Thanks, everyone. Thanks for being with us. Again, thanks for coming to the Wells Fargo Consumer Conference. Mike Borchau, Softlines Analyst at Wells Fargo. Pleasure to have a returning guest, ThredUp Inc. with us. We have the CEO, Co-Founder, James Reinhart, Sean Sobers, CFO. Thanks, guys, for coming to talk with us. I think the best way to start the conversation is to look at where we were a year ago. I think the revenue trends in the business were negative. The stock was below $1. You're now above $10. So a ten bagger, not bad in 12 months. Let's just start at the highest level, James, before we dig in. What happened? Yeah. I mean, last year, thanks for having us. It's good to be here. I think last year, what was interesting about how the trends, you know, into September was we were in this transformation of the U.S. business. We had done a bunch of work, building new product experience, new search, which we can talk about. We were in this transition in the U.S. business, and we're seeing lots of positive signs, but we still had this European business. Our European business, which really struggled over the last couple of years, was dragging down our consolidated results. We made the decision and announced in August that we were going to, August last year, that we were going to get rid of the European business and be U.S. only. That began, I think, the catalyst of all the work that we've been doing in the U.S. because at that point, the U.S. was cash flow positive. It was growing, but it was not able to have all the resources that we needed. It then became the U.S. only business. You can very clearly see the inflection. Q3, as you said, the business was down 10%. In Q4, the business was up 10%, and it has accelerated growth every quarter since then. I think you have to go back to the beginning of 2024 to see sort of how the U.S. business and the product investments were materializing and then getting rid of Europe. That came together to produce what has been a great year. To your point, we've seen the revenue growth continue to accelerate. Remind us, you were up 10% in Q4. Remind us the guide for Q3. The guide for Q3 is 25% at the midpoint. Yeah. Kind of like layer in, like, what are the biggest drivers that have kind of taken you from where you were? Understanding the Europe and the focus. Beyond that, I know you've talked about AI. You've talked about, you know, marketing and CAC coming down. Just how would you kind of force rank those drivers? Yeah. I mean, I've been, I'm the Co-Founder. I'm the Co-Founder. I've seen a lot of the investments that we've made over the last, you know, 10 plus years. I think it's all about the product. I think the investments in AI, and I've been saying for as long as people have been asking, that I think it's underhyped. I've said that ThredUp would uniquely benefit, and we can go back, like, remember multiple quarters, I said ThredUp is going to uniquely benefit from these investments in AI technology because of the problems that we're trying to solve, which is we sell 35,000 brands across 100 categories. Like, it's a hard, it's a hard problem, and AI has been able to accelerate our ability to deliver, like, a great experience to customers. I would, far and away, rank product investments and AI at the top. I would say, you know, that we've certainly had some small tailwinds with customer acquisition costs coming down because of the closure of the de minimis loophole. It's unclear how tariffs will play out over the next, you know, it'd be interesting. I'm sure everybody's going to tune in at 11:00 A.M. for the Fed meeting. We'll get this done by 11:00, right? You know what I mean? We'll see how these things start to materialize. I wanted to emphasize, and we said that on our Q2 call, that the acceleration in our business was happening before a lot of these de minimis things clicked in. We thought they'd be an incremental tailwind, and they were in Q3. So yeah. What, so be so AI, we're going to dig, we're going to pack that in a minute. Beyond that, there's a bunch of initiatives within the model that I feel like have been implemented over the past year. We talked yesterday about clean out kits and pricing, and you've layered on premium. Can you maybe walk us through some of the bigger developments there? Yeah. I mean, on that, we have been focused over the last probably 18 months on reinventing the selling experience. What are the other ways that we can segment our sellers to improve the seller experience? We launched a bunch of versions of what became, at the end, this premium selling kit. The premium selling kit was widely available at the beginning of the year, and it is an elevated experience. The seller pays more. The typical clean out kit is $14.99, which we take out of your earnings. It's really important. The premium kit is $34.99. With that, you get a longer consignment window, you get some discount protection, you get more control over the price and the listing, and you get your items automatically returned if we don't accept them. You get an extra inspection for items, so a bunch of