We're hosting Ajay Gopal from The RealReal, so thank you so much for joining us. First time here at the conference. Yeah, thank you. So for starters, I want to hit on just kind of an overview on luxury resale, which is your core business. Just for investors less familiar with the resale subsector, could you speak to it at a high level as to why you feel it's an attractive category, how your model as a managed marketplace works relative to other traditional two-sided marketplaces? Yeah, totally. That's a great place to start. You know, luxury resale, we see it going through a fundamental cultural change in how people shop for luxury resale. The behavior we're starting to see come to light is one that you could probably see in luxury automobiles. When people buy a luxury car, they're thinking about, what is this going to be worth when I'm ready to sell it in a few years from now? Today, we see about 47% of consumers in luxury resale, they're doing the same thing. They're asking the question, like, what is this going to be worth when I'm ready to part with it, and that's so it's really transforming how the industry is playing out. The other exciting thing I would point to is just the potential for growth. We are the market leader in this category, closing in on $2 billion in GMV. Compare that to the U.S. consumer that is purchasing about $85 billion in this category every year. Growing interest, but just so much more headroom in terms of. A lot of headroom between that too and the $80 billion. Yeah, yeah, totally, totally. So really exciting space for us to be in. Your question on marketplace, our approach to how we meet this consumer shift in sort of buying behavior is to build a marketplace. So we have, The RealReal is a two-sided marketplace. We bring in sellers that bring the supply. We bring in buyers that then we help them meet. We've built what you would describe as a managed marketplace. So it's different from your classic peer-to-peer where you're choosing the product, you're choosing the seller, and the seller is doing all the work themselves. Our approach on the seller side is to take away all the frictions. So we do all the things that a seller would have to do. So if you were selling on The RealReal, we'd pick up that item. We would take pictures. We would write up the listing, write up the description so buyers can find it. We would price it because we have an understanding of what these things could be worth, and then the buyer is buying from us. They're not buying from the seller directly, so we are intermediating that transaction quite meaningfully because it then helps us establish the trust that is so important in this category, and that's what differentiates us. Yeah, I would imagine that's a real value add for those buyers purchasing it from you versus someone they don't know through the internet, particularly for these high value things. 100%, yeah. And you mentioned it seems like something has maybe changed or we've reached maybe a little bit of an inflection point here. What has fundamentally changed in your view and how durable is that? Yeah, you know what we're seeing is a continuation of these trends. So we've been around for about 14 years and we've seen a steady increase in the interest in resale. We recently shared a stat that 58% of consumers today prefer shopping on resale or on the secondary marketplace. When you look at our growth results and you see growth of 14% in Q2, 20% in Q3 on a GMV basis, a lot of that we attribute to our efforts on unlocking supply. So growth for us really comes down to taking how much of that $85 billion is sitting in consumers. We call it trapped in consumers' closets. How do we unlock that? How do we bring it onto the platform? And we've been focused in on a very clear approach on unlocking that supply. We call it our growth playbook because that determines our growth trajectory as a business, making really good progress on the elements there. So our growth playbook has a sales team, which is individuals that are across the country that build the relationships with sellers and sort of help you think through what you should be selling next. We spend marketing money to get people to learn about our service, to educate them on what they could be doing. And then that funnels into the sales team. Finally, we have a retail presence. We have stores that help take out even more of the friction and just amplify the effects of the other two elements of our growth playbook. Got it. And with that retail footprint, so sellers can actually come in and bring their goods in to have you evaluate and then put it on the market. Yeah, totally. So if you go to one of our stores, what you're going to find is a small neighborhood store. So it's 2,000 sq ft -3,000 sq ft. And if you're interested in selling something, you can meet with an expert. So it could be a gemologist. It could be a watch expert, a horologist. And they will help assess what your item could be worth. They will give you a sense of what you can make for it. And it just helps bring in new consignors because if someone's brand new to the service, the idea of dropping off a $20,000 handbag is a little concerning. But if you go to a store and meet an expert, it just gives you the confidence and the comfort. Stores are particularly effective at that. They bring in about a quarter, 25% of new consignors. Interesting. Obviously, we're here at a consumer