ThredUp Inc. Price & Performance (TDUP)

These forward looking statements are not guarantees of future performance, involve known and unknown risks uncertainties including our ability to effectively deploy new and evolving technologies, such as artificial intelligence and machine learning in our offerings and the [indiscernible] and general global economic uncertainty. Our actual results could differ materially from any projections of future performance or results expressed or implied by such forward looking statements. You can find more information about these risks, uncertainties and other factors that could affect our operating results in our SEC filings earnings press release and supplemental information posted on our IR website. Any forward looking statements that we make on this call are based on a assumptions as of today, and we undertake no obligation to update these statements. As a result of new information or future events. In addition, during the call, we will present certain non GAAP financial measures. These non GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from GAAP measures. You can find additional disclosures regarding these non GAAP measures, including reconciliations comparable GAAP measures in our earnings press release and supplemental information posted on our IR website. Now, I'd like to turn the call over to James.

Good afternoon, everyone. I'm James Reinhart, CEO and Co Founder of ThredUp. Thank you for joining our fourth quarter twenty twenty four earnings call. Given the completed divestiture of Remix in the number of 2024, we my remarks will focus exclusively on our continuing operations in our U. S. Business unless otherwise noted.

We are pleased to share ThreatUP's financial results for Q4 and our expectations for Q1 and fiscal year twenty twenty five.

We'll provide an update on growth, gross margins, adjusted EBITDA margin expansion and detail further customer facing improvements across our marketplace. I will then hand it over to Sean Sobers, our Chief Financial Officer to talk through our fourth quarter twenty twenty four financials in more detail and provide our outlook for the first quarter and full year 2025, As always, we'll close out today's call with a question and answer session. Let me start by saying that we've made substantial progress in reaccelerating growth in The U. S. While maintaining our free cash flow and adjusted EBITDA targets. As we announced in January, our fourth quarter performance was well above our expectations and that progress has continued into 2025. This is driven by three factors. First, our customer acquisition and retention strategy. Customer acquisition remained very strong in Q4 with new customer volume up 32% year over year. Q1 is also shaping up to be one of the strongest acquisition quarters in our history. We expected active buyer growth to inflect positive in Q1 and are pleased to be ahead of our plan at this point in the quarter.

Customer retention metrics remained strong quarter to date with conversion rates from visit to purchase at all time highs. Despite scaling spend significantly in Q4 and further again in Q1, strong conversion retention means our paybacks remain in line with our sub-one year goal. We are increasingly confident we can invest more aggressively in growing new buyers while still achieving our free cash flow target. This is likely to be our approach for the foreseeable future. Second, our sourcing strategy and processing capabilities. With buyer growth accelerating, we are now sourcing process [indiscernible] We are no longer stemming the flow of sellers onto our marketplace Instead, we are scaling up processing capacity across our network meet the needs of more and more buyers. Fresh listings on ThredUp, which we identify as items under fourteen days old, up 9% quarter to date on a year over year basis. Continuing to accelerate, Fresh listings remain a key input to buyer growth and retention. We are confident we're meeting the mark so far in 2025. Just as important, this uptick in supply isn't just more stuff to chase revenue growth. Rather, this is increasingly more desirable and premium apparel targeted at delighting our core resale market.

As we noted on our last call, our premium selling service is now live to 100% of sellers. Top brands from this service include brands like Kate Spade, Veronica Beard, Pinko and Love Shack Fancy. Average listing prices for items from premium bags are 50% higher than traditional bags. Items coming from premium kits now make up more than 10% of newly listed items and this has been growing sequentially for three quarters. As a reminder, this service is priced higher at $34.99 per kit with more tools for sellers, longer consignment windows, a salon discounts and more dedicated customer support We are continuing to innovate on behalf of sellers whether you want us to do all the work, you want to do more of it yourself or somewhere in between. We remain relentless in our pursuit of making ThredUp the leading choice to sell secondhand apparel online. Expanding our TAM and at the same time our sustainability impact. Third, our generative AI product and technology investments. We continue to believe that AI disproportionately and that generative AI can significantly enhance the secondhand shopping experience. For years, our dream was to build a secondhand shopping experience that was indistinguishable from shopping new.

Advancements in generative AI are inching us closer to that reality in First, our AI search functionality continues to delight customers and drive the conversion rates I mentioned earlier. Since inception, 1,300,000 image searches have been performed. And sessions with an image search have an 85% higher conversion rate. Second, are using this search technology to generate visual category pivoting allowing customers to find the exact style of dress or coat or denim that meets their needs. In a way that feels much more intuitive to how customers shop online. High performing AI generated pivots and draw click through rates north of 15%. Well above merchandising engagement rates without imagery. This is particularly important for new customers who have never shopped secondhand online. Third, iterations of our Style Chat and Inviserge are powering new ways to shop this year. In any social feed, board or archive of style you have, will be able to be ingested into ThredUp to help you shop these looks for less, [indiscernible] We will be starting with a deeper Pinterest integration in the weeks ahead and we'll follow-up with other social platforms throughout 2025. Linking where you get inspiration in fashion with how you can best find those looks is a lynchpin to our strategy.