services. That was a product we worked on. I want to really emphasize, we worked on permutations of that for over a year until we really nailed it. It has scaled like the most perfect histogram you've ever seen. It's now more than 10% of the seller expense, items coming onto the site, and it's been great. We're continuing to think about other ways to delight sellers because, as I've said for a long time, I think sellers are core to what we do. I think on that premium spike that you just actually hiked out on to, I think your reaction a little bit yesterday when we talked was like, oh, $34.99, it seems like a lot. It's really interesting because it went from 0 to 10% with like a snap of a finger. The things that we are providing are really valuable: more acceptance, discount control, all these things that I think if you have a couple of nice items, call them $50 to $100 items, it is well worth it for the extra things that you get. I think that's borne out by the fact that it's grown from 0 to 10% so quickly. Without any marketing, you can't find this other than coming to the sell page on ThredUp and clicking the button. I think it speaks to really great product market fit, and I think it's helping us think through where else we can take the seller experience. From your contribution margin, is a premium selling kit a higher margin versus a regular? Is it kind of similar, just with more dollars? How does that work for you? Yes, it's definitely a higher margin. Yeah. I mean, ASPs are almost double in a premium selling kit. It's actually the, it's not the fee that we charge that's so great. It's the stuff that comes in, right? There's a scenario there where we would love to have all that stuff at, you know, the same fee. This motivates people to send that in. Because what's going in there is stuff that's going to sell because it's great product at MSRPs at a couple hundred bucks. Yeah. The psychology of this is real, which is, you know, if you're going to spend $34.99 on this fee, you're going to put your nicest stuff in there. Right? It's the same, you know, maybe we're slow learners. It's the same thing we learned when we introduced fees on the basic service. When you charge a customer $14.99, like, oh, I'm paying for a service. I, therefore, should make sure that I clean the items, inspect the items. Right? I think it can't be underestimated, that psychology of, you know, people, you know, once you start paying for something, you pay a little bit more attention. Not to get too carried away into the future. I mean, you guys are doing a great job now. As that is, you kind of alluded to how quickly it's ramped. You haven't even put marketing behind it. Is this kind of opening up more doors for you as you guys figure out what is, you know, what ThredUp is capable of? I mean, I'm not going to all of a sudden say that that turns into a bunch of Louis Vuitton bags. Sure. It feels like that could be an end goal if this keeps working. How do you think about where the ceiling is on that? I think that I've said for a while, I think, you know, my goal is to really dominate kind of this, you know, the resale secondhand market. There are areas where we can continue to innovate. I don't think we'll ever be a luxury, you know, business. I don't think that's our customer, but, you know, you could press up from here to be, you know, more premium. You could change the way customers list product on the site, smaller bags, different form factors. One of the things we launched, and we talked about this in the recent earnings call, was the ability to sell in your returns. You buy something on ThredUp, you buy a few dresses, and one of them doesn't fit, and you go to return it. Within that flow, we say, hey, would you like to return anything else? Would you like to sell anything in your return? Again, piggybacking on our existing distribution network, we're looking for all of these ways to make it easy for people to sell, however they see that working for them. Got it. You had touched on AI. I think we spoke yesterday about AI. Yeah. I think you said it, you know, the word, you know, I think you said AI like five times in this conversation we had. Yeah. I guess just to kind of drive that home, on the improvements you're making there, can you kind of dumb it down for us? What are the metrics or the KPIs you look at? What is AI doing to your business specifically that maybe it wouldn't be doing to a lot of other companies that are here? Why is it so specific to you? What are the specifics you could point to where you can clearly see how it's benefiting you guys? Yeah. I think if you look, we've launched five products over the last 12 months. The reason why it benefits us is that every item that we sell on ThredUp is a snowflake. Right? There are no barcodes on the items, and you need to be able to catalog those items so that they are searchable and shoppable by customers. We went from tagging six or seven attributes about a given item to using AI that tags items with more than 100 different attributes. Those 100 attributes then feed into a data model that makes it easy