Participants

Unidentified Company Representative

James Reinhart; Chief Executive Officer, Co-Founder, Director; ThredUp Inc

Sean Sobers; Chief Financial Officer; ThredUp Inc

Ike Boruchow; Analyst; Wells Fargo

Dylan Carden; Analyst; William Blair

Bernie McTernan; Analyst; Needham & Company Inc.

Kunal Madhukar; Analyst; Water Tower Research

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the ThredUp fourth-quarter 2024 earnings conference call. (Operator Instructions)

Unidentified Company Representative

Good afternoon and thank you for joining us on today's conference call to discuss ThredUp's fourth quarter and full year 2024 financial results. With me are James Reinhardt, Thredup's CEO and Co-founder; and Sean Sobers, CFO. We posted our press release and supplemental financial information on our investor relations website at ir.Thredup.com. This call is being webcast on our IR website, and a replay of this call will be available on the site shortly.
Before we begin, I'd like to remind you that we will make forward-looking statements during the course of this call, including but not limited to statements regarding our earnings guidance for the first fiscal quarter and full year of 2025, future financial performance, market demand, growth prospects, business strategies and plans, investments in AI technologies, our ability to cost effectively attract new buyers, and the effects of potential tariffs, inflation and general economic uncertainty on consumer demand.
Words such as anticipate, believe, estimate, and expect, as well as similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, involve known and unknown risks and uncertainties, including our ability to effectively deploy new and evolving technologies such as artificial intelligence and machine learning in our offerings and the effects of inflation, increased interest rates, changing consumer habits, and general global economic uncertainty.
Our actual results could differ materially from any projections of future performance or result expressed or implied by such forward-looking statements. You can find more information about these risks, uncertainties, and other factors that could affect our operating results on our SEC filings, earnings press release, and supplemental information posted on our IR website. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events.
In addition, during the call, we will present certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from GAAP measures. You can find additional disclosures regarding these non-GAAP measures, including reconciliation of comparable GAAP measures in our earnings press release and supplemental information posted on our IR website.
Now, I'd like to turn the call over to James.

