Good afternoon and thank you for joining us on today's conference call to discuss ThredUp Second Quarter 2022 Financial Results. With us are James Reinhart, ThredUp's 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 earnings guidance for the third fiscal quarter and full year of 2022, future financial performance, market demand, growth prospects, business strategies and plans, the impacts of inflation, changing consumer habits and general global economic uncertainty. These forward-looking statements are not guarantees of future performance involve known and unknown risks and uncertainties, and our actual results could differ materially from any projections of future performance or results expressed or implied by such forward-looking statement. 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 and uncertainties and other factors that could affect our operating results in our SEC filings, earning press release and supplemental information posted on our IR website. Any forward-looking statements that we make on this call are based on assumption 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 known GAAP measures, including reconciliations of 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 Reinhart.

Good afternoon, everyone. I'm James Reinhart, CEO and Co-Founder of ThredUp. Thank you for joining us for ThredUp second quarter 2022 earnings call. We're pleased to share ThredUp's financial results and key business highlights from our second quarter. In addition to our financial results, I'll give a closer look at how the ThredUp customer is faring in this difficult economic environment, discuss the unique advantages of our marketplace business model and provide some details on our progress towards profitability. I'll wrap up with the discussion of investments in our customer experience, our progress in Europe following last year's acquisition of Remix and updates on our Resale-As-A-Service offering, I will then hand it over to Sean Sobers, our Chief Financial Officer, to talk to our second quarter of 2022 financials in more detail and provide our outlook for the third quarter of 2022. We'll close out today's call with a question-and-answer session. I'd like to start by acknowledging that we are facing a consumer environment that is much different than it was just two months ago. All the data that we're seeing indicates that consumer health is deteriorating, especially among the budget consumer, who makes up a meaningful portion of our customer base. As such we saw our business slow in the final weeks of Q2, a trend that has continued into Q3. Given the volatility we're seeing with the consumer, it's incredibly hard to predict exactly how the customer is going to behave in the back half of the year, a period during which we also have challenging year-over-year comparisons. With that said our priority in the coming quarters and into 2023 is reaching breakeven on an adjusted EBITDA level and we are planning to get there by managing the variables within our control. We are actively making adjustments to…

Thanks, James. And again, thanks everyone for joining us on our second quarter of 2022 earnings call. I’ll begin with an overview of our results and follow with guidance for the third quarter and the full year. I will discuss non-GAAP results throughout my remarks, our GAAP financials and our reconciliation between GAAP and non-GAAP are found in our earnings release, supplemental financials and our upcoming 10-Q filing. We are extremely proud of our Q2 results for the second quarter of 2022 revenue totaled $76.4 million, an increase at 27% year-over-year. Consignment revenue was flat year-over-year, while product revenue grew 145%. Q2 consignment revenue saw on outsize impact from slowing demand in the U.S. in the final weeks of the quarter, a deceleration that so far has continued into Q3. Product revenues growth is due to our Q4 2021 European acquisition and growth in our RaaS channel. Currently the majority of revenue from both RaaS and our European business falls under product revenue, though we plan to transition these businesses toward consignment revenue over time. For the trailing 12 months, active buyers rose 29% to 1.7 million. Second quarter orders totaled 1.7 million increasing 40% as compared to the same period last year. For the second quarter of 2022, U.S. gross margins expanded is 74.2%, a 60 basis point increase over 73.6% for the same quarter last year, representing our highest U.S. gross margin ever. Our progress in outbound shipping logistics, along with our ongoing work and improved automation, larger distribution centers and expanded utilization, despite elevated returns and a more promotional strategy towards the end of the quarter. Over the course of Q2 2022, we did see return rates move higher as consumers became more selective negatively impacting our revenue by an incremental $2.5 million over Q2 of 2021.…

Thank you. [Operator Instructions] And we’ll take our first question from Trevor Young with Barclays. Please go ahead.

