Therealreal Inc Aktie

Good afternoon, everyone. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome you to the RealReal Second Quarter 2026 Earnings Call. [Operator Instructions]

At this time, I would like to turn the call over to Emily Gacka, Senior Director of Investor Relations.

Thank you, operator. Joining me today to discuss our results for the period ended June 30, 2026, are Chief Executive Officer and President, Rati Levesque; and Chief Financial Officer, Ajay Gopal.

Before we begin, I would like to remind you that during today's call, we will make forward-looking statements, which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q.

Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking. We have provided reconciliations for historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our Investor Relations website.

I would now like to turn the call over to Rati Levesque, Chief Executive Officer of The RealReal.

Good afternoon and thank you for joining us. Q2 was another standout quarter for our business. We delivered GMV of $617 million, an all-time high for TRR, up 22% year-over-year and marking our fourth consecutive quarter of GMV growth above 20%.

Revenue grew 17% to $193 million and trailing 12-month active buyers accelerated for the fourth consecutive quarter, up 11% year-over-year.

Along with strong top line growth, we also delivered meaningful margin expansion. Adjusted EBITDA margin of 7% was up nearly 300 basis points versus last year. These results reflect the disciplined execution of our strategy.

Quarter after quarter, we're up-leveling the customer experience, deepening trust and compounding our advantage. Our buyers are higher quality, our sellers are more engaged and the platform connecting them gets smarter every quarter. Given the strength of what we're seeing, we are confidently raising our full year outlook.

The RealReal is a marketplace deliberately designed for the luxury consumer and the way they want to be served. We've developed deep expertise across the full range of luxury, establishing the trust that comes from handling our members' most valued possessions. Every part of our platform from sourcing and authentication to pricing and merchandising is built to deliver an unparalleled service, and it will continue to evolve as our customers do.

As the resale market grows, trust is what separates leaders from the rest. We take possession of every item, we authenticate it, and we stand behind our work, a standard most marketplaces structurally cannot match. That's what brought a consignor to us in Q2 with a $2.5 million F.P. Journe watch, and it's the same standard that serves a member discovering luxury for the first time.

That full service has enabled us to build the largest authenticated luxury data set in the world. And AI is unlocking the power of that data across pricing, search, authentication and the tools our members use to manage the value of what they own.

We've seen where luxury demand is moving in real-time. When demand moves, we're positioned to secure the supply and have the data and pricing intelligence to meet it.

Let's discuss the progress we're making against our strategic pillars, starting with our growth playbook. Our sales team sets us apart. We don't wait for supply to come to us. Our people go out and source it, which means our assortment is curated, not accumulated.

Year-to-date, supply per sales rep is up 15% versus last year and the relationships they build deepen over time with consignors coming back and bringing more of their closet with them. The same relationships and trust that bring consignors back also bring us new ones through referrals.

Our Real Partners program connects us with high-value supply through professionals like stylists and real estate agents who already have the trust of luxury consumers. Sellers referred through our Real Partners program consign 4x the value of our average new consignor. The program demonstrates the network effects in our business, and we see meaningful runway ahead.

As we discussed last quarter, we're building an asset-light international supply network. In the second quarter, we onboarded 2 large Japanese vendors onto our dropship program. The success of our sales team, partnerships and our newer supply initiatives is bringing more high-quality supply every quarter.

On the marketing side, we are acquiring higher-quality buyers. New buyers up double digits in the second quarter are showing stronger lifetime value and are more likely to turn into consignors, becoming RealRealers and reinforcing our flywheel.

In Q2, we launched our Be a RealRealer campaign, putting flywheel messaging at the center of our brand marketing. We're investing in marketing with a healthy balance across brand building and performance channels. We see real opportunity as resale adoption accelerates and younger generations discover luxury through our platform.

We are also enriching the product data we share with paid channels, helping search platforms match the right buyer to the right item. These new buyers are spending more on their first purchase. That same depth of data is why we lead when consumers turn to AI to look for pre-owned luxury.

Our stores deepen consignor relationships, deliver high-quality supply and build trust in the communities we serve. We are expanding our store footprint strategically in 2026. We look forward to opening our first Boston area store this fall and an additional neighborhood store in the L.A. market, one of our largest and fastest-growing regions. These new stores, along with our San Francisco location, which opened earlier this year, brings our total store count to 20. Going forward, we'll continue to target one to three new stores per year.

Turning to our second pillar, obsessed over service. On the buyer side, we recently started testing an AI-powered conversational shopping agent in partnership with Google. We have over one million one-of-a-kind listings and more than 40 million members. So we are always finding ways to make product discovery more intuitive. For example, if you're looking for a dress for a fall wedding in Upstate New York, our agent will deliver a specific and personalized set of results.

We're also using AI and our proprietary data to automatically add richer detail to every listing, information like occasion, collection and trend data just to require manual input. This means items are more discoverable, both on and off platform.

On the seller side, more than 2/3 of our consignors tell us they prefer a full-service experience. They are looking for a trusted partner who handles everything. This is what our full-service model delivers. You hand us the item, and we do the rest. Every day, we work to make our experience even better, faster and more transparent as well as being easier to engage with.

First, our price estimator tool is now built on a centralized AI-powered pricing architecture that gives our sales team and our consignors consistent real-time visibility into the current market value of their items. Our sales team is actively using the tool, and we've launched it in a test for 20% of our consignors.

We're also redesigning our digital onboarding for new consignors, removing friction from the seller funnel and making it more conversational from the first interaction. And we continue to build the feature set for MyCloset, the product manifestation of our vision to become the personal adviser of the closet. We're building the system of record for our customers' luxury assets and expect to begin rolling out the broader consumer-facing experience in the coming quarters.

Turning to operational excellence. Athena, our AI-enabled intake system, continues to scale, and we remain on track for our year-end target of nearly 50% of items flowing fully through it. We're also starting to process higher-value items that previously required manual handling and attribution.

A year in, Athena has shown us there's even more opportunity. We've begun experimenting with its next iteration, extending AI and automation into parts of intake that weren't in the initial phase and removing more manual steps. Ultimately, Athena and our broader technology investments are helping to remove multiple dollars per unit from our processing costs, increasing speed to sell and allowing us to scale with minimal incremental headcount investment. We're delivering growth while continuing to drive operating leverage across the business.

Entering the year, we said 2026 would be the year our advantages begin to compound. That statement is starting to become reality. Each part of our platform from authentication and pricing to supply and member experience makes the other stronger.

Looking at the broader landscape, we're leading a meaningful shift in how luxury consumers shop. In a recent survey of our customers, over 70% of respondents said that the RealReal elevates their personal style, allowing them to better express who they are.

They're prioritizing quality, individuality and lasting value over trend cycles. The RealReal is more than a marketplace. With access to decades of fashion across thousands of designers, we help our customers discover, shop with confidence and maximize the value of their closets.

Before I turn the call over to Ajay, I want to thank our team for delivering an exceptional quarter in Q2. Results like this require execution across every part of the business, and I'm incredibly proud of our team. Your dedication continues to raise the bar for how we show up for our consignors and buyers and reinforces my conviction in where we're headed.

With that, I'll turn the call over to Ajay.

Thank you, Rati. Good afternoon, everyone. I am pleased to review our second quarter results, which demonstrate in the financials what Rati just described.

Our strategy is delivering results, and we are beginning to see the compounding effects we've been investing towards. You can see it in the durability of our growth and the operating leverage in our model.

Q2 GMV of $617 million increased 22% year-over-year and accelerated to 37% on a 2-year stacked basis. We delivered adjusted EBITDA of $13.5 million or 7% of revenue, expanding 290 basis points year-over-year. Orders increased 8% and average order value grew 13% to $659.

Q2 revenue of $193 million increased 17%, with consignment revenue up 15% and direct revenue up 26%, supported by strong supply through the quarter with strength across our sales team, stores and direct channels.

Beyond the top line, we saw deeper engagement across the platform. Trailing 12-month active buyers grew 11%, surpassing 1.1 million. We also saw more of our buyers become consignors. In the second quarter, 44% of our new consignors came from our active buyer base, up from 40% just 2 quarters ago. This highlights the strong network effects in our model and is a meaningful driver of long-term growth and profitability.

Our second quarter take rate was 35.9%, down 200 basis points year-over-year. As we've discussed, this movement is driven by a favorable shift in product mix. In the first half of 2026, sales of items above $1,000 increased 36% versus last year as buyers increasingly trust us with higher-value items. These items carry a lower take rate percentage but generate more profit dollars per transaction and stronger unit economics.

Gross margin expanded 10 basis points to 74.4%. Gross profit of $143 million was up 17% versus last year.

Total operating expenses leveraged approximately 470 basis points year-over-year. Excluding stock-based compensation, OpEx leveraged 370 basis points, primarily driven by operations and technology leverage. This reflects the tangible impact of automation and our Athena initiative. As more items flow through our AI-enabled intake system, we are processing more volume with less incremental labor.

Excluding stock-based compensation, SG&A also leveraged approximately 110 basis points, reflecting improved productivity and fixed cost discipline as we scale.

In the second quarter, we made strategic investments, increasing our spend in both brand and performance marketing. As the leader in an attractive and growing market, we see opportunities to acquire high-quality buyers and consignors and to build more awareness as resale adoption accelerates. We expect to continue with a similar level of investment in the third quarter.

Together, this brought adjusted EBITDA above our prior guidance to $13.5 million or 7% of revenue, expanding 290 basis points versus last year. We ended the quarter with $134 million in cash, cash equivalents and restricted cash.

Capital expenditures on property and equipment for the quarter were $4 million. We continue to anticipate full year capital expenditures on PP&E to remain within 2% to 3% of total revenue.

2026 investments are concentrated in our operations infrastructure, including our automated storage and retrieval system, which is expected to go live in Q4 and will expand capacity at our Perth Amboy authentication center by 35%.

In Q2, we generated $2 million in operating cash flow, an improvement of $5 million year-over-year. Free cash flow improved $9 million versus last year. Looking ahead, we expect to generate strong positive free cash flow in both the third and fourth quarters. Similar to last year, we expect free cash flow to outpace adjusted EBITDA in the second half, demonstrating the favorable cash dynamics of our business model as we scale.

Turning to guidance. With the first half complete, continued strength in our supply trends and greater visibility into the balance of the year, we are confidently raising our full year outlook.

For the third quarter, we expect GMV of $610 million to $620 million, representing 17% to 19% growth year-over-year; revenue of $194 million to $198 million or 12% to 14% growth and adjusted EBITDA of $13.5 million to $14.5 million.

For the full year, we now expect GMV in the range of $2.535 billion to $2.565 billion, representing 19% to 20% growth year-over-year. Revenue is expected to be between $788 million and $797 million, translating to 14% to 15% growth.

And adjusted EBITDA is expected in the range of $66 million to $69 million, which represents an 8.5% margin at the midpoint. This is an improvement of approximately 240 basis points versus 2025, and we remain on track to reach our target of 15% to 20% adjusted EBITDA margins over the medium term.

In closing, Q2 demonstrates what we've been building toward: durable growth, expanding margins and a flywheel gaining real momentum.

We entered the second half from a position of strength. That is a direct result of our team's outstanding execution across the business, and I want to thank them for an excellent quarter.

With that, I will turn it over to the operator for questions.

[Operator Instructions] Your first question comes from Irwin Boruchow with Wells Fargo.

Congrats on the quarter. I guess 2 for me. Just the revenue guide for the third quarter looks great. There's a lot of chatter out there on retail and just some slowdown we've seen some during the summer. Just can you comment anything quarter-to-date? It doesn't seem like you're seeing any of that but wanted to bring it up.

And then, Ajay, I think you mentioned the pull forward of some investments. The flow-through margin on the second quarter was not as high as some of the other quarters. Can you dig into that a little bit more and is that something that we should kind of model for the future? Or is this kind of a onetime initiative? Just more detail on the margins in 2Q and what it means to the back half and go forward.

Thanks for the question. I'll start, and I'll hand it over to Ajay for the second part of your question.

As far as what we're seeing on the platform right now, our consumer continues to be quite resilient. We're all obviously looking at the buyer and supply coming through on the site. Supply continues to be strong, sitting at that intersection like we always say between luxury and value, where if we do see some sort of consumer confidence or that softens, it actually strengthens our case much of the time. So the buyers continue to find their value prop compelling on our platform.

And I'd say one other thing that we are seeing, like you know this, but we offer that breadth and data across thousands of designers, and categories and price points. So when this consumer preference shifts, we're able to kind of shift with them pretty quickly.

Thanks, Rati. And to your other question on Q2 results, we're pleased with our results in Q2. GMV was up 22%, and we saw that translate to EBITDA of 7%, which was up 290 basis points year-on-year. As you look at that, it is in the range of what we expect to see on our path to delivering 15% to 20% adjusted EBITDA margins over the medium term. You've heard me talk about how we expect to add between 200 to 300 basis points of margin every year. Q2 was in line with that range, and our guidance for the year is also to add about 240 basis points in 2026.

Your next question comes from Bobby Brooks with Northland Capital Markets.

On the slides, it was called out AI pricing fully launched and one piece of it called out life cycle discounting. But I know you had already had a system in place that automatically cut the price as items aged. So I just wanted to get a little bit more granular on what's new there?

Bobby, thank you for the question. So what we are referring to there is really how we've extended our AI-based pricing algorithm to now manage the movement of price from when an item is initially launched on the platform. What we are doing today is slowly expanding coverage of that model to look at many more data points like page views that an item is getting, the number of buyers that are clicking on the obsessed icon when they look at an item. And we use those signals to then modulate the price of the item going forward. It's a lot more precise.

Prior to this model, we still had a lot of people that could override that, and we had more merchandising team effort going into this, and now we have more precision into how we move our prices. The net effect, of course, of doing all this is we are able to capture a slightly higher price. We're able to get the best possible price on behalf of our consignors and also make sure that our sell-through rate stays strong.

Got it. Just a more precise way of doing it is essentially it relying more on data signals.

Yes. Yes.

And then active buyer growth has been strengthened in the last few quarters, and the second quarter was the strongest percentage growth in some time, and that's really impressive when you think of the nominal numbers getting higher. And obviously, a lot of large numbers make those percentage games tougher, but it's not seemingly being an issue for you guys.

So if maybe we step back, what in your approach to getting new buyers might have changed over the last couple of quarters that you think is really driving this acceleration? And are there more benefits to come from the strategy?

Bobby, I'll take this one. Thanks for the question. So a couple of things. We're seeing the flywheel. We talked about the flywheel. That just becomes a more and more important mechanic in our business. And that strategy is gaining real momentum. So we're seeing the strong network effects there. 44% of now our new consignors came from our active buyer base in Q2. So the buyers we're acquiring today are just increasingly becoming consignors, and that's how we're acquiring the buyers in the first place. So just self-reinforcing that loop and what makes our business model so durable and capital efficient at the end of the day.

