Thanks everyone for being here. Again, my name is Ike Boruchow. Wells Fargo, it's our fifth annual consumer conference here in Laguna Beach. I'm excited to sit down with the ThredUp team, James Reinhart, Sean Sobers. Good to see you. I feel like such a dynamic environment right now that it's always great to talk with a founder-led business. I mean, James, let's just start, you know, with the macro, the big picture. I feel like you and ThredUp, you guys were the first ones to kind of call out that there seems to be some pressure building on the low end. Can you talk about, you know, your consumer base, just what exactly maybe you started to see a couple of months ago, how you've seen that play out with the different cohorts in the marketplace, you know, the value consumer versus the higher end? Let's start there. Yeah, sure. Yeah, I mean, I think after Q1 results, I think we were, as you said, like the first to sort of comment that things look a little bit worse than I think, the people had been predicting. What I think is very interesting is that, you know, how fast things have been changing in this environment where, you know, even just the difference of having two or three weeks of extra data, right, can change, sort of your perspective on what you're seeing. You know, Q1, we thought the world was a little bit worse. Then I think like everybody after Q2, it was clear there had been some gap down, you know, in how consumers were participating in the apparel markets. I think for us, in particular, you know, given we serve a more of a value shopper, you know, that became very clear the customer segment that was getting squeezed, uh, the most. I think as we put in our results after Q2, you just really saw this deep budget shopper just step back, you know, from the apparel markets. I think, you know, it's 23% lower, you know, May to July, like, from a customer perspective on, like, their purchasing of apparel. That, that's the reality that we live in. It undermines kind of the long-term thesis for our business, but it's certainly something we have to navigate through. Sure. How does this all, you know, in terms of, you know, not necessarily what's going on within ThredUp today, but what you see competitively, promotions, pricing? Yeah. Especially in the kind of categories that you play in, what are you seeing in the market right now? I think it's going to be brutal for ThredUp through the end of the year, right across the apparel market, and you know, a Game of Thrones brutal, you know, like. Then I think you know, I think then it'll get better. I think you'll start to see some you know, as brands sort of reset their pricing power or their pricing integrity, I should say, in 2023. I think that's when you'll start to see folks like ThredUp and frankly you know, the off-price teams you know out there really start to show their value props again. I think it's gonna be tough you know, for a little while, and I think everybody sort of funny, like, there's sort of a group hug around this. Everybody sort of acknowledges it's gonna be bad. I think there is consensus to digest it as fast as possible. Yeah. I do love a good GoT reference. We were actually talking just outside a minute ago, we were talking about promotion in the environment, but we were also talking about was it compression? Compressionary. Compressionary. Yeah. Can you elaborate a little bit more how this—like, what exactly you're talking about? We talked about trade-down, the timing of trade-down. Yeah. Yeah, I mean, I joke it's a compressionary environment, which is like the spread between, you know, traditional retail pricing and discount and resale pricing. They're all being compressed. I think the consumer is certainly for the consumer who has some discretionary dollars, they're winning in the apparel markets. You know, Sean waited as long as possible to buy that coat. You know, finally got it for 95% off. You know, I think the longer you wait, like, the better off you're going to be. I just think you're gonna see this for some time. I think what people should, like, appreciate is that the digestion period will be quick. As you get into 2023, I think the consumer environment will be improving. At least that's sort of, you know, my, like, you know, cement-filled crystal ball. Mm-hmm. Pricing and apparel will be in a better place. Got it. If we just look at your guidance for the back half of the year, obviously, you have, you know, you've got an acquisition there in Europe. Looks like based on the revenue guide, the core marketplace is, you know, flat to down. This is just, it's uncharted waters for you, I believe. Mm-hmm. You know, this business has been growing like a weed for a long time. Yep. Walk us through some of maybe the KPIs. I mean, you kinda touched on pricing a little bit, but what else is kinda going into your outlook? Maybe this is better for Sean, I don't know. Like, what's embedded in your outlook in the back half there? Yeah. No, I think from an outlook perspective, we looked at where the business was as we exited Q2, first part of July, and digested all that as we were thinking about guidance for Q3, and then Q4, and even actually thinking about the first half of 2023, and made the assumption that the consumer isn't gonna have any significant recovery between now and essentially the next four quarters. Are we being overly conservative? Let's hope. But that was kind of our thought process and how we went and built out guidance, and then thinking about the first half of the year, and then starting to lead in to talk about EBITDA breakeven and the revenue we need to get there. Yep. That's kind of our. Okay. Focus on that. Yeah, we're gonna get there in a minute. I guess, Sean, maybe let's