sectors of the global economy, we will continue to advocate for the government to provide resources that make fashion and textile industries more sustainable and planet-friendly. In conclusion, before I turn it over to Sean, I want to emphasize a few milestones and guiding principles We think of our earnings this quarter being a reestablishment of who we are and where we're headed along these four dimensions. First, over the past two years, including the midpoint of our 2024 guidance, we have expanded adjusted EBITDA 1,800 basis points and now expect free cash flow on a full year basis in 2024. Second, while driving adjusted EBITDA margin expansion, we have not compromised driving growth. At the midpoint of our 2024 guidance, The underlying growth rate of our business over the past two years, which is gross profit growth due to the consignment shift, is 24%. This represents annual double-digit growth despite an ongoing volatile consumer environment. Third, we now have the ability to more rapidly improve the customer experience, especially with emergent AI technology and investing growth, while simultaneously achieving our free cash flow goals. We believe we are in a position to manage the magnitude of growth and profits effectively regardless of where the consumer environment goes. Finally, we want to reestablish the trust of the investment community, that we are great stewards of capital, that our most innovative days are ahead of us, and that we do not want to just meet our expectations. We want to exceed them. That is the journey we begin anew today. With that, I will now turn it over to Sean to go through our financial results and guide in some more details.