But yes, we surpassed over 1.1 million buyers, growing, I think we said 11% year-over-year. The spend is higher. We're seeing 50% more value come in through them. And then mostly Gen Z and Millennials, those are our fastest-growing segments as well, so younger. And then we're just -- as we think about our marketing messaging and our material, you'll see us looking at messaging that is flywheel. So The RealRealer campaign was something that we launched that had really great conversion as well.

And if I could just squeeze one more in, you mentioned signing up 2 consignors for the dropship from -- Japanese consignors for the dropshipping. Just would love to hear a little bit more color there. And maybe if you could help frame, is that like kind of the of the 2 really -- 2 large new adds, or have there been prior ads before? Just trying to triangulate that.

Yes, sure. I'll take that one, Bobby. So I'd say we're making deliberate measured progress on dropship, our kind of way into international. Yes, I talked about in Q2, we onboarded 2 pretty large Japanese vendors onto our dropship program and other significant partners as well in Europe, France and Italy specifically. I believe they have the potential to become some of our larger sellers on the platform. Still really early days. We talked about this year being very much in the test and learn phase.

But I'd say the early results are encouraging. And in the medium term, I continue to believe that the opportunity is real. What I like about dropship is that the supply is largely incremental, a supply that wouldn't necessarily come via some of our other consignment channels. And then July marked our highest volume month in dropship. So again, you're seeing strong effects there. So we're excited about that.

Your next question comes from Marvin Fong with U.S. Bancorp BTIG.

And let me add my congratulations on the great performance. Maybe on AOV, obviously doing really well there. Could you just break that down between ASP and UPT? And just secondarily, it's obviously rising pretty rapidly in value. Do you see any sort of limitations on that as the ASP potentially kind of reaches out the reach of some of your buyer population? Just kind of help us understand how to think about that. Or is it just that luxury in general is just price appreciation there makes it so that they'll still continue to buy on your platform?

Thanks for that question, Marvin. We've seen a healthy balance between units and price in our growth rate. In recent quarters, you're right, that balance has indexed more towards price, and we see that being driven primarily by consumers shifting their mix towards more high-value items.

I think when you step back from that dynamic, we cover a wide range in the category of luxury fashion, right? We have multiple categories, and we have a wide range of price points. And as a marketplace, we're largely agnostic to any shifts within that mix because our monetization and our unit economics are strong across our assortment.

I think it really points to the beauty of our marketplace and how we can quickly move to capitalize on any shifts in trends in luxury fashion. And it's really that flexibility that we would highlight as translating to the durable growth that we've seen in the last few quarters.

Okay. Great. And my second question, just on the AI shopping assistant. With most platforms, that would be viewed as positive for conversion. But since you guys already have such high sell-through, can you just kind of help us understand how that might benefit your P&L perhaps just by higher consignor satisfaction and faster product velocity? But however you think about it, just help us with how that might manifest itself financially.

Yes, sure. I'll start, and then Ajay, feel free to add on. So how we're thinking about this is first of all, it's about transforming the customer experience, thinking about where they're headed. In general, for us, just more broadly, we're thinking about optimizing TRR for agentic search, for example, AEO. I'm confident we are keeping pace and moving with the customer in a lot of ways.

So you heard us say that we're launching a test around conversational shopping in partnership with Google. That personalized test set of results gets you the most personalized listing and gets it to the buyer even faster. So that could mean less discounting, discoverability, right?

So we're using AI automatically to enrich the listing for whether it's occasion, collection, trend data. And so making our inventory more discoverable, both on and off platform. And so looking at conversion to see what that KPI looks like. But to your point, our sell-through is good, but does that mean less discounting when you're getting the product, the right product to the right buyer even faster.

Yes. And maybe to add to that in terms of impact to the P&L, right, it is really about conversion. We have over one million items on our website at any given point in time. And tools like conversational search really help that buyer find what they're looking for. You've heard us talk about the strong network effects on our platform. As we bring in more buyers onto the platform through investments in helping demand move quicker, we can then convert them into becoming consignors and increase the LTV that they represent to the RealReal.

Your next question comes from Matt Koranda with ROTH Capital.

This is [ Joseph ] on for Matt. Just wanted to see if you guys could touch on guidance here. A pretty big uptick if you look on year-over-year growth trends for GMV versus the prior back half prior comps. Just could you talk about what trends you're seeing either the supply or demand side that gives the team confidence in the second half outlook or if there's any notable consumer behavior changes just given the recent months with geopolitical and market volatility?

Yes. Thanks for the question. Q2 was a standout quarter. We delivered an all-time high in GMV. And I think more importantly, it was our fourth consecutive quarter above 20% growth. And as we look at sort of what's behind that growth, I would point to a lot of fundamentals, right? Our supply is strong. Our strategy towards unlocking supply is working well, and we are seeing our advantages compound and drive that growth.

Our buyer base is also growing. We reported 11% trailing 12-month buyers, and we are seeing more of those buyers convert into sellers, 44% versus 40% just a couple of quarters ago. As we look at the second half, these trends from Q2 and the fact that we have strong line of sight into Q3 give us the confidence to raise our guidance for the year. And that's why you see us taking it up from a midpoint of 15% growth on GMV to now 20% growth for 2026.

To add to that a little bit. As far as supply grows and what gives us confidence in the back half of the year, we talk about consignors being our key component for our supply engine. We're seeing the momentum being quite strong there. But what's exciting is that the growth is coming from now multiple channels simultaneously, right? And so they're reinforcing each other. And that's, like I just said, what makes our business so durable. You've got the sales team, our most powerful supply channel. They've got the deep relationships. Supply per sales rep is up 15% per year. And then you've got the professional network through our Real Partners program, which we talked about and their consigned values up 4x per average new consignor.

And then you've got the flywheel working as well as some of these other things that we're testing like dropship and then 1/4 of our new consignors coming from stores. So we have the multiple channels working simultaneously just to really unlock more supply and kind of reinforcing each other.

Got it. And then just to, I guess, double-click on that. Are there any new channels where you're finding more sellers? And can you guys talk about a little bit more on the flywheel there? I know you touched on it just previously, but just want to see what you're thinking about new channels to supply and if there's anything to note there.

Yes. So I touched on a couple of them, but to get into a little more information there, again, when we talk about channels, we've got our sales team. They also operate trust in the states, right? They're managing relationships that bring us some of the highest value supply. We've got our professional network through our Real Partners program. So think stylists, real estate agents, closet organizers and others who have already have the trust of luxury consumers, and that's where we're seeing the consign 4x the value of our average new consignor.

You've got our flywheel. So now 44% of our new consignors are coming from our active buyer base in Q2. So you see that go up from 40% just a couple of quarters ago. So our marketing team is working hard and being very successful to acquire buyers who are becoming consignors.

The retail locations, like I mentioned, this is the in-person relationship that builds and unlocks through the kind of trust and community that we have that really unlocks that high-value product again.

And then dropship, we talked about that briefly as well. It's that asset-light way to bring in supply, find jewelry, watches, handbags, some of that higher value, some of them from international partners as well, and we like that because of the incremental value that's coming in through there.

And we're also opening a couple of new stores, which we discussed as well. So that will bring our count up to 20 by the end of the year.

Your next question comes from Mark Altschwager with Baird.

Curious how you're thinking about luxury manager headcount growth from here? Is the plan to increase the growth there or lean on productivity per manager as the Athena intake kind of takes work off their plate?

And relatedly, just what does the ramp curve look like on a new hire? And how much of the high-value supplier that you're winning is coming from your most senior managers versus some of the newer cohort?

Yes, I can take that one. Thank you for the question. So we plan to grow luxury managers. They grow less than the business does, of course. We're pushing on both things. We're growing the team, but you're also seeing efficiencies come through. And this is some of the things that we talked about agentic on the sales side that we're testing, some of the pricing transparency that we're using smart sales, which we've talked about in the past. So you're seeing more value come in. Supply sales rep is up 15% year-to-date. So you see us doing both kind of onboarding new but also finding efficiencies within the team now. The tenure has also increased pretty significantly. So we're happy about that. You're getting more value there.

And then as far as ramp goes, it was a few months, I'd say a year ago. It's come down a lot because of the tools and now training that we have. So I'd give it about 60 days before they're fully ramped.

A follow-up for Ajay, we have kind of a modeling nuance here. But the NMV grew a bit faster than the GMV and implying the return rate or the cancellation rate improved year-over-year, I think, close to 100 basis points. What drove that? Is that purely the mix effect that we're seeing with the higher value? Or are there other things going on with better imagery on the site or the pricing accuracy with the AI tools? Just anything more on that return rate and where you see that going?

You stole part of my answer there. But yes, we have been working on things to bring down our return rate. Better attribution is key. Better imagery also helps with buyers getting exactly what they're looking for. So those things have been driving, I would say, a modest improvement in our return rate, modest downward improvement in our return rate.

In Q2, in particular, there's also a lapping effect from what played out last year. So that's sort of adding to what you called out, which is the growth in NMV for Q2 being stronger than what you would expected.

Your next question comes from Marni Shapiro with The Retail Tracker.

Congrats on a great quarter. The site is great. It's a fun place to doom scroll all night. Can you talk a little bit about are people spending more time on the site directionally? Is that going up or down? And a couple of questions even within that. Are you seeing them move from segment to segment, maybe starting in handbags, but moving to dresses or jewelry and things like that? And then I have one more follow-up.

Yes, sure. Marni, thanks for the question. Yes, so we do see customers more engaged, especially on the app or more than 40 hours a year is what they're spending on the app. We do get that comment quite often where they're scrolling a RealReal versus social media. And so we kind of took a look at that. And what we're seeing is more of those buyers becoming consignors like we talked about. High value is driving a lot of the growth from a lot of our categories. So fine jewelry, watches, handbags, ready-to-wear.

And then high value was actually up pretty significantly in the first half of the year. So I'm just even thinking items over $1,000 sold, I think, almost up 40% year-on-year as well. And then we talked a little bit about the Gen Z and Millennials growing and just kind of our fastest-growing segments there.

I'm curious, do you have the ability once somebody adds something to obsessions, do you have the ability to market to them to increase conversion because it would seem that that would be the easiest place to kind of pick them off for lack of a better word. Do you have the ability to do that? Like what is the conversion rate on obsessions for you guys?

Yes, for sure. So we can see a lot of that, what the customer is doing, kind of how they're behaving, the views, what they're adding to cart, what they may also like, for example. And this really is, at the end of the day, kind of going from being a transactional -- having a transactional relationship on our marketplace with our customer to more of an emotional or relational one, right?

So becoming that personal adviser for our customers' closets through tools like well, you're really kind of hinting at is MyCloset, right? So that price estimator, a seller experience that really deepens over time, the education that we can give them to help them make decisions in the primary market. For example, what is selling well, what is hot, what does hold this resale value, what doesn't.

But we're set up really well to do this. We're using AI, we're using data to get smarter every quarter. So you've got 15 years of proprietary data on over 50 million items, powering our pricing, our authentication, search, just the member tools that we have, and we'll continue to evolve this.

Your next question comes from Ashley Owens with KeyBanc Capital Markets.

This is Victoria on for Ashley. I just wanted to double-click on Athena and the AI pricing now. So with Athena on track for 50% by year-end and AI pricing now fully launched, can you just paint a picture of how the platform is getting smarter every quarter? And what changes you're expecting to see with the technology over the balance of the year?

I also wanted to ask how it's determining the prices. So if it's looking at a pre-used item versus a dropshipping item in terms of condition, the year, et cetera.

Yes. I can take that question. So let me first talk about Athena. So Athena is our proprietary item or it's our AI-powered intake process. And last year, we started from 0, and we ended the year with Athena processing about 35% of our items, and we continue to expand that model to now cover up to 50% of items by the end of this year.

It really drives efficiencies. It's a key driver behind operating efficiencies in our ops and tech line. And what's key for us to expand that this year is to extend it from low-value items, which is where we originally built the models to now going into mid-value and high-value items. We see the results as being multiple dollars per unit coming out from processing costs. It also affects speed, speed to sell, which is very valuable for customer satisfaction.

On pricing, just to make sure I got your question, our pricing algorithm is being applied to all the items on the site. So it covers consignment, it covers items that are coming from dropship as well. What it does is it looks at over 100 different data points to compute what the price is likely to be. And we use information like what's the item category, what is the history that we have on that. There was a question on obsessions. That's a great input into that, right? We know how many people looked at it as well and what kind of popularity it has. So we use all that information to come up with the pricing.

We've been building this algorithm to first focus on launching price, and now it's been extended into managing discounting going forward as well.

And then I just wanted to double-click on the variance between GMV and total revenue. The gap widened this quarter when I think the guide implied that it would be similar or down from 1Q. I just wanted to ask what's changed relative to your expectations in the quarter? And should we still expect this gap to narrow in the second half of the year?

Yes. Thanks for that question. So the gap between GMV and revenue growth for us is primarily about take rate. And you heard us talk about how we've seen a favorable shift in mix towards higher-value items. And when we sell more high-value items, those come with a lower percentage take rate, but they have strong unit economics, they generate more profit dollars. I mean to put that in context, you heard Rati talk about how items above $1,000, sales of those items has increased 36% in the first half. That gives you a sense for how that mix is shifting.

Our guidance contemplates the relationship in the second half to be similar to what we are seeing right now, and that's what's implied in the go-forward guidance for 2026.

Your next question comes from Jay Sole with UBS.

My question is just about what's your updated thinking on the convertible notes, warrant liability, dilution management and just capital allocation priorities in general as the free cash flow continues to improve?

Yes. Thanks for that question. We continue to operate a very cash-efficient business model. And our priority to keep strengthening our balance sheet by deleveraging is still a focus for us. If you look at the last couple of years, we have reduced our total debt by slightly over $80 million, and we will continue to pursue all options to do that going forward.

Your next question comes from Anna Glaessgen with B. Riley Securities.

Just one for me. I wanted to get a little bit more perspective on the growth in above $1,000 items. It sounds like it's a mix of both category as well as mixing up within category. Just any additional perspective would be great.

Anna, yes, thanks for the question. We're seeing it across the board actually. So fine jewelry, watches, handbags and ready-to-wear, all kind of in that category. I'd say it's driven by some of even the unbranded jewelry that we sell on our site.

Your last question comes from Dylan Carden with William Blair.