stick with you and just talk about maybe at the gross margin. Let's just start near term. Maybe walk us back to Q2, on the gross margin performance of the business then. Back half, what are some of the puts and takes that's going on in the gross margin line for you guys? Yeah, no, I think, you know, if you look way back when we talked about where we wanted to be long-term from a gross margin perspective, we said 75%-78%. In the U.S. business alone, we're at 74%, so we're right there on the cusp. We did acquire Remix as a European end to our European business has structurally lower margins. They're not consignment, they're more direct, so it's just inherently by the accounting structure has lower margins. I do think that's also the near-term opportunity is. Their direct business is in, like, the 30s on gross margin. Our direct business is in the 50s. I think with our smarts, our technology, and what we can do and help them, having gone through this before, has helped that business come up to the 50s%, which will help overall improve more in the near term. The long term, we take them to the consignment model, which will drive them closer to what we have in the 70s%. I do think the nuance there in Remix is. That business is mostly Eastern Europe. When there's a season, when it's winter, it's winter. Yeah. When it's summer, it's summer. Mm-hmm. AFPs in the summer, low. AFPs in the fall and winter, high. It definitely has an impact on gross margin. As that business continues to grow, it has more of an impact on the overall kind of ThredUp combined business. If we just focus on the U.S. businesses, gross margin, when you look into back half and maybe 2023, are there certain things we should keep in mind? Do you have warehouses that are coming on, some other things? How does this all kind of play out? Let's just talk U.S. and we'll go- Yeah, yeah. To Remix in a minute. Yeah. I think the distribution centers that we have open and are operating now, they're getting filled up and getting higher capacity, which generally just helps overall gross margin. We're continuing to automate and improve processes, which helps. We've had a long time of logistics and shipping costs going up, but we've been able to offset that by really consolidating items per shipment in a sense that, you know, we have 3 DCs that are operating today. Somebody can buy an item from each DC, and then we'll consolidate that to the DC nearest to the shipping location, and then we'll send it out. That's been able to offset the logistics cost. I think over time, we'll also open up Dallas, which is 10 million items, massive, which will help the overall kind of contribution margin and gross margin, improve that through 2023 and beyond. I think that's your drivers in the U.S. Got it. James, maybe just on Remix, you know, you've owned it for nine months now. Like, what have you learned? What are some positive surprises? I mean, again, you, now you've got some business in Europe. I feel like there's a lot of interest in the market over there right now. Yeah. Maybe not like yesterday, but maybe like three months from now, where people are a little concerned. Can you talk about what's going on with that business right now? Yeah, I mean, I continue to be really thrilled actually with Remix's performance. I mean, you know, we bought it for 0.8x revenue at a time when, you know, some of those businesses were trading at 15x or 20x. Like, we felt like we got a great asset that could grow nicely. Remember, I mean, this was a business doing, you know, $30 million-ish in revenue, operating in two very small e-com markets. Bulgaria and Romania made up 70% of that business. You know, as you start to get into bigger markets there, you know, whether it's Poland or it's Germany, like, these are big opportunities. I think we're pretty bullish on Remix as a standalone entity in Eastern Europe, and then its ability to grow in those markets and then move West. Look, I think it's going to be tough for the next few months, like, you know, winter is coming. Second Game of Thrones reference, Ike. Thank you. You know, we know fuel prices are going up and some of those things. We know that that will be a little hard for them to navigate. That business was so constrained from its investments in growth for so long, that I think I'm confident the team will kind of be able to navigate that. I get really excited as we think about, you know, a year from now, once all the work that Sean mentioned the team has done. I mean, the facilities there are modern, they're new, the processing times are amazing. Like, so much of the playbook that ThredUp had built and we thought we could deliver to them, like we have been delivering. I think it'll be exciting, you know, as we get into back half of next year. Got it. To wrap that one up, and back to gross margin now. Yeah. 30% direct. Your direct is 50, your consignment is in the 70s. Like what's the timeline, Sean, to kind of like walk them up, you know, kind of up that ladder? I think the march towards mostly consignment, which is what we are in Europe, is more like a two to three-year plan. I think incrementally improving that 30, just quarter after quarter. It's gonna be hard because it's much more a seasonal business. Mm-hmm. I think we have that opportunity to improve their processes, help them with data. The fact that they opened a, what I'd say, a unified distribution center, and I say that is they had the distribution center before, but it was three separate buildings, and they would literally have a car to drive from place to place to process. You know, I know you know, because in the DCs, we talk about how many steps does the person have to take. There was a car involved in Europe, and now there is