James Reinhart

Good afternoon everyone. I'm James Reinhart, CEO and Co-founder of ThredUp. Thank you for joining our fourth quarter of 2024 earnings call. Given the completed divestiture of remix in November of 2024, my remarks will focus exclusively on our continuing operations in our US business unless otherwise noted.
We are pleased to share ThredUp's financial results for Q4 and our expectations for Q1 and fiscal year 2025. We'll provide an update on growth, gross margins, adjusted the margin expansion, and detail further customer facing improvements across our marketplace. I will then hand it over to Sean Sobers, our Chief Financial Officer, to talk to our fourth quarter of 2024 financials in more detail and provide our outlook for the first quarter and full year 2025. As always, we'll close out today's call with a question-and-answer session.
Let me start by saying that we've made substantial progress in re-accelerating growth in the US while maintaining our free cash flow and adjusted EBITDA targets. As we announced in January, our fourth quarter performance was well above our expectations, and that progress has continued into 2025. This was driven by three factors.
First, our customer acquisition and retention strategy. Customer acquisition remained very strong in Q4, with new customer volume up 32% year over year. Q1 is also shaping up to be one of the strongest acquisition quarters in our history. We expected active buyer growth to inflect positive in Q1 and are pleased to be ahead of our plan at this point in the quarter.
Customer retention metrics remain strong quarter to date, with conversion rates from visit to purchase at all-time highs. Despite scaling spends significantly in Q4 and further again in Q1, strong conversion and retention means our paybacks remain in line with our sub one-year goal. We are increasingly confident we can invest more aggressively in growing new buyers while still achieving our free cash flow targets. This is likely to be our approach for the foreseeable future.
Second, our sourcing strategy and processing capabilities. With buyer growth accelerating, we are now sourcing, processing, and listing more high-quality apparel than ever. We are no longer stemming the flow of sellers onto our marketplace. Instead, we are scaling up processing capacity across our network to meet the needs of more and more buyers. Fresh listings on ThredUp, which we identify as items under 14 days old, are up 9% quarter to date on a year-to-year basis and continuing to accelerate. Fresh listings remain a key input to buyer growth and retention. We're confident we're meeting the mark so far in 2025.
Just as important, this uptick in supply isn't just quote unquote more stuff to chase revenue growth. Rather, this is increasingly more desirable and premium apparel targeted at delighting our core resale market. As we noted on our last call, our premium selling service is now live to 100% of sellers. Top brands from the service include brands like Kate Spade, Veronica Beard, Pinko, and Love Shack Fancy.
Average listing prices for items from premium bags are 50% higher than traditional bags. Items coming from premium kits now make up more than 10% of newly listed items, and this has been growing sequentially for three quarters. As a reminder, this service is priced higher at $34.99 per kit with more tools for sellers, longer consignment windows, a salon discounts, and more dedicated customer support. We are continuing to innovate on behalf of sellers, whether you want us to do all the work, you want to do more of it yourself, or somewhere in between. We remain relentless in our pursuit of making product the leading choice to sell second-hand apparel online, expanding our TAM, and at the same time our sustainability impact.
Third, our generative AI product and technology investments. We continue to believe that AI disproportionately benefits ThredUp relative to other marketplaces and retailers, and that generative AI can significantly enhance the second-hand shopping experience. For years, our dream was to build a second-hand shopping experience that was indistinguishable from shopping new.
Advancements in generative AI are inching us closer to that reality in multiple ways: First, our AI search functionality continues to delight customers and drive the conversion rates I mentioned earlier. Since inception, 1.3 million image searches have been performed, and sessions with an image search have an 85% higher conversion rate.
Second, we are using this search technology to generate visual category pivoting, allowing customers to find the exact style of dress or coat or denim that meets their needs, but in a way that feels much more intuitive to how customers shop online. High performing AI generated pivots can draw click through rates north of 15%, well above merchandizing engagement rates without imagery. This is particularly important for new customers who have never shopped second-hand online.
Third, iterations of our style chat and image search are powering new ways to shop this year. Soon any social feed, board, or archive of style you have will be able to be ingested into ThredUp to help you shop these looks for less second-hand. We will be starting with a deeper Pinterest integration in the weeks ahead and we'll follow up with other social platforms throughout 2025. Linking where you get inspiration in fashion with how you can best find those looks is a linchpin to our strategy. We expect this technology will also empower creators, influencers, and affiliates to curate and showcase our millions of high-quality second-hand items to their audiences.
Finally fourth, we are leveraging AI across our infrastructure. Last quarter, we launched 360-degree high-definition photos, paving the way for AI generated lifestyle imagery on individual product pages. 360-degree photos have increased 30 day sell through rates up to 12%, depending on the category. This quarter, we launched automated digital measurements, increasing the accuracy and shoppability of everything on ThredUp. We should see better measurements translating to improved conversion, lower returns, and increased customer retention.
Now turning to the consumer environment. Last week we released early data from our upcoming resale report about the impact that tariffs are having on consumer psychology. Our take is that with tariffs and inflation dominating the national conversation, consumers are concerned about price hikes across retail. In this environment, second-hand could become more attractive for shoppers seeking out affordable, high quality clothing.
According to the data, 51% of consumers pay higher prices due to inflation impact how much they spend on apparel. 62% of consumers say they're concerned that new government policies around tariffs and trade will make apparel more expensive. And 59% of consumers say if new government policies around tariffs and trade make apparel more expensive, they will seek more affordable options like second-hand.
Before I turn it over to Sean, I want to do a quick review of the competitive advantages in our business, especially now that we are exclusively focused on the US. Our competitive advantage comes from the compounding effects of three hard problems we've solved.
First, we've built a name brand reverse logistics supply chain that has created a massive supply advantage in the resale market. Winning the battle for high quality supply continues to be an important part of our defensibility.
Second, we have built world class infrastructure, technology, and software to process single skew apparel at scale. With ongoing innovations and processing technology and AI, we are extending our advantage even further while we grow capacity and reduce costs.
Third, we have built a data-driven managed marketplace that connects buyers and sellers on our platform. We ingest millions of data points that combined with the algorithms and models that sit on top of that data, help us improve our acceptance, merchandizing, photography, pricing, and marketing capabilities. The rapid deployment of AI technology to serve customers better comes directly from this long-standing data advantage.
As I've said from our very first public filing, our strategy has been developed with a deeply calculated approach about what it takes to build and sustain competitive advantage over time. We believe that every day our supply advantage increases, our infrastructure and data widen, and the network effects of our marketplace grow.
Now over to you Sean.