I was curious kind of looking at the guide for the next 2 quarters, it looks like you're into that longer term algorithm you speak to low double-digit top line, 150, 200 basis points of margin improvement. And I'm just wondering, is part of that -- obviously, that's what you've spoken to, but is some of the low-hanging fruit on the efficiency side behind you at this point? Because I kind of hear different things on the body language like there's still a lot ahead from an efficiency standpoint. But should we expect maybe a slower pace of margin improvement as you work towards kind of what you expect structural top line to that extent?

Yes. Thank you for the question. Yes, when you think about our path to expanding EBITDA margins to 15% to 20%, we do see our goal as balancing growth with profitability. We want to make sure that we strike the optimal balance between the 2. For us, that represents margin accretion of roughly between 200 to 300 basis points in any given year. Our guidance for this year would imply accretion of 240 basis points, which is right in the middle of that range. We will continue to manage the business to make sure that we're delivering on both fronts, capitalizing the opportunity in front of us, a $250 billion TAM with us being the market leader in this space and making sure that we're flowing more of that down to EBITDA.

Okay. And then on the marketing efficiency side, I know it's getting better from just the conversion going after more LTV, higher LTV customers. But are you able to toggle in a way to where your capacity to sort of stimulate buyers to become consignors and vice versa? Is that a muscle that you're able to flex more in the market just from the acquisition side?

Yes. Yes, Dylan. So we are definitely seeing more levers that we can pull on the marketing side. So flywheel and buyers becoming consignors for sure, getting smarter about going out to the right consignors, quality consignors with higher conversion that is going to have that mid- and high-value product. So we're definitely making a deliberate investment here, and we see real opportunity in front of us as resale adoption is accelerating, that younger consumer are discovering luxury or graduating to our platform. When you see that kind of opportunity, we're leaning into that as the ROI is there.

That concludes today's call. You may now disconnect.

Good afternoon, everyone. My name is Megan, and I will be your conference operator today. At this time, I would like to welcome you to The RealReal First Quarter 2026 Earnings Call. [Operator Instructions]

At this time, I would like to turn the call over to Caitlin Howe, Senior Vice President of Finance.

Thank you, operator. Joining me today to discuss our results for the period ended March 31, 2026, are Chief Executive Officer and President, Rati Levesque; and Chief Financial Officer, Ajay Gopal.

Before we begin, I would like to remind you that during today's call, we will make forward-looking statements, which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q.

Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking. We have provided reconciliations for historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our Investor Relations website.

I would now like to turn the call over to Rati Levesque, Chief Executive Officer of The RealReal.

Good afternoon, and thank you for joining us on today's call. Q1 demonstrated the strength of our platform as our financial and operating results exceeded expectations. I'm very proud of the team's execution during the quarter. Q1 was our fourth consecutive quarter of double-digit top line growth and our third consecutive quarter of growth exceeding 20%. We also expanded adjusted EBITDA margin by over 400 basis points year-over-year. Trailing 12-month active buyers grew double digits year-over-year, which reflects higher levels of trust and an acceleration in engagement with our platform.

I want to take a step back to provide perspective on where we've been, where we are and where we're headed. 2024 was about stabilization. We defined our strategic direction and got to work executing against it. We stabilized operations, improved unit economics and validated our transformation.

2025 was about optimization. Last year, we articulated our growth playbook and go-to-market engine to unlock supply and drive profitable growth. The results validated our approach. We surpassed $2 billion in GMV, accelerated top line and delivered positive adjusted EBITDA in every quarter.

2026 and beyond is about compounding. We've laid a solid foundation and the mechanics are working. Now our customer relationships, our data, our brand and our scale are reinforcing each other, each one making the next stronger, compounding our advantages. We've become the barometer of the luxury industry. We capture luxury demand in real time. The categories, brands and looks trending on our platform are often the earliest signal of where the market is moving.

Our customers come to us first to see what's trending, what their items are worth and where fashion is heading. A customer's relationship with TRR begins before the transaction and continues long after it. When you consider that about 50% of our customer base is Gen Z and millennial, it's clear that resale is not a passing trend. It's a core component of the future of luxury. And with 47% of luxury consumers considering resale value when purchasing in the primary market, we're changing how people shop.

Our business helped to drive this shift. We've created a full-service managed marketplace with the authentication, logistics and trust luxury requires. By modernizing how consumers think about fashion and the value of their closet, we're cementing the operating system for luxury ownership. We are leaning into this vision through three strategic pillars.

First, our growth playbook, which is how we unlock supply and drive flywheel behavior as we become the default luxury resale destination; second, obsessing over service, which informs our mindset in every customer interaction and turns transactions into relationships; and third, operational excellence, which is how we use AI, automation and data to improve unit economics and enable scale.

Our first pillar is our growth playbook and the mechanics are working. Our sales team remains a key competitive asset. We are actively deepening our moat, empowering our sales team to act as trusted advisers, helping to manage our consignor's closet. Our algorithmic pricing tools equip our sales team with data-driven earnings estimates, giving consignors clarity and confidence.

In a brand-forward marketplace, this trust deepens engagement and loyalty, which keeps consignors coming back. We're also extending the reach of our sales team through our referral programs. With the Real Partners program, we're building a network of stylists, closet organizers and real estate agents, the professionals' closest luxury closets who refer their clients to TRR and earn commission. It's an efficient way to reach high-value consignors, and we see significant long-term potential to expand our partner base.

Turning to stores. Our stores continue to deepen the consignor relationship, and we're excited about the new markets we're adding for 2026 in San Francisco and Boston. Stores play an important role in generating supply. Sellers who engage with the store deliver 40% more value. In terms of newer supply channels, our drop-ship and vendor channels are expanding. We're building an asset-light international supply network and starting to develop a partner base in places like Italy, France and Japan.

Building on our success with drop-ship in the U.S., we see significant runway to grow this channel over the medium term. These supply strategies are successfully driving the compounding mechanics of our platform and accelerating our network effects. As buyers become consignors, our flywheel spins. These flywheelers, whom we affectionately refer to as RealRealers, spend 50% more time with us than the average customer and the flywheel accelerates.

The next strategic pillar, obsessing over service, propels the growth playbook forward. Service and data insights for both sellers and buyers helps turn a one-time transaction into a relationship. The full MyCloset suite is the product manifestation of our vision to become the personal adviser to the closet, creating the system of record for our customers' luxury assets. MyCloset will provide real-time estimated value, price tracking and trend intelligence. This further removes friction for the seller and engages customers beyond the transaction.

On the buyer experience, our product road map includes AI recommendations in the near term, followed by enhancements in search and discovery. Every item on our platform is unique, which makes agentic and conversational search powerful, and we're excited to continue rolling out features in 2026. Through our growth playbook and obsessing over service, we are building the infrastructure layer for luxury and efficiently connecting buyers to consignors.

Our third pillar, operational excellence drives profitability and scalability. Our AI-enabled intake system, Athena, is automating the repetitive data-driven parts of intake, freeing up our experts to focus on the valuable work that requires specialized expertise and judgment. We're targeting to end 2026 with nearly 50% of items fully flowing through Athena, improving processing times, speed to site and our unit economics.

Beyond intake, our pricing strategy is also getting smarter, building on our foundation of structured market signals to inform pricing, we've recently introduced AI-powered image embedding. By incorporating image data, our models better account for visual characteristics when determining market value. These visual details give us better comparables to price against and help maximize earnings for our consignors. Later this year, we're rolling out an automated storage and retrieval system at our Perth Amboy authentication center, adding automation and increasing our capacity by 35%. This lets us efficiently handle growing volume at higher speeds without opening additional warehouses, more throughput in the same footprint.

Together, these 3 strategic pillars are compounding our advantages and extending our leadership position in the growing luxury resale market. None of this is possible without our consignors. Over the past 15 years, we've paid out more than $6 billion to our consignors, who trust us with pieces that carry real meaning and real value. I also want to sincerely thank our team. None of this happens without you. Together, we built a strong foundation, and I'm excited about where we're headed next.

I will now turn the call over to Ajay.

Thank you, Rati. Good afternoon, everyone. I am pleased to review our financial results for the first quarter of 2026, which demonstrate a powerful start to the year and the continued disciplined execution of our strategic pillars. We are helping customers view their closets as an asset class, and The RealReal is the trusted destination to manage and monetize those assets.

In Q1, we delivered robust top line growth with GMV increasing 24% and revenue up 19% year-over-year. Beyond the headline numbers, we saw deeper engagement with our platform. In Q1, 43% of our new consignors came from our active buyer base. These flywheelers or RealRealers, as Rati mentioned, enhance our network effects and are an important driver of our long-term growth.

Our approach to unlocking high-quality supply, combined with our focus on operational efficiency is yielding results. In Q1, we achieved adjusted EBITDA of $13.1 million or 6.9% of total revenue and expanded our margins by 430 basis points, which showcases our ability to drive operating leverage.

Now turning to our detailed first quarter results, beginning with top line. Q1 GMV of $606 million increased 24% compared to last year. On a 2-year stacked basis, GMV was up 32%. Q1 total revenue of $190 million increased 19% year-over-year. Consignment revenue grew 18% and direct revenue increased 26% compared to Q1 of 2025.

Buyer engagement accelerated with trailing 12-month active buyers up 10% year-over-year. Average order value of $646 increased 15% versus last year. Q1 take rate of 36.4% declined 220 basis points year-over-year. This was due to a favorable mix into higher-value items. As we've explained before, these items carry a lower percentage take rate while generating more profit dollars and improved unit economics.

On margins and profitability, first quarter gross profit of $141 million increased 18% year-over-year. Gross margin of 74.5% decreased 50 basis points compared to the prior year, driven primarily by the mix of products sold. First quarter operating expenses leveraged 730 basis points year-over-year as a percent of revenue. The improvement was driven by operating efficiencies and volume leverage on fixed costs.

As we continue to scale Athena, outbound automation and other productivity initiatives, we are driving operating leverage. First quarter adjusted EBITDA was $13.1 million, an increase of $9 million versus the prior year and 6.9% of total revenue, an increase of 430 basis points year-over-year.

Moving to the balance sheet and cash flow. We ended the quarter with $139 million in cash, cash equivalents and restricted cash. Our operating cash flow in the first quarter was negative $16.6 million, $11.7 million improvement year-over-year. As a reminder, our cash flow is influenced by seasonal factors and similar to prior years, we expect our cash flow to be back half weighted.

Moving to our financial outlook. Based on our strong performance, we are increasing our full year outlook and providing guidance for the second quarter of 2026. We are raising full year GMV to the range of $2.42 billion to $2.47 billion, representing 14% to 16% growth year-over-year. Revenue is expected to be between $770 million to $784 million, translating to 11% to 13% growth versus last year. Adjusted EBITDA is expected in the range of $59 million to $67 million, which represents 8.1% margin at the midpoint. This is an improvement of approximately 200 basis points versus 2025, and we remain on track to reach our target of 15% to 20% adjusted EBITDA margins over the medium term.

Moving to our outlook for the second quarter. We expect GMV in the range of $590 million to $600 million, representing 17% to 19% growth year-over-year and 32% on a 2-year basis at the midpoint. Revenue is expected to be between $186 million to $189 million, representing 13% to 14% growth versus last year. Second quarter adjusted EBITDA is expected to be between $11 million and $12 million, representing 6.1% margin at the midpoint and approximately 200 basis points of margin expansion year-over-year.

In closing, our performance is evidence that our strategy is working. We are driving top line growth while strategic investments in AI and automation are enabling us to expand margins over time. Each year, over 35 million buyers purchase luxury goods in the U.S. primary market and resale adoption is growing. We are helping to drive that adoption through our unique approach to unlocking supply, removing friction for our sellers and accelerating the flywheel. I want to extend my gratitude to our entire team for their hard work and execution to start the year.

With that, we will move to Q&A. Operator?

[Operator Instructions] Our first question will come from Marvin Fong with BTIG.

Congratulations on the strong results. I guess I'd like to just kind of start -- I mean, obviously, we can see your guidance is calling for fairly consistent growth on a 2-year basis for GMV. But just in light of the Middle East conflict and surging fuel prices, just both on the demand and the supply side, is there anything to call out shifting product mix on buyer demand and on the supply side, might you be seeing any incremental supply coming your way as consumers try to cope with the cost of living?

Thanks, Marvin. Thanks for the question. A couple of things. So I'm hearing what is kind of our confidence in the full year. This is now our fourth consecutive quarter of double-digit growth. We're seeing the customer, both buyer and consignor being quite resilient actually, and that continues. That trend continues. Our value props are resonating with our customer. And I think at the end of the day, it's that intersection between value and luxury that we can offer. So when value of dollar becomes top of mind for our customer, that's kind of where we are.

And we, of course, have that higher income customer profile as well. Our supply looks quite healthy, all driven from our growth playbook that we talk about, retail becoming mainstream, but also this flywheel. So you saw an acceleration in our buyers and those buyers becoming sellers. So the top of funnel metrics were focused more of our marketing dollar and top of funnel, but also around our social channels working, and really driven by mostly Gen Z and millennials. So continuing to build trust with our sellers and continuing to see kind of the top of funnel metrics be quite healthy.

Got it. And if I could do a follow-up, just obviously, we saw the surge in AOV and consumers clearly are shopping your higher-end items. Just why do you believe that's happening? And how sustainable is that trend, I mean, considering, theoretically, the consumer is a bit stressed here, but you guys continue to outperform in handbags, jewelry and those types of items, it sounds like. So just any thoughts on how sustainable that trend is?

Thanks for the question, Marvin. We've seen a healthy balance between price and volume in our -- over the last few quarters that's been driving our growth. I think the shift to AOV is it's a testament to the trust that we've built in our platform and the willingness that customers demonstrate on being interested in coming to The RealReal for high-value product. For us, what's exciting, it really showcases the flexibility of our marketplace, right? As customer preferences shift from one category of fashion to another, we are able to quickly pivot and meet them and get them exactly what they're looking for.

Your next question will come from Dylan Carden with William Blair.

I hope that worked. Curious, you're seeing this really nice balance between customers and AOV. And I'm just kind of curious how you're thinking about that through the balance of the year. And then on marketing and sort of customer acquisition, it seems you speak to flywheel and this idea of compounding. And I'm just curious if there's sort of also a healthy repeat trend in this business where you're out there acquiring either sellers or buyers and part of what you're seeing, particularly on sort of the order side or the order value side is sort of return of some of the efforts that you made in the last sort of 2 or 3 years.

Yes. Dylan, thanks for that question. Yes, we are seeing a nice mix of customer growth and sort of their willingness to buy higher-priced items. In Q1, we reported an acceleration in active buyers, which came in at 10% on a trailing 12-month basis. And we've seen a lot of success in mixing -- in shifting the mix of our products into higher value and capitalizing on that opportunity. I'm going to turn it over to Rati for the other part of the question around flywheelers because it's a really exciting story there.

