real-10q_20190930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2019

OR

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

For the transition period from ____ to ____

Commission File Number: 001-38953

 

The RealReal, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

45-1234222

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

55 Francisco Street Suite 600

San Francisco, CA

94133

(Address of principal executive offices)

(Zip Code)

(855) 435-5893

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, $0.00001 par value

 

REAL

 

The Nasdaq Global Select Market

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of October 31, 2019, the registrant had 85,791,236 shares of common stock, $0.00001 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Balance Sheets as of September 30, 2019 and December 31, 2018

1

 

Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018

2

 

Condensed Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018

3

 

Condensed Statements of Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders’ Equity (Deficit) as of September 30, 2019 and 2018

4

 

Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

6

 

Notes to Unaudited Condensed Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

 

 

 

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

Item 3.

Defaults Upon Senior Securities

50

Item 4.

Mine Safety Disclosures

50

Item 5.

Other Information

50

Item 6.

Exhibits

51

Signatures

52

 

i


NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

 

 

 

our future financial performance, including our expectations regarding our revenue, cost of revenue, operating expenses, and our ability to achieve and maintain future profitability;

 

 

 

our ability to effectively manage or sustain our growth and to effectively expand our operations;

 

 

 

our strategies, plans, objectives and goals;

 

 

 

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

 

 

 

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

 

 

 

our ability to attract and retain consignors and buyers;

 

 

 

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

 

 

 

our ability to timely and effectively scale our operations;

 

 

 

our ability to enter international markets

 

 

 

our ability to optimize, operate and manage our merchandising and fulfillment facilities;

 

 

 

our ability to develop and protect our brand;

 

 

 

our ability to comply with laws and regulations;

 

 

 

our expectations regarding outstanding litigation;

 

 

 

our expectations and management of future growth;

 

 

 

our expectations concerning relationships with third parties;

 

 

 

economic and industry trends, projected growth or trend analysis;

 

 

 

seasonal sales fluctuations;

 

 

 

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

 

 

 

 

 

our ability to attract and retain key personnel.

 

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

 

 

ii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

THE REALREAL, INC.

Condensed Balance Sheets

(In thousands, except share and per share data)

(unaudited)

 

 

 

September 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

364,995

 

 

$

34,393

 

Short-term investments

 

 

5,290

 

 

 

27,131

 

Accounts receivable

 

 

8,935

 

 

 

7,571

 

Inventory, net

 

 

13,846

 

 

 

10,355

 

Prepaid expenses and other current assets

 

 

13,071

 

 

 

9,696

 

Total current assets

 

 

406,137

 

 

 

89,146

 

Property and equipment, net

 

 

45,715

 

 

 

33,286

 

Restricted cash

 

 

 

 

 

11,234

 

Other assets

 

 

1,518

 

 

 

1,751

 

Total assets

 

$

453,370

 

 

$

135,417

 

Liabilities, Redeemable Convertible Preferred Stock, Convertible Preferred Stock and

   Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,666

 

 

$

5,149

 

Accrued consignor payable

 

 

39,870

 

 

 

35,259

 

Other accrued and current liabilities

 

 

42,548

 

 

 

41,956

 

Long-term debt, current portion

 

 

 

 

 

5,990

 

Total current liabilities

 

 

88,084

 

 

 

88,354

 

Long-term debt, net of current portion

 

 

 

 

 

3,249

 

Other noncurrent liabilities

 

 

8,050

 

 

 

7,304

 

Total liabilities

 

 

96,134

 

 

 

98,907

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock, $0.00001 par value; no and

   31,053,601 shares authorized as of September 30, 2019  and December 31, 2018,

   respectively; no and 31,053,601 shares issued and outstanding

   as of September 30, 2019 and December 31, 2018, respectively

 

 

 

 

 

151,381

 

Convertible preferred stock $0.00001 par value; no and 73,950,153

   shares authorized as of September 30, 2019 and December 31, 2018,

   respectively; no and 73,724,645 shares issued and outstanding

   as of September 30, 2019 and December 31, 2018, respectively

 

 

 

 

 

142,819

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Common stock, $0.00001 par value; 500,000,000 and 145,467,774 shares

   authorized as of September 30, 2019 and December 31, 2018,

   respectively; 85,759,021 and 8,593,077 shares issued and outstanding

   as of September 30, 2019 and December 31, 2018, respectively

 

 

1

 

 

 

 

Additional paid-in capital

 

 

690,365

 

 

 

 

Accumulated comprehensive income (loss)

 

 

1

 

 

 

(25

)

Accumulated deficit

 

 

(333,131

)

 

 

(257,665

)

Total stockholders’ equity (deficit)

 

 

357,236

 

 

 

(257,690

)

Total liabilities, redeemable convertible preferred stock, convertible preferred stock

   and stockholders’ equity (deficit)

 

$

453,370

 

 

$

135,417

 

 

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

1


THE REALREAL, INC.