no car involved. Right. We can get the steps and have those conversations. I think that over time, you'll see that improve and get closer to what ThredUp's direct is. Got it. Okay. Let's stick with profitability. As I am sure you're aware, there's been a heightened focus on path to profitability for. There has. For businesses like yours. You know, in the last call, I feel like a lot of businesses are starting to address this more specifically, taking more initiative there. I mean, you guys are no different. You laid out some framework for your path into the back half of next year. Do you wanna, you know, kind of, bring us back to the last earnings call? What are some of the building blocks you've laid out? What are your expectations? I would say, you know, as we saw the demand come off a little bit, we were very thoughtful in thinking about expense rationalization. We took out about $70 million of annual run rate out of the business, and about $35 million-$40 million of that is truly variable, like a real synergy to where revenue grows. I think over time, that comes back as demand comes back. That other $30 million-$35 million is corporate costs, SG&A, legal, accounting, professional services. We don't expect to bring that back on at the same rate, you know, call it 25%-30%. As you get demands coming back on, the real leverage will come significantly from that line in addition to volume. I think that's a real driver towards us exceeding EBITDA breakeven, 'cause we just put a, you know, stake in the ground and talked about EBITDA on the back half. It's really beyond that. Where do we go from here, and where do we start talking about EBITDA positivity and where is that going? Just to be clear, your expectation is by the back half of next year, adjusted EBITDA breakeven and then improving further in the out years. Yeah. I think the only caveat we have on there is at revenue of $80 million-$85 million. Right. To kind of put that in a frame of reference. For Q2, we did $76.5 million. It's not like we have to do this magical thing and grow massively, but it is a kind of a time of challenge on the demand side. Mm-hmm. I think that's the. There's not much seasonality to the revenue, right? Not significantly. Not in the U.S. Right. Europe. Yeah. Europe, as we said, is a little bit more. I think it's important, like, everything that we're doing right now in the expense rationalization is also being really precise that we're not starving the future, right? We're still investing in the key areas across industrial engineering and automation and the DCs and work that we're doing around merchandising. You know, I think as I've said, maybe on stage last year, like, the point isn't to break even, right? The point is to build an engine for sustainable expansion of cash flows, right? I think that's the sort of approach that we're taking. Right. I mean, I imagine these are not conversations that you're used to having. This business has been a growth business for a long time. Yeah. Now you kind of have to take a different look at, you know, what the setup is from here and manage the business differently, so. Yeah. Like, if you take me into, like, the, you know, the room where you're having these conversations. Yeah. Are you kind of like looking under you know rocks and rugs and kind of finding costs? You didn't need. Yeah, yeah. To look for those before 'cause you were growing 25%. Yeah, yeah. I think, you know, it was always a big focus on sustainable cash flow generation. I think the difference is that, you know, we would be rewarded in a different way for some of those investments, right? That had two-, three-, four-, five-year paybacks. Mm-hmm. I think investors have really pulled back on that approach. I think it's more around, like, you know. I'll give you, like, a very specific example. Like, there's a particular industrial engineering conveyor system, kind of the best way to describe it, but it's, like, it's a few things that, you know, it's like $5 million, right? In a year ago's environment, like, we probably would have done that because it had a, you know, three-year payback period, but it made sense, right? I think in an environment like this, it's like, nah, you know what? Why don't we wait 12 months? You know, that one is very crisp and clear to decide on, but there are others, right? That are on the margin, $ half a million here, $1 million here. We're just trying to be really thoughtful about what are the key drivers, you know, for that ROI. Got it. Staying with margin, moving to marketing. I think you, on the last call, indicated you'll be a little bit more restrained on the marketing budget for the balance of the year. Little bit, yeah. Given the demand trends, I mean, you also hired a new CMO. How should we think about marketing philosophy going forward under Noelle's leadership? Any initiatives you're excited about? Yeah. I mean, I commented on two things, which is, one, you know, we always spend a little bit less as we move into Q4 'cause it's holiday, and we try and not compete during holidays because it's a very expensive time. That's typically in line. I think, you know, we're talking about, you know, 200 or 300 basis points sort of reduction in marketing, not like a massive step back. The countervailing or positive trend to that is actually CPAs have come down, and so your dollar is going further than it was six months ago. I think net of it, you know, I think our acquisition of new customers is gonna be, you know, relatively stable in an environment where we're pulling back. I think from Noelle's perspective, she came from Lulus, which is a, you know, fast fashion retailer. She spent six years there and sort of wide portfolio of activities. I think we're having