Good afternoon, and thank you for joining us on today's conference call to discuss ThredUp First Quarter 2022 Financial Results. With us are James Reinhart, CEO and Co-Founder; and Sean Sobers, CFO. We posted our press release and supplemental financial information on our Investor Relations website at ir.thredup.com. This call is also being webcast on our IR website, and a replay of this call will be available on the site shortly. Before we begin, I'd like to remind you that we will make forward-looking statements during the course of this call, including, but not limited to, statements regarding our guidance and future financial performance, market demand, growth prospects, business strategies and plans. These forward-looking statements involve known and unknown risks and uncertainties, and our actual results could differ materially. Words such as anticipate, believe, estimate, and expect as well as similar expressions are intended to identify 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. 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 known GAAP measures, including reconciliations of comparable GAAP measures in our earnings release. Now I'd like to turn the call over to James Reinhart.

Good afternoon, everyone. I'm James Reinhart, CEO and Co-Founder of ThredUp. Thank you for joining us for ThredUp's First Quarter 2022 Earnings Call. We're excited to share financial results and key business highlights from our first quarter. In addition to our financial results, we will discuss progress in Europe following last year's acquisition of Resale leader Remix and updates on our Resale-As-A-Service RaaS offering. I'll also share a reminder of our strategy and the investments we're making to strengthen our position in the growing retail market as well as how we were thinking about the consumer in the balance of the year. I will then hand it over to Sean Sobers, our Chief Financial Officer; to talk through our first quarter 2022 financials in more detail and provide our outlook for the second quarter of 2022. We'll close out today's call with a question-and-answer session. Let's turn to the results. I'm proud to report that we kicked off 2022 with a strong Q1, achieving record results from multiple metrics. Our revenue of $73 million is an increase of 31% year-over-year, while our gross profits grew 26% to a record $50 million. Our gross margins were exceptionally strong at 69.1%, a 300 basis improvement over Q4. We attribute our strong gross margin performance to improvements in our logistics strategy as we push to consolidate orders as well as progress within our European business. As expected, we posted an adjusted EBITDA loss of $13 million as we made planned investments across our operating infrastructure and technology stack. We finished the quarter with record active buyers and orders increasing 33% and 45% year-over-year, respectively. Even as we face rising inputs, labor costs and logistics surcharges, our first quarter results reflect that our business model continues to benefit from the competitive advantages that we've…

Thanks, James. And again, thanks, everyone, for joining us on our first quarter of 2022 earnings call. I'll begin with an overview of our results and follow with guidance for the second quarter and full year. I will discuss non-GAAP results throughout my remarks, our GAAP financials and a reconciliation between GAAP and non-GAAP are found in our earnings release, supplemental financials and our upcoming 10-Q filing. Similar to last quarter, while we continue to report and guide on a consolidated basis. In some cases, we will speak more specifically about our U.S. and European businesses individually during the transitional period. We are extremely proud of our Q1 results. For the first quarter of 2022, revenue exceeded our expectations despite COVID constrained listings following Q4's COVID surge plus lapping stimulus-driven growth last year in our U.S. business. Revenue totaled $72.7 million, an increase of 31% year-over-year, consignment revenue increased 6% year-over-year, while product revenue grew 130%. Consignment revenue was most impacted by constrained listings due to Q4's COVID disruptions. While product revenues outsized growth is due to the growth in our RaaS channel in addition to our Q4 European acquisition. Currently, the majority of revenue from both RaaS and our European businesses fall under product revenue. So we plan to transition these businesses towards consignment over time. For the trailing 12 months, active buyers rose 33% to $1.7 million. First quarter orders reached $1.6 million, increasing 45% as compared to the same period last year. For the first quarter of 2022, U.S. gross margins expanded to 74.1%, a 280 basis point increase over 71.3% for the same quarter last year, representing our highest gross margin ever. This result exceeded internal expectations as we made significant progress in outbound shipping logistics most notably moving towards consolidating items per shipment and thereby…

[Operator Instructions]. We'll take our first question from Ike Boruchow with Wells Fargo.

