Document

SAN FRANCISCO, May 9, 2023 — The RealReal (Nasdaq: REAL)—the world’s largest online marketplace for authenticated, resale luxury goods—today reported financial results for its first quarter ended March 31, 2023. The company reported a higher take rate and higher gross margins compared to the same period in 2022. First quarter 2023 gross merchandise value (GMV) increased 4%, compared to the same period in 2022.

“During the first quarter of 2023, we made progress on our financial and operating results. For the quarter, revenue exceeded the mid-point of our guidance, and Adjusted EBITDA exceeded the high-end of our guidance range. We believe our strategy of re-focusing efforts on the higher margin consignment business is starting to deliver results. During the first quarter, consignment revenue grew 22%, and direct revenue declined 49% year-over-year. Additionally, we made progress on minimizing lower-value consigned items. As a result of these actions, we expanded our gross margin in the first quarter, and we were able to deliver a higher take rate, more gross profit dollars, and improved profitability. ” said John Koryl, Chief Executive Officer of The RealReal.

We have not reconciled forward-looking Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, because we cannot predict with reasonable certainty the ultimate outcome of certain components of such reconciliations including payroll tax expense on employee stock transactions that are not within our control, or other components that may arise, without unreasonable effort. For these reasons, we are unable to assess the

The RealReal will post a stockholder letter on its investor relations website at investor.therealreal.com/financial-information/quarterly-results and host a conference call at 2:30 p.m. Pacific Time (5:30 p.m. Eastern Time) to answer questions regarding its first quarter 2023 results. Investors and analysts can access the call at https://register.vevent.com/register/BIa37d935bbc144ea8a6d4a4398f35639b. The call will also be available via live webcast at investor.therealreal.com along with the stockholder letter and supporting slides.

The RealReal is the world’s largest online marketplace for authenticated, resale luxury goods, with more than 32 million members. With a rigorous authentication process overseen by experts, The RealReal provides a safe and reliable platform for consumers to buy and sell their luxury items. We have hundreds of in-house gemologists, horologists and brand authenticators who inspect thousands of items each day. As a sustainable company, we give new life to pieces by thousands of brands across numerous categories—including women's and men's fashion, fine jewelry and watches, art and home—in support of the circular economy. We make selling effortless with free virtual appointments, in-home pickup, drop-off and direct shipping. We do all of the work for consignors, including authenticating, using AI and machine learning to determine optimal pricing, photographing and listing their items, as well as handling shipping and customer service.

This press release contains forward-looking statements relating to, among other things, the future performance of The RealReal that are based on the company's current expectations, forecasts and assumptions and involve risks and uncertainties. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology. These statements include, but are not limited to, statements about future operating and financial results, including our strategies, plans, commitments, objectives and goals, in particular in the context of the impacts of recent geopolitical events and uncertainty surrounding macro-economic trends, disruptions in the financial industry, inflation and the COVID-19 pandemic, our ability to achieve anticipated savings in connection with our real estate reduction plan and associated workforce reduction, and our financial guidance, timeline to profitability, and long-range financial targets and projections. Actual results could differ materially from those predicted or implied and reported results should not be considered as an indication of future performance. Other factors that could cause or contribute to such differences include, but

are not limited to, the impact of the COVID-19 pandemic on our operations and our business environment, inflation, macroeconomic uncertainty, disruptions to the the financial industry, geopolitical instability, any failure to generate a supply of consigned goods, pricing pressure on the consignment market resulting from discounting in the market for new goods, failure to efficiently and effectively operate our merchandising and fulfillment operations, labor shortages and other reasons.

More information about factors that could affect the company's operating results is included under the captions “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the company's most recent Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent Quarterly Reports on Form 10-Q, copies of which may be obtained by visiting the company's Investor Relations website at https://investor.therealreal.com or the SEC's website at www.sec.gov. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to the company on the date hereof. The company assumes no obligation to update such statements.

To supplement our unaudited and condensed financial statements presented in accordance with generally accepted accounting principles ("GAAP"), this earnings release and the accompanying tables and the related earnings conference call contain certain non-GAAP financial measures, including Adjusted EBITDA, Adjusted EBITDA as a percentage of total revenue ("Adjusted EBITDA Margin"), non-GAAP net loss attributable to common stockholders, and non-GAAP net loss per share attributable to common stockholders, basic and diluted. We have provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in this earnings release.

We do not, nor do we suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors should also note that non-GAAP financial measures we use may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as that of other companies, including other companies in our industry.

Adjusted EBITDA is a key performance measure that our management uses to assess our operating performance. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure as an overall assessment of our performance, to evaluate the effectiveness of our business strategies and for business planning purposes. Adjusted EBITDA may not be comparable to similarly titled metrics of other companies.