Sean Sobers

Thanks James. I'll begin with an overview of our results and follow up with guidance for the first quarter and the full year. All reported results are from continuing operations unless otherwise noted. Our GAAP financials and a reconciliation between GAAP and non-GAAP are found in our earnings release supplemental financials and our 10-K filing. We are very proud of our Q4 and 2024 results. We delivered our first full year of adjusted profitability and exited the year with a healthy return to growth in Q4.
For the fourth quarter, revenue totaled $67.3 million an increase of 9.5% year over year. Our outperformance was driven by investments in marketing and in processing, AI upgrades to the customer experience, renewed focus on our core business following the European divestiture. And post-election pent up demand.
Active buyers reached 1.3 million, a decline of 6% year over year. Order growth re accelerated to 1.2 million, an increase of 2% year over year. As a reminder, active buyers are the trailing 12-months, and though this number declined, we were very pleased with the new buyer progress we made, including our best Q4 yet. For the fourth quarter of 2024, gross margin was 80.4%, a 290 basis points increase over the same quarter last year as a result of a higher percentage of our sales coming from consignment.
Adjusted EBITDA was $5 million or 7.4% of revenue for the fourth quarter of 2024. We doubled our adjusted IBBA dollars versus last year, representing an approximate 330 basis points margin improvement as we leveraged our multi-year investment on higher revenue. Our Q4 EBITDA outperformance illustrates how our marketplace model generates powerful margin flow through on incremental revenue.
Turning to the balance sheet, we began the fourth quarter of $57.1 million in cash and investments in our continuing operations of the business and ended the quarter with $52.8 million using $4.2 million in cash. The cash usage included $4 million of working capital adjustments, $2.5 million of CapEx, $1 million of debt repayment, and the final $2 million of cash funding for remix. We spent $2.5 million in CapEx and Q4 for a total of $6.6 million for the year.
In 2025, we continue to expect maintenance levels of approximately $8 million. Next, I'd like to look ahead. We finished 2024 in a position of strength and believe we entered 2025 with stability and confidence. Before we get into guidance, I want to provide a little more context for our outlook.
First, our priority this year is to accelerate growth while maintaining broadly similar adjusted EBITDA margins versus last year. To do this, we plan to lean into the key drivers of our marketplace flywheel, growing active buyers through marketing and fresh listings through inbound processing. The contribution margins in the low 40% range, we are now able to invest more ad dollars that uphold our long held 12-month payback period. As we spend more on marketing and drive new buyers to the site, we plan to simultaneously invest in inbound processing to bring in a broad selection of fresh, high value items to delight and convert our buyers.
Second, we are planning for gross margins to decline slightly in 2025 versus last year and track towards the high end of our long-term target range of 78%. This dynamic is largely the result of the acceleration in new buyer growth that we have planned. Since first time buyers require higher incentives to convert, more new buyers and the customer mix pressures gross margins. However, once a new buyer transitions to a repeat buyer, average discount rates are over 1000 basis points lower.
Third and finally, in 2025, we are planning to reach positive free cash flow on an annual basis, which provides us with a high level of confidence that we can fund the business with our existing cash. Without additional context for guidance for the first quarter, we expect revenue in the range of $67.5 million to $69.5 million representing year to year growth of 6% at the midpoint.
Gross margin in the range of 77% to 79% of revenue. Adjusted EBITDA of 2.5% to 3.5% of revenue and basic weighted average shares outstanding of approximately 117 million shares. For the full year of 2025, we expect revenue in the range of $270 million to $280 million representing year for year growth of 6% at the midpoint. Gross margin in the range of approximately 77% to 79% of revenue, adjusted EBITDA approximately flat to 2024's 3.3%, and basic weighted average shares outstanding of approximately 122 million shares.
I would like to note that going forward we plan to moderate share dilution as we reduce stock-based compensation while making our way towards earnings per share. To this point, we expect to reduce stock-based compensation by over 40% in 2025.
In closing, we are extremely proud of the milestones we achieved in 2024. In 2025, we are confident in our ability to re-accelerate revenue growth, maintain positive adjusted EBITDA, and take the next step in our trajectory and reach positive free cash flow. This progress will be fueled by our multi-year investment in our infrastructure, technology, and software and move us closer to our long-term targets.
James and I are now ready to take your questions. Operator, please open the lines.