Two questions from me. On the revenue on the lower revenue outlook, both for Q2 and the year. Is there something you're seeing within your customer cohorts? We've heard a lot about low-end consumer possibly be under more pressure in the middle to high. Can you just kind of talk to what you're seeing in real time there? And then Sean, on the freight part component of the guidance, I think you said $9 million headwind for the year. Can you just remind us what your expectation was 3 months ago on freight even if the -- I don't even was supposed to be a headwind, but can you remind us what it was before?

Thanks. I'll start, and then I'll kick it over Sean. Yes. I mean I think that we're just trying to be cautious through the end of the year. I mean there's nothing -- there's no big warning signs or anything from the customer, but site traffic is still good, conversion is still good. We just get to the sense that the consumers are being pinched in lots of places. And so we thought we should be prudent as we look ahead and think about the guidance. But no big red flags on our end, just a general softening across the stacks.

Yes. The simple piece, it went from -- the freight went from about $6 million and back to a $9 million impact. So a $3 million increase.

We'll take our next question from Ross Sandler with Barclays.

I just got two quick ones. So first, thanks for that additional color on like the enterprise RaaS business. James, how big could that be in 5 years? And how big -- I'm assuming it's pretty small today. But what's your current thinking on that as far as the licensing fee component of RaaS? RAS. Second one is, just curious, kind of weighted to that last question on the macro. But do you think that the value prop that you guys offer at the lower ASPs in an environment like we're in holds up better or worse than the higher ASP Resale platforms like Poshmark or [indiscernible]? Just any commentary on that would be helpful. And then it looks like, Sean, you're cutting about $25 million of rev out of the second half and about $15 million of GP, if I did the math right, out of the back half. So I assume most of that is just out of the core, but given that remix is kind of a gross rev rec, is there also like a dialing back of your expectation in Europe? Just could you talk about the Europe versus U.S. outlook and how that's changed?

Ross, yes, let me start, and then I'll kick it to Sean. Yes, I think, as I noted in the remarks, RaaS is still pretty small, right? It's 0.1% of branded resale broadly. We think that there could be 100 or more enterprise clients out there. But there could be thousands of premium clients and then 10,000 core clients. So there are 35,000 brands that we sell at ThredUp today. So the universe of brands getting into retail, I think, is pretty compelling. We're certainly positioned to provide infrastructure whether you're a small brand or a very large brand. We really think about RaaS is our version of AWS. And so any brand can plug into our infrastructure, but we'll have more to share on the enterprise side as we deploy more enterprise clients. On the macro question that you asked in the value proposition, lower prices, I'm not sure whether it's better or worse than other resale platforms. I think what's unique about what's going on in the world today is it's not only the inflationary and recessionary concerns that are hitting the consumer. It's the fact that consumer discretionary spend is going to other things like travel, like experiences. So I think in a traditional depressed environment or a pullback. Resale should perform exceptionally well as consumers trade down. I think this is just kind of a unique time when share of wallet is going to other places. But I think if that normalizes over the next couple of quarters and you see more of a steady state consumer discretionary environment, I think that's where resale actually can take share as off-price took share in the 2008, 2009 pullback. So -- and then on third, I'll let Sean talk about full year and gross margins.

Yes. Ross, yes. No, I think that the reduction of the revenue outlook is about $15 million of the $25 million that you mentioned. But -- and the split between core in Europe or U.S. and Europe, think of it is the business in the U.S. is still 80% to 90%. So most of that is coming from the U.S. side. And I think we have the opportunity, as you know, the European business will underinvested. So as we invest more, there's more opportunity for growth there, and it's newer. So I think it's -- you're right in a sense it's more on the U.S. side.

We'll take our next question from Dylan Carden with William Blair.

Just trying to square some of the early comments about these different categories that are seeing 30, 40, 60-plus percent growth swim back to work, wedding and engagement type stuff. And then just the consignment revenue growth in the quarter, were there certain categories where that were sort of pandemic heavy that then were in decline? Or I guess how best to think about those comments in relation to the actual growth of the consignment business? And then any color you can provide I know that inflation is a relatively new input on the pricing algorithm. But any sort of input or color on how the pricing algorithm handles or adapts to inflation across the broader industry?

