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The RealReal Announces Fourth Quarter and Full Year 2022 Results

Q4 and FY 2022 Gross Merchandise Value Increased Year-Over-Year 13% and 23%, respectively
Q4 and FY 2022 Total Revenue Increased Year-Over-Year 10% and 29%, respectively
Cash & Cash Equivalents at Year-End was $294 million

SAN FRANCISCO, Feb. 28, 2023 (GLOBE NEWSWIRE) -- The RealReal (Nasdaq: REAL)—the world’s largest online marketplace for authenticated, resale luxury goods—today reported financial results for its fourth quarter and full year ended December 31, 2022. Fourth quarter and full year 2022 gross merchandise value (GMV) increased 13% and 23%, respectively, compared to the same periods in 2021.

“We are pleased to announce solid financial results for the fourth quarter and full year 2022, including improved gross profit and Adjusted EBITDA loss on a year-over-year basis,” said Rati Levesque, President and Chief Operating Officer of The RealReal. “During the fourth quarter and into 2023, we continue to focus on our key initiatives: (1) update our consignor commission structure, (2) improve efficiency and cut costs, (3) optimize product pricing, and (4) pursue potential new revenue streams. We continue to believe these actions will move the business forward. Additionally, we are pleased with the recent addition of John Koryl as Chief Executive Officer; his leadership will be invaluable as we drive toward profitability.”

Robert Julian, Chief Financial Officer of The RealReal, stated, “The fourth quarter results demonstrated the financial progress we have made throughout 2022. In particular, shrinking the unprofitable direct business and growing the profitable consignment business resulted in a 490-basis-point improvement in gross margin in the fourth quarter of 2022 compared to the fourth quarter of 2021. This change also benefited our balance sheet. As of the end of 2022, net inventory decreased $28 million year-over-year, and we anticipate that our inventory balance will continue to decline in 2023. Also, we improved cash used in operating, investing, and financing activities in the fourth quarter of 2022 to $(7) million, compared to $(57) million in the first quarter, $(45) million in the second quarter, and $(15) million in third quarter of 2022.”

Fourth Quarter Financial Highlights

  • GMV was $493 million, an increase of 13% compared to the same period in 2021
  • Total Revenue was $160 million, an increase of 10% compared to the same period in 2021
  • Net Loss was $39 million compared to $52 million in the same period in 2021
  • Adjusted EBITDA was $(20.2) million or (12.6)% of total revenue compared $(26.9) million or (18.5)% of total revenue in the fourth quarter of 2021
  • GAAP basic and diluted net loss per share was $(0.39) compared to $(0.56) in the prior year period
  • Non-GAAP basic and diluted net loss per share was $(0.29) compared to $(0.42) in the prior year period
  • Top-line-related Metrics
    • Trailing 12-months active buyers reached 998,000, an increase of 25% compared to the same period in 2021
    • Orders reached 993,000, an increase of 15% compared to the same period in 2021
    • Average order value (AOV) was $496, a decrease of 2% compared to the same period in 2021
    • Lower AOV was driven by a 2% decrease in average selling prices (ASPs)
    • GMV from repeat buyers was 84%, which was consistent with the fourth quarter of 2021

Full Year 2022 Financial Highlights

  • GMV was $1.8 billion, an increase of 23% compared to full year 2021
  • Total Revenue was $603 million, an increase of 29% compared to full year 2021
  • Net Loss was $196 million compared to $236 million in 2021
  • Adjusted EBITDA was $(112.4) million or (18.6)% of total revenue compared to $(126.9) million or (27.1)% of total revenue for full year 2021
  • GAAP basic and diluted net loss per share was $(2.05) compared to $(2.58) in the prior year
  • Non-GAAP basic and diluted net loss per share was $(1.53) compared to $(1.88) in the prior year
  • At the end of 2022, cash and cash equivalents totaled $294 million

Q1 2023 Guidance
Based on market conditions as of February 28, 2023, we are providing guidance for GMV, total revenue and Adjusted EBITDA, which is a Non-GAAP financial measure.

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 probable significance of the unavailable information, which could materially impact the amount of future net income (loss).

 Q1 2023
GMV$430 - $460 million
Total Revenue$135 - $145 million
Adjusted EBITDA$(35) - $(31) million

We expect to provide full year guidance on our next earnings call.

