The RealReal, Inc. — 2021 Form 10-K
Business context and reporting period
Reports the fiscal year ended December 31, 2021; the filing provides annual results, not standalone fourth-quarter financial results. The RealReal operates an online and retail marketplace for authenticated, primarily pre-owned luxury goods, chiefly on consignment. Revenue is earned from commissions and services, plus sales of company-owned inventory.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $467.7 million | $299.9 million |
| Gross profit / gross margin | $273.5 million / 58% | $187.6 million / 63% |
| Operating loss | $214.9 million | $172.8 million |
| Net loss | $236.1 million | $175.8 million |
| Adjusted EBITDA loss (non-GAAP) | $126.9 million | $128.0 million |
| Cash used in operating activities | $142.2 million | $134.4 million |
| Cash and cash equivalents at year-end | $418.2 million | $350.8 million |
- Revenue increased 56% year over year. Consignment and service revenue rose 40% to $346.8 million; direct revenue rose 130% to $120.8 million.
- Gross merchandise value (GMV) increased 50% to $1.48 billion; average order value rose to $497 from $442. Active buyers increased to 797,000 from 649,000.
- Take rate declined to 34.7% from 35.7%. Direct revenue grew to 26% of revenue from 18%; its lower margin mix contributed to the reported gross-margin decline.
- Operating expenses totaled $488.4 million, including $235.8 million in operations and technology, $176.4 million in selling, general and administrative, and $62.7 million in marketing.
- Year-end current assets were $517.8 million and current liabilities $188.0 million. Total liabilities were $681.8 million; stockholders’ equity was $73.1 million. Accumulated deficit was $768.1 million.
- Convertible notes had $460.0 million aggregate principal outstanding: $172.5 million of 3.00% notes due 2025 and $287.5 million of 1.00% notes due 2028. Their combined balance-sheet carrying value, net of discounts and issuance costs, was $348.4 million. A $50 million revolving credit facility was undrawn at year-end.
Material changes versus prior year
- Growth recovered from 2020 pandemic disruption: GMV rose from $987.0 million in 2020, while revenue increased from $299.9 million. The company attributed growth to higher order volume, higher AOV, and demand for online luxury resale.
- Gross margin fell from 63% to 58%, mainly as lower-margin direct inventory sales became a larger share of revenue. Consignment and service gross margin remained 73% (cost of revenue 27% of that segment’s revenue) in both years.
- Net loss widened by $60.3 million. Interest expense rose to $21.5 million from $5.3 million, reflecting the convertible notes; stock-based compensation increased to $48.8 million from $24.3 million.
- Operating cash use increased by $7.7 million. Investing activities used $43.4 million, including $37.5 million for property and equipment and $10.0 million for capitalized software. Financing activities provided $252.9 million, primarily from the 2028 notes, net of capped-call costs.
- The company opened seven neighborhood stores during 2021 and relocated operations from its Brisbane facility to Arizona. It reported late-2021 staffing challenges that delayed processing and listing goods.
Outlook, risks, contingencies, and unusual items
- Management expects operating losses and negative operating cash flow may continue. It stated existing cash was expected to cover working-capital and capital needs for at least 12 months from December 31, 2021; future needs depend on growth and investment plans. No numerical revenue or earnings guidance is provided.
- Key risks include continued losses, reliance on sufficient and recurring consignment supply, labor and processing capacity, consumer discretionary demand, competition, authentication accuracy, execution of retail expansion, COVID-19 effects, and data security. Management noted staffing constraints could persist in 2022.
- The company recorded $13.4 million in 2021 legal settlement expense, including an $11.0 million proposed settlement of IPO-related shareholder litigation, subject to court approval, and $0.5 million for a derivative case settlement. The derivative settlement received final court approval in February 2022. The Chanel trademark and advertising litigation remained unresolved; the company said the outcome and any liability were uncertain and could not be reasonably estimated.
- The company expects to adopt a convertible-debt accounting standard effective January 1, 2022, moving to single-liability accounting for the notes unless an exception applies. It expected a decrease in accumulated deficit from the transition adjustment; the filing does not give a clear amount.
- Management and the auditor reported effective disclosure controls and internal control over financial reporting as of year-end. The auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether revenue growth can translate into improved gross margin and reduced GAAP losses, particularly as direct inventory sales expand.
- Cash-burn trajectory, capital spending, and whether $418.2 million of cash remains adequate against operating losses, lease commitments, and note obligations.
- Consignment supply, labor availability, processing times, sell-through, return rates, and whether the 2021 growth and buyer activity persist.
- Final approval and payment status of the $11.0 million shareholder settlement, and developments in the Chanel litigation.
- Effects of 2022 convertible-note accounting changes, potential dilution or cash settlement obligations, and compliance with revolving-credit covenants.