conference. There's a lot of current debate around tariffs, inflationary pressures, retail pricing, some of the key themes we're hearing. By extension, this impacts the attractiveness of secondhand goods. How relevant is retail pricing and potential inflation at retail in luxury goods as it relates to your business? And then are you proactively trying to raise prices as well, or are you actually trying to keep prices lower to improve that relative attractiveness versus core retail? Yeah, great question. Fun times, right, to be in. I think I would start by saying, given that we are a value play in the world of luxury fashion, anytime there's inflation in the primary market, it could be from tariffs, it could be from anything, anytime there is inflation in the primary market, it's going to increase consideration for our platform. When you think about buyers, buyers are going to come here because we offer that value. And when you think about sellers, it just opens their eyes to, hey, I've got things in my closet. They're worth more. So maybe I can tap into that. So that leads to that flywheel as well. To your point on pricing, our approach to pricing is sort of best summarized as the market sets the price. One of the services we offer to our sellers is to help them get that optimal balance between price and speed of sale or sell-through rate, and over the years, we've built a lot of sophistication in this space. We have processed 50 million items. We've listed and sold 50 million items, so we have data on all of these items. We know what were they? What was special about them?, and how much did they sell for? So our AI algorithm on pricing takes about 100 different data points a day, and then it figures out what we think an item is going to sell for, and that's what we launch an item at. So when prices move, we're looking at where we can help our sellers capture that additional value, and it's interesting. Sometimes prices in resale will move with primary because consumers are willing to pay more. Sometimes they won't. Sometimes they won't, yeah. Got it. But obviously, a lot of that gets informed by all that data that you have. 100%, yeah. You get clear signals on how the consumer's behaving. Makes a lot of sense. So we do see sluggish or even negative growth in other areas of luxury goods. Help us kind of create a little bit of a mosaic of how you fit relative to that. I think you kind of teased it a little bit there. But you're at the cross-section of resale as well as luxury retail. So how would you kind of define the current industry growth? What's the cross-section? What's the mosaic of that look like in your eyes? Yeah, yeah, great question. If you start with primary or primary luxury, that's covered fairly extensively. It's an industry that has grown steadily in the low single digits, and most people expect it to do that. There's years where it's up and down, but long-term, it's in that space. When you think about resale, most people will say that resale is going faster, and we see that too. It's hard to get a specific number on it. High single digits, maybe 10, depending on who you talk to. Our performance at 14% Q2, 20% Q3, we think we're definitely in a place where we're t aking share. I think we're taking share, but also I think we're expanding the market. We are the market leader here in this category. We've been doing this for a while. And when you think about our approach to unlocking supply, about 50% of the new consignors that come on our platform, they've never sold before. Okay, 50. That's a while. Half of them. And that's not saying they haven't sold on The RealReal. They've just never done that behavior. So we are expanding the market, and we're obviously taking share on that market as well. Okay, so the retail subsector probably growing circa maybe 10%, you're outpacing that, even with luxury maybe having some headwinds that kind of in resale. Yeah, yeah. Okay, makes sense. From a competitive standpoint, who do you view as your key competition? Is it peer-to-peer resale platforms? Is it managed marketplaces? Is it just kind of regular retail, whether it's online or brick and mortar? Who do you think you're really competing head-to-head with? Yeah, it's a bit of sort of most of the things you mentioned. I think our competition is quite fragmented in that sense. So you've got peer-to-peer players that are sort of more generic marketplaces. They're trying to get into the space. It's an attractive space. Different value proposition if you're going in with a peer-to-peer offering compared to what we've learned about the industry and how we've designed our service. There's still a lot of luxury resale and consignment shops. So I think we're still at the point where The RealReal can benefit from that simple offline to online move. We have so many advantages when you compare us to a consignment store. We have 40 million members in our community that are effectively looking at these items all the time and that trust. So that's a comparative set in one sense. And then, I think there are single category players. So, think just handbags, just watches. And our approach is mostly consignment. Majority is consignment. And there's other players that are primarily looking at a buy-it sort of option where they take a position in items. So, I think pretty fragmented. When you look at our position, we see really strong strategic moats around The