Caitlin Howe: Yes, absolutely. Great question. So if you think about GMV flowing through the total revenue, kind of a couple of factors there that you hit on. So take rate and then also mix of product. And so when I say mix, I’m talking about consignment versus direct. Direct flows through dollar for dollar from GMV to revenue. And so you saw a little bit of headwind this year — sorry last year 2023 as we exited direct. I still think there’s a little bit of that. You’re going to see in Q1 that direct is still going to, we believe, will shrink. But then once we start comping a lower percent of total direct. I think you’re going to see a more consistent flow through Bobby, from GMV to total revenue. So again, I think Q1, a little bit of noise there just as we continue to exit the direct business but then I think it should normalize.
Take rate going forward, right, you saw we were up 150 basis points in take rate. And really, that was mostly driven by the consignor commission rate card change that we made at the end of 2022. And so we had to sell through the product that came in under the old rate card in the first half of the year. But then we saw — you saw you guys see kind of a clean P&L in the back half of 2023. So what I would say is take rate is this new normal at a higher level. And now from here, what will change is just the mix of product that’s sold within a given quarter. And so as ASP or AOV goes a little bit higher, it tends to be higher in Q2. It tends to be the highest out of the year in Q4, you’re going to see a little pressure on take rate. But what you end up getting is good flow-through on those units.
So that’s kind of top line. And then, the other piece that you asked about was margin — gross margin. And here’s what I would say is we were pretty pleased with our gross margin in Q4. And I think we would say that 70% plus is kind of that low 70s is the new normal. Again, it will vary quarter-to-quarter based on the mix of products that we sell. But I think we’re feeling pretty good about that. Consignment business has a high — has a pretty high gross margin inherently. And so as we mix more into that return to growth on the consignment and overall top line, I think we feel pretty good about where the gross margin will be.
Ike Boruchow: Got it. Caitlin, it’s actually Ike. I made the call, don’t worry.
Caitlin Howe: Thanks, Ike. It’s good talking to you.
Operator: Our next question comes from the line of Ashley Owens from KeyBanc Capital Markets.
Ashley Owens: Great. So we talked about the changes that have been made to the business, really encouraging to see the positive EBITDA this quarter. Just given this in the guidance today, you think the growth trajectory here is a little bit more firm? And what are you seeing on the website in terms of shopper behaviors today that kind of gives you the confidence that we’ll see that mid-single-digit to low double-digit revenue growth range this year and that momentum will kind of persist.
Rati Levesque: Yes. Sure. Actually, I’ll start and I’ll let John add anything that I missed. We feel pretty confident, I would say, going into the year based on where we are based on the funnel, like I mentioned earlier, based on the consumer and the health of the consumer, fine jewelry is quite strong, high value is strong. And then it all starts with supply for us. So when we look at the supply, we’re seeing really healthy growth going into Q1. I won’t give any more guidance than that in Q1 but we are quite optimistic. And then we talked about all of the programs that we are launching that we’ve tested in Q4 that works for us. Those investments, like I mentioned, around marketing and sales, that tenure of the sales rep is quite healthy going into Q1, it all started in Q4, that realignment of value and quality between the sales and marketing team is really working for us. So we’re seeing these investments pay off and we’re seeing that kind of growth continue into Q1.
John Koryl: No, I think it’s really well said. We’re a supply-constrained business and the team is doing a really good job of developing supply. We definitely see this as I said, low double-digit grower. We’re up against some pretty tough comps, obviously, in Q1 from last year with a lot of low-value goods and clearing out the direct goods. So we even did a negative margin last year. So the comps in terms of growth aren’t going to be easy but from there, especially in the back half of the year, as we’ve said, we see this as being the longer-term sustainable, much more profitable model of our business than we’ve been running to date.
Operator: Our next question comes from the line of Tom Nikic from Wedbush.
Tom Nikic: I wanted to ask about the debt transaction. So now that you’ve done this, essentially, do you feel like this kind of set like you’re good now like at least like for a couple of years until the next big tranches come? Or is this kind of step one and then you kind of need to do another transaction to get the capital structure exactly where you want it to be?