We expect this technology will also empower creators, influencers and affiliates to curate and showcase our millions of high quality secondhand items to their audiences. Finally, fourth, we are leveraging AI across our infrastructure. Last quarter, we launched three sixty degree high definition photos, paving the way for AI generated lifestyle imagery on individual product pages. Three sixty degree photos have increased thirty day sell through rates up to 12% depending on the category. This quarter, we launched automated digital measurements increasing the accuracy and shoppability of everything on thread off. We should see better measurements, translating to improved conversion, lower returns and increased customer retention. Now turning to the consumer environment. Last week, we released early data from our upcoming resale report about the impact that tariffs are having on consumer psychology. Our take is that with tariffs and inflation dominating the national conversation, consumers are concerned about price hikes across retail In this environment, secondhand could become more attractive for shoppers seeking out affordable high quality clothing. According to the data, 51% of consumers say higher prices due to inflation impact how much they spend on apparel. 62% of consumers say they're concerned that new government policies around tariffs and trade will make apparel more expensive.

And 59% of consumers save new government policies around tariff and trade make apparel more expensive, they will seek more affordable options. [indiscernible] Before I turn it over to Sean, I want to do a quick review of the competitive advantages in our business. Especially now that we are exclusively focused on The U. S. Our competitive advantage comes from the compounding effects of three hard problems we've solved: First, built a name brand reverse logistics supply chain that has created a massive supply advantage in the resale market. Winning the battle for high quality supply continues to be an important part of our defensibility. Second, have built world class infrastructure, technology and software to process single SKU apparel at scale. With ongoing innovations and processing technology and AI, we are extending our advantage even further we grow capacity and reduce costs. We have built a data driven managed marketplace that connects buyers and sellers on our platform. We ingest millions of data points that combined with the algorithms and models sit on top of that data help us improve our acceptance, merchandising, photography, pricing and marketing capabilities. The rapid deployment of AI technology to serve customers better comes directly from this long standing data advantage.

As I've said from our very first public filing, our strategy has been developed with a deeply calculated approach about what it takes to build and sustain competitive advantage over time. We believe that every day our supply advantage increases our infrastructure and data mo widens and the network effects of our marketplace grow. Now over to you, Sean. Thanks James.

Begin with an overview of our results and follow-up with guidance for the first quarter and the full year.

All reported results from continuing operations unless otherwise noted. Our GAAP financials and a reconciliation between GAAP and non GAAP found in our earnings release, supplemental financials and our 10 ks file. We are very proud of our Q4 and 2024 results. We delivered our first full year of adjusted EBITDA profitability and exited the year with a healthy return to growth in Q4. For the fourth quarter, revenue totaled $67,300,000 an increase of 9.5% year over year. Our outperformance was driven by investments in marketing and inbound processing. AI upgrades to the customer experience, renewed focus on our core business following the European divestiture, and post election pent up demand. Active buyers reached 1,300,000.0 a decline of 6% year over year. Order growth reaccelerated to $1,200,000 an increase of 2% year over year. As a reminder, active buyers are the trailing twelve months and though this number declined, we were very pleased with the new buyer progress we made including our best Q4 yet. For the fourth quarter twenty twenty four, gross margin was eighty point four percent two ninety basis point increase over the same quarter last year, as a result of higher percentage of our sales coming from consignment.

Adjusted EBITDA was $5,000,000 or 7.4% of revenue, for the fourth quarter of twenty twenty four. We doubled our adjusted EBITDA dollars versus last year, representing an approximate three thirty basis point margin improvement we leveraged our multiyear investment on higher revenue, Our Q4 EBITDA outperformance illustrates how our marketplace model generates powerful margin flow through. On incremental revenue Turning to the balance sheet, we began the fourth quarter with $57,100,000 in cash and investments, in our continuing operations of the business and ended the quarter with $52,800,000 using $4,200,000 in cash. The cash usage included $4,000,000 of working capital adjustments, dollars 2,500,000.0 of CapEx, dollars 1,000,000 of debt repayment the final $2,000,000 of cash funding for Remix.

We spent $2,500,000 in CapEx in Q4 for a total of $6,600,000 for the year. In 2025, we continue to expect maintenance CapEx levels of approximately $8,000,000 Next, I'd like to look ahead We finished 2024 in a position of strength and believe we entered 2025 with stability and confidence.