Yes. So with the flywheelers, you've heard us talk a lot about that, and our strategy there is working. So we've seen acceleration in buyers, but it's not just about bringing in any buyers. It's bringing in the buyers that are sticky but also turn into consignors. So as retail is becoming more mainstream, we can kind of target the right flywheelers and bring them into our ecosystem. And again, that's more driven out of Gen Z and millennials.

So our marketing investment has very much been focused around that. They have a high confidence in our ROI, and then obviously, leveraging AI through our smart engine and more targeted offers as well. And you hear me talk about social, but also things like our affiliate program and referrals are our fastest-growing segments. And so we're optimistic in our investment here in focus.

Would further retail expansion be a piece of that going forward? Could you accelerate stores? Do you need to accelerate stores?

Stores is always a part of our strategy, our retail locations, and that's the buzzwords, you always hear me talk about the growth playbook, but that's a part of the strategy. It's marketing. It's our sales engine, the IP of our sales team and the retail location. So that trifecta really working together compounds our growth rate and compound supply.

Your next question will come from Ike Boruchow with Wells Fargo.

I guess maybe Ajay, I'm trying to think about how the flow of the model should move from here. I understand what's going on with AOV and take rate. I think you had said 3 months ago, take rate should be pressured in the first half and normalize in the back half. Can you kind of give us some specifics on how you're expecting that to flow? And then kind of a similar question on the direct side of the business, I think up 26%. Like does that growth rate moderate further as you move through the year? Just kind of curious on those two line items, how we should be thinking about the model?

Absolutely. Thanks for the question, Ike. So maybe starting with take rate, our blended take rate in Q1 was 36%. And just as you pointed out, and we'd mentioned earlier, right, we do expect pressure on our take rate just from the shift in the mix, right? We -- our take rate is designed in such a way that it gives us strong unit economics across a pretty wide price band. And as we mix into higher-value items, the percentage is a little lower, but those items generate better unit economics and stronger profit dollars. So a good trade-off for us at the business.

We expect that to continue, as you can read into our Q2 guidance. And we do expect that to sort of start to -- those two lines to get a little closer as we get into the second half. That's our expectation. But at the end of the day, like I said earlier, it really depends on where the market preference shifts and our ability to be able to capitalize on that shift in real time. The direct revenues, we've made some changes to direct revenue last year. We really looked -- took a hard look at the mix of what was in there and improved the margins as well. So in Q1, it grew 26%, slightly higher than the aggregate business, but not by much, right? Because GMV was up 24% for the total business and direct revenues grew 26%.

So we think it's in a good place right now. It will scale with the business, and we expect it to be in that range of 10% to 15% of total revenues going forward.

Your next question will come from Bobby Brooks with Northland Capital Markets.

So obviously, you're seeing excellent buyer growth in the Gen Z and millennial cohorts. But I was curious, is that the same from the consignor growth point of view? I think that a bigger piece of that supply that you guys talk about or kind of we all know that is just sitting in people's closets, collecting dust are probably more towards the Gen Xers and even maybe baby boomers. And maybe the consignor growth matches the generation mix of the buyer growth. And if that is the case today, could you just discuss your approach to winning the consignors and buyers from that older demographic?

Yes. Thanks for the question, Bobby. So actually, many -- like I said, many of our new consignors come from our buyer population. And those trends and patterns, we have not seen change. They may be a little more diverse on the supply side, but still driven by millennials and Gen Z as well. As far as tactics specifically to bring on the flywheelers, like I mentioned, reconsign is a big one.

So MyCloset, you heard me talk about that a little bit, but this one-click reconsign button to get people to consign as first-time consignors before we know when they bought a handbag, for example. And 6 months later, they're ready to consign it. How do we give them the right signals and how do we personalize our offerings to bring them on as consignment. That's really working. Pricing estimators are really working, leveraging our sales team is all really working, giving them the base of consignors to go after our leads and opportunities is also really working.

So all of that kind of together, along with our retail locations is bringing on the supply, but also in this kind of those same cohorts as the buyer, very similar to the same cohorts as buyers.

Got it. And then just mention building this international pipeline of supply, and I think you specifically called out France and Italy. I just want to unpack that a little. Is that with the kind of individual consignors that you guys -- are currently your bread and butter in the U.S.? Or is that working with brands directly or manufacturers directly? Just really curious to hear more there.

Yes. So drop-ship, it still continues to be early days here. We continue to learn. I will say it's meaningful growth rate, but not what's driving the growth. So yes, directly able to unlock supply from international vendors or partners like we talked about in the opening remarks. This enables us to kind of test and learn as we think about a more localized approach to international.

So we're kind of taking this crawl, walk, run approach. We're launching cross-border this year, again, focus on demand there with the idea that we're focused on drop-ship and bringing on some of these international partners that way, looking to see what kind of product we can get from some of these international partners look like, what does the sell-through look like? Before we kind of move into a broader, more localized strategy. The opportunity here is huge. As we know, the TAM is really big, and we're excited about the next steps here.

Got it. And then just one last one for me. So the implied revenue guide, a little bit of a decel comparatively to 1Q, but 1Q had the easier comp with the California fires from last year, right? And it seems -- it just seems like listening to the commentary and the tone that things are really accelerating for the business and maybe that year-over-year 2Q revenue guide at face value doesn't really express that fully.

So I was just curious to hear your thoughts on kind of my line of thinking there. And maybe if I am right, could you just expand a little bit more like below the numbers on the acceleration or momentum that you're seeing in the business?

Thanks for that question. I can take that one. So Q1 was really strong. GMV was up 24%, and it was also our fourth consecutive quarter of accelerating GMV. When we look at what's driving that strength and what's driving that performance, it's a lot of the fundamentals, right? We are -- it's the growing interest in resale as a category. It's our ability through our strategic initiatives to unlock supply and bring that supply on to a high-trust marketplace. And we're seeing that translate into strong growth of the business, attracting more buyers, which also came in at a nice 10% growth on an active basis.

So when we look at Q2, all of those fundamentals continue to be true, right? We have high confidence in the guide that we've provided. We're starting the quarter strong. And when I -- it gives that confidence also translates into the full year guide where we've increased the midpoint of our guidance from 13.5% GMV growth to 15% GMV growth. So we'll keep executing and delivering against that plan.

Your next question will come from Matt Koranda with ROTH Capital.

A lot of the demand stuff has been covered, but I wanted to dig a little bit more into the O&T expense. You leveraged that nicely in the quarter. But I guess on a per order basis, it was kind of flattish. As Athena penetrates further into the business later this year, I guess, how should we be thinking about per order sort of O&T expense and whether we get leverage later in the year?

Yes. Thank you for that question. Operations and tech was a significant source of operating leverage for us. It has been -- it was true in last year when it leveraged 330 basis points. And in Q1, it drove 320 basis points of leverage. We think it continues to be a source of where our margin expansion is going to come from. When you look at our full year expectation to expand EBITDA by 200 basis points as we balance our expanding margins with delivering growth, ops and tech will continue to be a key component of that margin expansion.

Okay. And then just philosophically, if you get upside from efficiency around Athena implementation, is that -- are those dollars that you would consider reinvesting in marketing to speed up customer acquisition? Or is that something you'd let flow to the bottom line? Maybe just a little bit on your thought process around how you think about upside as you implement Athena?

Yes. Great question. I mean we love that question. Definitely see it being reinvested back into growth, right? We are -- you've seen us put more money into marketing as we are able to gain more confidence on the return against that spend. The ROI is definitely there. We're also excited to invest a little in product and technology. There's been some very impressive gains in the world of artificial intelligence. And we see an opportunity to translate those gains in AI into our business model.

So we will continue to lean into things that drive growth and balance that with expanding margins. I think we are set up to do both.

Your next question will come from Mark Altschwager with Baird.

I just wanted to ask about the supply pipeline, watches, jewelry, handbags, that's really been the AOV story for a few quarters now. Can you talk us through the supply visibility as you look 6, 12 months out? I mean, are you seeing any signs of tightening in those particular categories? Or is it still feeling pretty robust there?

And then relatedly, Ajay, just bringing it back to the model, we do begin to cycle the step-up in AOV from last year. I think the revenue guide seems to imply some moderating AOV growth in the back half. I mean is that the right expectation? Or is there a view that you could still be in the early innings of this AOV momentum?

Thanks, Mark, for the question. I'll take the first one before I hand it over to Ajay. So on the supply side, what are we seeing? Watches, jewelry, handbags, high-value items in general, seeing strong supply coming in through there, strong inventory. Again, this is because of our retail locations, because of our incentives for the sales teams and how we've really prioritized this area. Our NPS is great for the mid- and high-value product as well. So we're seeing like all of that top-of-funnel metrics, our investment in marketing really pay off and bring in the right type of supply.

The interesting thing about us is all this data that we have, right? The 15 years of proprietary data to help us leverage AI. So what that means is we have this agility to our business so we can scale up supply in the areas where customers want very quickly. And we see those trends very quickly, and we can take that out to the sales team and make sure that they're incentivized the right way. So we're not seeing any slowdown in high value. If anything, that's picked up pretty nicely, and obviously has a lot to do with how big the TAM is. But the top of the metrics are solid.

And just tactically, I brought up the flywheel, but also Real Partners and affiliates. So these closet organizers, these stylists, we're really starting to see momentum there with the type of product they're bringing in that again gets -- is a mix of a really nice high and mid-value product, the agentic kind of search on the discovery side, of things selling through in a nice way, gets more money for our consignor and kind of accelerates that flywheel.

I can take the second question, Mark, around sort of AOV for the second half. I think it really goes back to this concept of balance between price and volume growth for us, right? We've seen a healthy balance between the two, and there are quarters where one tends to be a little higher than the other. When you read into our implied second half guidance, yes, we do expect the balance to shift a little bit versus Q1 to a more -- less on AOV, more on units. But really, it comes down to what the customer is looking for and where fashion preferences shift. We have the ability to quickly move in that direction. And just as you saw us capitalize on that trend with jewelry and watches, to your point last year, we'll do the same regardless of where that shifts.

Your next question will come from Ashley Owens with KeyBanc.

It's Victoria on for Ashley. Given the recent increase in oil and gas prices and the pressure we're seeing on the lower-income consumers, are you seeing any divergence in activity between higher-value customers and the more aspirational buyers on the platform?

Thanks, Victoria. Yes, we're not seeing any kind of change in trend when I'm looking at the health of the consumer. Right now, like I said, the buyer and consignor continues to be resilient headed into the quarter. And I really think, again, testimony to our trust, but also, again, that intersection between value and luxury, so that dollar going a lot farther with us. The resale continues to become mainstream. And we're seeing -- as far as trends go, we talk about high-value, but also emerging brands and vintage. So we're much more now the place where people are discovering new brands as well. And if anything, we're also seeing -- because of the trust that we built and the testimony to our trust, we're seeing first-time buyers spending more in their first purchase. So that's the great thing about our marketplace.

And I'd say one other thing that I'm seeing is, I'd say resale in the past was maybe one transaction. It's becoming -- it's less of a trend and a fad now and more we're developing this deeper connection with our customer. And we talk about it a lot in the metrics, right? Almost 50% of customers consider the resale value before purchasing in the primary market now and almost 60% prefer the secondary market outright. So we're seeing definitely a change in the behavior as people are changing the way they shop.

Okay. Great. And then just concerning the consumer pressure, I was curious about how prior cycles went. Has this helped grow adoption for resale in the past?

Yes. So we haven't been through like a recession, for example, a macro. I would say that we were built out of a recession. We say that quite often. The question is do people want to monetize their closet if they're feeling a little bit of pressure. Again, I don't know. But what I do know is and what I can tell you is what we're seeing right now. And supply pipeline looks really good, new consignors, new buyers. We are seeing people wanting to monetize their closet right now. We're seeing people really buy into the value play. And like I said, that intersection between value and luxury really works in our favor right now.

Your next question will come from Jay Sole with UBS.

Hope you can hear me. My question is on just AI and operational throughput. I guess how much of the margin expansion in Q1 was driven by Athena and some of the smart sales impacted by smarter AI pricing? That's the first question. And then sort of any color on AI rollouts versus any kind of seasonal tailwinds, specifically, are you seeing a measurable decrease in time to site for unique SKUs?

Yes. Thanks for that question, Jay. I'll take the first part of it and then hand it to Rati to talk about the broader sort of AI strategy that we see on our business. As it relates to Athena, it is a pretty material component of the source of efficiency that we are seeing in operations and technology, at the end of the year with 35% of items being processed through that workflow, and we see that getting close to 50% towards the year, so -- towards the end of this year.

So it will continue to be a source of efficiency for us. We also have other things we're working on within the operations line. One of our investments this year is in implementing an automated storage and retrieval system in one of our fulfillment centers, and we're excited about that because it's going to allow us to move things faster through our fulfillment centers, and it also allows us to get more out of our existing capacity footprint. So 35% more from the fulfillment center where we would be putting in this technology. So that's as it relates to what we're doing around operations in Athena.

I'll turn it to Rati to talk about sort of the broader AI strategy in our business.

Yes. Thanks, Jay. So I mentioned this earlier, but I think what puts us in a really great position is we have 15 years of proprietary data to position us and leverage AI. So at the end of the day, it's about removing friction, unlocking supply, lowering fixed and variable costs. Our objective is to find these efficiencies, also shorten our SLA, service level agreement with our customer, but while also taking dollars out of the unit cost.

So Athena is one way that we do that, but also how do we get to 15%, 20% adjusted EBITDA margins. It's leveraging our moat, our expertise, authentication, pricing and data, our sales team. We're well positioned to kind of take advantage of these efficiencies. So examples might be smart sales, which you've heard us talk about in the past, authentication as well. An automated storage and retrieval system we're launching right now that will really help a lot of the OpEx costs. And then leveraging across our corporate functions as well. And then on the site experience side, we think about improving discovery or conversational search via agentic AI. So we're pretty excited to test and start using the agentic AI, this human agent collaboration. And it's early innings of capitalizing on the significant and growing TAM.

Your next question will come from Marni Shapiro with The Retail Tracker.

Congratulations on a fantastic quarter. I'm curious, I know we love talking about technology and everything, but I'm kind of curious about the customer side of things just a little bit more. I have a couple of friends -- several friends who actually consign with you and buy with you. And a few of them have said that the experience has been a lot better. So I'm curious about what you're doing to enhance that experience on the buyer side, on the consignor side? And how is it, I guess, rolling out? And what should we expect the rest of the year?