Question and Answer Session

Operator

(Operator instructions)
Ike Boruchow, Wells Fargo.

Ike Boruchow

Hey everyone, congrats on the momentum. I guess two questions for me, either for James or Sean. Basically just trying to think about the pacing of, I guess revenue, gross margin, and EBITDA through the year, any other, besides Q1, any other guide points you can kind of your guard rails you can kind of give us as we think about the remainder of the year.
And then just a second follow up to that would be just -- it sounds like you got a lot of momentum and Q4 sounded was very strong. Any reason why the business should be so anything quarter to date the shares trying to understand like how you're planning it versus if there's anything you're actually seeing that concerns you.

Sean Sobers

Hey this is Sean. I'll start off with the facing. Think about revenue. It's going to -- the growth is going to accelerate from Q1 to Q2 and Q2 to Q3, Q4 will come back down but still be a grower. And the growth margin rate will be pretty consistent throughout the year by quarter.
EBITDA rate for Q2, similar to Q1, expands into Q3 at its highest for the year, then it comes back down to its lowest rates for Q4 in preparation for basically growing into 2026, but really about processing and bringing inbound goods online.

James Reinhart

I'll hand over to James on the last piece. Yeah, look, I think Q4 was strong. I think it benefited a little bit from the post-election sort of consumer -- consumers feeling good sort of post-election. So we had a strong holiday, unlike prior holiday periods, and so, I think nice momentum and we have continued to see that momentum into Q1.
I just think there's a little bit of uncertainty around. A little bit on the consumer side and then also, this is early in the cycle for us for aggressively investing in marketing, aggressively investing in operations, and I think just we want to see some of these trends play out, but I think consistent with what Sean just said, we expect, Q2 to be, better than Q1 and Q3 to be better than Q2. So I think we're pacing the year as such.

Ike Boruchow

Great, thanks guys.

Operator

Dylan Carden, William Blair.

Dylan Carden

Thank you and thanks for all the color on the guide. I'm curious, you kind of mentioned it there at the end if you mentioned how much you're going to spend on marketing this year, even in relative terms as it relates to the outlook and then that giant decrease in stock based comp, what's kind of the outlook here for the GAAP income side of the business as we kind of roll this forward and maybe related to that, we haven't talked about kind of capacity utilization in a while, kind of where you are on that journey and and sort of need for CapEx or how you kind of flex in and out of the capacity that you have this year.

James Reinhart

Thanks. Yeah, I think Dylan, maybe I'll start on the capacity piece. We have plenty of capacity at this point in the distribution centers, and I think our turns have been increasing, our ability to pick, the right items to sell at the right price. So I think Dylan, we're in great shape with that. I think we've said historically we wouldn't need any cap back to at least 2027, in any sort of scaled way, and I think that remains to be true, although, potentially even further than that.
So I think feeling good about the utilization piece and then on the stock-based comp piece, I think we have seen, inflated uses of stock-based comp over the past prior years. I think we very deliberately have chosen to use more cash this year and less shares to really reduce dilution, for equity holders and so that was a conscious decision in the business, and I think you'll see that play out as we prep as we get into the 2026 and we think about, earnings growth and EPS, that's the direction the business is headed, and so we wanted to call out that change in share usage.

Sean Sobers

And Dylan, a number on it to the [FEC] for 2025 is about $14.5 million. And then I think on your last piece all the feed I can give you on marketing is think about it as about 19% of revenue on a quarterly basis throughout the year.

Dylan Carden

And is that just because you're seeing better returns on that spend? Is that why that kind of ticks up a bit?

