Good afternoon. My name is Jeremy and I will be your conference operator today. At this time, I would like to welcome everyone to the ThredUp Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to hand the conference over to Lauren Frasch, Head of Investor Relations. Please go ahead.

Good afternoon and thank you for joining us on today’s conference call to discuss ThredUp’s fourth quarter and full year 2023 financial results. With me are James Reinhart, ThredUp 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 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 first fiscal quarter and full year of 2024, future financial performance, including our goal of reaching adjusted EBITDA breakeven on a consolidated annual basis, our expectations for capital expenditures and other developments in our business in the U.S. and Europe; market demand, growth prospects, business strategies and plans 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 of future performance or results 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 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 of comparable GAAP measures in our earnings press release and supplemental information posted on our IR 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 fourth quarter 2023 and fiscal year 2023 earnings call. As we head into a new fiscal year, we’re pleased to share ThredUp’s financial results and key business highlights from our fourth quarter. In addition to the financial results, we will also reflect on the progress we made in 2023, as well as provide an update on key strategic initiatives that we expect will drive growth and margin expansion in 2024. I am particularly excited to share how we’re leveraging AI across our business and how we believe we are uniquely positioned to benefit from advancements in this technology. I will then hand it over to Sean Sobers, our Chief Financial Officer, to talk through our fourth quarter 2023 and fiscal year 2023 financials in more detail. He will also provide our outlook for the first quarter of 2024 and fiscal year 2024. We’ll close out today’s call with a question-and-answer session. Let me start with our Q4 results. We closed out 2023 with another quarter of strong financial performance, demonstrating healthy top line growth and bottom line leverage. Our revenue exceeded the high end of our guidance at $81.4 million, representing a year-over-year increase of 14%. We reached 1.8 million active buyers in Q4, up 9% compared to the same quarter last year. Orders reached a record high of $1.8 million, a 17% year-over-year increase. In Q4, gross margins came in at 62%, the midpoint of our range. But note, this includes our decision to do a onetime write-off of $1.9 million of aged and unproductive inventory in Europe that we had acquired in early 2023. This action had a 230 basis point impact to our consolidated gross margins. Excluding this one-time impact, our…

Thanks, James. I’ll begin with an overview of our results and follow up with guidance for the first quarter and the full year. I will discuss non-GAAP results throughout my remarks. Our GAAP financials and a reconciliation between GAAP and non-GAAP are found in our earnings release, supplemental financials and our 10-K filing. We are very proud of our Q4 results. For the fourth quarter of 2023, revenue totaled $81.4 million, an increase of 14% year-over-year. Consignment revenue grew 49% year-over-year, while product revenue shrank by 25%. We are pleased with the growth in consignment revenue, driven by the transition of our RaaS clients and our European business to the consignment model. We would expect to continue to see outsized growth in consignment and declines in product revenue throughout 2024. While the transition of these businesses to consignment should be a tailwind to gross margins over time, we expect it to meet revenue growth simply due to the accounting treatment. As a reminder, consignment payoffs reduced net revenue. We expect consignment revenue will be an increasingly larger part of our business throughout 2024. Owned payouts are in COGS and reduced gross margin. We expect owned revenue to be a smaller part of our business. As a result, we look to gross profit as the most relevant measure to evaluate the underlying growth rate of our business. We’re happy to report that we accelerated our active buyer growth and achieved a record number of active buyers for the second consecutive quarter, reaching $1.8 million, up 9% year-over-year. Orders growth also accelerated to 17% year-over-year to $1.8 million. For the fourth quarter of 2023, reported gross margin was 61.9%, as we implement our resale playbook in Europe, we made the strategic decision to take a one-time $1.9 million inventory write-off in Q4,…

Thank you. [Operator Instructions] Your first question is from Ike Boruchow from Wells Fargo. Please ask your question.

Hey guys, good afternoon. I guess two for me, maybe one for James, one for Sean. On the active buyer growth, so James, you guys have kind of reinflect value of asset growth, good to see. So maybe just, can you give us a little bit more detail on what exactly you guys have done to kind of get you guys back in good shape there? And then just a second follow-up for Sean or James. But it’s just on the good sign mix is having a big impact on the margins in the model. Can you just be a little bit more specific of what you expect based on the Q1 and fiscal year guide, what you expect consignment to be as a percent of revenue? Is that way we can kind of just build it from Q1 kind of through Q4 as the transition is taking place?

Sure. Yes, on the first one, I think over the last couple of quarters, we really reoriented the customer acquisition strategy to focus on a slightly more premium customer – a customer who we thought we had the right inventory mix for and I think you’re just starting to see that strategy pay off, and that’s driven the active buyer growth. And we expect that to continue into 2024 to sort of refocus on the customer, real focus on retention and loyalty has driven the upside. And so we feel very good about that return to growth and really how that compound as we move through 2024. I’ll let Sean talk a little bit about the consignment piece.