John Koryl: Yes. Tom, I’ll talk about it, this is John Carl. From a runway perspective and then I’ll let Todd get into the particulars. But from my perspective, what I challenge the team and our partners with is give us the runway to prove that our model is the right model. And what you’ve seen in this quarter and the previous honestly, 5 quarters is we’re on the right path, give us the time to prove it. Give us the time so that we could be adjusted EBITDA breakeven or better. And then what can we do in ’25 and how can we build on that? And then what they were able to do was give us 3-plus years to prove this out. And that is what was incredibly important to me in my role. So the specifics of the transaction, I’ll turn that over to Todd. But we got exactly what we will want it out of the deal in terms of the timing of being able to prove the business going forward.
Todd Suko: Tom, this is Todd. I mean I think to your question about how do we see the capital structure going forward. I think that right now, we have plenty of flexibility to deal with that in the future. And as this improves, I think that we’ll have lots of good options for making decisions.
Tom Nikic: All right. Great. And if I could just ask a quick follow-up. I just want to make sure I kind of understand the terms. So the total interest rate on the debt is 8.75% of which 4.25% is PIK and 4.5% is cash? Is that the…
Todd Suko: No. Tom, it’s 8.75% cash and 4.25% PIK.
Operator: Our next question comes from the line of Edward Yruma from KWM, LLC [ph].
Edward Yruma: It’s Edward Yruma from Piper Sandler. A couple of quick ones for me. Just — first, a housekeeping question. If I recall the ’25 converts were, I think, $150 million notional. So I assume this largely takes them out, the $146 million. And then I guess what triggers a PIK versus cash interest. And then maybe a bigger picture question. We’ve seen easing pricing of kind of hard luxury, even some promotions on things like watches. I guess, have you seen deterioration in pricing? And I know your consignment but how has it impacted revenue growth?
Todd Suko: Yes. So I’ll take the first part. So the face value of the 2025 notes was $172.5 million. And we took out $145.8 million of those plus another $6.5 million of the ’28 to replace that with $135 million senior secured note. And that’s how we get the $17 million of deleverage.
Rati Levesque: And then I take the second part of that, Edward. The pricing piece of it and where we’re seeing the consumer as far as squeezing there. Our average selling price for like-for-like items have gone up. We’re getting smarter as far as ML is concerned. We’ve got 13 years of data of attribution and pricing. And so we feel really good about continuing to kind of test higher and higher prices, better for the consignor. It’s better for the RealReal. And our pricing algorithm and models are now expanding over more and more categories throughout this year. So we’re happy about the progress there. As far as our luxury items and where we’re seeing the consumer like I mentioned before, fine jewelry is quite healthy, ready-to-wear is back. We’re doing well with high value overall.
John Koryl: Yes. I have to pile on. I think it’s still amazing. I’ve only been here a year but in all honesty, the amount of pricing power and knowledge that we have in putting all this data together, seeing a million unique SKUs every month. it’s really providing a lot of benefits, not only the history of the 13 years but the million unique SKUs per month makes it. So we’ve seen just about everything before and category by category. We can actually push up the pricing try it, then we get a lot of signal from our website from our 3 billion, 3.5 billion website visitors per year. So you have this wonderful combination of you have an algorithm that builds on top of but then you actually have the experience of seeing the actual product perform in the while, how many people obsess it, how many people add it to their cart, all of those type of things.
And I think we’ve been able to offset a lot of softness with — in all honesty, a lot of competitive intelligence on our side.
Edward Yruma: And just on the cash versus PIK interest, what makes you tabulate, is it your discretion? Is it?
Todd Suko: No, it’s not discretion. So it’s 8.75% cash and then the PIK just accrues.
Edward Yruma: Was 8.7% plus the PIK, I’m sorry, maybe I…
Todd Suko: Yes, it’s plus the PIK. Yes, correct. It’s plus the PIK.
Operator: At this time, I would now like to turn the conference back over to John Koryl, CEO, for closing remarks.
John Koryl: Yes. Thank you for joining us today. Before closing the call, we’d like to thank our entire team at the RealReal for their hard work and dedication in delivering significant progress in our operations and results in 2023. To the team, we honestly couldn’t have accomplished any of these milestones without your relentless efforts to deliver the preeminent luxury resale experience to our consignors and buyers. I look forward to the next phase of our growth in 2024 and beyond. We’d also like to thank our more than 35 million members as they join us on our mission to extend the life of luxury and make fashion more sustainable. Thank you.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