Yes, sure, Dylan. Yes, as I noted in the remarks, we did see -- I think the reopening categories perform perform exceptionally well. I think they're lapping a time last year where I think it was less obvious what -- how the reopening was going to play. And so I think I think COVID certainly feels like it's more in the rearview mirror for many consumers as they plan vacations in the holidays right now. So I think that's probably what drove it. And to your second question around consignment, if you recall, remember significant parts of our RaaS business, our Resale-As-A-Service RaaS business, not all of those have been transitioned to consignment. And so some of those sit in direct revenue. And so that's probably what you're seeing in the consignment and product piece. And then obviously, remix is almost 100% product direct revenue. And so that sort of accounts for the difference between consignment and product. And then I think your last question was around the pricing algorithms and how it relates to [indiscernible] so forth and -- yes.

Yes. Exactly. No, just -- yes, it's a relatively newer input, I imagine for the algorithm. So how it handles if other brands are taking up price, whether or not it follows along with that or how it works?

Yes, it's an astute question. I mean, we generally are looking at this. We go through a sample of brands every quarter where we're looking at it algorithmically and also spot checking. We accelerated our review of brands and it certainly found that the broader retail environment is taking up prices pretty significantly. And so we're able now actually to have the algorithm update using some of our sort of manual adjustments to capture some of that while trying to make sure that we remain in a great place to deliver customers great value. So that's sort of how we're using human intervention alongside the data to have it respond even quicker.

We'll take our next question from Anna Andreeva with Needham.

Two quick ones for us. You guys talked about EBITDA margins in the 18% range here in the first half and then 12% for the back half. Can you just remind us what's driving that improvement? Are you pulling back on any of the investments just given the environment? We saw marketing growth moderate pretty significantly here in the first quarter. How should we expect marketing for the rest of the year? And then secondly, I just wanted to follow up on the balance sheet.

Yes, I'll start and then I'll let Sean chime in. Look, I think we expect to leverage all of the investments that we've been making. I think as we've said now a couple of quarters, we had heavy investments in the fourth quarter, big investments in the first quarter here as we bring on new processing centers, new distribution center investments in Europe. So a lot of those things are front-loaded. And so as our business continues to grow, we lap a lot of those things as we get into the back half of the year. So I think the team has a lot of confidence in that steady progress on the EBITDA line as we move to the back half of the year. And you said you had a balance sheet question.

And I would add on the EBITDA leverage, Anna, just to keep on that is that DC07 basically opening up in the summer, DC06 getting at a higher utilization, which is driving better EBITDA across the board as well as just levering across OpEx as well in the second half of the year. I don't know if your question is specific on the balance sheet related to cash or something else.

Yes. No, on the balance sheet, just on the inventories, it looks a little elevated compared to the sales growth. So I just wanted to make sure you guys don't have any carryover to worry about. And then part of the earlier question was about marketing. It looked like the dollars moderated in 1Q, just how should we think about marketing growth embedded in 2Q and the annual guide?

Yes. I'll just jump in on the marketing side. So what you saw in Q1 was a little bit as Omicron reduced processing in the first part of the quarter. We often spend marketing dollars behind processing. And so as processing wasn't quite where we wanted it to be, we actually pulled back a little bit on the marketing spend. So that's why you see it be a little softer in Q1. We don't expect that to continue. In fact, with gross margins expanding the way that they have, it actually frees up more dollars to deploy into investments into deploying growth, and that's what we expect to do in the back half of the year.

And from an inventory perspective, it's really wholly related to Europe. As we bring on more inventory items. Remember, most of our business in the U.S., we don't carry inventories all onetime. And so with Europe processing more we're able to bring on more inventory, and that's kind of the step-up that you see in Q1.

We'll take our next question from Tom Nikic with Wedbush Securities.

To follow up there on the marketing, I guess, 2-part question. First off, can you contextualize for us at all, like how much you would expect marketing to grow this year or it's growing the back half or anything like that? And then secondly, given that you're seeing better-than-expected performance on the gross margin line, but you do have these sort of question marks around state of the consumer and other sources of cost inflation and so on and so forth. What's driving the decision to invest more heavily in marketing instead of kind of letting some of that gross margin upside drop to the bottom line?

Yes, Tom, I mean, I think we've been very consistent with when we feel like the paybacks are strong and the selection of product that we have on the site makes sense, it's a good time to expand our customer acquisition efforts. So I think our expectation is, as we continue to ramp up processing selection gets better, right, there's going to be opportunities to deploy dollars to acquire customers that generate long-term value. And so I think we want to be in a position to do that. And the advantage of having gross margins expand the way they have is that that flows through the contribution margins, which allow us to generate faster and faster paybacks. That's really the power of the gross margin expansion. So I think we'll watch and see. But I think the team has confidence that the consumer environment can normalize a little bit in the back half of the year. And with our selection and gross margins where they are, we'll be in a good position relative to where others might be.