Webcast and Conference Call
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 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) to answer questions regarding its fourth quarter and full year 2022 results. Investors and analysts can access the call via the following link: https://register.vevent.com/register/BI79b9f8053dba42d19df97d2b66ff5eb3. The call will also be available via live webcast at investor.therealreal.com along with the stockholder letter and supporting slides.

An archive of the webcast conference call will be available shortly after the call ends at investor.therealreal.com.

About The RealReal, Inc.

The RealReal is the world’s largest online marketplace for authenticated, resale luxury goods, with more than 31 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.

Investor Relations Contact:
Caitlin Howe
Senior Vice President, Investor Relations
IR@therealreal.com

Press Contact:
Laura Hogya
Head of Communications
pr@therealreal.com

Forward Looking Statements

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 recent geopolitical events and uncertainty surrounding macroeconomic trends, inflation and impacts of the COVID-19 pandemic, our ability to achieve anticipated savings in connection with our real estate reduction plan and associated workforce reduction; financial guidance, timeline to profitability, 2025 vision and long-range financial 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 r COVID-19 pandemic on our operations and our business environment, inflation, macroeconomic uncertainty, 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, 2021 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.

Non-GAAP Financial Measures

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, employer payroll tax on employee stock transactions and non-recurring items divided by weighted average shares outstanding. We believe that adding back stock-based compensation expense, employer payroll tax on employee stock transactions, 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.


THE REALREAL, INC.
Statements of Operations
(In thousands, except share and per share data)
(Unaudited)

 Three Months Ended December 31, Year Ended December 31,
  2022   2021   2022   2021 
Revenue:       
Consignment revenue$110,199  $86,508  $384,979  $302,221 
Direct revenue 33,252   45,262   158,726   120,844 
Shipping services revenue 16,204   13,355   59,788   44,627 
Total revenue 159,655   145,125   603,493   467,692 
Cost of revenue:       
Cost of consignment revenue 13,770   14,764   56,963   44,985 
Cost of direct revenue 36,246   36,062   141,661   101,427 
Cost of shipping services revenue 13,029   13,672   56,178   47,803 
Total cost of revenue 63,045   64,498   254,802   194,215 
Gross profit 96,610   80,627   348,691   273,477 
Operating expenses:       
Marketing 14,659   18,371   63,128   62,749 
Operations and technology 71,799   62,923   279,110   235,829 
Selling, general and administrative 48,097   43,914   195,160   176,418 
Legal settlement    1,601   456   13,389 
Total operating expenses(1) 134,555   126,809   537,854   488,385 
Loss from operations (37,945)  (46,182)  (189,163)  (214,908)
Interest income 1,831   116   3,191   365 
Interest expense (2,458)  (6,157)  (10,472)  (21,531)
Other income (expense), net 38   1   171   23 
Loss before provision for income taxes (38,534)  (52,222)  (196,273)  (236,051)
Provision (benefit) for income taxes 76   (27)  172   56 
Net loss attributable to common stockholders$(38,610) $(52,195) $(196,445) $(236,107)
Net loss per share attributable to common stockholders, basic and diluted$(0.39) $(0.56) $(2.05) $(2.58)
Weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted 98,546,282   92,634,986   95,921,246   91,409,624 
        
(1)Includes stock-based compensation as follows:       
Marketing$435  $633  $2,209  $2,557 
Operations and technology 3,919   5,606   19,822   21,395 
Selling, general and administrative 4,764   6,239   24,107   24,850 
Total$9,118  $12,478  $46,138  $48,802 


THE REALREAL, INC.
Condensed Balance Sheets
(In thousands, except share and per share data)
(Unaudited)

 December 31,
2022
 December 31,
2021
Assets   
Current assets   
Cash and cash equivalents$293,793  $418,171 
Accounts receivable 12,207   7,767 
Inventory, net 42,967   71,015 
Prepaid expenses and other current assets 23,291   20,859 
Total current assets 372,258   517,812 
Property and equipment, net 112,679   89,286 
Operating lease right-of-use assets 127,955   145,311 
Other assets 2,749   2,535 
Total assets$615,641  $754,944 
Liabilities and Stockholders’ Equity (Deficit)   
Current liabilities   
Accounts payable$11,902  $4,503 
Accrued consignor payable 81,543   71,042 
Operating lease liabilities, current portion 20,776   18,253 
Other accrued and current liabilities 93,292   94,188 
Total current liabilities 207,513   187,986 
Operating lease liabilities, net of current portion 125,118   143,159 
Convertible senior notes, net 449,848   348,380 
Other noncurrent liabilities 3,254   2,291 
Total liabilities 785,733   681,816 
Stockholders’ equity (deficit):   
Common stock, $0.00001 par value; 500,000,000 shares authorized as of December 31, 2022 and December 31, 2021; 99,088,172 and 92,960,066 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively 1   1 
Additional paid-in capital 781,060   841,255 
Accumulated deficit (951,153)  (768,128)
Total stockholders’ equity (deficit) (170,092)  73,128 
Total liabilities and stockholders’ equity (deficit)$615,641  $754,944 


