SEC Filing | The RealReal

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

View:

Download DOC

Download PDF

Download XLS

Download XBRL

real-10q_20200630.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 June 30, 2020

☐	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.

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 August 1, 2020, the registrant had 87,618,041 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 June 30, 2020 and December 31, 2019	1
	Condensed Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019	2
	Condensed Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2020 and 2019	3
	Condensed Statements of Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders’ Equity (Deficit) as of June 30, 2020 and 2019	4
	Condensed Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019	6
	Notes to Unaudited Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38


PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	59
Signatures		60

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 the ongoing impact of the COVID-19 pandemic on our business, 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,” “could,” “will”, “expects,” “plans,” “anticipates,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” included under Part II, Item 1A below and elsewhere in this Quarterly Report on Form 10-Q, as well as in our other filings with the Securities and Exchange Commission (SEC). Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:

•

our future financial performance, including our expectations regarding our revenue, cost of revenue, operating expenses, and our ability to achieve and maintain future profitability, in particular with respect to the impacts of the COVID-19 pandemic;

•

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.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

THE REALREAL, INC.

Condensed Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

	June 30, 2020			December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	304,348		$	154,446
Short-term investments		105,934			208,811
Accounts receivable		6,312			7,779
Inventory, net		20,705			23,599
Prepaid expenses and other current assets		14,950			13,804
Total current assets		452,249			408,439
Property and equipment, net		60,000			55,831
Operating lease right-of-use assets		118,798			—
Other assets		3,013			2,660
Total assets	$	634,060		$	466,930
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	5,989		$	11,159
Accrued consignor payable		34,883			52,820
Operating lease liabilities, current portion		15,045			—
Other accrued and current liabilities		46,636			54,567
Total current liabilities		102,553			118,546
Operating lease liabilities, net of current portion		115,608			—
Convertible senior notes, net		146,958			—
Other noncurrent liabilities		1,040			9,456
Total liabilities		366,159			128,002
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock, $0.00001 par value; 500,000,000 shares authorized as of June 30, 2020 and December 31, 2019; 87,348,241 and 85,872,320 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively		1			1
Additional paid-in capital		703,189			693,426
Accumulated other comprehensive income		401			7
Accumulated deficit		(435,690	)		(354,506	)
Total stockholders’ equity		267,901			338,928
Total liabilities and stockholders’ equity	$	634,060		$	466,930

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

THE REALREAL, INC.

Condensed Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenue:
Consignment and service revenue	$	46,866		$	60,070		$	112,163		$	115,645
Direct revenue		10,523			12,139			23,466			27,146
Total revenue		57,389			72,209			135,629			142,791
Cost of revenue:
Cost of consignment and service revenue		12,860			17,200			30,949			33,146
Cost of direct revenue		8,760			8,959			19,714			21,213
Total cost of revenue		21,620			26,159			50,663			54,359
Gross profit		35,769			46,050			84,966			88,432
Operating expenses:
Marketing		9,639			11,715			22,561			23,448
Operations and technology		36,543			34,320			77,280			65,865
Selling, general and administrative		32,559			25,355			67,663			47,674
Total operating expenses		78,741			71,390			167,504			136,987
Loss from operations		(42,972	)		(25,340	)		(82,538	)		(48,555	)
Interest income		616			610			1,902			1,015
Interest expense		(384	)		(380	)		(404	)		(511	)
Other income (expense), net		(97	)		(1,706	)		(89	)		(1,987	)
Loss before provision for income taxes		(42,837	)		(26,816	)		(81,129	)		(50,038	)
Provision for income taxes		55			59			55			59
Net loss	$	(42,892	)	$	(26,875	)	$	(81,184	)	$	(50,097	)
Accretion of redeemable convertible preferred stock to redemption value	$	—		$	—		$	—		$	(3,355	)
Net loss attributable to common stockholders	$	(42,892	)	$	(26,875	)	$	(81,184	)	$	(53,452	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.49	)	$	(2.83	)	$	(0.94	)	$	(5.87	)
Shares used to compute net loss per share attributable to common stockholders, basic and diluted		87,064,384			9,494,447			86,826,590			9,102,234

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

THE REALREAL, INC.

Condensed Statements of Comprehensive Loss

(In thousands)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net loss	$	(42,892	)	$	(26,875	)	$	(81,184	)	$	(50,097	)
Other comprehensive income (loss), net of tax:
Unrealized gain on investments		80			2		394				30
Comprehensive loss	$	(42,812	)	$	(26,873	)	$	(80,790	)	$	(50,067	)

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

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			Income (Loss)		Deficit			Equity (Deficit)
Balance as of December 31, 2019		—	$	—		—	$	—		85,872,320	$	1	$	693,426		$	7	$	(354,506	)	$	338,928
Issuance of common stock upon exercise of options		—		—		—		—		964,085		—		2,564			—		—			2,564
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for employee taxes		—		—		—		—		14,289		—		(151	)		—		—			(151	)
Stock-based compensation expense		—		—		—		—		—		—		3,410			—		—			3,410
Other comprehensive income		—		—		—		—		—		—		—			314		—			314
Net loss		—		—		—		—		—		—		—			—		(38,292	)		(38,292	)
Balance as of March 31, 2020		—	$	—		—	$	—		86,850,694	$	1	$	699,249		$	321	$	(392,798	)	$	306,773
Issuance of common stock upon exercise of options		—		—		—		—		429,339		—		1,790			—		—			1,790
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for employee taxes		—		—		—		—		68,208		—		(453	)		—		—			(453	)
Stock-based compensation expense		—		—		—		—		—		—		6,129			—		—			6,129
Purchase of capped calls		—		—		—		—		—		—		(22,546	)		—		—			(22,546	)
Equity component of convertible senior notes, net of issuance costs of $767		—		—		—		—		—		—		19,020			—		—			19,020
Other comprehensive income		—		—		—		—		—		—		—			80		—			80
Net loss		—		—		—		—		—		—		—			—		(42,892	)		(42,892	)
Balance as of June 30, 2020		—	$	—		—	$	—		87,348,241	$	1	$	703,189		$	401	$	(435,690	)	$	267,901

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

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			Income (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		—		—			—		—		—		—		—			28			—			28
Net loss		—		—			—		—		—		—		—			—			(23,222	)		(23,222	)
Balance as of March 31, 2019		37,403,946	$	198,308			77,556,411	$	169,098		9,337,065	$	—	$	—		$	3		$	(280,982	)	$	(280,979	)
Additional issuance costs for Series H redeemable convertible preferred stock (total issuance costs of $166)		—		(80	)		—		—		—		—		—			—			—			—
Reallocation of issuance costs for Series H convertible preferred stock (total issuance costs of $59)		—		—			—		4		—		—		—			—			—			—
Issuance of common stock upon exercise of options		—		—			—		—		358,459		1		422			—			—			423
Issuance of common stock upon exercise of warrants		—		—			—		—		5,742		—		20			—			—			20
Stock-based compensation expense		—		—			—		—		—		—		1,287			—			—			1,287
Other comprehensive income		—		—			—		—		—		—