Good day, everyone. And welcome to the ThredUp Third Quarter 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. [Operator Instructions] Please note today’s call will be recorded and we will be standing by if you should need any assistance. It is now my pleasure to turn today’s conference over to Lauren Frasch. Please go ahead.

Good afternoon. And thank you for joining us on today’s conference call to discuss ThredUp third quarter 2024 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 on the site 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 fourth fiscal quarter and full year of 2024, future financial performance, market demand, growth prospects, business strategies and plans, investments in AI technologies, the company’s intention to exit the European market and to seek strategic alternatives for its European business 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 guaranteed for 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, our ability to identify and execute a strategic alternative for the company’s European business, and the effects of inflation, increased interest rates, changing consumer habits 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 and uncertainties and other factors that could affect our operating results and our SEC filings, earning 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 substitution for, or in isolation from, GAAP measures. You can find additional disclosures regarding those non-GAAP measures, including reconciliations, 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 our third quarter 2024 earnings call. We are pleased to share ThredUp’s financial results for Q3 and our expectations for Q4 and into 2025. We will provide an update on growth, adjusted EBITDA margin expansion, expectations for free cash flow over the next year and further developments in our new AI products. My remarks on performance will focus on our U.S. marketplace and I will provide an update on the significant progress we’ve made with our EU divestiture. I will then hand it over to Sean Sobers, our Chief Financial Officer, to talk through our third quarter 2024 financials in more detail and provide our outlook for the fourth quarter and full year 2024. As always, we’ll close out today’s call with a question-and-answer session. Before I get into detail on U.S. performance and the balance of my remarks, let me provide some clarity on what’s happening with our EU business, Remix. We’ve made substantial progress in the divestiture of our EU business, having agreed on material terms for a management buyout by Florin Filote, Remix’s current GM and the Remix management team. While we continue to evaluate all strategic alternatives, under the proposed terms, ThredUp is expected to fund Remix with a final cash investment of approximately $2 million and to retain a minority interest in the Remix business. Discussions are proceeding well and we are targeting to close this transaction by year end. Now, turning back to the U.S. marketplace, let me start by saying that we’ve made real progress in course correcting in the U.S. since last quarter. While I won’t belabor the challenges we mentioned in August, I will confirm our view that they were anomalies in our operating history. What…

Thanks, James. I’ll begin with an overview of our results and follow up with guidance for the fourth quarter and full year of 2024. I will discuss non-GAAP results throughout my remarks. Our GAAP financials and a reconciliation between our GAAP and non-GAAP measures are found in our earnings release, supplemental financials and our 10-Q filing. As James mentioned earlier, we’ve made significant progress in the divestiture of our EU business and are planning to close the transaction by year end. For this reason, I will be primarily focused on our U.S. results this quarter. We are providing the U.S. P&L plus the last six quarters in our supplemental financials. I will briefly discuss our consolidated results, but I would encourage investors to focus on our U.S. results as they are representative of our go-forward business. For the third quarter of 2024, consolidated revenue totaled $73 million, a decrease of 11% year-over-year. In Q3, the U.S. achieved net revenue of $61.5 million, down 9.6% over last year. U.S. active buyers were 1.2 million, while orders were 1.2 million, a 7.3% and a 10.5% decline, respectively. While our active buyers were impacted by our missteps earlier in the year, our revenue performance exceeded the midpoint of our guidance by $1.5 million. For the third quarter of 2024, consolidated gross margin was 71.2%, a 220-basis-point increase over the same quarter last year. The U.S. achieved gross margin of 79.3%, a 70-basis-point improvement over last year, and 80 basis points above the midpoint of our outlook. Despite a highly competitive consumer environment, we are pleased to deliver both sequential and year-over-year improvement, driven by the final phase of the consignment shifts and improving union economics. For the third quarter of 2024, consolidated GAAP net loss was $25 million, while adjusted EBITDA loss was…

[Operator Instructions] We’ll take our first question from Ike Boruchow with Wells Fargo. Please go ahead. Your line is open.