We'll take our next question from [indiscernible] with Guggenheim Partners.

It's actually Seth on here. I just wanted to circle back on the EBITDA guidance for the year and just clarify. So you're raising the gross margin guidance by about 250 basis points at the midpoint. You're lowering EBITDA by about 50 basis points. So there's around 300 basis points of more OpEx deleverage. I think $100 million of that you said was shipping. Is the rest just the fixed cost deleverage from the lower sales and then maybe a little bit of marketing? Like can you just break down that last component for us? Just want to clarify those numbers first.

No. I think only one commend you for doing the math, crackly. So I appreciate that. I do think it's related to processing as we increase our processing as well as invest more in marketing. I think that's the missing piece out.

Okay. Got it. And then how do we think about maybe some other levers here to manage on the cost side? So for example, we did see recently that you raised the shipping fee. You also added in that bundle option, which is a little bit higher than what the shipping fee was in the past. I'm just curious, what was the consumer's reaction to that, if any? What have you factored into the guidance from that?

Yes, we did finally changed our shipping rates. We hadn't made any change in 7 years. So we thought it was time to kind of get with the time, so to speak. Bundling has existed on dry-up for many years. We found that, that's what consumers love because we're always listing new products every day. And so they like the idea that they can shop and then keep adding items to their cart over time. And we did a bunch of research. We've explored different ways to deliver shipping options to customers for a long time. And I think customers understand that shipping on setup has been quite low from an industry perspective for a long time. And I think there'll be some transition here with the consumer, but we feel pretty confident that it's not going to have a material impact as we move forward.

We'll take our next question from Ashley Helgans with Jefferies.

On the active buyer growth, we wanted to -- how much was related to the remix business versus growth from the core business? And then also, we wanted to ask on pricing. A couple of quarters ago, you had strategically lower prices. Is this still the current strategy? And any color on expectations for the balance of the year?

Yes. We don't break out the buyers from remix versus threat up. So that's not available in the guidance or in the results. As for pricing, I think, as I said, back only when we made the announcement, we're constantly looking at ways to optimize price to deliver great value to buyers and then also great payouts to sellers. And so just as we raise prices on some products, we lower them on others. Ultimately, we're looking at the data to help figure out the best way to deliver to our customers. So no, no real meaningful change on the pricing side. I think the strategy remains consistent, which is to follow the data and trying to deliver a great customer experience.

We'll take our next question from Alexandra Steiger with Goldman Sachs.

So one follow-up on a prior question. Could you maybe share like some of like the takeaways? Or like what are you seeing across like the threat up customer base in the U.S. versus remix over the past few weeks in terms of like how they're engaging with the platform, given the macro headwinds you laid out? And then second one on RaaS and specifically on long-term margins. Could you also discuss some thoughts about like the underlying cost of the business? And to which degree they're fixed versus variable in nature.

Yes. I think on the customer experience side, I mean, I think noted in our guidance as we think about the coming year. I mean I think we're just trying to be thoughtful about what -- where the consumer is at. The European customer certainly, there was some pullback in Q1, right, as the war between Russian Ukraine sort of kicked off, and so there were some headwinds there. I think those have persisted. We don't think it's like a huge impact on the year, but I think it's real. And then I think in the U.S., the customer, the same as I said before, there's no like specific pocket where it's worse, given everything that's going on. We just feel like taking a thoughtful and smart approach to the rest of the year makes sense. The customer is clearly you can clearly see where inflation is making it harder and you can see where customers are spending their discretionary dollars. On the RaaS side, we've not commented at all yet on the variable costs associated with RaaS. RaaS does run with SaaS for a reason. It is a fee-based business, which traditionally has higher margins. And so we expect to have clients by the end of the year. And so we think that there is strong recurring fee revenue that will come with those clients over time. And we think it leverages really nicely in the organization. Remember that everything we do on the RaaS side, sits on top of our existing infrastructure. So it's really important that it's not as though we're taking on new things to deliver the RAS experience to our clients. It leverages all the technology, software, product experience, infrastructure that we use in our core marketplace.