her focus on, you know, both the marketing side of new customers, but also on merchandising and making sure that the sort of magic and logic of marketing and merchandising kind of works together. Already you can sort of see it in some of the work that she's been doing. You know, the marketing levers you're pulling, is this just, you know, near-term dealing with softer demand? Has anything changed in your longer-term outlook on marketing? No, I mean, I think our long-term targets is that we'd spend about 15% of revenue on marketing, and I think Q4, I think it's 17%-ish. Yeah. You know. Sure. Okay. Sure. Okay. Yeah, I don't think the path to victory is cutting marketing spend. Got it. I think a big question is, you know, going back to demand. I think it's, again, what is the run rate of some of these businesses, not just yours. Yeah A lot of these e-commerce businesses, because a lot of them were growing 25%, 30%, 35%. Yeah. Now they're, some of them aren't growing at all. Is there a belief that this is kind of just a near-term hiccup or, you know, a normalization of e-commerce or low end, a lot of things, but we're gonna get back on track? Is the growth profile a little bit slower in the future now, in future years? Has any of that changed? I mean, the best thing, if you look at, like, before, if you go back to, you know, before the pandemic, right? Which was probably the best time we had for kind of underlying trends in e-commerce penetration. Mm-hmm. I mean, you know better than I do, but I mean, that's probably the best thing we have that sort of strips out the noise of the pandemic and stimulus and inflation, right? The quarter before the pandemic, we grew 47%. This business knows how to grow, right? That 47% growth was a fourth quarter of, like, accelerating growth. The management team knows what it's like to run a business like that. It's way more fun, right? Mm-hmm. We'll get back there, you know. In the back half of last year, the business grew 40%. Like, the idea that the businesses like ThredUp or businesses that are in our sector can't grow, I think is not fair. We just have to find kind of what the new normal is, and I think it'll take a few quarters to get there. Sure. Let's talk about something that I hold near and dear to my heart, the RaaS business. Oh. Can you talk to us a little bit about the, you know, maybe just give a quick overview. Sure. 'Cause I still feel like it's not really understood 100%. Yep. by a lot of the investment community. What is RaaS? Some of the partnerships you've announced this year. I mean, how many partners? Yeah. Are you up to now? Yeah. Start there. RaaS stands for Resale as a Service. The idea is that we will leverage our infrastructure, our technology, our data, kind of all of our sort of know-how to power resale businesses for brands. If you're a brand like Madewell, or you're a brand like Tommy Hilfiger, or you're a brand like Gap Inc.'s Athleta, instead of sort of seeding the resale universe to third-party players like us, we come in and say, "Hey, we can actually help you do this yourself and create a circular loop for your customers where they can monetize stuff they're no longer wearing, and then you can have like a true resale experience on their site." That's kind of how RaaS is built. We do two things for these brands. We manage take-back programs, so they can get product back and power resale experiences. RaaS rhymes with SaaS, right? We charge fees for managing all of this and both monthly fees but also variable fees based on kind of the work that we do. I'm super bullish on it. Like, I ultimately think resale will be driven by brands over time because I think that brands know their customers well, they have great customer relationships, they wanna be more sustainable and more circular, and we wanna be positioned as the company that helps you know make that happen. We have 30 brands on the platform today. We have some big ones coming soon, and I think it'll be exciting. The tech is leverageable, the logistics. Yep. Distribution is leverageable. Yep. The fees, I assume, they go up over time as you prove. Yep. the business and you prove you're adding value for the brands. Exactly right. Yeah. Yeah. What do you say when someone says, well, you know, like Lululemon, for example? Yep. You know, they went with a different partner. Yep. Yep. Yep. Why would a brand, you know, wanna use RaaS versus trying it on their own or something like that? Yeah. I think some brands pick other partners because of kind of what they sort of, you know, see in the sort of platform and the technology. I think they choose Trove over kind of the underlying infrastructure of scale. Our thesis is that brands that really wanna build big resale shops, like we power Target's resale shop, for example. I can tell you that Target has 25x the amount of stuff on it that Lululemon does, right? In one month, Target does more resale than Lululemon has done in its life. That doesn't mean that what Lululemon is doing is bad, it's just, you know, ultimately, like, we're in the business of trying to scale these. I think some brands, they choose other partners for some of the Trove. Some try and do it themselves, but they ultimately call somebody. In fact, there's no brand today that's doing it all on their own, that everybody works with a third party, and so we think that's ultimately how the world will evolve. When you envision this part of the business, is it just a lot of unknown with how big it can be, or do you have like a 10-year plan where you know exactly what this should look like? Yeah. I mean, I basically ask 'cause there are some businesses where we kinda see this in the e-commerce space, like, a name we also cover is Farfetch, and they