RealReal. I would sort of highlight them as being one of the key elements is our expertise. So, we have expertise in the category. It is a really compelling blend of art and science. So, we know the category. We know how to talk to consumers in that category. And that's where the art comes in, being able to demonstrate that expertise. We have expertise in unlocking supply, which is key to driving growth in the business. And yes, we have expertise in authentication. We sort of set the bar in terms of how you can make sure that these items are not fakes and pricing. So I think expertise is a really strong strategic moat for us. And it's built on our data. That 50 million items that we've processed, we have all that information that we can then bring to bear on how we get better at this stuff. The other moat I would highlight on our business is our scale. We have 40 million members, 50 million items. The largest player in the space, closing in on $2 billion in GMV. So we have scale, which is so important, as you know, to get the network effects in a marketplace. So that's key. And then all of that shows up in a brand that has enormous trust amongst consumers in this category. We measure brand. We've seen an eight-point increase in our brand, sort of in trust in our brand year on year. It's high and it continues to get higher. I think we've just got a really strong position in this industry versus the competitors that I mentioned. Yeah, makes a lot of sense. You actually kind of hit on part of my next question, but I'll ask it anyway. Unlocking supply, you've mentioned that a few times as being, frankly, a bit of a gating factor, right? That you're doing a couple of billion in GMV and there's 80 plus billion being purchased at retail and there's probably, I don't know, a few hundred billion, I think you've said in your resale reports of kind of untapped supply. What do you need to do from here to further unlock that supply? Do you think you have the playbook now and it's just the blocking and tackling and continuing to get folks aware of the service, the value proposition, that sort of thing? Or is there anything else you need to do to really dial up supply further? Yeah, great question. Maybe to start with defining the supply, how much is out there? So if you take the $80-$85 billion that U.S. consumers are purchasing every year, we know that they hold on to them for about three to five years on average. So that extrapolated math gets us to about $200 billion in people's closets that we're going after. A pretty big TAM that we're going after unlocking. Our growth playbook, which is the term we use to sort of define how we unlock the supply, really centers on having salespeople, having marketing dollars that we spend, and having a retail presence in stores, and we find that those three things are very effective and amplify each other in terms of unlocking that supply. There's other things we've been sort of testing our way into. An exciting one is Dropship. Yeah, we can talk on that. Yeah. Yeah, we can talk more about that. But that is a way to unlock supply that we don't take into our possession, but we can list on a platform. We see ourselves being able to use that as a way to get international supply from other markets. I was going to ask, how do you unlock that international supply? Yeah, yeah. So we have vendors today that will purchase, knowing that they can import into the U.S. and then sell on our platform because we have that relationship with them. Then I think things like Dropship help us tap into that international supply as well. Okay. And do you see more opportunity there partnering with whether it's European or Asian consignors to kind of help aggregate some of that supply so that you don't need boots on the ground? You maybe don't need that sales force in every country, maybe a few select regions that might make sense. Talk us through that a little bit. Yeah, 100%. We already do this with some select vendors that are effectively aggregating. Japan is a very interesting market. So you have Japanese consumers purchase a lot of these luxury items, but the Japanese market as such is not that sort of plugged into buying resale. So these items get aggregated and then they move out of there into other countries. And the U.S. is one of those places. So we have that. I think there's more we could do there. It's also a great way for us to think about international expansion because we are primarily a U.S. business today with a lot of room to grow in international markets. Our model allows us to establish sort of a supply presence, maybe establish a demand presence before we get into a full solution in market for market. So we're definitely counting on Dropship, which is this initiative that we launched. It's a capability. So it effectively refers to an arrangement where we can list stuff for sale on The RealReal that we don't have in our possession quite yet. And when that item is sold, the person that has the vendor that has possession is going to ship it to us. So we will authenticate it. We'll then ship it on to the consumer. That model could give us bring on more international supply into our marketplace as well. Okay. And is that international push a high priority for the next three to five years? We always hear with two-sided marketplaces, it's tough going international because you have the debate of you dial up supply first or demand. It's kind