We calculate Adjusted EBITDA as net loss before interest income, interest expense, other (income) expense net, provision (benefit) for income taxes, depreciation and amortization, further adjusted to exclude stock-based compensation, employer payroll tax on employee stock transactions, and certain one-time expenses. The employer payroll tax expense related to employee stock transactions are tied to the vesting or exercise of underlying equity awards and the price of our common stock at the time of vesting, which may vary from period to period independent of the operating performance of our business. Adjusted EBITDA has certain limitations as the measure excludes the impact of certain expenses that are included in our statements of operations that are necessary to run our business and should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP.

In particular, the exclusion of certain expenses in calculating Adjusted EBITDA and Adjusted EBITDA Margin facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of stock-based compensation and the related employer payroll tax on employee stock transactions, excludes an item that we do not consider to be indicative of our core operating performance. Investors should, however, understand that stock-based compensation and the related employer payroll tax will be a significant recurring expense in our business and an important part of the compensation provided to our employees. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA Margin provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Free cash flow is a non-GAAP financial measure that is calculated as net cash (used in) provided by operating activities less net cash used to purchase property and equipment and capitalized proprietary software development costs. We believe free cash flow is an important indicator of our business performance, as it measures the amount of cash we generate. Accordingly, we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management.

Non-GAAP net loss per share attributable to common stockholders, basic and diluted is a non-GAAP financial measure that is calculated as GAAP net loss plus stock-based compensation expense, provision (benefit) for income taxes, and non-recurring items divided by weighted average shares outstanding. We believe that adding back stock-based compensation expense and related payroll tax, provision (benefit) for income taxes, and non-recurring items as adjustments to our GAAP net loss, before calculating per share amounts for all periods presented provides a more meaningful comparison between our operating results from period to period.


	Three Months Ended March 31,
	2023		2022
Revenue:
Consignment revenue	$	102,643	$	83,989
Direct revenue	24,953		48,823
Shipping services revenue	14,308		13,888
Total revenue	141,904		146,700
Cost of revenue:
Cost of consignment revenue	15,529		13,733
Cost of direct revenue	25,030		40,034
Cost of shipping services revenue	11,362		14,316
Total cost of revenue	51,921		68,083
Gross profit	89,983		78,617
Operating expenses:
Marketing	17,518		17,961
Operations and technology	68,032		67,101
Selling, general and administrative	49,845		48,262
Restructuring charges	36,388		—
Total operating expenses (1)	171,783		133,324
Loss from operations	(81,800)		(54,707)
Interest income	2,053		98
Interest expense	(2,667)		(2,664)
Other income (expense), net	—		(139)
Loss before provision for income taxes	(82,414)		(57,412)
Provision for income taxes	86		—
Net loss attributable to common stockholders	$	(82,500)	$	(57,412)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.83)	$	(0.61)
Weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted	99,608,071		93,476,106

(1) Includes stock-based compensation as follows:
Marketing	$	450	$	593
Operating and technology	3,691		5,249
Selling, general and administrative	4,850		6,672
Total	$	8,991	$	12,514


	March 31, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	247,145	$	293,793
Accounts receivable, net	8,941		12,207
Inventory, net	30,843		42,967
Prepaid expenses and other current assets	24,202		23,291
Total current assets	311,131		372,258
Property and equipment, net	101,876		112,679
Operating lease right-of-use assets	95,587		127,955
Other assets	3,160		2,749
Total assets	$	511,754	$	615,641
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable	$	8,867	$	11,902
Accrued consignor payable	72,114		81,543
Operating lease liabilities, current portion	20,691		20,776
Other accrued and current liabilities	82,271		93,292
Total current liabilities	183,943		207,513
Operating lease liabilities, net of current portion	117,553		125,118
Convertible senior notes, net	450,481		449,848
Other noncurrent liabilities	3,297		3,254
Total liabilities	755,274		785,733
Stockholders’ equity (deficit):
Common stock, $0.00001 par value; 500,000,000 shares authorized as of March 31, 2023, and December 31, 2022; 100,152,432 and 99,088,172 shares issued and outstanding as of March 31, 2023, and December 31, 2022, respectively	1		1
Additional paid-in capital	790,132		781,060
Accumulated deficit	(1,033,653)		(951,153)
Total stockholders’ equity (deficit)	(243,520)		(170,092)
Total liabilities and stockholders’ equity (deficit)	$	511,754	$	615,641


