real-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

___________________________________________________

FORM 10-Q

___________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 001-38953

___________________________________________________

The RealReal, Inc.

(Exact Name of Registrant as Specified in its Charter)

___________________________________________________


Delaware			45-1234222
( State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
55 Francisco Street Suite 150 San Francisco, CA			94133
(Address of principal executive offices)			(Zip Code)

(855) 435-5893

(Registrant’s telephone number, including area code)

__________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common stock, $0.00001 par value

REAL

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 1, 2024, the registrant had 105,969,185 shares of common stock, $0.00001 par value per share, outstanding.

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		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Balance Sheets as of March 31, 202 4 and December 31, 20 2 3	1
	Condensed Statements of Operations for the Three Months Ended March 31, 202 4 and 20 2 3	2
	Condensed Statements of Stockholders’ Equity (Deficit) as of March 31, 202 4 and 20 2 3	3
	Condensed Statements of Cash Flows for the Three Months Ended March 31, 202 4 and 20 2 3	5
	Notes to Unaudited Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
	Signatures	61

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans, objectives of management for future operations, long term operating expenses, the opening of additional retail stores in the future, the development of our automation technology, expectations for capital requirements and the use of proceeds from our initial public offering, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” included under Part II, Item 1A below and elsewhere in this Quarterly Report on Form 10-Q, as well as in our other filings with the Securities and Exchange Commission (SEC). Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:

•our future financial performance, including our expectations regarding our revenue, cost of revenue, operating expenses, and our ability to achieve and maintain future profitability, in particular with respect to the impacts of macroeconomic uncertainty and geopolitical instability;

• our ability to return to historic levels of revenue growth and to effectively expand our operations;

• our ability to achieve anticipated savings in connection with our reduction in workforce and associated real estate reduction plan;

• our ability to successfully implement our growth strategies;

• our strategies, plans, objectives and goals;

• the market demand for authenticated, pre-owned luxury goods and new and pre-owned luxury goods in general and the online market for luxury goods;

• our ability to compete with existing and new competitors in existing and new markets and offerings;

• our ability to attract and retain consignors and buyers;

• our ability to increase the supply of luxury goods offered through our online marketplace;

• our ability to timely and effectively scale our operations;

• our ability to enter international markets;

• the accuracy and reliability of our authentication process;

• our ability to optimize, operate and manage our authentication centers;

• our ability to develop and protect our brand;

• our ability to comply with laws and regulations;

• our expectations regarding outstanding litigation;

• the reliable performance of our network infrastructure and content delivery process;

• our ability to detect and prevent data security breaches and fraud;

• our expectations and management of future growth;

• our expectations concerning relationships with third parties;

• economic and industry trends, projected growth or trend analysis;

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• seasonal sales fluctuations;

• our ability to add capacity, capabilities and automation to our operations; and

• our ability to attract and retain key personnel.

In addition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q and, although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.

iii

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

THE REALREAL, INC.

Condensed Balance Sheets

(In thousands, except share and per share data)

(Unaudited)


	March 31, 2024		December 31, 2023
Assets
Current assets
Cash and cash equivalents	$	165,996	$	175,709
Accounts receivable, net	19,819		17,226
Inventory, net	21,120		22,246
Prepaid expenses and other current assets	18,387		20,766
Total current assets	225,322		235,947
Property and equipment, net	101,327		104,087
Operating lease right-of-use assets	84,690		86,348
Restricted cash	14,910		14,914
Other assets	5,330		5,627
Total assets	$	431,579	$	446,923
Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable	$	14,126	$	8,961
Accrued consignor payable	75,800		77,122
Operating lease liabilities, current portion	21,234		20,094
Other accrued and current liabilities	82,528		82,685
Total current liabilities	193,688		188,862
Operating lease liabilities, net of current portion	100,809		104,856
Convertible senior notes, net	302,324		452,421
Non-convertible notes, net	131,199		—
Warrant liability	26,000		—
Other noncurrent liabilities	4,612		4,083
Total liabilities	758,632		750,222
Commitments and contingencies (Note 11)
Stockholders’ deficit:
Common stock, $0.00001 par value; 500,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 105,917,789 and 104,670,500 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively	1		1
Additional paid-in capital	823,672		816,325

Accumulated deficit	(1,150,726)		(1,119,625)
Total stockholders’ deficit	(327,053)		(303,299)
Total liabilities and stockholders’ deficit	$	431,579	$	446,923

The accompanying notes are an integral part of these unaudited condensed financial statements.