Condensed Statements of Operations

(In thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consignment and service revenue

 

$

69,790

 

 

$

45,744

 

 

$

186,740

 

 

$

128,921

 

Direct revenue

 

 

10,695

 

 

 

6,095

 

 

 

33,976

 

 

 

16,362

 

Total revenue

 

 

80,485

 

 

 

51,839

 

 

 

220,716

 

 

 

145,283

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of consignment and service revenue

 

 

19,446

 

 

 

13,157

 

 

 

52,593

 

 

 

37,083

 

Cost of direct revenue

 

 

8,811

 

 

 

5,352

 

 

 

27,464

 

 

 

13,486

 

Total cost of revenue

 

 

28,257

 

 

 

18,509

 

 

 

80,057

 

 

 

50,569

 

Gross profit

 

 

52,228

 

 

 

33,330

 

 

 

140,659

 

 

 

94,714

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing

 

 

13,390

 

 

 

10,624

 

 

 

36,838

 

 

 

29,534

 

Operations and technology

 

 

37,407

 

 

 

28,257

 

 

 

103,271

 

 

 

72,586

 

Selling, general and administrative

 

 

28,436

 

 

 

16,325

 

 

 

76,110

 

 

 

44,226

 

Total operating expenses

 

 

79,233

 

 

 

55,206

 

 

 

216,219

 

 

 

146,346

 

Loss from operations

 

 

(27,005

)

 

 

(21,876

)

 

 

(75,560

)

 

 

(51,632

)

Interest income

 

 

1,902

 

 

 

437

 

 

 

2,918

 

 

 

602

 

Interest expense

 

 

(60

)

 

 

(204

)

 

 

(572

)

 

 

(927

)

Other expense, net

 

 

(119

)

 

 

(205

)

 

 

(2,106

)

 

 

(1,592

)

Loss before provision for income taxes

 

 

(25,282

)

 

 

(21,848

)

 

 

(75,320

)

 

 

(53,549

)

Provision (benefit) for income taxes

 

 

(8

)

 

 

37

 

 

 

51

 

 

 

37

 

Net loss

 

$

(25,274

)

 

$

(21,885

)

 

$

(75,371

)

 

$

(53,586

)

Accretion of redeemable convertible preferred stock to

   redemption value

 

$

 

 

$

(3,200

)

 

$

(3,355

)

 

$

(5,651

)

Net loss attributable to common stockholders

 

$

(25,274

)

 

$

(25,085

)

 

$

(78,726

)

 

$

(59,237

)

Net loss per share attributable to common stockholders,

   basic and diluted

 

$

(0.30

)

 

$

(3.00

)

 

$

(2.28

)

 

$

(7.12

)

Shares used to compute net loss per share attributable to

   common stockholders, basic and diluted

 

 

84,634,956

 

 

 

8,349,403

 

 

 

34,556,485

 

 

 

8,321,296

 

 

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

2


THE REALREAL, INC.

Condensed Statements of Comprehensive Loss

(In thousands)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(25,274

)

 

$

(21,885

)

 

$

(75,371

)

 

$

(53,586

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investments

 

 

(4

)

 

 

(8

)

 

26

 

 

 

(2

)

Comprehensive loss

 

$

(25,278

)

 

$

(21,893

)

 

$

(75,345

)

 

$

(53,588

)

 

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

 

 

3


THE REALREAL, INC.