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(82,500)	$	(57,412)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	7,821		6,364
Stock-based compensation expense	8,991		12,514
Reduction of operating lease right-of-use assets	5,172		4,797
Bad debt expense	651		193
Accrued interest on convertible notes	575		575
Accretion of debt discounts and issuance costs	633		641
Loss on disposal/sale of property and equipment and impairment of capitalized proprietary software	36		175
Property, plant, equipment, and right-of-use asset impairments	32,891		—
Provision for inventory write-downs and shrinkage	3,446		1,809
Other adjustments	—		—
Changes in operating assets and liabilities:
Accounts receivable, net	2,615		(602)
Inventory, net	8,678		(4,492)
Prepaid expenses and other current assets	(1,139)		(426)
Other assets	(461)		(779)
Operating lease liability	(6,158)		(3,655)
Accounts payable	(1,385)		2,030
Accrued consignor payable	(9,429)		(2,389)
Other accrued and current liabilities	(894)		(8,627)
Other noncurrent liabilities	24		(70)
Net cash used in operating activities	(30,433)		(49,354)
Cash flow from investing activities:
Proceeds from maturities of short-term investments	—		—
Capitalized proprietary software development costs	(4,214)		(3,304)
Purchases of property and equipment	(11,706)		(5,143)
Net cash used in investing activities	(15,920)		(8,447)
Cash flow from financing activities:
Proceeds from exercise of stock options	—		637
Taxes paid related to restricted stock vesting	(295)		—
Net cash (used in) provided by financing activities	(295)		637
Net increase (decrease) in cash and cash equivalents	(46,648)		(57,164)
Cash and cash equivalents
Beginning of period	293,793		418,171
End of period	$	247,145	$	361,007


	Three Months Ended March 31,
	2023		2022
Adjusted EBITDA Reconciliation:
Net loss	$	(82,500)	$	(57,412)
Depreciation and amortization	7,821		6,364
Interest income	(2,053)		(98)
Interest expense	2,667		2,664
Provision for income taxes	86		—
EBITDA	(73,979)		(48,482)
Stock-based compensation	8,991		12,514
CEO transition costs (1)	159		—
Payroll taxes expense on employee stock transactions	44		205
Legal settlement	1,100		304
Restructuring charges (2)	36,388		—
Other (income) expense, net	—		139
Adjusted EBITDA	$	(27,297)	$	(35,320)


	Three Months Ended March 31,
	2023		2022
Net loss	$	(82,500)	$	(57,412)
Stock-based compensation	8,991		12,514
Payroll tax expense on employee stock transactions	44		205
CEO transition costs	159		—
Restructuring charges	36,388		—
Legal settlement	1,100		304
Provision for income taxes	86		—
Non-GAAP net loss attributable to common stockholders	$	(35,732)	$	(44,389)
Weighted-average common shares outstanding used to calculate Non-GAAP net loss attributable to common stockholders per share, basic and diluted	99,608,071		93,476,106
Non-GAAP net loss attributable to common stockholders per share, basic and diluted	$	(0.36)	$	(0.47)


	March 31, 2021			June 30, 2021			September 30, 2021			December 31, 2021			March 31, 2022			June 30, 2022			September 30, 2022			December 31, 2022			March 31, 2023

GMV	$	327,327		$	350,001		$	367,925		$	437,179		$	428,206		$	454,163		$	440,659		$	492,955		$	444,366
NMV	$	244,162		$	256,509		$	273,417		$	318,265		$	310,511		$	332,508		$	325,105		$	367,382		$	327,805
Consignment Revenue	$	64,887		$	72,452		$	78,373		$	86,508		$	83,989		$	96,917		$	93,874		$	110,199		$	102,643
Direct Revenue	$	23,735		$	22,460		$	29,387		$	45,262		$	48,823		$	42,646		$	34,005		$	33,252		$	24,953
Shipping Services Revenue	10,195			10,000			11,078			13,355			13,888			14,872			14,824			16,204			14,308
Number of Orders	690			673			757			861			878			934			952			993			891
Take Rate	34.3		%	34.5		%	34.9		%	35.0		%	35.7		%	36.1		%	36.0		%	35.7		%	37.4		%
Active Buyers	687			730			772			797			828			889			950			998			1,014
AOV	$	474		$	520		$	486		$	508		$	487		$	486		$	463		$	496		$	499
% of GMV from Repeat Buyers	83.6		%	84.5		%	84.1		%	83.8		%	85.0		%	84.7		%	84.2		%	84.0		%	86.2		%


	Q2 2023	Full Year 2023
GMV	$400 - $430 million	$1.7 - $1.8 billion
Total Revenue	$125 - $135 million	$535 - $565 million
Adjusted EBITDA	$(29) - $(25) million	$(75) - $(65) million