Yes, on consignment for Q1, I think a bit about mid-70s as a total percentage of revenue, and that will grow throughout the year to be about 80% for the full year.

Perfect. Thanks, guys.

Thank you. Your next question is from Anna Andreeva from Needham & Company. Please ask your question.

Great. Thanks so much. Thanks for taking our question. Two quick ones from us. So, on the product revenue side of things, down 25%, was that what you guys expected for the quarter, just given the shift to consignment? And can you also, secondly, talk about what you are seeing with the underlying demand in Europe? I remember you had talked about sluggishness as the quarter unfolded. Just curious if the trend got better and if you are seeing anything differently quarter-to-date? Thanks guys.

Yes. From a product revenue perspective, that is what we forecasted and what we expected, so nothing new or surprising for us on that side.

Yes. On the demand side, I mean I think inflation in the areas that we serve in Europe has been elevated relative to the U.S., and so that’s definitely affected the demand curve. But I think we have seen better year-to-date results. Certainly, some of the work that we are doing on the product mix, consignment mix in Europe is helping. And so we think the selection that we have in Europe is better, and I think customers are seeing that. So, we feel pretty good about where the demand curve is in Europe and the guidance for the year reflects that.

Awesome. Thanks so much. Best of luck.

Thank you. Your next question is from Tom Nikic from Wedbush. Please ask your question.

Hey. Thanks for taking my question. I just wanted to ask about the write-off of inventory in Europe. I guess obviously, that’s something that you would like to avoid generally speaking. I guess kind of have you sort of made any changes besides the kind of consignment mix shift that you are trying to do. But like any kind of changes in the way you take in product in Europe to kind of ensure that you kind of are bringing in higher quality inventory and higher quality products, so that you don’t go to see a situation like this again?

Yes. Hey Tom. Yes, I mean I think all through last year, we had been making improvements to what that mix looks like, laying the foundations for consignment. But a lot of the product that we wrote down was stuff where we were in negotiations to buy that product well over a year ago, right. And the market has changed. Our approach to the business has changed. And so ultimately, it was about what’s the best way to serve the customer on a go-forward basis. And we found that, that product over a year old was crowding out, frankly, some of the best stuff in the browsing experience. And so – for us, it was, hey, we are full speed ahead on the consignment transition. We feel very good about the strategy in place to get that done. And let’s not have any of that sort of legacy products holding us back, whether that’s in our facility, in the browsing and search experience or even just kind of like having to move it around. And so, it’s definitely not something we anticipate doing again, but we thought it was the best thing for the customer as we move forward.

Understood. And if I could ask one more, I just wanted to ask about marketing. So, marketing obviously was kind of down in Q4. It was kind of its lowest level really since 2020. I guess how do we kind of think about, I guess the reinvestment in marketing going forward and helping to grab the top line, drive their performance in Europe, etcetera.

Yes. I mean I think Tom, the marketing is always lower in Q4. And so, that’s typically our playbook. I think this Q4, even in particular, we expected it to be a competitive holiday season. We expect the consumers to feel squeezed around how to spend those discretionary dollars. And so I think we thought it was even smarter to push some of that spend in Q4 into Q1, where we thought it would be more productive. And I think that’s what we are seeing. And so, I think it fits our seasonal pattern and – but our expectation is to continue to drive top line through marketing spend. But at the same time, moving slowly towards our long-term targets that we set out at the IPO, and we are sort of on that glide path as we think about 2024.

Great. Thanks very much for taking my questions and best of luck this year.

Thanks.

Thanks.

Thank you. Your next question is from Edward Yruma from Piper Sandler. Please ask your question.

Hey. Good afternoon. Thanks for taking my question. Two for me, I guess first, some very constructive comments around Gen AI. Curious kind of what the cost structure for that looks like and kind of what the uptake has been thus far? And then second, I know you guys have complained a little bit about the inventory situation in first price. Obviously, results got better in the fourth quarter. Are you starting to see some of that industry inventory normalized? And do you think it’s kind of allowing some of your price gaps to better show? Thank you.

