real-10q_20200930.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, 2020

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 November 1, 2020, the registrant had 88,577,407 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, 2020 and December 31, 2019

1

 

Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

2

 

Condensed Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019

3

 

Condensed Statements of Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders’ Equity (Deficit) as of September 30, 2020 and 2019

4

 

Condensed Statements of Cash Flows for the Nine Months Ended September 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

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

 

 

 

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

57

Item 3.

Defaults Upon Senior Securities

57

Item 4.

Mine Safety Disclosures

57

Item 5.

Other Information

57

Item 6.

Exhibits

58

                      Signatures

59

 

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 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.

 

 

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,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

343,092

 

 

$

154,446

 

Short-term investments

 

 

52,156

 

 

 

208,811

 

Accounts receivable

 

 

4,559

 

 

 

7,779

 

Inventory, net

 

 

19,236

 

 

 

23,599

 

Prepaid expenses and other current assets

 

 

18,255

 

 

 

13,804

 

Total current assets

 

 

437,298

 

 

 

408,439

 

Property and equipment, net

 

 

61,944

 

 

 

55,831

 

Operating lease right-of-use assets

 

 

115,013

 

 

 

 

Other assets

 

 

2,020

 

 

 

2,660

 

Total assets

 

$

616,275

 

 

$

466,930

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,410

 

 

$

11,159

 

Accrued consignor payable

 

 

44,490

 

 

 

52,820

 

Operating lease liabilities, current portion

 

 

15,263

 

 

 

 

Other accrued and current liabilities

 

 

55,767

 

 

 

54,567

 

Total current liabilities

 

 

120,930

 

 

 

118,546

 

Operating lease liabilities, net of current portion

 

 

111,680

 

 

 

 

Convertible senior notes, net

 

 

148,057

 

 

 

 

Other noncurrent liabilities

 

 

1,300

 

 

 

9,456

 

Total liabilities

 

 

381,967

 

 

 

128,002

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.00001 par value; 500,000,000 shares

   authorized as of September 30, 2020 and December 31, 2019;

    88,532,457 and 85,872,320 shares issued and outstanding

   as of September 30, 2020 and December 31, 2019, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

713,195

 

 

 

693,426

 

Accumulated other comprehensive income

 

 

107

 

 

 

7

 

Accumulated deficit

 

 

(478,995

)

 

 

(354,506

)

Total stockholders’ equity

 

 

234,308

 

 

 

338,928

 

Total liabilities and stockholders’ equity

 

$

616,275

 

 

$

466,930

 

 

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,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consignment and service revenue

 

$

64,407

 

 

$

69,245

 

 

$

176,570

 

 

$

184,890

 

Direct revenue

 

 

13,645

 

 

 

12,271

 

 

 

37,111

 

 

 

39,417

 

Total revenue

 

 

78,052

 

 

 

81,516

 

 

 

213,681

 

 

 

224,307

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of consignment and service revenue

 

 

16,304

 

 

 

19,446

 

 

 

47,253

 

 

 

52,592

 

Cost of direct revenue

 

 

11,964

 

 

 

9,842

 

 

 

31,678

 

 

 

31,056

 

Total cost of revenue

 

 

28,268

 

 

 

29,288

 

 

 

78,931

 

 

 

83,648

 

Gross profit

 

 

49,784

 

 

 

52,228

 

 

 

134,750

 

 

 

140,659

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing

 

 

15,186

 

 

 

13,390

 

 

 

37,747

 

 

 

36,838

 

Operations and technology

 

 

40,578

 

 

 

37,407

 

 

 

117,858

 

 

 

103,271

 

Selling, general and administrative

 

 

35,384

 

 

 

28,436

 

 

 

103,047

 

 

 

76,110

 

Total operating expenses

 

 

91,148

 

 

 

79,233

 

 

 

258,652

 

 

 

216,219

 

Loss from operations

 

 

(41,364

)

 

 

(27,005

)

 

 

(123,902

)

 

 

(75,560

)

Interest income

 

 

448

 

 

 

1,902

 

 

 

2,350

 

 

 

2,918

 

Interest expense

 

 

(2,406

)

 

 

(60

)

 

 

(2,810

)

 

 

(572

)

Other income (expense), net

 

 

 

 

 

(119

)

 

 

(89

)

 

 

(2,106

)

Loss before provision for income taxes

 

 

(43,322

)

 

 

(25,282

)

 

 

(124,451

)

 

 

(75,320

)

Provision (benefit) for income taxes

 

 

(17

)

 

 

(8

)

 

 

38

 

 

 

51

 

Net loss

 

$

(43,305

)

 

$

(25,274

)

 

$

(124,489

)

 

$

(75,371

)

Accretion of redeemable convertible preferred stock to

   redemption value

 

$

 

 

$

 

 

$

 

 

$

(3,355

)

Net loss attributable to common stockholders

 

$

(43,305

)

 

$

(25,274

)

 

$

(124,489

)

 

$

(78,726

)

Net loss per share attributable to common stockholders,

   basic and diluted

 

$

(0.49

)

 

$

(0.30

)

 

$

(1.43

)

 

$

(2.28

)

Shares used to compute net loss per share attributable to

   common stockholders, basic and diluted

 

 

87,869,321

 

 

 

84,634,956

 

 

 

87,176,677

 

 

 

34,556,485

 

 

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,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net loss

 

$

(43,305

)

 

$

(25,274

)

 

$

(124,489

)

 

$

(75,371

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investments

 

 

(294

)

 

 

(4

)

 

100

 

 

 

26

 

Comprehensive loss

 

$

(43,599

)

 

$

(25,278

)

 

$

(124,389

)

 

$

(75,345

)

 

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

 

 

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

 

Issuance of common stock upon exercise of options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

720,682

 

 

 

 

 

 

2,781

 

 

 

 

 

 

 

 

 

 

 

2,781

 

Issuance of common stock upon vesting of restricted stock units, net of

   shares withheld for employee taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

463,534

 

 

 

 

 

 

(147

)

 

 

 

 

 

 

 

 

 

 

(147

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,372

 

 

 

 

 

 

 

 

 

 

 

7,372

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(294

)

 

 

 

 

 

 

 

(294

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43,305

)

 

 

(43,305

)

Balance as of September 30, 2020

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

88,532,457

 

 

$

1

 

 

$

713,195

 

 

$

107

 

 

 

 

$

(478,995

)

 

$

234,308

 

 

 

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

 

 

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