of both, right? You have to do a little of each to kind of get the critical mass. Yeah. Yeah, great, great question. I spent five years at StubHub and we had our struggles with that. I was sharing it with my team yesterday on the lessons we learned. It's an area of growth for us. It's probably not top of the list right now. Just given what I shared earlier, there's so much potential in the US where we have a presence, where we have all of our levers that we can bring to bear, and I just think there's so much room for us to continue to grow in the US. Okay. Let's shift gears a little bit to kind of demos and market segmentation. I think half of your customers are Gen Z and millennials. We have heard from other players in the consumer space. There are some concerning points on that 25-35-year-old consumer maybe feeling a little bit more pinched wallet-wise. Are you seeing any uptick in supply from consumers monetizing their wallets more? Is that an indicator of like, "Hey, maybe we're facing tougher macro times"? Do you have any signal on that? Yeah, yeah. That's a great question. We are seeing fairly broad-based strength, actually, from different generational demographically speaking. Gen Zs are our fastest growing segment, actually. When we look at our data, your other point on sort of what are they buying, we've seen us get more high-value items. So there's real interest in what we would call high-value jewelry, watches. So the jewelry has been outpacing growth within our categories for a few quarters now. It started last year and continues to be really strong. The other interesting thing we're seeing with new buyers, so when people come out of The RealReal and purchase for the very first time, is we're seeing a higher propensity for them to spend more on their first order. What used to be like a scarf to get exposed to the platform now is jewelry or higher-priced items. So I think trust is growing. Newer buyers are coming in with a higher propensity to spend. So really broad-based strength. Just on that buyer point, are you also seeing higher purchase frequency from those newer cohorts as well relative to historical ones, or they're just spending more on that initial purchase and then the purchase frequency remains similar to past behavior? We're seeing higher LTV initial signs. It's still early to look at those cohorts. When we look at three-month, nine-month, twelve-month, right? And I would say the early signs are that the lifetime value appears to be higher, promises to be higher if the same trends hold out. Okay. Interesting. Let's hit on AI a little bit. I know you have some internal tools that help with intake as well as authentication. I think one of them is Athena. For those newer to the name, could you actually just explain what Athena is? What does it do? How does it help you save time or drive other efficiencies throughout the intake process? Yeah, yeah. Great question. I mean, Athena is one of our AI initiatives, and we've actually been very successful with bringing the power of AI and marrying that with our rich database to sort of build more strategic moats around the business. Athena, in particular, is the term that we use to refer to our AI-enabled product intake process. So think about that as everything that has to happen to an item from the time it arrives at our fulfillment center to when it's ready to be sold. In Q3, we just reported that 27% of our items were processed through Athena. For those 27% of the items, if you were to go into the fulfillment center, what you would see is effectively the item goes to photography, and through the images that we are capturing in photography, we're able to effectively write out the entire description of the item. So what is it? When was it released? Who was the designer? What's the brand? What are the dimensions? Straight from the image. From the image. And using our library because we've probably seen many of these before, right? So we have the ability to just create that. So there's an algorithm that does that. From that exact set of photographs, both sort of microphotographs as well as regular photographs, we can authenticate the item. So that capability adds on to it. So the item through photography is also authenticated. We know that we have a high probability that it's going to be authentic. We don't need another human being to look at it, right? So that's another step. And then the last thing is our pricing algorithm. So we also price the item. So in those 27% of items, it's going from photography directly to being ready for sale on the platform, taking out all the manual steps that it would have had to go through in the past. Got it. Super excited about it because, as you can imagine, it takes out a lot of cost. It also shortens the amount of time it takes for items to show up. And sellers love that. Consignors love it because today we're at about 14 days on average, and we think Athena plus other initiatives in play will get us down to about seven days. Oh, wow, so cut it in half. Yeah, things move a lot more quicker. And also accuracy, right? Because when human beings are doing it, you're always going to have a few variances here and there, but when an algorithm is doing it, it's more predictable. So we think by the end of this year, we'll be at 30%-40% through that initiative. End of 2025. End of this year, yeah. Yeah. And then we'll continue to scale from there. We're going to