Yes. Hey Ed, let me just hit the second one first. Yes, I mean we are definitely seeing the inventory levels across sort of our competitive set normalize. And so I think that, that actually really sets up our value proposition to perform well as we get into 2024. I would say the only counterpoint to that is, as you have – Sean mentioned, talked about, right. So, there is still a squeeze on the discretionary dollar. And so I think as that maybe eases throughout the year, combined with leaner inventories, I think ThredUp is positioned very well for that. But we certainly see a better competitive environment for our product. On the Gen AI stuff, similar to my prepared remarks, I remain very bullish, on its ability to improve our business really disproportionately compared to others. Given the long tail of product, the constantly changing nature of our product, we really rely on sort of the dynamic nature of the technology to do a lot of work that would otherwise be done by inferior algorithms. So, I am very bullish on its ability to delight the customer on the front end. And I think we are working on a number of things that will start to materialize this year that I think will really change how consumers shop resale. And so I am very excited about that. And then the last part would be on the operations side is, we have been employing AI in a number of ways in our DCs for years. But I think just in the last 12 months, you have seen the step function change in what the technology can do. And I think it has real implications for how productive our operations can be. And what the margin profile can ultimately look like. So, you can probably tell from my voice, I am quite bullish on it, and I think we are uniquely positioned to benefit from it.

Great. Thank you.

Thank you. Your next question is from Alexandra Steiger from Goldman Sachs. Please ask your question.

Great. Thank you so much. So, we have a number of eCommerce, consumer companies, calling out a very weak January this year. So, I am just like wondering like, what are you seeing among your customer base that would give you confidence in your Q1 guidance, you can comment a little bit on like the month-over-month dynamics you are seeing in your business? And then one follow-up question just on the business initiatives and leverage AI, can you maybe talk about the contribution or the growth contribution you expect for this year versus your assumption around a potential recovery in the broader consumer spending environment? Thank you.

Yes. Hey Alexandra, yes, I don’t think we are expecting AI to drive anything sort of in an outsized way in the results nor do we expect some big inflection later in the year on the consumer environment. I think our guidance reflects our best estimates of how the business is going to perform this year. I will say that AI is – we have finally rolled out the new search and some of the work just in the last week or two weeks. And so we are only starting to see the benefits of the entire customer experience using it. And so I think as we get better information, we will sort of update those numbers. As for Q1 and what other companies have said, I don’t think Q1 is noticeably weaker than we expected. I mean I think our business tends to receive the hangover from Q4 Christmas, New Year’s holiday period gift giving. And so we see some of that normally in January. And I think I don’t think it’s been an exceptional consumer environment, but I wouldn’t characterize it as sort of darker draconian. So – but I think we expect the consumer to be challenged in this year. And so I think that’s where we feel good about our active buyer growth and our gross profit growth in an environment like this one while we drive to positive EBITDA.

Thank you.

[Operator Instructions] Your next question is from Dana Telsey from Telsey Group. Please ask your question. Hello Dana, your line is now open.

Hi Sorry. Hi everyone. As you – in the fourth quarter and as you are thinking about 2024, how are you thinking about spending behavior by buyer cohort or buyer demographics and what you are seeing there? And then also, as you are thinking about the promotional environment, has the promotional environment or the competitive environment changed lately? Thank you.

Hey Dana. On the buyer spend, I mean we continue to see very strong revenue per buyer metrics. I mean they were all-time highs in 2023. And we expect them to continue to be strong. So, I think our ability to drive share of wallet revenue per buyer growth, I think it continues to be – we feel very good about. I think as far as like the sort of nuance in the consumer environment, I don’t think there is any sector in the consumer world that’s immune to the sort of effects of compounded inflation and interest rates, whether you are a wealthier consumer who is dealing with higher borrowing costs or a more budget consumer that’s dealing with food inflation, I think it’s kind of hitting everyone. And again, I think part of why we feel good about where we are headed in 2024 is despite that environment still being able to grow the underlying growth rate to be in the teens as well as 600 bps of margin expansion, it feels like a really great place for our business to live in 2024, given the environment. And on the promotional side, as I have said earlier with Ed, I mean I do think that the environment has gotten better, but I still think you may have a positive tailwind from the promotional environment with a bit of a headwind in the consumer discretionary work. And so I think net of it, that’s probably, cancel [ph] each other.

Got it. And then in Europe, is the shift to consignment in Europe? Any differences that you are noticing or insights taking away that would make it be accelerate or be faster or slower than what you may have originally expected?

I mean I think that the consumer, the seller in the countries that we operate in Europe, I think has been looking for a scaled convenient solution like this for some time. And so I think the customer reception has been positive. But it is a transformation of the business and how shoppers are browsing and the number of items that they are buying in their orders. But so far, as we said, sell-through rates have been strong, and I think consumers are really liking that fresh products, differentiated products to the owned business that we had had more of earlier in the year.

Thank you.

Thank you. There are no further questions at this time. I will now hand the call back to James Reinhart, for the closing remarks.

Well, thank you everyone for joining us for our earnings call and guidance for the year. Very excited about the year ahead, incredibly proud of the work in 2023 that we did to drive growth and expand margins. And we expect more of the same, as we head into 2024. So, we will see you next time. Thanks.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.