have. Mm-hmm. A business called FPS. Yep. When they went public, no one even knew what it was. Based on some of the partnerships they've announced now, it could end up being, you know, 45% of their business. Yeah. In a couple of years. Yeah. From nothing to something big, how? What could RaaS become, you know, five years from now? I don't know if it's 45%, and because that number might be too small, right? Or it might be too big, right? I mean, but I think the fundamental engine of growth for ThredUp is its supply advantage. Mm-hmm. RaaS, like the way to think about RaaS is it allows us to put that supply in more places. Take a Madewell item, right? Like it can live in the Madewell store resale shop. It can live on ThredUp. It can live. We power Walmart's resale business, so it can live on Walmart. We power Target's resale business, so it could live on Target. It could then also live in four or five other places. The real value is that that item is then like an airline seat, and it can be sold in many, many places. Right. Ultimately what that does for us is it drives turns in our business, which means you need less facilities, you drive more turns over time. I think it's really key on the return on investment in our distribution center. The process itself is exactly the same, but we're able to sell an item quicker because it's listed on Madewell, and it's listed on Walmart. Yeah. It's listed on ThredUp. We just launched Vera Bradley, and you can look at the data. I can't tell you the data, but you look at the data and you're like, our business, our core business is much better off having a Vera Bradley resale shop that lives at Vera Bradley verabradley.thredup.com. Got it. Question. You guys end up owning all the data and offer that data? That would be DaaS, data as a service. Yes. We do own the data around, like, what we sell. But if we're delivering it for a brand, for example, we're actually a vendor, and they have access to that data. But, like, to your question is the right one, though, which is, 'cause we're doing so much volume on our platform, right? There are 4 million items, you know, on ThredUp. Tens of thousands of items of these particular brands are being sold on ThredUp. We have a proprietary data set that is quite valuable. But if an item is sold on their site, it's theirs. I guess one of the last ones I wanna ask, and maybe Sean, just on the capital allocation, update us on the CapEx for the year. What's in that number? Are there any big future projects coming in, you know, 2023, 2024? I guess obviously there's so much focus on free cash flow and profitability. Just kinda curious if you can walk us through that. Yeah, no, I think we laid out what we're gonna spend in the back half of this year and also talked about what we're gonna spend in 2023. The 2023 comment was, you know, we're gonna spend less than $20 million. Dollars in CapEx. I think we want to put that out there because obviously there's a tension around free cash flow, but it's also to kind of time into understanding what we have from a D.C. network and what we have to invest to. That assumes we're gonna be about halfway built out from a capacity perspective of the Dallas D.C. That'll be 5 million items. The other 5 million will come on at some point in time. I also think as we've, you know, expanded RaaS, we started to see the turns in the D.C. improve. We started to realize storage capacity isn't as necessary in the near term, so we have opportunities to have less of that built out now. Even to the extent if turns keep going the way they're going, we might not need all of the first half of Dallas, right? I think there's opportunities there as we think about CapEx spend in 2020. That's the assumption, we'll get through the first half of Dallas, and then we'll finish up the European DCs, and then we're at that point where we're on more of a sustainable CapEx spend, which is, if I round way up, it's, you know, less than $5 million if I say that. Got it. That really marches us, 'cause I think we tie in EBITDA breakeven plus, you know, gets you to op cash essentially, and then what are you spending on CapEx gets you to free cash flow. I think our CapEx spend over the next two plus Years is significantly different than, you know, what we spent in the last prior two years. You know, we're not putting tons of thought in on what we call DC08, which would be the next gigantic D.C. Right. That's not a big topic for us. That's several years down the road at this point, right? Yeah. I mean, I think our plan was that we wouldn't need to do anything until at least 2025. I think now, with kind of the market softness, it's probably 2026 or 2027. Got it. Well, James, look, last question. Just, I mean, let's end on a positive note. Obviously, it's tough out there, but, you know, things that you're excited about, things that you're doing to improve the buyer experience, kind of controlling the controllables on your marketplace, kind of how would you know, touch on that? Yeah, I mean, I think, you know, we noted in the Q2 earnings, I mean, revenue per customer in the US was at an all-time high, right? So despite an environment that is challenging, we are delighting customers in ways that I think are really great. It was $160, you know, revenue per customer. Like, you know, selling, you know, average price items at $20. Like it's, you know, really showing kind of closet penetration and how big resale can be as part of our customers' lives. So I'm excited about that and I'm excited for what you're excited about, which is RaaS. Like, you're gonna see some really great stuff coming from us over the next few months. Great. Well, James, Sean, always a pleasure. Thank you for coming. Thanks, Ike. Thank you all.