Yes. Thank you for the question. As a team and as a company, we've really been focused around obsessing over service. You hear me talk a lot about that in our script. So whether that is a pricing estimator that we've launched, reconsign, our operational excellence, really looking at kind of the exceptions and making sure that they're going down the right path. MyCloset is another one, right? Or just that deeper connection that we're -- that we have now with the consumer to build trust with our sellers, empowering them with that rich data that we have. And then search and discovery is something else that we're working on this year.

So really thinking about both the consignor and seller -- sorry, the consignor and the buyer experience and really kind of listening in on what the pain points are and addressing them as a team. So still we get really excited about talking about that and how do we kind of continue to increase our NPS. The price estimator is actually launching today. There's a select group of sellers, so check that out, and we'll continue to do our hard work here.

And can I ask a follow-up on that? Because I feel like there are a lot of places to consign or try and sell your pre-loved merchandise. Are you hearing from your customers, whether it's consignors and/or buyers that the trust factor is the thing that's most important. It feels -- we all know that there's a lot of dupes out there. We all know it's hard to verify some of them. Is that the kind of the moat, I guess, that you guys have? I know it's not digital, but I feel like trust is almost more important than making it easy in a weird way.

Yes. So it's definitely around our trust is really important. And the way that we kind of cement our trust is through our sales organization, our pricing and data, our expertise that we have. It's great to see growing interest in the category, but it validates that resale is not just a trend, but really here to stay and kind of cemented into the infrastructure layer of the fashion industry or marketplace.

So our value props really resonate with our customer. And like I said, the IP of the sales team, the authentication and expertise and just building that trust and community, again, driven by Gen Z and mostly millennials. But we are definitely unique and really doubling down on our competitive moat here.

That's great. And also, I know this wasn't new, but amazing that Andy was wearing thrifted and pre-loved items throughout Devils Wears Prada 2. I was like, oh my God, this is just genius for you guys. So congratulations.

Thank you.

Thank you.

Thank you. That concludes the Q&A session and today's call. You may now disconnect.

Good afternoon, everyone. My name is Lennius, and I will be your conference operator today. At this time, I would like to welcome you to The RealReal Fourth Quarter 2025 Earnings Call. [Operator Instructions] At this time, I would like to turn the call over to Caitlin Howe, Senior Vice President of Finance.

Thank you, operator. Joining me today to discuss our results for the period ended December 31, 2025, are Chief Executive Officer and President, Rati Levesque; and Chief Financial Officer, Ajay Gopal.

Before we begin, I would like to remind you that during today's call, we will make forward-looking statements, which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q.

Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking. We have provided reconciliations for historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our Investor Relations website. I would now like to turn the call over to Rati Levesque, Chief Executive Officer of The RealReal.

Thank you, Caitlin, and good afternoon, everyone. Thanks for joining us as we discuss our fourth quarter and full year results. 2025 was a transformative year for The RealReal.

We accelerated top line growth throughout the year, culminating in exceptional fourth quarter performance. We delivered $616 million in GMV for the quarter, representing 22% growth while achieving an adjusted EBITDA margin of 11%. During the fourth quarter, we surpassed the $2 billion mark in GMV for the year, a milestone for The RealReal that gives us further confidence in our growth trajectory and our market leadership position.

For the full year, we delivered $2.1 billion in GMV and our first year of positive adjusted EBITDA in every quarter, demonstrating our ability to scale profitably while maintaining strong momentum.

Before Ajay walks you through our detailed results in a moment, let me provide some context. Our performance in 2025 is the result of years of laying the groundwork for the luxury resale market and refining our business model. We've built a durable and hard-to-replicate foundation that uniquely positions us to lead and create long-term value. We are leading a fundamental shift in the luxury consumers' mindset.

Our customers have begun to view their closets as a portfolio of assets to be tracked, actively managed and eventually monetized. With 47% of all consumers considering resale value when making a purchase in the primary market, we are influencing the luxury consumers' behavior in a meaningful way. I see us becoming the personal adviser of the closet, providing tools, access to information and curated insights.

Today, we are blending uniqueness, quality and depth with the commercial scale and accessibility that only The RealReal can offer. We are leaning into this vision through disciplined execution of our 3 strategic pillars. First, our growth playbook, which is how we unlock supply through meeting the customer where they are. Second, operational excellence, which is how we drive profitability; and third, obsess over service, where we up-level our experience. These efforts are underpinned by a foundational culture of trust with our community of over 40 million members.

Diving into our growth playbook. Our sales team, which we've built over the last 15 years, is a competitive differentiator that anchors our growth playbook. Our model combines art and science, deep personal relationships our team cultivates with consignors, accelerated by data and insights.

Last year, we rolled out Smart Sales, our AI-enabled tool that automates lead scoring, ensuring our sales team is mobilized towards the highest value supply opportunities. In Q4, we launched a new tool for our sales team, which leverages our vast data and AI-led pricing algorithms to provide real-time valuation estimates. It allows for a more precise dialogue with consignors about their expected earnings and strengthens our position as a trusted adviser.

Sales team tenure reached an all-time high in Q4 with 54% of our team at TRR for 2 years or longer. The longer a sales associate is with TRR, the more productive they become. On average, an experienced sales rep delivered approximately 20% more value than a first year sales professional. Our marketing engine drives our sales execution. Active buyer growth accelerated in Q4 to 9% on a trailing 12-month basis. We aren't just finding shoppers, we are identifying future consignors.

Our Q4 results highlight this flywheel in action. 40% of new consignors come from our existing buyer base. By turning buyers into sellers, we're acquiring supply more cost effectively while deepening the loyalty of our community. We accelerated new buyer growth in Q4, and we believe it's a positive catalyst for future supply.

Through leveraging social channels and high-impact creative like our holiday influencer campaigns, we've energized our existing customers and attracted a new generation of luxury shoppers.

Our second pillar, operational excellence, is centered on scaling our unique technology and operational advantages. Our current industry-leading authentication approach is the result of years of strategic development. To date, we've received 12 patents formally recognizing our innovations in luxury resale and positioning us to capitalize on AI as an enablement tool in authentication and pricing.

We continue to lean into our authentication expertise through Athena, our proprietary AI-enabled intake process. Athena is designed to optimize the blend of human expertise and technology. By automating the repetitive data-driven tasks, we are reducing costs and increasing speed to site.

A core advantage of our model involves physical possession. When our experts have an item in hand, we verify details that cannot be captured digitally, like the weight of a gemstone or the texture of a fabric. The success of our approach is showing up in our results. We met our goal of exiting 2025 with 35% of all units fully flowing through Athena, a key contributor to the strong leverage we delivered in the quarter. Looking to the future, we are focused on further automation around listings and fulfillment to continue our progress on operational speed, accuracy and efficiency.

Our third pillar is obsessing over service, which is focused on up-leveling the experience for our customers. As you may recall, we introduced MyCloset last year. The first phase was Reconsign, which provides a one-click consignment experience for items purchased on TRRR's platform. The next step in the evolution of MyCloset is customer tools to track and capitalize on the value of their closet.

We're evolving our consignor interaction to make it less transactional and more relational and enduring. We are the trusted adviser for our customers as they journey through the primary and secondary luxury markets. Currently, we're testing app features that allow consignors to get on-demand valuation and earnings estimates and look forward to expanding MyCloset as we move through 2026.

We are obsessing over service in other ways, including leveraging GenAI to transform how our members discover items on our platform. We've launched a new natural language search experience to make discovery more intuitive and are seeing encouraging results. The new search experience drove a notable improvement in new customer conversion during our test period.

As we look out through 2026, we will expand these capabilities further, starting with AI recommendations in the near term, followed by visual and agentic conversational search to further create a hyper-personalized high-end shopping experience.

In closing, we've proven that our growth playbook is working. By integrating our team's deep expertise with our industry-leading technology, we're building an engine that is designed to scale, win and deliver lasting value.

I want to thank our team across the country and our more than 40 million members. The trust you place in us is our most valuable asset. Looking forward, we're excited to continue to drive results together and delivering on our mission to be the definitive authority in luxury resale.

Thank you. With that, I'll turn the call over to Ajay.

Thank you, Rati, and good afternoon, everyone. I am pleased to review our financial results for the fourth quarter and full year 2025, a year of transformation and accelerating momentum.

In Q4, we delivered double-digit top line growth in both GMV and total revenue, driven by healthy supply and strong buyer engagement. Our disciplined execution against our 3 strategic pillars, the growth playbook, operational excellence and obsessing over service continued to pay off.

We delivered 450 basis points of adjusted EBITDA margin expansion, demonstrating the operating leverage in our business model. We also generated free cash flow of $43 million in Q4, up $23 million year-over-year.

Turning to our detailed fourth quarter results, beginning with the top line. Q4 GMV of $616 million increased 22% compared to last year. Growth was driven roughly evenly by unit volume and higher average selling prices. Q4 total revenue of $194 million increased 18% with consignment revenue up 16% year-over-year. Direct revenue increased 39% compared to Q4 of 2024.

In Q4, active buyers, orders and average order value all increased year-over-year. On a trailing 12-month basis, active buyer growth accelerated to 9% year-over-year. Orders were up 10% and average order value increased 11% versus last year. This growth reflects our success in unlocking supply, particularly in high-value categories like fine jewelry and watches.

Q4 take rate of 36.5% declined 120 basis points year-over-year. This was driven by a favorable mix shift into higher-value items and categories. These items carry a lower percentage take rate while generating more profit dollars and improved unit economics.

On margins and profitability, fourth quarter gross profit of $145 million increased 19% year-over-year. Gross margin of 74.8% in Q4 increased 40 basis points compared to the prior year period.

Breaking this down by channel, consignment gross margin was 89.6% in the fourth quarter, an improvement of 60 basis points year-over-year, reflecting our continued focus on operational efficiency. Direct gross margin was 26% in the fourth quarter, an increase of more than 1,200 basis points year-over-year, driven by favorable mix of products sold. Fourth quarter operating expenses of $139 million leveraged 600 basis points year-over-year as a percentage of revenue.

Excluding stock-based compensation, operating expenses leveraged by 550 basis points. These improvements were driven through increased use of AI and automation in our operations, sales team productivity and leverage on fixed costs.

Fourth quarter adjusted EBITDA of $22 million or 11.3% of total revenue increased $11 million versus prior year. Adjusted EBITDA margins increased 450 basis points year-over-year. On cash flow and the balance sheet, we ended the quarter with $166 million in cash, cash equivalents and restricted cash. Our operating cash flow in the fourth quarter was $49 million, a $21 million improvement year-over-year. Free cash flow was $43 million in the fourth quarter, a $23 million improvement year-over-year, demonstrating our business model's favorable cash dynamics as we grow.

Moving to our full year 2025 results. Full year GMV of $2.13 billion increased 16% versus prior year. Revenue of $693 million was up 15% versus the prior year, driven by strong execution of our growth playbook and our strategic focus on unlocking supply. Full year gross profit of $517 million grew 15% year-over-year. Gross margin of 74.6% increased 10 basis points versus full year 2024. Operating expenses of $541 million leveraged 600 basis points in 2025.

This improvement was driven through increased use of AI and automation, sales and retail team productivity and leverage on fixed costs. We delivered adjusted EBITDA of $42 million for full year 2025 or 6.1% of total revenue, an increase of 450 basis points year-over-year. This improvement in profitability translated to $37 million in operating cash flow and free cash flow of $5 million.

Over the past 2 years, we have reduced our total indebtedness by over $80 million, demonstrating our commitment to strengthening the balance sheet while delivering profitable growth. Looking back on 2025, we made significant progress across our strategic priorities. We unlocked supply at scale through our growth playbook, expanded adjusted EBITDA margins, generated positive free cash flow and strengthened our balance sheet. These results give us confidence in our momentum as we look to 2026.

Now turning to our full year outlook. We are projecting full year GMV growth in the range of 12% to 15%. Revenue growth is expected to be between 10% and 13%. For the full year, we expect gross margin to remain relatively consistent with 2025. Adjusted EBITDA is expected to be in the range of $57 million to $65 million. This represents approximately 8% margin at the midpoint, an expansion of nearly 200 basis points versus 2025, which is aligned to our target of 15% to 20% adjusted EBITDA margins over the medium term.

We continue to expect capital expenditures on property, plant and equipment to remain between 2% and 3% of total revenue for the full year. Regarding cash flow timing, similar to 2025, we expect operating cash flow and free cash flow to benefit from our favorable working capital dynamics in the second half of the year.

Moving to our outlook for the first quarter. GMV growth is expected in the range of 19% to 22% versus prior year. First quarter revenue growth is expected in the range of 16% to 18%. We expect direct revenue to be in the range of 12% to 15% of total revenue. First quarter adjusted EBITDA is expected to be between $11 million and $13 million, representing approximately 6% to 7% of total revenue and 340 to 430 basis points of margin expansion year-over-year.

In closing, our fourth quarter and full year 2025 performance underscores the financial power of our model. By scaling our growth playbook, while leveraging AI-driven efficiencies, we have improved our unit economics and delivered meaningful margin expansion. Our progress on delevering, combined with our ability to translate gains and adjusted EBITDA into free cash flow, strengthens our financial foundation. As we enter 2026, we're focused on continuing to drive operating leverage as we scale.

Thank you to the entire RealReal team for your dedication and for driving these outstanding results. With that, I will now turn the call back over to the operator for Q&A.

[Operator Instructions] Our first question comes from Ashley Owens.

Well, first and foremost, congrats on the quarter. I did want to start out. I just noticed that AustinTech accelerated its deleverage. So I did want to touch on Athena. You've talked through the year about how central Athena is to that operational model and you hit the target you gave in November in 4Q.

So first and foremost, with the 35 [indiscernible] update here, is that a count of units that are seeing intake fully completed by Athena? And just as importantly, how are you thinking about expanding that penetration across low, mid- and high-value items in 2026?

Thanks for the question, Ashley. Yes, we're pleased with the progress that we've been able to make with Athena. We ended the year with 35% of the units in our fulfillment center being processed through Athena. And that was the primary driver for the operating leverage that you commented on in our ops and tech line. All in ops and tech leveraged 330 basis points for the year. And it was a combination of Athena with other automation efficiencies that we've been able to unlock in that part of the P&L. We're -- 35% was our target for the end of the year, where we will continue to build on that.

Going forward, we're excited to extend Athena into the mid-value items, and then we will continue to build on that, taking it into higher-value items. We expect this to take place over multiple quarters, and it will continue to be a source of leverage for us going forward.

And maybe just to follow up quickly on Athena as well. I know it affected the intake to listings spurt. Could you expand on how it affected the intake to listing cycle times in 4Q? You previously stated a long-term goal to cut that timeline meaningfully. How much progress did you see in this quarter? What's the current [ data for base ] count? And what would you consider a reasonable target for 2026 as some of these automation and workflow optimization start to mature?