for customers to search and pivot what they're looking for. Better data allows us to then provide better search queries. You're seeing conversion rates improve pretty significantly. On our last call, we talked about new customer conversion, you know, visit to a customer conversion is up 18% year-over-year. There are very few things you see in consumer where you generate an 18% improvement in overall conversion from visit to new customer. That then has driven customer acquisition costs down, and it has driven LTVs up. When both of those things are working in your favor, all of a sudden, your LTV to CAC ratios, your paybacks shorten. Therefore, if your paybacks are shortening, the CFO says, why don't we spend more money on marketing, which is what no CFO ever says. Right? All of a sudden, you're able to spend more dollars on marketing and you get that flywheel going. That's sort of the core search product that launched. From there, all that technology we built into an image search product. Now you can take photos of anything, you can find anything online, and make it instantly shoppable on ThredUp. Something which is sort of obvious, like, when I explain it to you, but it's hard in secondhand, is something is what we launched was a similar search. If you think about when you shop in a new site, right, you go to Lululemon to buy a pair of leggings. Right? You go to a product page and you see a pair of leggings, you're like, I actually want that in a different color. What do you do? You just go up and click, like, different color. You can't do that in secondhand until now. We launched this similar search feature, which allows you, so if you're looking at a pair of leggings on ThredUp now, and you're like, I want them in a different color, there's a pivot that says, show me them in a different color. Show me this exact thing in a different color. Let's say you're like, oh, I really like these Lululemon leggings, but I don't actually want to pay that price. Show me these exact leggings cheaper. You can pivot. All of a sudden, this similar search technology allows the customer to get into a product that they generally like and then move around to find exactly what they like. That has been very successful. We launched something called, it's all part of our social commerce initiative, which allows you to shop your socials. One of the things we think is broken in commerce is how people get inspiration across Instagram, TikTok, Pinterest, and then the friction of, like, okay, I'm inspired here, and then how do I shop in a way that feels easy? Now on ThredUp, you can go right in the app and we have an auto integration directly with Pinterest now. You can log in with your Pinterest account. Every time you go and load the app, we in the background are searching through all your Pinterest boards to pull in the style you're curating right now in Pinterest and make that shoppable on ThredUp. Soon you'll be able to link your Instagram profile, your TikTok profile, bringing all your social influences that are out there into how you might shop online on ThredUp. The last thing is something we called Style Chat, which allows you to basically have a personal stylist on ThredUp that you could say, hey, I'm going to a conference in Dana Point. I need a few outfits. These are the types of events I'm going to do. Our Style Chat will come back and say, hey, here's all the things that we would recommend, some outfits, and then voila, here's how you can shop. You can pivot by price and by brand. It really, I mean, it sounds like when you think about the benefits to the buyer versus the benefits to you on the back end, how do you weigh that? How, you know, AI in general. Yeah. Is it more for the buyer and someone able to search and spend versus what you're able to do for listings and things like that? Yeah. I mean, you wanna have a, I would say, like, you actually started it perfectly. It's like when we were talking about those six or seven attributes that we were putting in the process, we were manually keying those in. Now we take a picture and we get a hundred attributes. We get the brand, we get the site, we get all those six and seven, and now we're doing nothing at that point other than taking that picture. In addition to, we're able to take photos on mannequins and then convert them to basically AI-generated models too. To give you a better customer experience, but also, you know, we never contemplated we're going to bring in models and we're going to model this out for a hundred thousand items every day. Things that we could never do. I think there's the vision beyond that. I don't wanna sell out the ops team, but you could essentially, if AI continues the way it is, you could take those live flat photos that we're using just for the attribute polls and skip mannequin photo studio altogether and basically have it AI-generated on a mannequin, AI-generated on a model. I think there's lots of opportunities in the ops stack. If you talk to the ops team, they were like, we've been using ops for, or we've been using AI for 15 years. It's new to us as in it's way