Great thanks. On that path to breakeven in 2H 2023 and I think you said $80 million to $85 million rate revenue required to get there. Can you just help us understand what needs to go right for that to come to fruition? And does that outlook imply that current trends that you saw in July and August from underlying consumers persist? Does it get better a little bit? Does it get worse? Just trying to understand or get a sense as to what's baked into that?

Sure. Hey, Trevor. Yes, I mean, I think we saw this the step down in the back half of Q2. And I think the way we're thinking about the back half of the year and into 2023 is that things sort of remain where they are, at these depressed levels. But we continue to work on the business and continue to optimize what we can do around pricings, promotions, payouts. But we're not assuming any big recovery in that. But we're also not assuming that things get materially worse, right. So I think we've sort of hit kind of the level that we're seeing right now and we expect that to persist for several quarters.

Great. Thank you.

Thank you. We'll take our next question from Edward Yruma with Piper Sandler. Please go ahead.

Hey guys. Thanks for taking the questions. I guess two for me. First, just to kind of underscore the last question, are you seeing trends stabilize at this lower level or are they continuing to deteriorate, I guess what does guidance contemplate? And then as a bigger picture question, as the traditional first party environment gets more promotional, is it your belief that you need to kind of come down in price further so that you maintain kind of a differential, secondhand versus new, or kind of, how do you think about adjusting pricing across your offering and kind of when should we start to see those changes? Thank you.

Yes, thanks Ed. Yes, I mean, I think we're starting to see the trend stabilize. I think you saw that step down in end of June and into July. But now we've been seeing it be pretty consistent. And so we're projecting that we're going to kind of live in these levels for some time Ed. But then the way we're managing the business is being super flexible where things start to recover, we can accelerate into that recovery and if things somehow were to get materially worse pull the levers to manage that variability. So I think our posture running the business is to be flexible. But we do think the world is stabilizing. I think on the competition piece, your second question we've sort of built that into our assumptions that it's going to be more competitive. And so, we're going to have to flex price, promotion, discounts, payouts to our sellers. So we're willing to flex all of those things to be competitive in the environment. But our guidance reflects what we expect to be a competitive environment in the back half of the year and into 2023.

Ed I would just add in that, we are being mostly consignment-based business, right, as our prices come down, our payouts come down. So, the gross margins themselves are a little more protected than most.

Thanks so much.

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

Hey everybody. Thanks for taking my question. James, you mentioned in your prepared remarks, when you gave kind of like the three principles or three pillars that you were focusing on you. You talked about maintaining your customer account and you made a comment about acquiring new customers as acquisition costs come down. Is that something that you're already seeing? Are you seeing the CAC come down or are you kind of saying that you are assuming that in the environment of more moderate demand that CACs would come down and you would be able to continue acquiring new customers in that environment?

Yes, Tom, I think, just to double click on both parts of that, I mean, I think, on the one hand you are seeing our existing customers many of them are in market and purchasing, and there is a segment of customers who, I think, are sitting out and buying. And I think it's a really important thing to understand around what's happening with our active customer base, which is customers who are in market, they are buying lots of stuff, but there are people who are on the sidelines. And I think that influences our thinking. And then frankly, what we're seeing around the marketing piece, which is we are seeing ad rates come down. I think all the ad marketplaces have talked about cost per click and CPMs coming down. And we are seeing that trickle through but we're not expecting like that to materially change over the next few quarters. It's just that it is lower than it has been over the prior few quarters. And so I think we're kind of watching both parts of the business, existing, active customers and new customers coming in and feeling like there may be a chance to take advantage of some discontinuities over the next couple quarters.

Understood. Thanks guys, and best for luck the rest of year.

Thanks, Tom.

Thank you. We’ll take our next question from Lauren Schenk with Morgan Stanley.

Great. Thanks. Just to, I guess, put a finer point on one of the earlier questions, I guess, what level of promotional activity is assumed in the second half gross margin outlook? And then what are you seeing on the supply side? Are you seeing customers or sellers perhaps wanting to monetize their clauses a little bit more? Curious any changes there? Thanks.