Condensed Statements of Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

(unaudited)

 

 

 

Redeemable Convertible

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

'Total

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

Equity (Deficit)

 

Balance as of December 31, 2017

 

 

12,956,724

 

 

$

50,367

 

 

 

69,834,789

 

 

$

122,990

 

 

 

 

8,287,983

 

 

$

 

 

$

4,591

 

 

$

(6

)

 

$

(181,571

)

 

$

(176,986

)

Accretion of redeemable convertible preferred stock to

   redemption value

 

 

 

 

 

1,109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,109

)

 

 

 

 

 

 

 

 

(1,109

)

Issuance of common stock upon exercise of options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,621

 

 

 

 

 

 

39

 

 

 

 

 

 

 

 

 

39

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

545

 

 

 

 

 

 

 

 

 

545

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,106

)

 

 

(14,106

)

Balance as of March 31, 2018

 

 

12,956,724

 

 

 

51,476

 

 

 

69,834,789

 

 

 

122,990

 

 

 

 

8,306,604

 

 

 

 

 

 

4,066

 

 

 

 

 

 

(195,677

)

 

 

(191,611

)

Issuance of Series G redeemable convertible preferred

   stock upon conversion of notes, net of issuance costs

   of $190

 

 

1,067,550

 

 

 

5,452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series G convertible preferred stock upon

   conversion of notes, net of issuance costs of $355

 

 

 

 

 

 

 

 

1,997,709

 

 

 

10,202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of convertible notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(370

)

 

 

 

 

 

 

 

 

(370

)

Issuance of Series G redeemable convertible

   preferred stock, net of issuance costs of $3,360

 

 

17,029,327

 

 

 

86,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accretion of redeemable convertible preferred stock to

   redemption value

 

 

 

 

 

1,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,342

)

 

 

 

 

 

 

 

 

(1,342

)

Issuance of common stock upon exercise of options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,502

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

24

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

681

 

 

 

 

 

 

 

 

 

681

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,595

)

 

 

(17,595

)

Balance as of June 30, 2018

 

 

31,053,601

 

 

 

144,910

 

 

 

71,832,498

 

 

 

133,192

 

 

 

 

8,324,106

 

 

 

 

 

 

3,059

 

 

 

 

 

 

(213,272

)

 

 

(210,213

)

Issuance of Series G convertible preferred stock,

   net of issuance costs of $373

 

 

 

 

 

 

 

 

 

 

1,892,147

 

 

 

9,627

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accretion of redeemable convertible preferred stock to

   redemption value

 

 

 

 

 

3,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,200

)

 

 

 

 

 

 

 

 

 

(3,200

)

Compensation expense related to stock sales by current

   and former employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

847

 

 

 

 

 

 

 

 

 

 

 

847

 

Issuance of common stock upon exercise of options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

124,083

 

 

 

 

 

 

194

 

 

 

 

 

 

 

 

 

194

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

740

 

 

 

 

 

 

 

 

 

 

740

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,885

)

 

 

(21,885

)

Balance as of September 30, 2018

 

 

31,053,601

 

 

$

148,110

 

 

 

73,724,645

 

 

$

142,819

 

 

 

$

8,448,188

 

 

$

 

 

$

1,640

 

 

$

(8

)

 

$

(235,157

)

 

$

(233,525

)

 

 

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

4


THE REALREAL, INC.

Condensed Statements of Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

(unaudited)

 

 

 

Redeemable Convertible

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

Equity (Deficit)

 

Balance as of December 31, 2018

 

 

31,053,601

 

 

$

151,381

 

 

 

73,724,645

 

 

$

142,819

 

 

 

 

8,593,077

 

 

$

 

 

$

 

 

$

(25

)

 

$

(257,665

)

 

$

(257,690

)

Issuance of Series H redeemable convertible preferred stock

   net of issuance costs of $86

 

 

6,350,345

 

 

 

43,572

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series H convertible preferred stock net of issuance

   costs of $63

 

 

 

 

 

 

 

 

3,831,766

 

 

 

26,279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accretion of redeemable preferred stock to redemption value

 

 

 

 

 

3,355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,260

)

 

 

 

 

 

(95

)

 

 

(3,355

)

Compensation expense related to stock sales by current and

   former employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

819

 

 

 

 

 

 

 

 

 

819

 

Issuance of common stock upon exercise of options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

739,053

 

 

 

 

 

 

1,319

 

 

 

 

 

 

 

 

 

1,319

 

Issuance of common stock upon exercise of warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,935

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,109

 

 

 

 

 

 

 

 

 

1,109

 

Other comprehensive income