We'll take our next question from Brian McNamara with Berenberg Capital.

Just two quick ones from me. In your view, how fast is the U.S. and/or global digital resale market grow in 2021? And what is your expectation for market growth in 2022? Do you believe you guys are taking market share? And secondly, and apologies if I missed this, what's driving the gross margin guidance increase for the year? Is it simply mix assuming perhaps lower European revenues than originally planned? Or is it things like consolidating shipments, which you mentioned in your prepared remarks?

Yes, Brian, I don't have the total resale market growth for '21. You have to look at it in our reseller report, so thredup.com/resale has all those stats. We also have our tenth annual resell report coming out next week, which actually will have stats on '21, '22. And actually, we'll talk a little bit more about what the global opportunity looks like in resale. So kind of stay tuned on that. On the gross margin side, I'll let Sean handle.

Yes. On the gross margin expansion, it's definitely what we talked about on the prepared remarks, basically, more items for shipments, so consolidating items really drives the expansion there, right, where less shipments per order really helps in addition to our normal overall automation across our processes.

We'll take our next question from Lauren Schenk with Morgan Stanley.

This is Nathan Feather on for Lauren. Can you called out some macro a few times. Any way to more explicitly frame out what kind of macro backdrop you're assuming in the full year guide? And then on a separate note, now that the processing centers have been online for a few months, really helpful color on kind of the impact on supply those had. Can you talk to the difference in unit economics when a clean out it goes to a processing center versus straight to DC?

Yes. I mean -- I think that the -- if you look at the full year guide, it's come down a little bit from where it was 60 or 75 days ago. So I think that's our point of view on where the consumer is. I don't think the idea is that the sky is falling, but I think the consumer is a little bit weaker than it was the last time we issued guidance. And I think that's consistent with other retailers in the U.S., right, who have that type of exposure. So we think it will be a little bit softer, but I think our business is in great shape, and I think we're making progress in all the key areas. As for the unit economics in the processing centers versus the larger facilities, we haven't sort of breaking out that level of detail, but our steady state gross margin targets continue to be 75% to 78% over the long term, which suggests that we're in great shape and well on our way to those. And those reflect gross margins that would happen in those processing centers. So I think we feel very good about the progress that we're making there. And then the dollars that are flowing from those gross margins, we think we can deploy really effectively into the business to support sustainable future growth. So that's kind of how we think about the cycle.

[Operator Instructions]. We'll hear next from Dana Telsey with Telsey Advisory Group.

As you think about the consumer and the consumer health, are you noticing anything by region? And how does Europe differ than the United States? Are you seeing anything different there, even though it still is early days in the integration of Phoenix. And then lastly, on gross margin of consignment and product gross margin. How are you thinking about the growth of that going forward and the adoption with [indiscernible]?

Yes, Dana, we don't see any big change by region. We look at that data. But I think, as I said before, I think it's just a broad incremental softening of the consumer, not just in what their apparel shopping, but just how they're spending their dollars on gas and travel and all the other things that I think are eating up their wallets. So I think that's pretty universally shared across our customer base. I think the challenge in Europe is we've owned remix. We closed on the deal in Q4. We obviously do not anticipate the war in -- between Ukraine and Russia. And so we've had to learn a little bit what those impacts might look like. We obviously don't source or sell Rusher Ukraine, but there's definitely some macro headwinds in that region. So I just think we're being smart and cautious about the investments we're making in that business and how we think it scales over time, but continue to remain pretty confident in what we're seeing in that business and how that translates over time. So I think on the gross margin side, again, we're sticking to our long-term targets on the gross margin side. We expect remix to get to the gross margin profile that supports that. And we continue to see threat really shine with our gross margins in the U.S., and feel like that's a winning formula.

And at this time, it appears there are no additional questions in the queue. I'd like to turn the conference back over to management for any additional or closing remarks.

Great. Thanks, everyone, for joining us for our call. I appreciate all the good questions. I wanted to give a big thanks to the team here at ThredUp, who's working very hard. It's tough out there. We appreciate all of your hard work, and we look forward to talking to you next quarter. Thanks.

Thank you. And that does conclude today's conference. We thank you all for your participation, and you may now disconnect.