move it into the other point I would make on Athena is we started with low-value items because those are easier to train the model. Lower risk to get authentication wrong or something. Yeah, yeah, totally. So that's the 27%. So it's a large percentage of items, but it's a much smaller percentage of our value and our cost base, right? We're going to move into mid-value and then high-value going forward, where I think the model gets even more powerful in terms of how it sort of delivers efficiencies for us. Okay. And how high could that, if you're going to be at 30% or 40% exiting this year, how high could that go? I mean, I can't imagine it ever gets to 100% because you're going to have certain goods that need that higher touch experience, right? Yeah, yeah. I mean, we've given ourselves a chance to get it to 100%. So I think we have a path to getting there. Listen, the things will have to be slightly different, right? So when you look at, say, handbags, we can do it with photographs, but when it comes to jewelry, we might need to add a scan into the process. But it's data we have. We've looked at so many pieces of jewelry. We know the metal composition of jewelry. We have proprietary scanners today that can scan a bracelet and then tell us if the amount of gold is what Cartier would use in their bracelet. So we have signals like that that we could use to then expand into other categories. And we'll have to get a little creative with watches and see how we do that. Yeah. Look forward to seeing how it evolves. So we've hit on supply a little bit. We've hit on how you process goods, how you're using AI to help on the authentication process. Let's hit a little bit on active buyers. I think active buyers are now at an all-time high. They're growing kind of high single digits year on year on a TTM basis. How much of that is a function of kind of some of the category tailwinds that you mentioned, just awareness of the category and its attractiveness? Or is it maybe there's some macro pressure on lower-income demos or anything like that, or younger demos, I should say, that maybe have a higher propensity to adopt secondhand? Yeah, yeah. Because a couple of things to unpack there. I think first off, yeah, we've seen strong performance in active buyers, right? In Q3, we accelerated by a point from six to seven. And that is a trailing 12-month metric. So obviously, the underlying core of performance is stronger and, yeah, it's moving the average up. When you look at let's see, where did we go from there? What was the rest of your question? Well, just are you seeing any pressure? Oh, yeah. That's causing the buyer activation? Yeah. A A lot of this we attribute to the changes we've been making in our marketing process, so you've heard us talk over the last few quarters on how we've been focused on improving our tooling and sort of instrumentation around it. With those changes and with new resources on the team, we've got a lot more confidence on our ROI on that spend, and in Q3, you saw us lean in a little more on marketing spend, and we saw the effects of that, so we had 20% GMV growth and acceleration in active buyers, so getting a lot smarter with how we target buyers. We are also more consciously going after what we define as flywheelers, so if you think about our marketplace, like any other marketplace, we have strong network effects. About 50% of our sellers last year are also buyers on the platform. Okay. About 16% of our buyers are sellers on the platform, right? So we're now focused on incentivizing people to demonstrate behavior on both sides, right? And that's a great source of customer acquisition for us on the other side because we already know who they are. We know how to communicate with them, and we can sort of get them to participate on the other side. A lot easier to get people to buy, slightly harder to get people to sell on the platform. Okay. Up Up until now, we've been talking about apparel, accessories, jewelry. What about categories like men's luxury? Is that an opportunity for you? Do you under-index there? Is it interesting? Are there structural impediments to why that category doesn't work as well for secondhand? Yeah, it's definitely an opportunity for us. I think we say we're at 80% women's fashion, and then there's watches, and then there's men's. So I think we under-index versus the industry for sure in men's. We have all the capabilities to be successful in men's, right? It's just a matter of focus. It's a matter of expanding our brand to sort of cater to that segment, getting our hands on that supply, and just applying our playbook to grow in that segment. Is that a priority, or do you see enough runway with kind of the core use case now that men's maybe comes down the pipe down the road, but it's? No, we're actively working on it, right? We're not excluding men from the marketplace. Watches is a great example. A lot of men's comes down to watches, and we actually have been focusing on expanding our presence in men's watches. That's how we launched Dropship. So the first sort of target category for Dropship was watches. We've since expanded into handbags, and now we're considering expanding into jewelry as well. But we've seen good traction on watches from that initiative, and we'll continue to work on men's. I think it's a real opportunity for us. Yeah, and maybe watches could be that onboarding mechanism for other categories