Yes. Thanks for the follow-up. We are excited about Athena, not just in terms of how it delivers efficiency improvements, but also on how it reduces the cycle time, which leads to a higher consumer satisfaction because we're able to get their items up on the website sooner.

When you think about the 35% of items that went through Athena, what essentially happens is the item first goes to photography. And once we've completed taking those images, we're able to pretty much launch the item on the website. So those items are going very quickly through our fulfillment center and not having to go through multiple handoffs as compared to the other items. We'll -- as we build the coverage from Athena, we'll extend that benefit to more and more items in our portfolio.

Our next question comes from Ike Boruchow at Wells Fargo Securities.

Congrats. I guess I was wondering maybe, Ajay, Rati, the guide for Q1 will obviously 4Q much better. But I think 3 months ago, you told us you only expected slightly above [ algo ] growth in the first half, so above low double digits, and you're guiding 22% GMV. So just what are you seeing quarter-to-date? What gives you that confidence to guide those numbers?

Yes, Ike, thanks for the question. A couple of things that we're seeing in the business, right? We're seeing our buyer and seller be quite resilient. We all know it's driven by supply. Our growth playbook is working. So it's important to understand that trifecta of our sales strategy, our marketing strategy and retail strategy kind of coming together there. So we have seen, for example, the sales team and the Smart Engine or Smart Sales that we've called in the past, the conversion is getting better on the sales side. We're able to get more appointments per day, more volume per sales rep.

On the marketing side, the flywheel strategy is working. We're turning buyers into consignors in a more impactful way. And then on the demand side, still early, but our AI or agentic testing there on discovery and search is really impacting conversion, especially on the new buyer side.

So all of these things, some of these are -- we're testing our way into and they need to scale up throughout the year, but definitely seeing the supply really coming through.

Have you seen a slowdown since the fourth quarter, I guess, is something I'm curious about.

We showed you or we give you your guide for Q1, I would say, as far as macro goes, same trends on buyers and sellers, double-digit growth on both buyers and sellers as well.

Yes. No slowdown, Ike. I would add that when you think about Q4, you've heard us talk about how it's become increasingly more relevant as more and more people turn to resale for gifting. And we saw that play out in Q4, which we believe is one of the drivers for the acceleration from Q3.

Our next question comes from Bobby Brooks at Northland Securities.

I would just be interested to hear first on an update of how testing with drop shipping has gone and maybe what are the plans for it as we go into 2026? And maybe it would be helpful to just take a step back and remind folks what categories you kind of started in and how you've selected those certain vendors who can access the drop shipping beta testing, I guess, I'll call it. And how you expect that to evolve moving forward?

Yes. Bobby, thanks for the question. I'll start; Ajay, if I miss anything, feel free to jump in. Drop ship, we're seeing this year was all about testing and expanding categories. We started in watches. We also launched handbags and fine jewelry. They were very much to specific or targeted partners. So we're continue to expand that to international markets, for example. I'd say the growth rate is healthy, but not the main driver of our growth. So we'll continue to expand to other categories, continue to test and learn in the next couple of quarters.

And then setting aside Smart Sales tool and the rollout -- broader rollout of drop shipping, are there any other exciting initiatives aimed at driving more incremental supply? Obviously, that's like the key part of the growth engine here is unlocking more supply. So I just wanted to hear if there's any other initiatives that folks should be kind of looking forward to. And maybe it's even partnering with direct brands directly.

Yes. I think that's what gives us confidence in the full year guide as well and what we're seeing into Q1. We have many new initiatives that some of them are earlier in days and some of them a little bit later in days, but Smart Sales is one of them for sure. Referrals and affiliate programs, that's another one. I'm really excited about seeing one of the higher growth channels when I look at where supply is coming from. Again, early days, but you can see how this could really scale up.

Our retail strategy, again, 1/4 of our new sellers are coming from retail. We're also looking at our marketing ROI, higher LTV is what we're seeing. So as we're reinvesting in marketing, we're seeing -- really seeing that pay off. I would say another is flywheel. We talked a little bit about that in the last quarter's call, our strategy around buyers becoming consignors, and we're seeing that accelerate. Early days on that, but that also gives us confidence headed into full year.

Our next question comes from Anna Glaessgen at B. Riley Securities.

I'd like to turn back to Athena. Nice to see that it met the target of between 30% to 40% of units by year-end. Wondering if you'd be willing to share your outlook for its contribution to unit processing in 2026.

Thanks, Anna. Yes, we're pleased with Athena exiting the year at 35%. It's one of our key use cases of how we are able to leverage our unique data set of 50 million items to combine it with recent developments in the world of AI and unlock real efficiencies in our platform. We'll continue to build on it. As I mentioned earlier, right, 35% is nowhere close to where we could be. In theory, we see that expanding to all the items in our fulfillment center, and we will pace that over the next few quarters.

So safe to say it should continue to increase?

Yes, it will continue to go up.

And then secondly, exciting to hear about the initiatives within agentic search. I guess, when should we expect that to be formally launched on the website?

Yes. Hi, Anna, so we are also very excited about it, just really focused on discovery, matching, getting the right product to the right person. We're seeing it deliver incremental revenue. So we will start to scale that up. But what we are seeing right now, like I mentioned, was new buyer conversion and the testing looks very good. And then we see us kind of moving on to conversational and visual search as well, just to kind of, again, get that flywheel going and continuing that buyer growth at double-digit numbers.

Our next question comes from Marvin Fong at BTIG.

Congratulations on the quarter. A question on just sort of like ASP and product mix. So I believe higher-value items has been really strong for a while now, fine jewelry, handbags, watches. How -- could you address specifically like your supply pipeline visibility? How is that going there? Are you at all sort of reaching a point, where it's getting a little harder to obtain those types of items? And -- or is that pipeline very strong? And just as it's a driver of AOV, I'd love to just get a better understanding. If we break it down kind of like like-for-like, are you seeing ASPs climb? So for instance, even within apparel and other goods, are prices rising? Or what's sort of going on there?

Yes. Thanks, Marvin, and thank you for the question. A few things to unpack there. I think at the start, I would say, when you look at our 22% growth in Q4, it's a healthy balance between volume and price, almost an even 50-50 split between the 2 elements. You had a question about how it shows up in ASPs like-for-like. A large part of what we are seeing has been driven by the shift into higher value items and categories. You heard us highlight fine jewelry as a category that has been experiencing strong growth. In fact, it was one of our strong -- fastest-growing categories in 2025.

We have a lot of sophistication built into how we -- how our pricing algorithm manages ASPs, right? So we are always trying to find the highest price on behalf of our consignors. And that pricing algorithm is looking at over 100 data points and trying to figure out exactly what we think a customer would be willing to pay for any given item.

The last point I would make is to your question on how does it influence supply. One of the key strengths about The RealReal as a platform is as trends come and go, we are able to quickly respond to them and really capitalize on like consumer preferences shifting. So fine jewelry is a great example of that. We saw that trend start to pick up in late Q4 of 2024, and we've been able to capitalize on that very effectively. And we will continue to do that as a marketplace.

And a follow-up question just on direct. You mentioned margins there are very strong. You mentioned favorable mix. So just to drill down on that, was it a matter of the product mix, again, higher ASP items? Or is it also that, Get Paid Now contributed a bit more? Could you kind of decompose what kind of drove that and how sustainable that is in the first quarter and maybe beyond?

Yes. Thank you for the questions. We are pleased with the margin expansion we've seen in our direct channel. It was 26% gross margin in Q4 and 22% for the full year. Both of those numbers are quite substantial improvements, 880 basis point improvement on a full year basis versus what direct used to look like if you go back a year. We've made a conscious effort to change the mix of what goes through that items.

And right now, it's a mix of Get Paid Now and other select supply that we know is incremental to our platform and runs through that channel. Those margins will stay within that fairly wide range of 15% to 25% going forward, and it will vary based on the mix of what we sell.

Our next question will come from Mark Altschwager at Baird.

I guess a couple on the model here. First, you're guiding to revenue growth a couple of 100 basis points below the GMV growth. Obviously, a lot of moving pieces as we go from A to B there. Maybe just what are the key factors we should be thinking about take rate, revenue mix or otherwise that are influencing that this year?

Yes. Thank you for the question. Yes, we are guiding to a revenue growth that is a couple of percentage points lower than GMV. The key driver there really is our take rate. If you look at the second half of 2025, we've seen a favorable shift in our product mix towards higher-value items and categories. Our take rate structure is designed in such a way that when we sell those items, they attract a lower percentage take rate, but they bring in higher absolute dollars and strong unit economics against those items. We do expect that phenomenon to play out in the first half of '26 when we will be lapping sort of the change that occurred late in '25, and it should normalize going forward, particularly in the second half of the year.

That's very helpful. Also wanted to ask about the sales team and just any hiring goals you have for 2026. You spoke earlier about the efficiency you're seeing with that team as they build tenure. So trying to just better understand the strategy behind further efficiencies relative to expanding the team as you look to fuel supply growth.

Yes. Thanks, Mark. So on the sales side, the relationship that we built there is really important with the consignors. It's definitely a combination of art and science there. And when we think about the growth rate there, we think about hiring healthy in that area as we're growing our business, but it's also finding more efficiencies there, too. So we measure things like how much value are they bringing in per sales rep, how many appointments per day are we taking? Things like Smart Sales or Smart Engine definitely help that experience. So it's definitely a two-pronged approach.

Our next question will come from Dylan Carden at William Blair.

I think I did that right. I guess I'll know. Curious on the -- MyCloset, this next phase where you kind of dig deeper into the consumers, the customers' closet. Is that something happening in '26? And I guess, is there a line of sight into how you might be able to sort of target or get after the balance of what's in the closet beyond what's just purchased on RealReal at this point?

Yes, Dylan, thanks for the question. For those that don't know what MyCloset is, I want to say, first of all, we see ourselves as that personal adviser to the seller already. We're seeing that behavior shift in the seller, where they call us to now get better insights into the primary market, what should they buy, what should they sell, what holds its resale value and what doesn't.

So how do we leverage that? We're looking into MyCloset and testing our way into that. You saw us launch something called Reconsign that was focused on our flywheelers as well. So when people are buying things on our site, how do we target them and get them to consign. That's been working quite nicely. The next phase of that goes into pricing transparency. So again, empowering them with the insights on brands, pricing, what to hold on to, what to trade up and so forth. So by the end of this year, we'll have kind of the full build of something like this early -- not going into even early next year, but we're testing our way into that. You're going to see improvements into that relationship.

And the real vision there, like I said, is being that personal adviser to our seller, but we're really getting them to think about The RealReal when they're in the primary market, right? How do we gain mind share in that first phase.

I guess that brings up another question about how tied in you are -- your business is to the broader health of the luxury market. And I know there's been some sort of mixed signals for the primary market. But how does that sort of flow through your business, if you had a sense?

Yes. Definitely some mixed signals, but how I see it is the primary market and resale can coexist. We are seeing the shift into resale happening as resale is becoming more mainstream, driven by the Gen Z and Millennial cohorts. We mentioned this last time, almost 50% now prefer resale and that TAM continues to grow, right, $200 billion in people's closets and $80 billion gets added. So we have the access to all that inventory.

The magical thing about our business at the end of the day is that we're brand agnostic or channel agnostic. So we can react to the trends pretty quickly, bring in the right product at the right time for the consumer and definitely opportunistic about even partnerships that we have seen that you've seen us done in the past as well with the primary markets.

Well, then to that end, you keep teeing up here. The new tools from a search functionality, natural language search and I'd just be curious if you're using other things to make the overall curation and discovery process easier. And I know -- I think at least it's early days for that. If you're seeing meaningful improvement in conversion, time on site, return to site, those types of metrics?

Yes, for sure. So definitely early days, like you mentioned, but we are testing agentic commerce and testing our way into it. And I think I mentioned earlier, especially around search and discoverability matching, like I mentioned before, matching the right product to the right person much faster. We did see conversion go up for new buyers, especially as we're testing our way into that. So we'll continue to kind of double down there as we see fit and be thoughtful about our approach, but as we scale up.

Our next question will come from Jay Sole at UBS.

Ajay, my question is for you. You're talking about a lot of leverage on OpEx to get the nice EBITDA margin expansion for the year. Can you just talk about some of the ways you're going to be able to control expenses as you grow revenue to get that leverage?

Yes. Thanks for the question, Jay. We're making good progress towards our medium-term goal of expanding margins to the range of 15% to 20%. In 2025, we delivered 6% adjusted EBITDA margin, and our guidance for 2026 has a midpoint of 8%. We see that as being well on track to that range of 200 to 300 basis points of margin expansion every year to get to that goal. That is being driven by -- I would say that at the forefront, it's really about getting efficiencies in the operations and tech line of our P&L. That's where we see the effect of initiatives like Athena, where we are able to leverage AI and automation to drive efficiency gains.

Outside in other lines, sales, SG&A, you've heard us talk about how we are bringing other tools to help our sales team be more effective. Things like Smart Engine and Smart Sales really help optimize the time that our reps spend dealing with consignors and help them be that much more efficient at unlocking supply.

And then finally, a key element of our story on operating expense leverage is our fixed cost base as well. We are in a good place, and that continues to be a source of leverage for us as we grow as a business.

Our final question for today comes from Matt Koranda at ROTH Capital Partners.

Nice work in the quarter. A lot have been asked and answered. I guess one of the things I wanted to hear a little bit more about was how AI can help you on the supply side. I know AI has been discussed a lot in terms of Athena, in terms of processing inbound items, in terms of merchandising and sort of adding assortment customization to your buyers. But what can AI do for you, I guess, in the supply procurement side of the house? And do you have anything that moves the needle in '26 on that front?

Yes. Great question. Thanks, Matt. So we definitely are an AI beneficiary and not new to AI and definitely been early adopters there. We've always focused on our differentiators, whether that's authentication; supply, like you said; and pricing and data, just to zoom out for a second.

So really excited not only about the efficiencies that we believe that we'll see there and are seeing there, but also around transforming the seller experience as you dig in. So Smart Engine is a piece of that, right? And we've talked a lot about that really gaining traction, converting more of those sellers and then converting buyers into sellers with a more targeted approach. So getting smarter about targeting those areas and getting them in.

Everything we do on the buyer side does feed into the seller side as well. And I think that's really important to remember because as they earn more pricing for their items, they're happier with the service, and then they come back and consign with us very quickly. So that marketplace approach is really important as well.

And we talked about a little bit about MyCloset. That is another place where we really become that trusted adviser, making sure people understand what to consign and when to get consigned and using that data over now more than 50 million items that we've consigned and over 40 million members to kind of create that deep human connections with the seller specifically on the Agentic AI side. So think about that human and kind of technology coming together to create that experience. And so we're pretty excited about that.