better, but it's not new to their thinking. We're using it for, like, size detection. Now, when we take a photo on a mannequin, there used to be somebody—probably you toured a distribution center when there was somebody measuring. We had this huge innovation, which is we had digital measurements, which is like a Bluetooth measurement. We're like, man, digital Bluetooth measurements, we've come a long way. Now we just take a photo and we use a fixed mounted camera, fixed mounted item, using basic edge detection. We can measure all of the items in much higher fidelity. What's interesting for me is I believe we would be able to solve all of these problems over many years. I actually thought we would be able to engineer solutions to all of these things. What has changed is how rapid we've been able to then deploy the technology in service of these problems. I thought these things would take 3, 4, 5 years. I thought we'd have automated measurements, but I thought it would be 2028. It took 90 days. I think that's the real technology shift in our business. Given how fast things are moving, what ending are we in? I don't even know what. Yeah. I mean, I will continue to be, like, I just think that it, yeah, it's like the second or third inning of. Even with the pull forward of what you're discussing. I really do because I think that where I see the world going is that the customer who's shopping secondhand online, the experience, the emotion, the quality is indistinguishable from shopping new. Like, we get customer service queries like, is this stuff used? That's sort of the scenario. I think once you can get to a point where that is the fidelity of the online shopping experience, but then all your prices are 75% cheaper and you have fresh inventory every minute, you've got all the best of both worlds. You have a shopping experience that is not worse, that's on par or in some ways better. You have fresh inventory every day, every minute, and you have pricing power. To me, when you put those three together, it's a pretty powerful cocktail. Indeed. Let's talk about some of the growth you guys have been putting up. What are you seeing that is, I guess, different or the same? In terms of the new customer growth you've been putting up, it's pretty, you know, dramatic. How are these cohorts comparing to historical? Are they younger? Are they spending more? Is there something unique about them? Yeah. I mean, new buyers in Q1 of this year were up 95% year-over-year. Buyers in Q2 were up 75% year-over-year. We've talked about having record new customer growth. It's It's driven the history of the company. I think it has never been a better time to acquire customers in secondhand than it is right now. Yes, those customers look very similar to prior cohorts. They're probably on the margin incrementally younger, but it's not 10 years younger. I would say the biggest difference between these cohorts and ones we acquired, say, 4 or 5 years ago, is that these customers are resale natives. They're not customers for whom you had to coerce through marketing to get them to try secondhand. These people are like, secondhand's cool. Where do I find it? Right? I think the implication for that is, potentially, what we're seeing is much better at lifetime values and more stickiness because they're coming having already shopped secondhand offline. Maybe they've shopped on other resale platforms, and so they kinda get it. Your need to educate customers, like, for many years, we had to explain what is even, like, how you even shop secondhand online. Now people are coming where, oh, they get it. Now it's just you have the brands I want, the prices I want in my size and in my style. When did that switch get flipped? How do you know? Yeah. That transition is not kind of taking? That is the million dollar question. It's been really surprising over the last probably 6, 9 months how many people have come to me and be like, God, resale's just everywhere. Right? I can't tell you, like, actually why or, like, but I, you know, 10 years ago when we were starting the company, I remember I was giving a talk and I said, at some point in the future, this will just be what you do. Like, it won't be like you're a I only shop new or I only shop secondhand. It'll just be part of, like, your, and I didn't know, but maybe we're hitting that point, that inflection point where it's become just part of what people do. I would put it similar to it used to be a big deal when somebody said, I bought an electric car. Like, 10 years ago, I'd be like, you bought an electric car? Where are you going to charge it? Now when people say that you bought an electric car, people are like, you know, you don't even talk about it. You talk about what type of electric car you got. We might be hitting the point where it's becoming increasingly normalized that the conversation isn't that you bought something secondhand. It's like, oh, did you buy it here, here, or here? I think that potentially has real great tailwinds for the industry. Yeah, you could argue it would be tariffs and inflation, but your business