ThredUp Inc. Q3 FY2024 earnings call

EU Divestiture

• Substantial progress in divesting the EU business, with material terms agreed for a management buyout by Remix’s current GM and team. ThredUp is expected to fund Remix with a final cash investment of approximately $2 million and retain a minority interest, targeting year-end close.

U.S. Marketplace

• Made progress in course correcting in the U.S. Q3 was the strongest new buyer acquisition quarter in over two years, with improved ad targeting and full funnel conversions. New customer retention metrics are strengthening, with repeat rates up 12% and LTV-to-CAC ratios strong. Sourcing strategy and pricing algorithms refinements have driven strong sell-through and margin expansion. Consignment revenue now makes up over 90% of U.S. revenue. AI investments are enhancing the customer experience: AI search deployed across the platform, Style Chat for intuitive shopping, Image Search with rapid adoption, 360-degree photos launching, automated measurements rolling out, and a premium selling service for sellers.

Financials

• Year-to-date, on a consolidated basis, EU consumption is $5.6 million, entirely attributable to the EU, compared to $28 million last year. Importantly, the U.S. is breaking even in the same period.

Consolidated revenue in the third quarter of 2024 totaled $73 million, a decrease of 11% year-over-year. The U.S. achieved net revenue of $61.5 million, down 9.6% over the prior year. U.S. gross margin was 79.3%, a 70-basis-point improvement year-over-year. In the third quarter of 2024, the U.S. generated $700,000 of adjusted EBITDA, which is 1.1% of revenue and marks the fifth consecutive quarter of positive adjusted EBITDA in the U.S. The U.S. also generated $3.9 million in cash flow from operations in Q3.

Q4 2024

• Raised U.S. revenue outlook to $58 million to $60 million (4% decline midpoint, $1 million higher than previous outlook). Narrowed gross margin range to 78.5% to 79.5%. Reiterated adjusted EBITDA outlook of 0% to 2% of revenue.

Full Year 2024

• U.S. revenue expected in the range of approximately $250.8 million to $252.8 million. Gross margin in the range of approximately 79.2% to 79.4%. Positive adjusted EBITDA of 1.6% to 2.1% of revenue. Anticipate U.S. to be free cash flow positive annually with CapEx at approximately $8 million.

• Forward-looking statements involve risks such as effectively deploying new and evolving technologies like artificial intelligence and machine learning, identifying and executing a strategic alternative for the European business, and the effects of inflation, increased interest rates, changing consumer habits, and general global economic uncertainty.

Q: Ike Boruchow from Wells Fargo asked about underlying confidence in raising 4Q expectations and margins into next year.

A: James Reinhart said they expect faster growth and better EBITDA driven by better gross and contribution margins. Sean Sobers added on contribution margin improvement since IPO.

Q: Bernie McTernan from Needham & Company asked about resource allocation post-U.S.-only and AI impact.

A: James Reinhart said focus back on U.S. business fundamentals, operating infrastructure, and AI. AI initiatives like Style Chat and Image Search driving customer adoption.

Q: Dylan Carden from William Blair asked about marketing investment and EU impact.

A: James Reinhart said strong acquisition in Q3 with same/less marketing spend, confident in continuing marketing investments. Sean Sobers explained EU revenue shrinkage is by design during transition.