Yes, Lauren, I mean, I think, we're anticipating it's going to be very competitive in Q3 and Q4. I think our guidance reflects what we expect to be a very competitive environment. We've seen some of that already quarter-to-date. I think as you know, on the supplier side, I mean, we just have never had trouble firing sellers and we continue to see strong demand from our sellers and think there is going to be resilience in that selling community. But I'm not sure that necessarily there is going to be more and more sellers in market than there was historically given, what we're seeing. So hopefully that answers your question.

Thanks.

Thank you. We'll move on to our next question from Anna Andreeva with Needham & Company.

Great. Thank you so much. Good afternoon guys. Two quick ones. I wasn't sure if you covered this Sean or James how did a remix perform during the quarter versus your plan? And what are you guys implying for remix in the back half? And secondly we saw you started charging for clean out bags. Can you talk about what's behind that decision? And just curious, how has customer reaction been? Thank you so much.

Sure. I'll let Sean talk about remix first.

So on the remix side they are performing really well, perform pretty much up to our expectations. I think the piece to keep in mind, as you start to look at Q3 and Q4, there is a much more seasonal business than we've seen in the U.S. So in Europe, when it's summer, it's pretty much summer everywhere when it's winter and fall, it's cold everywhere. So I think you see overall ASPs decline in Q3 pants, t-shirts shorts, things like that. So their GM goes down and then you get to Q4. It's their biggest quarter ASPs are higher, gross margin is higher and actually their revenue contribution to the whole company is at its highest. So that's where you're looking forward. Q4 will be their biggest quarter.

And on your question around charging for cleanout kits, this is an experiment we've run, over time, over many, many years. So in this current variation, we've just seen continued real demand for our cleanout service and so exploring, willingness to pay on the cleanout side and how that affects the customer experience. And there is some interesting data that hopefully we will able to share next quarter around how that influences the types of customers that choose to clean out with ThredUp because, as I said, in the prepared remarks, we're really looking to the assortment. And this is one experiment that we've been running to see how that materially changes what people send us. So, stay tuned for more information on that.

All right. Thanks so much, guys.

Thank you. We'll take our next question from Dana Telsey with Telsey Advisory Group. Please go ahead.

Good afternoon, everyone. As you think about the categories, the merchandise that are selling and the difference between the income cohorts, what are you seeing there? And how is your pricing adjusted? And lastly, you mentioned about one of the processing facilities, are you delaying it, closing it or what exactly is happening there? Thank you.

I'll let Sean talk about the processing centers and then I'll hit your question Dana on the merchandise mix.

Yes. As part of our restructuring close, one of the processing centers, I think, we mentioned that in our prepared remarks, and then as it relates to DCO7, which is the large facility in Dallas, we've been able to flex that down and slow down the build out. We'll build out Phase 1 at first which will hold about five million items. And then we'll build out the second half as needed as we go through it. What that really does is allow us to conserve CapEx, spend all through 2023 and kind of fits in nicely. What I talked about is spending CapEx less than $20 million in 2023.

On the shopping trends, Dana, I think, what we're seeing is you are definitely seeing this trade down where your discount shoppers or your budget shoppers they are buying cheaper items, but they're buying a fair amount of them, right? So I think we're capturing incremental share in the closet, whereas your upscale shopper is buying more expensive items. And I think still remains like pretty resilient on the luxury side. And I think that's what we're projecting will be true over the next few quarters. And our job is really to shape that assortment to best serve where the customer is and that's where it focuses right now.

And are you seeing the same customer trends with remix in Europe as what you're seeing here in the U.S.?

Yes, I think what we're seeing is again, I want to really emphasize that there are plenty of customers that are in market and buying and some of them are trading down and some of them are trading sort of neutral and some are trading up. The bigger challenge of this business is that there's just a segment of customers that are just not in market. And so I think what we're seeing in the U.S. is that customer on the sideline waiting to digest the cost of groceries, and gas and rent. We expect that customer at some point to come back into market and I think the same thing is true in remix. But just at a much smaller scale, so yes.