Hey, everyone. Two questions from me. I think, James, three months ago, obviously, we were taking down the U.S. expectations. There were some issues. Now, you’re raising expectations for 4Q. So, I’m just curious underlying that. What exactly are you looking at? What KPIs would give you that kind of confidence? Then just margins into next year, obviously, we’ve got the noise with the reported EBITDA margin and the U.S. margin around 2024. [Audio Gap]

I think we expect to grow faster. I think we expect EBITDA to be better, really driven by better gross margins, better contribution margins. So a difficult couple of months in last quarter, but I think we’ve really turned the corner. The ability to focus really on the U.S. business, I think, is the other piece. So, I think the EU has been a distraction, as we’ve acknowledged. I think once we’ve turned all of our attention to the U.S., you can really see those results start to materialize. I’ll let Sean talk about some of the financials.

Yeah. I would add, just like a piece of color, but on a financial side, is if you go back to the IPO on contribution margin, we talked about it when we went public as about 27%. Since then, we’ve improved over 1,000 bps. And we’re taking that improvement, I think, as you go from 2024 to 2025, as we increase revenue, to basically reinvest into the growth of the business. That’s why I think you’re seeing similar to slightly better EBITDA rates as you get in to 2025 versus 2024.

Awesome. Thank you.

And we’ll take our next question from Bernie McTernan from Needham & Company. Please go ahead. Your line is open.

Great. Thanks for taking the question. Maybe just to start talking about moving to a U.S.-only business. Just -- any incremental color you guys can provide in terms of how a manager will be spending their time and allocating resources, basically trying to get a sense in terms of where the incremental investments would be going? And then just as a follow-up, I would love just any additional color on some of the new AI or product initiatives like Style Chat, Image Search. Is that driving new buyers to the platform? Is it increasing retention? Just trying to get a sense in terms of how we should be seeing these flow through the financials.

Sure. Hey, Bernie. Yeah. And I think if you go back before we had the European business, we spent a lot of time talking about the fundamentals in the U.S. business, really the competitive advantage being the marketplace model, our data advantage and our infrastructure. And I think now as we are back to being U.S.-only, we’re really doubling down on those three things. Improvements across our operating infrastructure, whether it’s innovation in our DCs or AI in the product features, I think all of our attention has really been focused back on the U.S., and I think you really started to see the fruits of that in Q3 across the product team, the ops team, the finance team. And so -- I think there’s a lot of optimism that now without some of the distraction and the challenges of the EU business, we can make progress faster. But I think from a resource allocation perspective, one of the things that was challenging over the past few quarters was we didn’t feel the freedom to invest in the U.S. business as deeply because we still had to manage the cash consumption of the EU business. I think now without that drag and overhead, I think there’s a freeing feeling of, okay, how do we get the U.S. business to grow faster to generate more contribution margin over time. So I think that’s what you should see from us over the next few quarters is really resources in the U.S. driving growth. And I think that reflects why the EBITDA, as we get into 2025, it’s -- we’re not declaring victory through driving incremental EBITDA dollars. I think we’re really focused on the underlying fundamentals of growth in the business, which is marketing and operations. As for your question about AI and its impact, look, I think it’s up and down the funnel. So I think from an ad tech and targeting, I think we’re using AI to provide better photography, to provide better image tagging, whether we’re using that on Google or Meta. I think once customers get onto the platform, the power of our new search product is helping customers find items they want more quickly. I think it’s giving them confidence that the results are something that’s attractive to them. Then just the retargeting and remarketing piece, really being able to use our image search technology. If you find an item that’s sold out, the ability to say, hey, here’s an item that’s just like that one using a visual search. So, all those little things, I think, have added up a few bps at a time to drive customer adoption and customer conversion. So, I think you’ll see more and more of that as we get into 2025. I think, fundamentally, the product is going to be better.