accelerated before that has even really happened, which is kind of now, which is actually argue that your business could be sustainable. Correct. Where it is because of what is going on. Yeah. It's been interesting. Retention rates on those new customers, has it been long enough for you to kind of, like, is there something, better behavior there as well? Yeah. I mean, the retention rates look very similar to prior cohorts. In some ways, some buckets are better than other cohorts. What's also interesting is that customers we've had for, say, 4 or 5, 6 years, seeing their LTVs tick up. Because the merchandising that we're doing is better or the product selection is better, it's pretty rare in consumer businesses to have a customer around for 5 or 6 years and then to see them inflect their spend. Like, they wake up one day and they're like, I wanna just buy more from this company. It tends to not happen like that. I can tell you that we're seeing some of that in the cohort data, which is, I think, gets us pretty excited. Yeah. I mean, we get 80% of our revenue from existing buyers. If you just roll the clock back 18 months, all of those existing buyers weren't familiar with the new customer experience and using AI. We haven't, you know, drug them along this process yet. I think they're finding it as they go through, and I think it's driving in this opportunity to have repeat rates improve for the older buyers. Got it. Yesterday, there was a meeting we sat in on. You were talking about payback. You've seen some pretty big improvements there. Can you walk through some of that mini math we were kind of going through? It's pretty interesting. Yeah. I mean, ever since we've been acquiring customers, we've been focused on this one-year payback number. We focus on, you know, customers. We pay some amount to acquire customers. If you kinda go through the financials, you can sort of figure out it takes about 3 orders for customers to pay themselves back. What we've seen, though, is that as CACs have come down, the payback period on a CAC basis is shortening. As the LTVs have gone up, the payback window is shortening even further. Paybacks are well under a year at this point. That means that we can spend more dollars on marketing to accelerate the business. Yeah, I think on a payback basis, it's as good as it's been. Sean, is the expectation, like, remind us where your marketing is as a% of sales. Is the expectation that you need to keep ratcheting that up to educate the consumer, or is there so much growth that you can, as long as you're reinvesting dollars and keeping the rate steady, that's fine to kind of. It's been between, like, 18% and 20% over the last few years, and we don't really expect that to change in the near term. I do think it's a huge driver to growth. I think continuing that as the fuel to the growth engine. I do think there's a point in time where we leverage marketing, right? If you think about, like, organic growth for us that's not coming from paid marketing, pretty minor. I think there's a lot of opportunities there. I think that's more in the not the next year thing. Right. That's more of a longer term. We'll talk about margins in a minute. That seems like a place you want to keep putting dollars, not a place you want to do scale yet. Yeah. Absolutely. Okay. Especially in this time where it's, like, amazing time to acquire. Yep. Yep. James, historically, we've talked about supply. I feel like you've talked about having too much of it. Again, going back to some of the changes you made with clean out kits and pricing and things, can you, where is supply now? Do you like what you're getting? Are you still getting too much? How are the processing centers? Are they in a good space, efficiency-wise? Yeah. The backlog is typically about 4 or 5 weeks at this point for regular processing. I think our goal is for regular bags to be 3 to 4 weeks. VIPs and premium kits are processed within the week. Premium customers, VIP customers are sometimes getting 2 and 3-day processing, which really helps the flywheel. I think we're in good shape. We have to continue to scale operations to process all the kits. We feel like we're in really, really great shape on the supply side. We're getting the right mix of product. We're processing in times. I think we just don't ever hear from customers anymore about when are you going to process my bag. We've built more transparency into the flow. I think we feel good. Yeah. To stick with processing and DC capabilities, I think, Sean, you guys have guided $8 million CAC backs, I think, this year and next, but the business is also now ramping growth. Yeah. The current network, how much revenue can it support? At what point are you going to start considering a further build out? When is that needed? How will you communicate that? The general network can probably support about half a billion in revenue. I think we've talked about this $8 million CapEx spend as maintenance CapEx. If you really dug into what that $8 million is, there's a whole bunch of ROI-based decisions we've made. I think we'll continue to make