And then maybe just one other one on the margin expansion that's planned for the EBITDA guide for '26. Just wanted to maybe hear you put a finer point on the sources of margin expansion within OpEx. It sounds like that's going to be the biggest driver in terms of margin expansion for '26. Is it evenly split between O&T and SG&A? Or is it more heavily on the O&T side of things, just given Athena implementation and what that -- how that benefits you on O&T?

Yes, Matt, thanks for the question. Between those 2 categories, we do expect operations in tech to be the leader in terms of generating operating leverage. That is what we've experienced. That's what you see in our results in 2025, and that sort of directional mix is going to continue going forward as well.

Thank you. That concludes the Q&A session and today's call. You may now disconnect.

Hello, and welcome to The RealReal Q3 Earnings Call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. Also, as a reminder, this conference is being recorded. If you have any objections, please disconnect at this time.

With that, I would like to turn the call over to Caitlin Howe, Senior Vice President of Finance.

Thank you, operator. Joining me today to discuss our results for the period ended September 30, 2025, are Chief Executive Officer and President, Rati Levesque; and Chief Financial Officer, Ajay Gopal.

Before we begin, I would like to remind you that during today's call, we will make forward-looking statements, which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q.

Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking. We have provided reconciliations for historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our Investor Relations website.

I would now like to turn the call over to Rati Levesque, Chief Executive Officer of The RealReal.

Thank you, Caitlin. Good afternoon, everyone, and welcome to The RealReal's Third Quarter Earnings Conference Call. Our strong third quarter results and our full year outlook for GMV of over $2 billion are a testament to our long-term strategy, which has solidified our position as the market leader in luxury resale. We are changing the way people shop, making resale a primary option.

58% of shoppers prefer the secondary market outright and 47% of shoppers now consider resale value before buying something new. Resale is no longer reacting to the fashion industry, but driving it. In fact, Vogue use search on the RealReal as a key metric for brand heat in their coverage of the new creative director debuts during the fall fashion shows. Our proprietary data allows us to identify and respond to what buyers want ahead of cycles.

Insights from our recent resale report, which analyzes shopping and consignment behaviors across our community of over 40 million members include the following: fine jewelry has been our fastest-growing category. First-time watch buyers increased 46% with heritage brands leading the way. Customers are turning to us for major life milestones, evidenced by search volume up 247% for wedding dresses. In handbags, shoppers are embracing the lived-in look with searches for fair condition handbags up 32%. And finally, rising acceptance of luxury resale is fueling the adoption of second-hand in holiday gifting.

Turning to Q3 results. We delivered accelerating growth and expanded margins. We set a new record on quarterly GMV with third quarter GMV of $520 million, up 20% versus Q3 of last year. And we delivered adjusted EBITDA of $9.3 million or 5.4% of total revenue, up 380 basis points year-over-year. Let's discuss how our three strategic pillars, growth playbook, operational efficiency and obsess over service are fueling these strong results.

Diving into the growth playbook, our sales team is unlocking high-quality supply through data and deep consignor relationships. Q3 2025 was the first full quarter with our new compensation plan rolled out to the entire sales team. The plan's design focuses on value over unit volume. In addition, tools like smart sales are enabling our sales team to unlock supply using AI and data. Productivity increased with supply value per existing luxury manager up 12% year-over-year. Sales team tenure reached an all-time high in Q3 with more than half of the sales team in place for over 2 years. And we added top talent to the ranks of our sales team, laying the foundation for deeper relationships with our sellers.

With a total addressable market of over $200 billion of untapped supply in U.S. closets, we see a long runway ahead to drive top line growth. Through sales, Real partners, our affiliate program, Real Friends, which is our referral program and the continued expansion of drop ship, we will continue to unlock supply in the coming years.

Turning to marketing. Our efforts are focused on scaling our active consignor base and reinforcing our brand authority. In Q3, we grew new and repeat consignors double digits year-over-year. Trailing 12-month active buyers increased to reach an all-time high of over 1 million, and new buyer LTV is trending higher with average order value and 12-month lifetime value expanding.

From a strategic perspective, we're focused on attracting flywheelers or customers who participate in both sides of our marketplace. These flywheelers are 2 to 3x more valuable and transact with us more frequently, accelerating the network effects of our platform.

Looking forward to 2026, we are seeing green shoots in our marketing efforts. Our focus is on pursuing an AI-fueled smart engine to increase our LTV. Our smart prospecting engine aims to enhance targeting of new consignors. Building on our success in social, we are developing a 360-degree presence that combines organic and paid social media to propel brand relevance and digital performance. Early test results are positive.

Our retail stores and high-value events work in concert with our marketing and sales team, generating desirable supply and new consignors. In fact, 25% of new consignors come from our stores. Consignors can interact with our in-store experts, gemologists, virologists and handbag experts who provide specialized valuations that build trust with prospective sellers. We are seeing success with introducing high-value experiential events in our retail stores.

Q3 set new records. Newport Beach and [ Tysons Corner ] unlocked $2.6 million of supply over just a couple of days. We currently have 18 brick-and-mortar locations, and we plan to add 1 to 3 stores per year, giving us a 10-year runway of growth from new stores.

Moving to our next strategic pillar, driving operational efficiencies. Athena, our proprietary AI-enabled product intake process is delivering efficiency and reducing costs while improving speed and accuracy. As of the end of Q3, the Athena intake process touched 27% of all items, and we are on track for 30% to 40% by year-end. Our future vision is to achieve full listing automation and reduce our processing time from 14 days to our goal of 7 days. In the next phase of Athena, we plan to expand into mid- and high-value items with the opportunity to save millions of dollars while delivering superior service and speed for our sellers.

Turning to our third strategic pillar. Obsessing over service is the secret sauce that reinforces our deep customer loyalty. In Q3, our customer trust metric increased 8 points year-over-year. The customer is evolving rapidly, and we are listening.

When I think about our strategic vision, I think of us as an adviser to our customers, a real partnership built on trust, transparency and personalized communication. By helping our customer manage the luxury assets in their closet, this partnership is not just transactional, but is defined by a deep understanding of our customers' financial motivations, fashion sense and individual style. We look to accompany them on their journey through the primary and secondary market.

Last quarter, we introduced the concept of my closet through Reconsign, which allows our consignors to resell items they purchased on the RealReal in one click. Looking to the future, My Closet is creating additional customer tools to help catalog closet inventory, enhance access to product insights and provide personalized advising. We see flywheel behavior becoming the norm as our service moves past simply buying and selling, offering ways to optimize and manage the content of the fashion portfolio.

In closing, Q3 was a strong quarter. Our performance across all key metrics and the trends we are seeing in the business gives us confidence to raise our full year guidance. As I reflect in the last year, 4 quarters of progress since I stepped into the CEO role, I am incredibly proud of the RealReal team and the significant transformation we've achieved. We believe we have proven that our growth playbook works. Our model is scalable and the superior service drives our powerful flywheel.

I want to thank the entire RealReal team for their unwavering commitment to our customers and for executing with excellence this quarter. I couldn't be more excited about where the RealReal is headed. We've built a strong foundation. We're seeing great momentum, and I believe the best is yet to come.

I will now turn the call over to Ajay for a more detailed review of our financial performance.

Thank you, Rati. Good afternoon, everyone. I am pleased to review our financial results for the third quarter, which highlight a period of decisive acceleration and strong execution against our strategic priorities. We delivered robust top line growth with GMV increasing 20% and revenue up 17% year-over-year. Our approach to unlocking supply and driving efficiency is paying off. with adjusted EBITDA of $9.3 million or 5.4% of total revenue, expanding 380 basis points and free cash flow of $14 million for the quarter.

Now turning to our detailed third quarter results, beginning with the top line. Q3 GMV of $520 million increased 20% compared to last year. Growth was driven roughly evenly by unit volume and higher average selling prices. Q3 revenue of $174 million increased 17% and with consignment revenue up 15% year-over-year. Direct revenue increased 47% compared to Q3 of 2024, and represented 13% of total revenue in the quarter.

Average order value of $584 increased 12% versus last year. Q3 take rate of 37.9% declined 70 basis points year-over-year due to a mix into higher-value items and categories. Our active buyer base accelerated sequentially. On a trailing 12-month basis, it increased 7% year-over-year to more than 1 million active buyers, marking a new all-time high.

Continuing with our third quarter results, third quarter gross profit of $129 million increased 16% year-over-year. Gross margin was 74.3% in Q3, which was consistent with Q2 of this year and down 60 basis points compared to the prior-year period due to a higher mix of direct revenue this year. In the third quarter, consignment gross margin was 89.3%, an improvement of 70 basis points year-over-year and direct gross margin was 20.9%, an increase of 370 basis points versus prior year.

Third quarter operating expenses of $136 million leveraged 620 basis points year-over-year as a percent of revenue. Excluding stock-based compensation, operating expenses leveraged by 470 basis points, driven by our focus on operating efficiencies, continued gains from AI and automation, and leverage on fixed costs. Third quarter adjusted EBITDA of $9.3 million or 5.4% of total revenue increased $7 million versus prior year. Adjusted EBITDA margins increased 380 basis points year-over-year.

We ended the quarter with $123 million in cash, cash equivalents and restricted cash. Our operating cash flow in the third quarter was $19 million, a $10 million improvement year-over-year. Free cash flow was $14 million in the third quarter, a $12 million improvement year-over-year demonstrating our business model's favorable cash dynamics as we grow.

As a reminder, we reduced our debt by $6 million through the strategic debt exchange transaction we announced in August. Since the beginning of 2024, we've reduced our total indebtedness by over $86 million while extending our debt maturity profile, reinforcing our commitment to delevering and strengthening our balance sheet.

Capital expenditures on property, plant and equipment for the third quarter was $6 million, and we continue to anticipate full year CapEx PP&E, to remain within 2% to 3% of total revenue.

Turning to our P&L outlook for the fourth quarter and full year. We sustained healthy supply trends throughout the third quarter and into the fourth, and are raising our outlook for 2025. Fourth quarter GMV is expected in the range of $585 million to $595 million, which represents 17% growth compared to the prior-year period at the midpoint of our guidance range. Fourth quarter revenue is expected in the range of $188 million to $191 million. This reflects 16% growth compared to last year at the midpoint of our guidance range. Fourth quarter adjusted EBITDA is expected to be between $17.5 million and $18.5 million, approximately 9.5% of total revenue and over 275 basis points of margin expansion year-over-year at the midpoint of our range.

Moving to our outlook for the full year. We now expect full year GMV in the range of $2.10 billion to $2.11 billion, up 15% at the midpoint of our guidance range. We expect revenue in the range of $687 million to $690 million, up 15% at the midpoint of our guidance. And we now expect adjusted EBITDA in the range of $37.7 million to $38.7 million, with an adjusted EBITDA margin of 5.5%, reflecting 400 basis points of improvement versus 2024.

In closing, we believe our third quarter performance provides compelling evidence that our growth playbook is working to unlock high-quality supply. And our progress on AI initiatives and automation is driving strong unit economics. The momentum we are building is clear. As the premier authority in luxury resale, we believe we are poised for sustained profitable growth and consistent cash flow generation. Thank you to the entire RealReal team for your dedication and for driving strong third quarter results.

With that, I will now turn the call back over to the operator for Q&A. Operator?

[Operator Instructions] Our first question will come from Ike Boruchow with Wells Fargo.

Can you hear me?

Yes, we can hear you, Ike.

Great. I have one question and one follow-up. I guess, a solid quarter. I guess I'm more impressed by the GMV growth guide, pretty impressive growth rates you're guiding to. Maybe just could you speak to the confidence you have in that plan? And maybe what are you seeing quarter-to-date that helps inform your targets?

Yes. Thank you for the question. As far as our Q4 guide and the confidence in the business, a couple of different things. We're seeing 17% -- I think we guided to about 17% in the midrange on growth rates. As you know, we're a supply-focused business, and we're seeing our growth playbook work. We're seeing sales, marketing, retail really coming together, the compensation structure that we launched in Q3 has now accelerated to our entire sales organization, smart sales is driving conversion. Our team is really focused on relationships that art and science coming together.

And then we're seeing some early signs of the referral and affiliate programs. Early results are good as we test our way into that. The AI smart scoring and prospecting to drive new sellers. We're seeing double-digit new seller growth there. I talked a little bit about my -- the high-value pop-up event in my prepared remarks, that's strengthening our relationship with sellers. So as the market leader is definitely seeing great momentum. The market is shifting. It's great to see more attention to resale as we change the way people shop.

Great. And then just one more question about the growth rates you guys have put up this year are pretty phenomenal. You have to lap that, which is a good problem to have. Are there any guardrails you can maybe put around next year? I mean not looking for anything specific, but how should we think about your algo maybe flow-through rates, Ajay, as you typically will give us? Just some guardrails on how to think about next year and how you plan to lap these robust results.

Yes. Ike, thanks for the question. We're really pleased with the results we're seeing right now. Q3 was up 20% [indiscernible] for Q4, the midpoint, you've heard us talk about how we see a growth rate in between high single digits to low double digits as being the right balance, the optimal balance between growing our top line and expanding our EBITDA margins. We continue to think that is the right range for us in the medium term.

That said, I would say, given the momentum we are experiencing today, we think that in the short term, so let's say, first half of 2026, we're probably indexing closer to the high end of that range, so closer to low double-digit growth rates.

Your next question will come from Robert Brooks with Northland Securities.

Looking back at my notes, I believe you guys began to expand the drop-shipping initiatives last quarter in the fine jewelry, so I was curious to hear how that went and maybe looking forward, what are sort of the next milestones to be watching for as drop-shipping is further tested and validated before a more full-scale rollout?

Bobby, thanks for the question. On drop-ship, this year was really about testing and learning. I've mentioned that in the past and building the capabilities starting with watches, handbags and more recently, jewelry. At the end of the day, it's really one tactic to bring on incremental supply. I also see it as a way to onboard international partners in the future. So we do think after testing, learning, kind of tweaking the model, we think it can be a meaningful contribution, but I'd say, in the medium term.

Got it. That's helpful. And then maybe just stepping back to the revenue growth. It was great this quarter. And as Ike said earlier, it's been great this year. And I just wanted to get a sense of like, obviously, you guys are a supply-constrained business, but -- and how much of the supply -- how much of the revenue growth maybe is -- product is your ability to process the supply you have coming in quicker and therefore, getting those -- getting those items on the site quicker versus how much of it is just overall more supply coming through the door?