Before we get into guidance, I want to provide a little more context for our outlook. First, our priority this year is to accelerate growth while maintaining broadly similar adjusted EBITDA margins versus last year. To do this, we plan to lean into the key drivers of our marketplace flywheel, growing active buyers through marketing, and fresh listings through inbound processing. The contribution margin is in the low 40% range we are now able to invest more ad dollars and uphold our long held twelve month payback period. As we spend more on marketing and drive new buyers to the site, we plan to simultaneously invest in inbound processing to bring in a broad selection of fresh, high value items to delight and convert our buyers.

Second, we are planning for gross margins to decline slightly in 2025 versus last year. And track towards the high end of our long term target range of 78%. This dynamic is largely the result of the acceleration in new buyer growth that we have planned. Since first time buyers require higher incentives to convert, more new buyers and the customer mix pressures gross margins. However, once a new buyer transitions to a repeat buyer, average discount rates are over 1,000 basis points lower. Third and finally, in 2025, we are planning to reach positive free cash flow on an annual basis which provides us with a high level of confidence that we can fund the business with our existing cash. With that additional context for guidance, for the first quarter, we expect revenue in the range of $67,500,000 to 69,500,000.0 representing year over year growth of 6% at the midpoint. Gross margin in the range of 77% to 79% of revenue adjusted EBITDA of 2.5% to 3.5% of revenue and basic weighted average shares outstanding of approximately 117,000,000 shares. For the full year of 2025, we expect revenue in the range of $270,000,000 to $280,000,000 representing year over year growth of 6% at the midpoint.

Gross margin in the range approximately 77% to 79% of revenue adjusted EBITDA of approximately flat to 2024 is 3.3% and basic weighted average shares outstanding of approximately 122,000,000 shares. I would like to note that going forward, we plan to moderate share dilution and as we reduce stock based compensation while making our way towards earnings per share. To this point, we expect to reduce stock based compensation by over 40% in 2025. In closing, we are extremely proud of the Miles we achieved in 2024. In 2025, we are confident in our ability to reaccelerate revenue growth maintain positive adjusted EBITDA and take the next step in our trajectory and reach positive free cash flow. This progress will be fueled by our multiyear investment in our infrastructure, technology and software and move us closer to our long term targets. James and I are now ready to take your questions. Operator, please open the lines. Thank you. Ladies and gentlemen, we will now begin the question and answer session.

Please lift the handset before pressing any keys. Your first question comes from the line of Ike Boruchow from Wells Fargo.

Line is now open.

Hey, everyone. Congrats on the momentum. I guess two questions from me, either for James or Sean.

Basically, just trying to think about the pacing of I guess revenue, gross margin and EBITDA through the year, any other besides Q1, any other guide points you can kind of or guardrails you can kind of give us as we think about remainder of the year? And then just a second follow-up to that would be just sounds like you got a lot of momentum and Q4 sounded was very strong. Any reason why the business should de sell, anything quarter to date to shares, trying to understand like versus how you're planning it versus if there's anything you're actually seeing that concerns you?

Hey, this is Sean. I'll start off with the pacing. Think about revenue, it's going to the growth is going to accelerate from Q1 to Q2 and Q2 to Q3. Q4 will come back down, but still be a grower. And then gross margin rate will be pretty consistent throughout the year by quarter. EBITDA rate for Q2 similar to Q1, expands into Q3 at its highest for the year. Then comes back down to its lowest rates. I'll hand over James on the last piece. Yes. Hey, Ike. Look, I think Q4 was strong. I think it benefited a little bit from the post election sort of consumer consumers feeling good sort of post election. So we had a strong holiday unlike prior holiday periods, And so I think nice momentum and we have continued to see that momentum into Q1. Just think there's a little bit of uncertainty around A little bit on the consumer side and then also this is early in the cycle for us. [indiscernible] aggressively investing in marketing, aggressively investing in operations, And I think just we want to see some of these trends play out But I think consistent with what Sean just said, we expect Q2 to be better than Q1 and Q3 to be better than Q3.

So I think we're pacing the year as such. Great. Thanks guys. Your next question comes from the line of Dylan Pardan from William Blair. Your line is now open. Thank you and thanks for all the color on the guide. I I'm curious you kind of mentioned it there at the end, if you mentioned how much you're going to spend on marketing this year even in relative terms as it relates to the outlook? And then that giant increase in stock based comp what's kind of the outlook here for the GAAP income side of the business as we kind of roll this [indiscernible] And maybe related to that, we haven't talked about kind of capacity utilization in a while, kind of where you are on that journey and sort of need for CapEx or how you kind of flex in and out of fixed pass you have this year. Thanks.