those as we go throughout the year. Does that mean we spend a little more than $8 million at some point in time? Yeah. I do think it's pretty much a 1-year lead time for us to do bigger expansions inside our current DCs. I would expect us to, you know, certainly for 2027, there'll be more of a CapEx spend. This is all dependent on where growth lays out. I think everybody'd be pretty happy if we said, hey, guess what? We're going to start in 2026 because growth is exceeding our expectations. These are not new distribution center builds. This is within the existing facility. Yeah. We have Dallas. Inside the Dallas facility, it's 25% built out. We have the ability to add another $7.5 million, basically hanger slots, in that facility, which is more than we have today in active capacity. Right. In theory, if we see a capacity to 500 to get to a billion, how much does that cost just in terms of. 50 to 70. Okay, not. Yeah. Yeah. Just pretty good trade-off. I don't want to get too far in the future, but would you like to do that in a way where free cash flow remains positive even with a step up in investment? I think that's an obvious question. Yeah, I would love that. The right answer. We back the IQ test. Yeah. There you go. I would say one of the challenges, though, just to give you one layer deeper, is there's so much innovation happening that there is a little bit of tension of should we wait 6 months as technology is improving, right, and industrial engineering is taking it and robotics, for example, are taking advantage of these things. There is some tension around how much can we run out the clock with existing infrastructure before we start building new stuff so that we truly are building not stuff that we invented in 2021, but stuff that isn't being invented in 2027 or 2028. We really want to be smart consumers of CapEx and smart spenders of CapEx and smart consumers of emerging technology. In the last few minutes, let's kind of touch on margins and just P&L. You've got the revenue line is obviously very strong. How are we thinking about the trade-offs between growth and margin? I'm sure if you wanted to grow even faster, you could, but we've been through this. We know that cash flow and margin is important. How do you think about that delicate balance right now? This is all, I mean, yeah. We've committed to the EBITDA number that we have in our guidance. I think we could grow faster if we wanted, but I think we want to show discipline that we can both grow and generate cash. We've generated cash the last couple of quarters, like real cash, not just free cash flow. We promised to be free cash flow for the year. We expect that to be true. I think the way we think about it is any incremental dollar that we generate on the top line and that flows through, we want to reinvest that in growth. We are not sitting around focused on how much we can beat the EBITDA number, but how much we can flow back in to accelerate growth because we do think the customer acquisition opportunities are pretty unique right now. I think over the next probably year or so, we're focused on continuing to invest in growth and I think have modest expansion of EBITDA. That's how I would think about it. Is there a way to think about it in terms of incrementals? You know, you would target an incremental of X and, you know, even if it's a little bit better, that's like a baseline. I think the problem, it's a good problem to have, but with the business as hot as it is, we have your prior targets from the IPO. I feel like those are not really reliable. Then we have the track record of last year, not reliable. We're kind of in a new normal. How do we think about the sustainable top line that is appropriate for you to target while able to show us a little bit of margin expansion? Yeah. I mean, I would say, if you think about the rule of 40, and that's kind of how we operate the business, I think we have an opportunity to have this business be a very strong grower while we maintain and expand EBITDA. I think that trade-off conversation is happening all the time for us. Less specifically as it relates to Q3 and Q4, and if we do exceed EBITDA, we're going to try to get that back into the growth engine. We're literally building the plans for 2026 and 2027 now with this exact trade-off in mind. It's a balance. I think there are decisions to be made as we go through this process. The industry, if you believe sort of the global data report around the industry, the industry should grow low double digits for some time. Right? We feel like there's no reason why we couldn't think about that as a steady state. I think we can do that. If that's the structural growth of the industry, I think that we can generate pretty good free cash flow under that growth scenario. If we're trying to grow faster than that, I think you're going to see slightly less free cash flow. I think that's a trade-off that we're flexing now. Got it. You guys have the momentum. What a difference a year makes. Thanks for being with us. Thanks for talking with us. We'll see you next year. Thanks. Thanks, guys. Bye-bye.