The RealReal, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The RealReal operates an online marketplace and retail business for authenticated pre-owned luxury goods, earning most revenue from consignment sales.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $143.8 million | $141.9 million | +1% |
| Gross profit / gross margin | $107.3 million / 74.6% | $90.0 million / 63.4% | +19% / +11.2 percentage points |
| Operating loss | $17.9 million | $81.8 million | Improved |
| Net loss | $31.1 million | $82.5 million | Improved |
| Adjusted EBITDA (non-GAAP) | $(2.3) million | $(27.3) million | Improved |
| Cash used in operating activities | $3.5 million | $30.4 million | Lower cash use |
| Cash and cash equivalents at period end | $166.0 million |
Consignment revenue rose 13% to $115.6 million; direct revenue fell 49% to $12.7 million, reflecting the planned reduction in lower-margin company-owned inventory; shipping revenue increased 8% to $15.4 million. GMV increased 2% to $451.9 million and NMV increased 2% to $334.8 million. Take rate rose to 38.4% from 37.4%. Average order value increased 8% to $538, while orders fell 6% to 840,000 and active buyers declined to 922,000 from 1.014 million.
Gross-margin improvement reflected higher consignment mix and take rate, lower direct revenue mix, and shipping-fee changes. Operating expenses declined, including marketing (down 13%), operations and technology (down 7%), and SG&A (down 6%). Restructuring charges were $0.2 million versus $36.4 million a year earlier; Q1 2023 included substantial lease and asset impairments and severance.
Cash, cash equivalents and restricted cash totaled $180.9 million at March 31, 2024, including $14.9 million of restricted cash. Current assets were $225.3 million and current liabilities were $193.7 million. Total liabilities were $758.6 million, including $302.3 million of convertible notes, $131.2 million carrying value of 2029 notes, and a $26.0 million warrant liability. Stockholders’ deficit was $327.1 million. Investing cash use was $5.3 million, principally software development and property and equipment; financing cash use was $0.9 million.
Debt transaction, outlook and key risks
On February 29, 2024, the company exchanged $152.3 million principal amount of 2025 and 2028 convertible notes for $135.0 million principal amount of senior secured notes due 2029 and warrants for up to 7.9 million shares at $1.71 per share. The new notes carry 13% annual interest: 8.75% cash and 4.25% payment-in-kind. The exchange extended maturities but increased interest expense; Q1 interest expense rose 41% to $3.8 million. The company recorded a $4.2 million debt-extinguishment gain and a $15.6 million non-cash warrant fair-value loss.
Management expects operating losses and negative operating cash flow could continue in the foreseeable future, but believes available cash at March 31, 2024 is sufficient for working capital and capital expenditure needs for at least 12 months. The filing provides no quantified revenue, profit, or cash-flow guidance. The 2029 notes require liquidity of at least $25 million at each month-end and impose operating and financing restrictions. Management reported disclosure controls were effective at a reasonable assurance level and no material changes in internal control were identified.
Material risks include ongoing losses, ability to retain consignors and buyers and grow supply, consumer-discretionary and macroeconomic weakness, competition, authentication and fraud risks, execution of cost savings and automation, debt-service and covenant constraints, potential dilution or cash settlement from notes and warrants, and legal exposure. The Chanel trademark and advertising litigation remains unresolved; the company cannot estimate potential losses. A shareholder opt-out lawsuit has a class-certification hearing scheduled for July 30, 2024.
Most important facts for investors to verify
- Whether improving gross margin and lower operating cash use persist, given continued GAAP losses and declining order and active-buyer counts.
- Whether management’s 12-month liquidity assessment remains supportable after cash interest, lease commitments, capital needs, and the expired revolving credit facility.
- The cash and PIK interest burden, covenant compliance, and refinancing or repayment path for the 2025, 2028, and 2029 notes.
- Potential dilution and earnings volatility from the warrants, including changes in their fair value and any exercise or cash-settlement consequences.
- Developments in the Chanel matter and shareholder litigation, for which potential losses are not currently estimable.
- Whether the company sustains consignment growth and take-rate improvements without further weakening buyer activity or supply.