And Dan, I would say like across the company, the revenue per active buyer is that is highest that ever had before in Q2.

Yes.

And then just one last thing on the customer base, do you notice any regional trends in terms of what you’re seeing?

We don’t have any regional trends that we’re talking about right now. So nothing to share there, Dan.

Thank you.

Thanks.

Thank you. We’ll hear next from Ashley Helgans with Jefferies.

Hey, thanks for taking our questions. You mentioned a pullback in marketing in the back half. Just any more color you can provide there? And then any category trends you can call it from the second quarter. I think the last quarter you called out categories like work wear, cocktail attire. That’d be helpful. Thank you.

Sure. Hey Ashley. Yes, I mean, typically what happens is that we spend more marketing in the beginning of the year and then it tends to actually come down quarter-over-quarter. That’s – it’s been an historical trend. Same thing is true this year, we tend to spend a fewest amount of marketing dollars in Q4 because typically thrift is not a big holiday category. And so we don’t try to compete in the holiday season like other retailers. So same trends that we observed previously. Those are in play this year. As for the trend piece, we didn’t comment on it in the prepared remarks, but very similar sort of themes that we were seeing around as others are seeing around, back-to-school categories. I think the one thing that we are seeing is you’re seeing fall and winter spending be pulled forward. So more wool coats, more jackets, more outerwear earlier in the season than I think we saw previously. So that’s probably the one thing to know for you.

Great. Thanks.

Thank you. We’ll take our next question from Alexandra Steiger with Goldman Sachs.

Thanks for taking my question. I just wanted to follow up on your higher income shoppers. Could you maybe talk about how you can attract more of the buyer to your platform and how quickly can you actually adjust your assortment? Thank you so much.

Yes, I mean, the – I think it’s been reported widely, I think that the upscale shopper is actually faring pretty well in this economy. And so we’re confirming that in our data. I think we said that they’re trading up to items that are 8% more expensive. And so I think what we’ve been doing is continuing to focus our sourcing strategy on products that are going to delight that customer. And I think what we’ve found is that it’s in many marketplaces and ThredUp is not unlike others. It’s really the product that you have really drives the customers who come onto the platform. And so I think we will continue to try and find great product to serve that more premium shopper. But I don’t think we’re going to materially go good chasing in that direction. I think we have a great selection, a broad assortment we can do incrementally better job of making sure that product’s available.

Thank you.

Thank you. We will take our next question from Dylan Carden with William Blair & Company.

Thanks a lot. Just curious on the sort of scaled down DC07 plan, does that affect sort of the maturity curve and the profit contribution as you had sort of previously envisioned it and sort of a related question, thinking of break even by the back half of next year, if you could kind of quantify or bucket or rank kind of, are you getting there evenly between cost cutting and sort of a maturing fleet or is it more cost cutting? Appreciate it. Thanks.

Yes, I think from the DC07 perspective, I think it’ll be about half the size as we close out this 2022. We are actually starting a quarter later due to some, basically some challenges in the supply chain. So that’s instead of starting in Q3, we will be starting in Q4. So that has an impact on EBITDA in that quarter of about the same as what it was before, about $2.2 million, $2.3 million, and this will open up for revenue in Q4 and it’ll start to move that headwind. So I don’t think the overall scale of the business other than starting later is going to change what we had already assumed. It’s going to take time to ramp into the $5 million and then further time to build out the final 5 million and then go up to the total 10 million in the DC.

Yes. And Dylan on the profitability piece, I think it’s more on the managing through the variable costs in the business that I think gives us the confidence in profitability on the back half of the year. We’re not as we gave you explicit guidance around the revenue run rate, like we’re not expecting a massive consumer recovery to get us there. But we are expecting to see the benefits of a lot of the things we’ve done on the variable expense side. And also the work we continue to do around pricing and promotions and discounts and returns and all those sorts of things that we’ve been working on. And I think kind of speaks to the power of the marketplace that we can bend those cost curves and those decisions to get to where we want to be.

