Welcome to Rent the Runway’s Fourth Quarter and Fiscal Year 2024 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Rent the Runway's Chief Legal and Administrative Officer, Cara Schembri. Thank you. You may begin.

Good morning, everyone, and thanks for joining us today. During this call, we will make references to our Q4 and fiscal year 2024 earnings presentation, which can be found in the Events & Presentation section of our Investor Relations website. Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include guidance and underlying assumptions for the first quarter of 2025 and fiscal year 2025 and statements regarding the impact of our business strategies and plans, our ability to drive subscriber growth and customer loyalty in a cost-efficient manner, and our planned increases in inventory. These statements are subject to various risks, uncertainties, and assumptions that could cause our actual results to differ materially. These risks, uncertainties, and assumptions are detailed in today's press release, as well as our filings with the SEC, including our Form 10-K that we plan to file later today. We undertake no obligation to update any forward-looking statements or information except as required by law. During this call, we will also reference certain non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in our press release, slide presentation posted on our investor website and in our SEC filings. And with that, I'll turn it over to Jen.

Thank you, Cara, and thank you to everyone for joining today. In Q4, we officially marked 15 years since we founded Rent the Runway to disrupt the retail and fashion industry. In those 15 years, we have not only created a new market category, inspiring competitors and making clothing rental mainstream, but we have built a loyal following of women who we empower every day through our platform. As we've shared over the last few quarters, we've been executing against a multi-year transformation plan. And after several years of increased financial discipline, we believe we are now operating from steadier financial footing. Most notably, we've proven that we can operate a sustainable, nearly break-even business. We've significantly improved our cash position from a decline of $70.5 million in fiscal year 2023 to a decline of only $6.6 million at the end of fiscal year 2024, resulting in record low cash consumption. It is important to highlight that the timing of certain cash flow items were outside our control and slipped into February. In fact, by the end of February, our cash position was only $2.8 million lower than the end of fiscal year 2023. With our business operations in a solid position, we believe proving to you and ourselves that we can exercise strong financial discipline, it is now time for Rent the Runway to look to the future. Our data over the last five years has led us to believe that an investment in inventory is the greatest lever to unlocking customer growth and supporting customer retention. While we expect that this investment will impact our cash consumption in the year ahead, we believe this is an important investment we need to make for the future success of Rent the Runway. And by applying the same principles that allowed…

Thanks, Jen, and thanks, everyone, for joining us. I will focus my remarks today on three areas. First, I will provide some commentary on fiscal 2024 and why we think it was an important year for Rent the Runway. Second, I will outline the financial implications and rationale for what we believe are our bold and trajectory altering plans for fiscal year 2025. Finally, I will provide a high-level view of how we think about the business beyond fiscal year 2025. Let me begin with fiscal year 2024. As Jen outlined in her remarks, we showed that Rent the Runway can operate at close to breakeven levels of cash consumption while maintaining a steady revenue base. This was achieved through improvements in our cost structure, through our ability to purchase inventory on attractive terms, and through improvements in working capital. In particular, we made considerable progress in our ability to source inventory through our Share by RTR program with approximately 50% of total inventory purchases coming through this channel. A greater number of brands view us as important to their marketing strategy and to growth in their customer base. As I will outline shortly, unlocking more Share by RTR inventory is the backbone behind that strategy to almost double inventory purchases in fiscal year 2025. I will now review results for the fourth quarter before outlining our plans for fiscal 2025. We ended Q4 ‘24 with 119,778 ending active subscribers, down approximately 4.9% year-over-year. Average active subscribers during the quarter was 126,148 versus 128,840 subscribers in the prior year, a decrease of 2.1%. Ending active subscribers decreased from 132,518 subscribers at the end of Q3 2024 due primarily to sequentially lower subscriber acquisitions. Lower subscriber acquisitions were influenced by a significant reduction in paid marketing spending in addition to normal…

[Operator Instructions] Our first question is from Andrew Boone with JMP Securities. Please proceed.

Thanks so much for taking the question. Sid, can you help us understand the cash flow guidance and maybe the drivers of it? It sounds like you guys are leaning increasingly into Share by RTR. And so just help us understand what the significant CapEx, is that an OpEx kind of investment in marketing or what's behind kind of the range for free cashflow for 2025?