Great. Thanks. Thanks, James.

[Operator Instructions] We’ll take our next question from Dylan Carden with William Blair. Please go ahead. Your line is open.

Yeah. Thanks. Just on the marketing line, you kind of touched on it a little bit there, but you’ve had some nice dollar declines on that item this year, including the third quarter, and then you’re sort of speaking to improvement in buyer acquisition and retention. Can you kind of speak to addition, please? It’s a big piece of that that’s away from Europe. and in the next year, would you expect to invest more in marketing? And I have more other follow-up. Thanks.

Hey, Dylan. Yeah. I mean, I think, thanks for pointing that out. I mean, look, I think, we had a great acquisition quarter in Q3 and you’re right, that was with roughly the same or a little bit less marketing year-over-year. And I think that speaks to why the CACs have been strong and why our LTVs -- LTV-to-CAC ratios have improved. So, again, I think, the lessons in Q2 were painful, but I think it did unlock some fresh thinking around the way we were going to approach acquisition, the way we were going to approach retention, and I think the team really delivered that in Q3. And so, I think, it gives us confidence as we get into Q4 and into 2025 to not just take that playbook, but to improve upon it. We want to continue to spend dollars on the marketing side to acquire customers, and I think that we can continue to have the same types of efficiency we’ve had in Q3 and into Q4. Despite, Dylan, a sort of rocky macro in a presidential election year, I think, the team has done a great job despite those challenges. And so, as you get into 2025 without that, you should see some opportunity. And we need to combine the marketing investments with strong merchandising. We have a new head of merchandising at ThredUp who I think will really improve the work we’re doing. And the operations team is continuing to improve the product experience on the operations side. So things like 360 degree photos and automated measurements, these are, Dylan, all the little things that help the marketing dollars work harder, and I think when you line all those up together, really good things can happen and I think that’s what’s giving us some confidence as we close out the year.

And just to be clear, the $70 million, $72 revenue guidance report, has that still got Europe in it, right?

Yeah. Yeah. We’ve given you both the U.S. guidance standalone, as well as the total consolidated guidance, too, so you can see that in the press release, as well as the supplemental financials.

Sorry about that. And the deceleration in Europe, looking at those numbers, can you explain that a little bit? I guess there’s a reason for staying somewhat invested. What do you think of that?

Yeah. No. I mean, I think this is to some degree by design. They’re reducing some of their supply at much lower margins which is going to reduce revenue in the near-term as they transition to consignment. I think this is what we expected. So you’ve seen revenue shrink, you’ve seen EBITDA dollars shrink, but I think they’re well on their way to getting to the point and designing that business the way it should be designed and run. 18-plus months out, I assume they’ll be very successful, but in the near-term, they’re still going through the transition and it’s just taking a little while.

Yeah. And Dylan, I just add, just to be really clear, we’re raising the estimates for Q4 in the U.S. and the consolidators are just down because of Europe coming down per Sean’s comments by design. I think Florin team has done a really, really great job kind of rightsizing that business, where to deploy the dollars. I think the turnaround is underway and I think those guys will be successful, but I didn’t want anything to get lost in translation, right? We’re really focused on the U.S. business and I think we want investors and the community to really focus on the U.S. guidance and what we’ve been doing here.

Thank you very much.

[Operator Instructions] There are no further questions on the line. I’ll return the program to our speakers for any closing remarks.

Thank you, everyone, for joining our Q3 earnings call. Really great to be able to share the positive news coming out of this quarter and the confidence we feel as we turn the page. I want to thank all the ThredUp teammates for all their hard work over the past quarter. We know it’s been difficult at moments, but it’s really exciting to see the progress and the momentum. And we look forward to keeping posted on what’s next, our next call in March. Thanks.

This does conclude today’s program. Thank you for your participation and you may now disconnect.