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THE REALREAL, INC.

Condensed Statements of Operations

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended March 31,
	2024		2023
Revenue:
Consignment revenue	$	115,648	$	102,643
Direct revenue	12,709		24,953
Shipping services revenue	15,443		14,308
Total revenue	143,800		141,904
Cost of revenue:
Cost of consignment revenue	13,280		15,529
Cost of direct revenue	12,285		25,030
Cost of shipping services revenue	10,956		11,362
Total cost of revenue	36,521		51,921
Gross profit	107,279		89,983
Operating expenses:
Marketing	15,283		17,518
Operations and technology	62,972		68,032
Selling, general and administrative	46,770		49,845
Restructuring charges	196		36,388
Total operating expenses	125,221		171,783
Loss from operations	(17,942)		(81,800)
Change in fair value of warrant liability	(15,583)		—
Gain on extinguishment of debt	4,177		—
Interest income	2,069		2,053
Interest expense	(3,751)		(2,667)
Loss before provision for income taxes	(31,030)		(82,414)
Provision for income taxes	71		86
Net loss attributable to common stockholders	$	(31,101)	$	(82,500)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.30)	$	(0.83)
Shares used to compute net loss per share attributable to common stockholders, basic and diluted	105,212,053		99,608,071

The accompanying notes are an integral part of these unaudited condensed financial statements.

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THE REALREAL, INC.

Condensed Statements of Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount
Balance as of December 31, 2023	104,670,500	$	1	$	816,325	$	(1,119,625)	$	(303,299)
Settlement of capped calls	—	—		396		—		396
Issuance of common stock upon exercise of options	14,873	—		7		—		7
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for employee taxes	1,232,416	—		(316)		—		(316)
Stock-based compensation expense	—	—		7,260		—		7,260
Net loss	—	—		—		(31,101)		(31,101)
Balance as of March 31, 2024	105,917,789	$	1	$	823,672	$	(1,150,726)	$	(327,053)

The accompanying notes are an integral part of these unaudited condensed financial statements.

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THE REALREAL, INC.

Condensed Statements of Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount
Balance as of December 31, 2022	99,088,172	$	1	$	781,060	$	(951,153)	$	(170,092)

Issuance of common stock upon vesting of restricted stock units, net of shares withheld for employee taxes	1,064,260	—		(208)		—		(208)
Stock-based compensation expense	—	—		9,280		—		9,280
Net loss	—	—		—		(82,500)		(82,500)
Balance as of March 31, 2023	100,152,432	$	1	$	790,132	$	(1,033,653)	$	(243,520)

The accompanying notes are an integral part of these unaudited condensed financial statements.

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THE REALREAL, INC.

Condensed Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Net loss	$	(31,101)	$	(82,500)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	8,309		7,821
Stock-based compensation expense	7,120		8,991
Reduction of operating lease right-of-use assets	3,667		5,172
Bad debt expense	424		651
Non-cash interest expense	818		575
Issuance costs allocated to liability classified warrants	374		—
Accretion of debt discounts and issuance costs	581		633

Property, plant, equipment, and right-of-use asset impairments	—		32,891
Provision for inventory write-downs and shrinkage	1,149		3,446
Gain on debt extinguishment	(4,177)		—
Change in fair value of warrant liability	15,583		—
Other adjustments	(699)		36
Changes in operating assets and liabilities:
Accounts receivable, net	(3,017)		2,615
Inventory, net	(23)		8,678
Prepaid expenses and other current assets	2,993		(1,139)
Other assets	258		(461)
Operating lease liability	(4,916)		(6,158)
Accounts payable	133		(1,385)
Accrued consignor payable	(1,322)		(9,429)
Other accrued and current liabilities	385		(894)
Other noncurrent liabilities	(6)		24
Net cash used in operating activities	(3,467)		(30,433)
Cash flow from investing activities:

Capitalized proprietary software development costs	(3,180)		(4,214)
Purchases of property and equipment	(2,141)		(11,706)
Net cash used in investing activities	(5,321)		(15,920)
Cash flow from financing activities:
Proceeds from exercise of stock options	7		—
Taxes paid related to restricted stock vesting	(305)		(295)
Cash received from settlement of capped calls in conjunction with the Note Exchange	396		—
Issuance costs paid related to the Note Exchange	(1,027)		—
Net cash used in financing activities	(929)		(295)
Net decrease in cash, cash equivalents and restricted cash	(9,717)		(46,648)
Cash, cash equivalents and restricted cash
Beginning of period	190,623		293,793
End of period	$	180,906	$	247,145

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THE REALREAL, INC.

Condensed Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2024		2023
Supplemental disclosures of cash flow information
Cash paid for interest	$	2,352	$	1,458
Cash paid for income taxes	7		4
Supplemental disclosures of non-cash investing and financing activities
Property and equipment additions not yet paid in cash	2,151		1,906
Capitalized proprietary software development costs additions not yet paid in cash	670		1,279
Stock-based compensation capitalized to proprietary software development costs	140		290
Liability classified warrants issued in connection with the Note Exchange	10,417		—
Net decrease in principal amount of debt due to the Note Exchange	(17,232)		—
Issuance costs associated with the Note Exchange included in accounts payable and other accrued and current liabilities	4,232		—

The accompanying notes are an integral part of these unaudited condensed financial statements.

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THE REALREAL, INC.

Notes to Unaudited Condensed Financial Statements

Note 1. Description of Business and Basis of Presentation

Organization and Description of Business

The RealReal, Inc. (the “Company”) is an online marketplace for authenticated, consigned luxury goods across multiple categories, including women’s fashion, men’s fashion, and jewelry and watches. The Company was incorporated in the state of Delaware on March 29, 2011 and is headquartered in San Francisco, California.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. The Company’s functional and reporting currency is the U.S. dollar.

The condensed balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date. The accompanying unaudited condensed financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position, results of operations, stockholders’ equity (deficit), and cash flows for the periods presented. For the three months ended March 31, 2024 and 2023, comprehensive loss is equal to net loss as the Company has no other comprehensive income (loss) item in the periods presented. The Company has made a presentation change to reclassify loss on disposal of property and equipment and impairment of capitalized proprietary software to other adjustments within operating cash flows in the Condensed Statements of Cash Flows. Changes to reclassify amounts in the prior periods have been made to conform to the current period presentation.

These unaudited condensed financial statements should be read in conjunction with the Company’s financial statements and notes included in our Annual Report on Form 10-K filed with the SEC on March 1, 2024.

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. Significant items subject to such estimates and assumptions include those related to revenue recognition, including the returns reserve, standalone selling price related to consignment revenue transactions, valuation of inventory, software development costs, stock-based compensation, fair value of warrant liability, initial fair value of non-convertible notes, incremental borrowing rates related to lease liability, valuation of deferred taxes, and other contingencies. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates. The disclosures provided herein should be read in conjunction with the audited financial statements and notes thereto included in our 2023 Form 10-K. See “Part II - Item 8. Financial Statements and Supplementary Data - Note 2” in our 2023 Form 10-K for a complete summary of our significant accounting policies.

Net Loss per Share Attributable to Common Stockholders

The Company follows the two-class method when computing net loss per common share when shares are issued that meet the definition of participating securities. The two-class method determines net loss per common share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income (loss) available or attributable to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

The Company’s convertible senior notes are participating securities as they give the holders the right to receive dividends if dividends or distributions declared to the common stockholders is equal to or greater than the last reported sale price of the Company’s common stock on the trading day immediately preceding the ex-dividend date for such dividend or

SEC Form 10-Q filed by The RealReal Inc.