Yes. I think Dylan, maybe I'll start on the capacity piece. We have plenty of capacity at this point in the distribution centers. And I think our turns have been increasing Our ability to pick the right items that sell at the right price So I think, Dylan, we're in great shape with that. I think we've said historically, we wouldn't any CapEx at least 2027 in any sort of scaled way. And I think that remains to be true, although potentially even further than that. I think feeling good about the utilization piece And then on the stock based comp, piece, I think we have seen inflated uses of stock based comp over the past prior years. I think we very deliberately have chosen to use more cash this year and less shares really reduce dilution for equity holders. And so that was a conscious decision in the business. And I think you'll see that play out as we we prep, as we get into the to 2026 and we think about earnings growth and EPS, that's that's the direction the business is headed. And so we wanted to call out that change in share usage. Dylan, there's a quite a number on it too.

The FBC for 2025 is about $14,500,000 then I think on your last piece, I'll the feedback I can give you on marketing is, think about it as about 19% of revenue on a quarterly basis throughout the year.

And is that just because you're seeing better returns on that spend? Is that why that ticks up a bit?

Yes, then we are. We're seeing our LTV to cash CAC ratios really trend towards all time highs. Q4 was among the best acquisition quarter in Q4 we've had. Q1 continues to trend really positively. And so I think it's a combination of just a much better product experience all of our new AI search technology is really helping customers find what they want. That's driving positive contribution margins. We're really slowing that back into the business And I think that's why you'll start to see the progress throughout the year on the growth side. [indiscernible] Yes. Thanks. Your next question comes from the line of Bernie MacTernan from Needham and Company. Your line is now open. Great. Thanks for taking the question. I was just hoping you could dive into Image Search a little bit more and maybe what's driving that higher conversion? We'd love to know kind of what data you're what kind of data you're collecting and ultimately why is it better than just traditional word based search and if you're seeing increased utilization of the product over time? Yes. Hey, Bernie. Yes, I mean, I think we talked about image search and the conversion rates that that drive.

I think it's just a distinction between people really being able to see items out on the street or items in magazines or using their Pinterest boards, right? All of these visual ways that women shop think now being able to find exactly those looks combined with the technology on the back end to take whatever it is that they're snapping or clipping or saving it just delivers more relevant results. And so you're seeing people then use it more We hear from customers all the time I've stopped using the text search. I just upload my images and you guys find exactly what I'm looking for, whether that is a you know, you know, you saw a big surge of people using it, you know, with the Academy Awards, right? Like you just seeing people start to use this as a default way to shop online and And I think our technology is helping give them the products that they want. In an efficient fashion. Makes sense. Thanks, James. Your next question comes from the line of Kunal Madhukar from Water Tower Visa.

Your line is now open.

Hi, thanks for taking my question. Question and Maybe this is something that hasn't truly played out yet.

But as we think of the new tariffs that could come into play, of the things that could potentially happen is that the CPC rate, the cost per click rate should should decline because there's less competitive intensity on the advertising side. As that happens, how are you thinking in terms of maybe continuing to spend as much on marketing budget and delivering higher growth versus maybe potentially delivering higher EBITDA margins.

Yes, it's a great question on tariff.

I mean, I think you've sort of hit on one piece, which is advertising rates and how that might change around cost per click. I think we saw the opposite over the last couple of years, whether it was Shein or Timu sort of driving up cost per click rates. I do think that could potentially be a tailwind and way our systems are designed is if cost per click comes down and we still feel like customer quality is there, we will actually spend more money and could drive incremental new buyers I think the other part of the tariff equation is if new apparel companies that sell new apparel have increased costs from products that they're making in China or things that they're bringing in from Mexico, anything that increased the cost of new apparel is likely also to provide some modest tailwind to secondhand goods because we don't have exposure to bringing in products from overseas. And so everything that we process And so, ThredUp is all here in The U. S. So, I think in both areas, tariffs can be a net positive for our business.

That's great. Maybe a follow-up to that, especially to the second point, One of the things that Real kind of talks about is their pricing algo, which is which in real time kind of adjust to the demand and supply. How flexible is your pricing Algo? Just in case prices start increasing on the new product side?

Yes. All the prices on ground up are dynamic. So we will adjust those prices based on what we're seeing in the market. As well as the demand curve. So we're we've got over 50,000 brands on the platform tens of thousands of new listings every day. And those prices are all being dynamically adjusted. So we've actually very well positioned to take advantage of discontinuities and pricing if tariffs make that a reality.

Great. Thank you so much.

Thank you. There are no further questions at this time. I will now turn the call back to Mr. James Reinhart, Please continue.

Well, thank you all for joining us on this call. I want to particularly thank the ThredUp team all their hard work over the past couple of quarters. Feels great to be back on track with some strong momentum in the business and exciting opportunities in front of us and looking forward to all the work that we have ahead of us and what we can invent on behalf of our customers. So you everyone. We'll see you next time.

Ladies and gentlemen, this concludes today's conference call. You for your participation.