THE REALREAL, INC.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)

 Year Ended December 31,
  2022   2021 
Cash flows from operating activities:   
Net loss$(196,445) $(236,107)
Adjustments to reconcile net loss to cash used in operating activities:   
Depreciation and amortization 27,669   23,531 
Stock-based compensation expense 46,138   48,802 
Reduction of operating lease right-of-use assets 19,602   19,439 
Bad debt expense 1,680   1,034 
Accrued interest on convertible notes    950 
Accretion of debt discounts and issuance costs 2,368   13,989 
Loss on disposal of property and equipment and impairment of capitalized proprietary software 702   546 
Other adjustments    10 
Changes in operating assets and liabilities:   
Accounts receivable (6,120)  (1,588)
Inventory, net 28,048   (28,694)
Prepaid expenses and other current assets (2,952)  (4,009)
Other assets (409)  (638)
Operating lease liability (17,764)  (15,285)
Accounts payable 4,947   (9,989)
Accrued consignor payable 10,501   13,989 
Other accrued and current liabilities (9,823)  30,922 
Other noncurrent liabilities 301   947 
Net cash used in operating activities (91,557)  (142,151)
Cash flow from investing activities:   
Proceeds from maturities of short-term investments    4,000 
Capitalized proprietary software development costs (14,061)  (9,967)
Purchases of property and equipment (22,861)  (37,470)
Net cash used in investing activities (36,922)  (43,437)
Cash flow from financing activities:   
Proceeds from issuance of 2028 convertible senior notes, net of issuance costs    278,234 
Purchase of capped calls in conjunction with the issuance of the 2028 convertible senior notes    (33,666)
Proceeds from exercise of stock options 2,906   6,009 
Proceeds from issuance of stock in connection with the Employee Stock Purchase Program 1,400   2,341 
Taxes paid related to restricted stock vesting (205)  (5)
Net cash provided by financing activities 4,101   252,913 
Net increase (decrease) in cash and cash equivalents (124,378)  67,325 
Cash and cash equivalents   
Beginning of period 418,171   350,846 
End of period$293,793  $418,171 


The following table reflects the reconciliation of net loss to Adjusted EBITDA for each of the periods indicated (in thousands):

 Three Months Ended December 31, Year Ended December 31,
  2022   2021   2022   2021 
Adjusted EBITDA Reconciliation:       
Net loss$(38,610) $(52,195) $(196,445) $(236,107)
Depreciation and amortization 7,414   5,691   27,669   23,531 
Interest income (1,831)  (116)  (3,191)  (365)
Interest expense 2,458   6,157   10,472   21,531 
Provision (benefit) for income taxes 76   (27)  172   56 
EBITDA (30,493)  (40,490)  (161,323)  (191,354)
Stock-based compensation(1) 9,118   12,478   46,138   48,802 
CEO separation benefits(2) 46      948    
CEO transition costs(3) 533      1,551    
Payroll tax expense on employee stock transactions 39   201   451   1,168 
Legal fees reimbursement benefit(4)    (704)  (1,400)  (1,204)
Legal settlements(5)    1,601   456   13,389 
Restructuring charges(6) 621      896   2,314 
Other (income) expense, net (38)  (1)  (171)  (23)
Adjusted EBITDA$(20,174) $(26,915) $(112,454) $(126,908)

(1) The stock-based compensation expense for the year ended December 31, 2022 includes a one-time charge of $1.0 million related to the modification of certain equity awards pursuant to the terms of the transition and separation agreement entered into with our founder, Julie Wainwright, in connection with her resignation as Chief Executive Officer ("CEO") on June 6, 2022 (the "Separation Agreement").