Yes. So thanks, Bobby. I mean it's really around how much supply is coming through the door. That's really where we're focused. So that's where we talk about the growth playbook. And again, that's sales, marketing and retail coming together. We're also seeing some success in social and seeing some green shoots there. and kind of strengthening that relationship with the seller.

So really focused on the supply side of things. And at the end of the day, the cool thing is, like I mentioned, 58% of shoppers prefer -- are now for the secondary market. And then we're seeing it in the consignor growth numbers, now double-digit consignor growth numbers. So seeing that strong willingness to spend because of the trust we built and because of the strategic moats that we've built along the way.

Got it. And then just last question for me is just a year in the seat, you mentioned it in the prepared remarks, Rati, I was just curious if you could speak to the lessons maybe learned so far or stuff that maybe has exceeded expectations? Just curious to get kind of a high-level thought there.

Yes, sure. Definitely been an exciting year, and we're definitely seeing the market shift. Like I said, it's great to see more attention to resale, but I think 1 year ago, we laid out our foundation for our three strategic pillars: profitable growth, operational efficiencies and obsessing over service. And so we're really seeing that work. I'm proud of the progress that we're making, right? The 20% growth, the EBITDA margin of 5% now and expanding. I'd say trust is up 8 points year-over-year and are active, both sellers and buyers, are accelerating. We also less than a year ago, now talked about Athena and launched Athena, now by the end of the year, it's going to be about 30% to 40% of our inventory.

So really, at the end of the day, continuing to become the trusted advisers to our sellers, enriching that data for the seller experience. And closing $2 billion in GMV in our history. So building that strong foundation, seeing the momentum. And we really do believe the best is yet to come.

Our next question will come from Ashley Owens with KeyBanc.

Congrats as well. So maybe broadly, just to start, I want to ask about the competitive dynamics. I know you've provided some good metrics around your flywheel and acquisition, just curious with secondary and retail becoming a bigger choice among consumers, how are you seeing the competitive environment evolve, particularly around new entrants, supply acquisition and then pricing? And then additionally, have you observed any change in competitive or discounting intensity from peers?

Yes. Thanks, Ashley, for the question. A couple of different things. First, again, the market shift has been great to see, all attention to resale is helpful. The $200 billion TAM is great, and we're able to capitalize on it because we are the market leader and then really focused on our moat and our strategic moats at the end of the day around expertise, data, our sales team, all the insights that we have, the diverse product offering is really important, and that's how we build trust, right, with our community of now over 40 million members.

The sales piece, relationships to unlock supply, driven by insights that, again, art and science. The infrastructure and data we built to process 1 of 1 item, single-SKU items, is hard to replicate, and at this point, 14, 15 years ahead of the curve. So resale is no longer reacting to the fashion industry, but driving it. And I think at the end of the day, we're able to capitalize that being the leaders here.

Okay. Got it. And then just a follow-up. So for the fourth quarter EBITDA, could you just help us unpack what's embedded in the bridge, particularly within G&A and other OpEx buckets? And what dynamics do you expect to carry through 4Q, I know [indiscernible] has been leveraging at a really strong rate for the past several quarters and accelerated with some of the further automation initiatives you've been working on? So just any color there would be helpful.

Ashley, thanks for the question. Yes. So on Q4, as it relates to EBITDA, I would say we expect a continuation of our focus on operating efficiencies. You've seen this translate into strong operating expense leverage in Q3. We leveraged -- we saw leverage in our operations in tech line of 370 basis points as well as on SG&A of 150 basis points.

Going forward, ops and tech will continue to be where we see most OpEx leverage coming from, and this is where we bring the power of our AI driven initiatives like a Athena to bare on improving margins. We will also continue to see similar levels in SG&A. We're investing in helping our sales team be more efficient. You heard Rati talk about how the value of supply increased by 12% for existing luxury manager. We think trends like that will continue as we build on these investments and will be a source of leverage for us going forward as well.

Our next question will come from Marvin Fong with BTIG.

Can you hear me?

Marvin, yes.

Sorry about that. Congratulations on the strong results. Maybe you could start, you mentioned half the benefit in AOV coming from units as well as the other half from ASP. So I think that's [ 6 and 6 ] and both improved versus last quarter. So -- just maybe a finer point on each of those. With ASP, I think there was a mix benefit there. Was there anything beneficial coming from the tariff side that you call out as well?

And then on the units, would just kind of love to unpack what you think is kind of driving that other than just the fact that it looks like buyers are enjoying the site. But anything you're doing there to drive that or category-wise, that people might be purchasing more of and adding to their baskets.

Thanks, Marvin. I'll take this question. We're seeing a healthy balance in how our growth is split into price and unit volume. If you unpack our growth rate in Q3 of 20%, we see a pretty even split. So roughly half of it came from growth in ASP and half of it came from growth in volume.

Going deeper into ASP, this is largely driven by the things we've been focused on and a few that I would highlight, you heard us talk about our new sales compensation plan. That [ plan ] rewards our luxury managers for bringing in value over volume, and we're seeing that translate into our mix shifting into higher value items. The other thing that's helping on the SP side is our pricing algorithm. So our AI-driven pricing algorithm has been in place for a while, but we've been steadily expanding coverage and expanding it to cover more and more items. And every time we do that, we see how the model, given its precision, is able to capture incremental price on behalf of our sellers.

The last thing I would point to on that aspect is just how our investments in authentication and building customer trust have allowed us to capitalize on the growing interest in fine jewelry. We've been able to bring in more supply, and we've been able to move that supply very effectively, which gives us -- which obviously changes the mix of our business into higher price items. At the end of the day, trends are going to come and go. The beauty of our marketplace is just how quickly we can respond to them and capitalize on the way consumer preferences are shifting.

That's great. And my follow-up question, direct revenue, very strong growth, north of a 46% growth about. Could you just kind of unpack that a little bit in this environment as they get paid now, product gaining a lot of traction? Or was it mostly out of policy or vendor contracts? Or was it all kind of across the board?

Yes. Thanks for that question. Direct revenues were up 47% year-on-year. But as we've indicated in the past, we expect this to be between 10% to 15% of our total revenues, and it came in at 13%. So right in that range of where we expect it to be.

The outsized growth is really explained by what happened last year as we come a quarter last year where it was a much smaller proportion of our business. So going forward, we would expect this to stay within that range. We feel really good about that revenue stream, to your point on what's behind it. Gross margins have expanded nicely. They were up 370 basis points and 21% in Q3. So we feel good about what's moving through that channel and our ability to drive strong profitable growth through that channel.

Your next question will come from Matt Koranda with ROTH Capital Partners. .

So it sounds like the luxury managers are getting more efficient at procuring supply, and it sounds like maybe the incentive changes were a big part of helping them with that. Maybe just wanted to hear about the next unlocks ahead for helping the sales team procure more supply as we head into '26? And should we think about that is sort of the main channel of supply growth into '26? Or are there other levers to pull on the retailer marketing side?

Yes. Sure. Matt, thanks for the question. I want to be really clear, the growth playbook -- we're a supply-focused business, like I said, but the growth playbook and the unlocking supply wasn't just sales, right? It was sales, marketing and retail coming together, deepening and strengthening our relationship with sellers. The compensation structure was one tactic. We've also really been focused on flywheelers in marketing, and they're 2 to 3x more valuable for us, and that's starting to work. We're getting early days, but I talked a little bit about the referral and affiliate programs, and there's much supply to unlock there, that sales and marketing working together. AI smart scoring and prospecting to bring on new sellers, again, really early days there, and we're testing our way into that, but seeing some green shoots. Success in social or influencer campaigns.

I talked about these high-value events again, and we're seeing just over -- these events are 2 to 3 days and bringing in sometimes $1 million, over $1 million over just a couple of days. So it's another way to kind of, like I said, strengthen our relationship with sellers. So that, along with resale becoming more mainstream or the market is shifting and the great momentum that we're seeing around, like I mentioned before, 50% of shoppers prefer the secondary market out right now. And almost 50% look to resell pricing before they even buy in the primary market. So all of this gives us a lot of confidence going forward.

Okay. Very helpful, Rati. And then curious on Athena. Just wondering if you're willing to quantify any of the cost savings that flowed through. I would assume most of the cost savings are flowing through O&T in the third quarter? And then maybe just what's built into the fourth quarter outlook in terms of cost savings on the O&T line?

Matt, thanks for the question. You're right. Athena is a key driver behind the efficiencies that we're seeing in operations in tech. We got about 370 basis points of leverage on that line, and most of that is coming from efficiencies in our operations center. When we think about Athena, at the end of Q3, it was processing about 27% of the items. And we started with introducing the model to primarily lower-value items. We are going to continue to expand on that number. We expect to end the year with Athena touching 30% to 40% of total items. And as it scales, -- and also, as we expanded towards touching mid-value and high-value items, we see us continuing to be a source of productivity for us going forward.

We think that Athena can save us a couple of dollars per item as we continue rolling it out, and it will take time, but it's a source of leverage going forward.

Your next question will come from Anna Glaessgen with B. Riley Securities.

Really nice to see the GMV growth, notably ahead of the longer-term range you gave of high single-digit to low double-digit, just curious if you could maybe share some perspective on the degree to which this is being driven by a wider consumer acceptance of resale and overall market growth versus relative share gains with the concept.

Yes. So thanks, Anna, for the question. When we look at piece [indiscernible], our growth rate, we can map all of it back to our growth playbook. So this is, like I said, sales, marketing and retail and some of the tactics that we're working through there. So that's a nice shift. And of course, we have some of the tailwinds around market -- the market shift, right, around shoppers preferring the secondary market. So we do feel like it's both things there.

And then as we obsess over service in our growth playbook and really up-leveling the experience for the consumer are listening to what they need really thinking about how to create less friction in the experience, making sure that we're being very transparent on pricing and building that trust with the consumer that's -- we're also seeing that directly tie back to our GMV growth as far as more value coming out of each consignor.

Got it. And one follow-up on the events or the high-value events you talked about. Maybe you could share what inning are we in, in rolling this out to the fleet? And maybe how many events do you think could be supported per store? Just anything there?

Yes. So these high-value events, they're a nice way to test the market. As well we're seeing 1/4 of our new sellers coming from our retail strategy. And of course, they build the halo trusting -- much more high value coming through there, really early there as far as how many events that we're having right now. And we kind of are testing our way into that as well this year. But given the progress that we're seeing and the results there will kind of launch that every month to every major market. And this is a low-cost kind of way for us to bring in incremental supply.

Your next question will come from Jay Sole with UBS.

Can you hear me okay? .

Yes.

Great. I want to follow up on your comments about the operations and technology line. I know you touched on this before, but you just talk about what the right rate of growth just in terms of total dollars off that line because it's been pretty steady 6% growth now for about a year. Is that the right way to think about growth in this line going forward? .

Yes. Thanks for the question. It has been a pretty consistent source of leverage for us, right? In Q2, we got about 310 basis points of leverage; in Q3, 370 basis points of leverage. The bulk of that is coming from the efficiencies we're driving in the op center. I think we've got a long runway of opportunities there. Athena is just touching 27% of our items as we continue to scale it. It will continue to be a source of leverage for us.

I would say when you -- when I go back to the comment we made earlier on focusing the business on getting to 15% to 20% adjusted EBITDA in the medium term, our ops and tech line is going to be a pretty major contributor to that margin expansion.

I guess, maybe if I ask it a different way, like what drives growth in that line? I mean, because the dollars went up sequentially this quarter, I guess, based on the guidance for fourth quarter, dollars were up sequentially again. What -- where are the are you investing there? Like can you just tell us about what drives dollar growth in that line?

Yes, yes. Well, thanks for that clarification. So about 2/3 of that line is tied to our operations. And really, that is driven by unit volume. So while we get more efficient on a per unit basis, at processing items as the business grows, you would expect to see an absolute increase in the dollars going through that particular line.

Understood. And I guess, just remind us at this point, Athena can touch what percentage of the assortment of things sold once you scale it to where you envision it to be?

I don't know if we've put an upper limit on it as we think about it. Today, it's touching 27% of the items. We think we will exit the year at 30% to 40%. Theoretically, there's no reason why it couldn't touch all the items as we continue to get better at running it through our models.

And then at the end of the day, Jay, we're on track for taking out big multiple dollars in cost per unit in the medium term, and that's really where we're focused.

Understood. And then, I guess, can you just update us based on the guidance again for 4Q, it looks like the cash flow for 4Q will be pretty solid. What are your plans for cash uses in the balance sheet going forward? .

Yes. Thanks for the question. We are a very cash-efficient business. Unlike a traditional retailer, we don't trap any of our cash purchasing inventory in ahead of the season. The primary use of our cash really goes into investments that we make in our fulfillment center. So it's automation tech or it's implementing technology like Athena, where we can get efficiencies out of it.

Q3 was a strong cash performance quarter for us. We generated $19 million in operating cash flow and $14 million in free cash flow. We expect Q4 to be stronger just like you saw last year, and it really showcases how our business model has positive working capital benefits when we grow.

Our next question will come from Mark Altschwager with Baird.

Great. I wanted to follow up on marketing. It looks like it was a bigger investment this quarter, was hoping if you could just give us more color on what you're seeing there in terms of efficiencies? And then just how we should think about marketing as a percentage of sales, both in Q4 and the medium term.

Yes. Mark, I'll start with that question there. Yes, definitely made a little bit more of an investment in marketing to drive some of the growth numbers, the key lever for us in our growth playbook drives new sellers, obviously, brand affinity. You're seeing a couple of onetime costs in that number for Q3. But at the end of the day, we see investment opportunities, we take them. We do have a high confidence in the ROI of our spend, and we're seeing validation of that, obviously, in Q3 and then our Q4 guide, but we make sure to always balance growth and profitability.

Excellent. And separately, any color you can share on customer behavior by age cohort?

We have not shared customer cohort by age. We are seeing strong willingness to spend, like I said, built by the trust that we built over the last 15 years, seeing more [indiscernible] watches, handbags, more higher value come through. We are seeing this newer cohort has a higher LTV. We do see -- we tend to skew younger, more millennials and Gen Z, over half of our customer demographic. And the other way that we cut the data, and I think I've shared this in the past, is looking at our higher-value consignors because we're supply constrained. We're always looking at the supply and the seller side of things. Seeing more value come in from our higher value and mid-value consignors. So those tiers on the higher end of our loyalty program. And then obviously, like I mentioned, focused on the flywheeler, which is 2 to 3x more valuable for us.

And maybe 1 thing I would add there, as a platform, I think 1 of the compelling things about the RealReal is how we have cross-generational appeal. We have customers, younger customers that are entering sort of the earning years of their life, and they look at us as an excellent platform for acquiring items. And then that relationship continues to grow and evolve as they age.

That concludes the Q&A session and the call. Thank you for joining. You may now disconnect.