Great. And then, I guess on the marketplace and the supply side, you would think that in this environment, people might be selling more into the marketplace to earn cash to offset some purchasing. I mean, is there some lag time there potentially it’s when you might see a big benefit, are you seeing that benefit? And I guess, yes, just maybe to ask the question again, just around, can you sort of shift the model to maybe more fully leverage, the people that are spending, right. Or is it just that it’s just, so the contribution from that lower income customer is so great that it’s hard to kind of more fully offset that impact. Thanks.

Yes, Dylan. I mean, I think we are shifting some of the attention and efforts, but I think it’s tough to overcome one in four of your discount and budget shoppers, just sort of being out of market. And so, I think , we’re – what’s nice about it is that we can manage kind of the variability piece on the expense line and really be poised to accelerate on the growth side, right. As the recovery takes place, because those customers are going to be surging in the market which I think will be an exciting time for us. But I don’t want to shift, we don’t want to shift the business too much in one direction knowing that we don’t expect this to be a many, many years challenge, right. We think about it as several quarters.

Sure. Makes sense. Thank you guys.

Thanks.

Thank you. We’ll hear next from Noah Zatzkin with KeyBanc Capital Markets.

Thanks for taking my question. Just one from me. On RaaS, can you provide some color around a number of clients line of sight to additional clients in the back half? How you’re thinking about 2023 and the P&L impact from your plan. Thank you.

Yes. Hey Noah. I mean, I think as we said, we still feel like we’re on track to be around 40 clients by the end of the year. And so, I continue to think that the RaaS business is showing resilience in an environment where I think apparel retailers are broadly struggling. So I feel very good about RaaS’ penetration. And we haven’t put any numbers out there around 2023 for RaaS, but, keep in mind that every RaaS client we signed provides real leverage on both sides of our business. And we’re seeing that today on the supply side and as we launched new clients, we just launched Tommy Hilfiger last week. It drives incremental demand for us. So I think a really nice vector for growth. And – but it’ll be one of those things that we’re going to stack every quarter and really see those results compound over time.

Thank you.

Thank you. We’ll take our final question from Rick Patel with Raymond James.

Thank you. Good afternoon. And appreciate you squeezing me in here. You touched on this earlier, but can you provide additional color on the puts and takes for gross margins as we think about the U.S. and Remix businesses separately. And I know you’re not guiding the 2023 specifically, but I’m hoping you can help us have better understanding of what you see at the low hanging fruit to improve gross margins once we presumably get through this rough economic patch?

Yes, in the gross margin fees, we kind of touched on it on the seasonality as it relates to Remix. So as you add the business, it’s a little lower than us and they take – they become a bigger portion of our business. It drags down gross margin overall. I think the piece to keep in mind is remix itself is mostly direct and their margins are well below our 50% for our direct business. So we have a great opportunity there to move that business up to what the standard rate is for ThredUp. In addition, we’ll be moving that business over time, over two to three years on a consignment model that will be a tailwind overall. In addition to them moving into more automated facilities, using more data, more algorithms, a larger unified facility. There’s a ton of other things to get out here.

Yes, Rick, and the only thing I would add is you go into 2023 is the – is you can see the economy potentially improving over time, is there some improvements you get from promotions from returns, normalizing back to where they were pre distress, I would say, in the apparel market. So I think there’s a bunch of things in there. And I think what we’re really trying to do is focus on how do we surge out of this recovery as we start to see the green shoots to that. And I think you’ll see that top one. I think you’ll see that in gross margin. And I think you’ll see that in EBITDA. So really trying to be able to manage the business through a time when you really don’t have a lot of clarity right around what the next few quarters are going to look like.

Thanks very much.

Thanks.

Thank you. And that does conclude today’s question-and-answer session. I’d like to turn the conference back over to management for an additional or closing remarks.

Great. Well, thanks everybody for joining us for this earnings call. And I look forward to you seeing you next time around. Thanks.

Thank you. And that does conclude today’s conference. We thank you all for your participation. You may now disconnect.