James Reinhart

Yeah, then we are. We're seeing -- our LTDA ratios really trend towards all-time highs. Q4 was among the best acquisition quarter in Q4 we've had. Q1 continues to trend really positively and so I think it's a combination of just a much better pros experience, all of our new AI search technology is really helping customers find what they want. That's driving positive contribution margins, we're really flowing that back into the business, and I think that's why you'll start to see the progress throughout the year on the growth side.

Dylan Carden

Excellent, thanks a lot.

Operator

Bernie McTernan, Needham and Company.

Bernie McTernan

Great, thanks for taking the question. I was just hoping you could dive into Image search a little bit more, maybe what's driving that higher conversion. I would love to know what kind of data you're collecting and ultimately why is it better than just traditional word-based search and if you're seeing increased utilization of the product over time.

James Reinhart

Yeah, hey, Bernie, yeah, I mean, I think you know we talked about image search and the conversion rates for that drives, I think it's just a distinction between people really being able to see items, out on the street or items in magazines or, using their Pinterest boards, all of these visual ways that women shop, I think now being able to find exactly those looks combined with the technology on the back end to take, whatever it is that they're snapping or clipping or saving.
It just delivers more relevant results and so you're seeing people then use it more. We hear from customers all the time, I've stopped using the text search. I just upload my images and you guys find exactly what I'm looking for, whether that is a -- we saw a big surge of people using it, with the Academy Awards, right? Like you're just seeing people start to use this as a default way to shop online and I think our technology is helping give them the product that they want in an efficient fashion.

Bernie McTernan

Makes sense. Thanks James.

Operator

(Operator instructions)
Kunal Madhukar, Water Tower Research.

Kunal Madhukar

Hi, thanks for taking my question. Question -- and maybe this is something that hasn't truly played out yet, but as we think of the new tariffs that could come into play, one of the things that could potentially happen is that the CPC rate, the cost per click rate, should decline because there's less competitive intensity on the advertising side. As that happens, how are you thinking in terms of maybe, continuing to spend as much on marketing budget and delivering higher growth versus maybe potentially delivering higher EBITDA margins?

James Reinhart

Yeah, it's a great question on tariffs. I mean, I think you've sort of hit on one piece, which is advertising rates and how that might change around cost per click, I think we saw the opposite over the last couple of years, whether it was Shein or Temu sort of driving up cost per click rates. I do think that could potentially be a tailwind and the way our systems are designed is if, cost per click comes down and we still feel like the customer quality is there, we will actually spend more money and could drive incremental new buyers.
I think the other part of the tariff equation is. If new apparel -- companies that sell new apparel have increased costs, from products that they're making in China or things that they're bringing in from Mexico, anything that increased the cost of new apparel is likely also to provide some modest tailwind to second-hand goods because we don't have exposure to bringing in products from overseas and so, everything that we process and sell product is all here in the US. So, I think in both areas, tariffs can be a net positive for our business.

Kunal Madhukar

That's great. Maybe a follow up to that, especially to the second point. One of the things that really kind of talks about is the pricing algo which in real time kind of adjust to the demand and supply. How flexible is your pricing algo just in case prices start increasing on the new product side?

James Reinhart

Yeah, all the prices on up are dynamic, so we will adjust those prices based on what we're seeing in the market, as well as the demand curve. So we've got over 50,000 brands on the platform, tens of thousands of new listings every day, and those prices are all being dynamically adjusted. So we've actually very well positioned to take advantage of discontinuities and pricing if tariffs make that a reality.

Kunal Madhukar

Great, thank you so much.

James Reinhart

Thank you.

Operator

There are no further questions at this time. I will not turn the call back to Mr. James Reinhart. Please continue.

James Reinhart

Well, thank you all for joining us on this call. I want to particularly thank the ThredUp team for all their hard work over the past couple of quarters. It feels great to be back on track with some strong momentum in the business and exciting opportunities in front of us, and looking forward to all the work that we have ahead of us and what we can invent on behalf of our customers.
So thank you, everyone. We'll see you next time.

Operator

Ladies and gentlemen, this concludes this conference call. Thank you for your participation. You may now disconnect.