Yeah, I think that the few things to call out are number one, if you just look at the sheer volume of inventory we're bringing onto the platform, that inventory is almost doubling year-over-year. So that's the first component of it. You're right that a lot of this 62% is coming via our Share by RTR program, but you also have to recognize that given that a lot of the new inventory is going to be part of the Share by RTR program, that inventory is going to get utilized and we're going to pay for it this year. We have provided in the presentation CapEx guidance for the year of $70 million to 75 million, which obviously is a considerable increase from the levels that we have in fiscal 2024. So I think it's a combination of both higher capital expenditure as well as a significant increase, almost 2.5x in the Share by RTR inventory which we believe will get utilized as we grow a subscriber base. The reason there is cash consumption this year is again because of the two factors I mentioned, there's a lag between ending subscribers and average subscribers because subscribers build and the fact that we do -- we are buying a considerably greater amount of units to spark growth in the customer base, but we think that will pay dividends in future years.

And then, can you guys provide a real-time update on consumers? What have you guys seen more recently just given all the volatility and the headlines around tariffs and everything else? How are consumers reacting to that? Are they leaning into RTR just given the value prop? How should we think about just the consumer today?

I think if you look at what we are focused on, number one, it's obviously, look, we're not going to make any prognostications about the economy, about tariffs, all of that. There's a tremendous amount of uncertainty. But I think what -- I'm going to go back to what I said in the script, which is we think renting provides considerable value versus buying. And then the more important thing for us this year is really listening to our customers. I mean, the amount of inventory we're bringing on addresses the number one pain point that customers have. We are very excited, given everything we know about the business in terms of the retention impact that that amount of inventory can drive. And we think, as I mentioned, we really are on the offense and we think this can make a considerable difference to growth in the business this year.

Yeah, and like we've said on earnings calls in the past, the people that notice our strategy first are always the consumers who we already have. So, the base of subscribers that are on our platform and visiting several times a week are the first ones to notice this doubling of the inventory. They're seeing that we have 3x to 4x more units from their favorite brands. They see that they have a lot more newness that they're able to have in their baskets that are at home. And their experience is kind of noticeably improving week over week, month over month. And it's that community of subscribers that we expect and we hope will have an even better experience with Rent the Runway, as evidenced by improved loyalty rates, but we also hope that that restarts this organic flywheel in our business of these women being more excited about what we're doing, sharing it with their friends and colleagues, and not really starting kind of the growth flywheel for the business in terms of acquisition. And we feel very good that this is the number one way to do this. Inventory is -- what we've learned over the past five years is, inventory is the number one factor in improving customer loyalty.

Can you speak to that point? You guys invested in inventory in the past. Is this just a step function change or how do we think about the customer experience changing in 2025? That's [indiscernible]

This is a tremendous step function change. We're doubling the number of new units on the platform this year versus last year. The customer experience as a result of that is entirely different. She's receiving hundreds of new arrivals onto the platform every single week. So she's constantly coming and she's finding newness, which is what she loves about any rental platform. She's finding way more of the brands that she loves the most. Why is that important? Because when she gets a shipment at home with a blockbuster brand, she perceives that shipment as having higher value to her. That makes her even more loyal. We're having new arrivals come in, as we said in the script, during times of the year that we're previously light on new arrivals, like the middle of summer. And not only are we having those new arrivals come in in the middle of summer, but there are new arrivals that are absolutely appropriate for the use cases that she's actually doing in the middle of the summer. And so we hope to see continued kind of usage of the product in those periods of time during the year where in the past we had higher rates of churn. So I think the other thing that we said in the script that I just want to highlight is she has -- we expect her to have 75% more newness in her at-home basket than she had last year. That is a market change in her experience that our customers are noticing kind of right away, and we feel fantastic about the strategy. What we did last year is we did make a change in our inventory strategy where we focused on depth rather than breadth of selection. We saw that focusing on depth did improve our loyalty rate by 8%, as we mentioned. But the quantity of units did not increase last year. It was the allocation of those units that changed.

Makes sense. Thank you so much.

With no further questions in the queue, this will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Thank you everyone for joining us. Appreciate it.