from elsewhere. Yeah. That makes sense. Okay. Got Got it. Let's shift gears a little bit, hit on margin capital allocation. One of the positives coming out of your recent Q3 print, besides the 20% GMV growth, was the nearly 4 points EBITDA margin expansion. That's now about 5% margin, if I'm not mistaken, between Athena, Smart Sales, driving operating cost leverage through top-line growth. Where do you see margin going from here going forward while you continue to invest to drive that high single-digit, low double-digit top-line growth to kind of keep pace or gain share versus the industry? Yeah, yeah. Great question. I mean, we're seeing strong results on margin expansion. So in Q3, we just reported 380 basis points of EBITDA margin expansion. And we've guided to a year where we will close out the full year at 5.5% at the midpoint, and that would be 400 basis points of margin expansion. It's remarkable given that last year we came into the year saying, "Hey, we're going to be breakeven," right? So we've gone from that to 5.5 points. Over the medium term, we've shared that we see the business getting to 15%-20%. So think of that as the next four to six years, we can get to 15%-20%. We marry that with a growth rate of high single digits to low double digits, which we think is the optimal balance between wanting to grow the top line and continue to get more margins and prove that the model is profitable. Right. And what would be the building blocks to go from 5.5% this year to, call it a mid-teens, high-teens margin in some future state? Not saying when you get there over some long-term time frame. Yeah, yeah. Great question. Great question. So we've been through a pretty sizable business transformation. If you look back a few years ago, our focus was more on unit economics and gross margin. So that number, a couple of years ago, was in the 58% range, and now it's in the 74%-75% range. So feeling really good about how gross profit dollars are flowing in as we sell more units. The next sort of few years will really be on OPEX leverage. So when we spoke about Athena, that is a great unlock in terms of how we get more efficient at moving things through our fulfillment center and our operational costs. Marketing, where we have room to be more efficient on how we spend our money. When we focus in on things like Flywheelers, it's a much lower CAC because you already know who they are, right? You don't have to find them on the internet. That's a source. When I look at our sales team, we haven't spoken that much about it, but we've been making changes there. We've changed the profile of the reps we bring in. We've fine-tuned the incentive plan. They're a quarter-based team that they get paid a commission, a sales commission. We fine-tune that to be more value-based so they bring in the kind of supply we want on our platform. All of those changes have resulted in good efficiencies there too. We just shared that our reps on a year-on-year basis were 12% more efficient when you look at the value of supply they brought in. Retention is doing really well. About 50% of our sales team has been here for about two years or more, so that unlocks efficiencies in sales and the last thing on G&A, we're already a public company. We've made the investments we need to make, so it's a source of leverage for us, so I think really it will be led by OPEX leverage. It sounds like a lot of levers too within your discretion to get there from that kind of mid-singles to that mid-teens or better over the last couple of years. Some great wins so far. On capital allocation, can you just bridge from where you are, that consistent positive EBITDA to free cash flow now and what that looks like in the next few years, as well as just your capital allocation priorities? Yeah. Great question. Our balance sheet has gotten a lot stronger in the last couple of years. So if you look at us today, we believe, and I'm sure most people will agree, we carry more debt than a business our size would want to. And we've been working on deleveraging. So we've brought down our debt by $86 million since the beginning of last year. We've also pushed out our maturities quite significantly. So now nothing is due until early 2028. And that too is just a start on one of our previous notes. So from a cash flow perspective, we are like a marketplace. We're an asset-light model. We take possession, but none of the stuff in our. Nothing inventory. Yeah. We don't take inventory. So if you want to see a huge warehouse of stuff that we don't own, it's just a few complex items. So we're very asset-light. We're efficient. Q3, we reported positive free cash flows. Q4 will be a continuation, a stronger quarter than even Q3, given sort of how our working capital works and sort of the cash flow cycle. I think next year, we're confident we'll be free cash flow positive. So we're making great progress towards translating the improvements in EBITDA down to cash flow. Yeah, so all the stuff we like to see, cleaning up the balance sheet, laddering out those maturities, improving free cash flow. It seems like you got a lot of great momentum going on. We certainly feel that way. Thank you. Great. That wraps up all the questions I have. If we have any questions from the audience, feel free to ask. Otherwise, we can wrap up. Any questions? I guess we covered everything. All right. Great. Thank you, everyone. Thank you so much. Thank you.