(2) The separation benefit charges for the year ended December 31, 2022 consists of base salary, bonus and benefits for the 2022 fiscal year, as well as an additional twelve months of base salary and benefits payable to Julie Wainwright pursuant to the Separation Agreement. In addition, see footnote 1 for disclosure regarding the incremental stock-based compensation expense incurred in connection with the Separation Agreement.

(3) The CEO transition charges for the year ended December 31, 2022 consist of general and administrative fees, including legal and recruiting expenses, as well as retention bonuses for certain executives incurred in connection with our founder's resignation on June 6, 2022.

(4) During the year ended December 31, 2022, we received insurance reimbursement of $1.4 million related to a legal settlement expense. During the year ended December 31, 2021, we received insurance reimbursement of $4.3 million related to legal fees for a certain matter, of which $3.1 million were applied to legal expenses for the year ended December 31, 2021.

(5) The legal settlement charges for the year ended December 31, 2021 reflects legal settlement expenses arising from the settlement of a putative shareholder class action and derivative case.

(6) The restructuring charges for the year ended December 31, 2022 consists of employee severance payments and benefits. The restructuring charges for the year ended December 31, 2021 consist of the costs to transition operations from the Brisbane warehouse to our new Phoenix warehouse.

A reconciliation of GAAP net loss to non-GAAP net loss attributable to common stockholders, the most directly comparable GAAP financial measure, in order to calculate non-GAAP net loss attributable to common stockholders per share, basic and diluted, is as follows (in thousands, except share and per share data):

 Three Months Ended December 31, Year Ended December 31,
  2022   2021   2022   2021 
Net loss$(38,610) $(52,195) $(196,445) $(236,107)
Stock-based compensation 9,118   12,478   46,138   48,802 
CEO separation benefits 46      948    
CEO transition costs 533      1,551    
Payroll tax expense on employee stock transactions 39   201   451   1,168 
Legal fees reimbursement benefit    (704)  (1,400)  (1,204)
Legal settlement    1,601   456   13,389 
Restructuring charges 621      896   2,314 
Provision (benefit) for income taxes 76   (27)  172   56 
Non-GAAP net loss attributable to common stockholders$(28,177) $(38,646) $(147,233) $(171,582)
Weighted-average common shares outstanding used to calculate Non-GAAP net loss attributable to common stockholders per share, basic and diluted 98,546,282   92,634,986   95,921,246   91,409,624 
Non-GAAP net loss attributable to common stockholders per share, basic and diluted$(0.29) $(0.42) $(1.53) $(1.88)

The following table presents a reconciliation of net cash used in operating activities to free cash flow for each of the periods indicated (in thousands):

 Three Months Ended December 31, Year Ended December 31,
  2022   2021   2022   2021 
Net cash used in operating activities$3,698  $(18,764) $(91,557) $(142,151)
Purchase of property and equipment and capitalized proprietary software development costs��(10,667)  (9,679)  (36,922)  (47,437)
Free Cash Flow$(6,969) $(28,443) $(128,479) $(189,588)

Key Financial and Operating Metrics:

 December 31,
2020
 March 31,
2021
 June 30,
2021
 September 30
2021
 December 31,
2021
 March 31,
2022
 June 30,
2022
 September 30,
2022
 December 31,
2022
 (In thousands, except AOV and percentages)
GMV$301,219  $327,327  $350,001  $367,925  $437,179  $428,206  $454,163  $440,659  $492,955 
NMV$223,390  $244,162  $256,509  $273,417  $318,265  $310,511  $332,508  $325,105  $367,382 
Consignment Revenue$61,285  $64,887  $72,452  $78,373  $86,508  $83,989  $96,917  $93,874  $110,199 
Direct Revenue$15,512  $23,735  $22,460  $29,387  $45,262  $48,823  $42,646  $34,005  $33,252 
Shipping Services Revenue$10,035  $10,195  $10,000  $11,078  $13,355  $13,888  $14,872  $14,824  $16,204 
Number of Orders 671   690   673   757   861   878   934   952   993 
Take Rate 35.7%  34.3%  34.5%  34.9%  35.0%  35.7%  36.1%  36.0%  35.7%
Active Buyers 649   687   730   772   797   828   889   950   998 
AOV$449  $474  $520  $486  $508  $487  $486  $463  $496 
% of GMV from Repeat Buyers 82.4%  83.6%  84.5%  84.1%  83.8%  85.0%  84.7%  84.2%  84.0%

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