Q3 2026 Earnings Call - THEREALREAL INC

Good afternoon, everyone. My name is Michael, and I'll be your conference operator today. At this time, I would like to welcome you to the RealReal third quarter 2026 earnings call. All lines have been placed on mute. After the speaker's remarks, there'll be a question and answer session. At this point, I'd like to introduce you to Michael. At this moment, I'm going to turn the call over to Emily Garka, Senior Director of Investor Relations. Thank you, Operator. Joining me today to discuss our results for the period ended September 30th, 2026, our Chief Executive Officer and President, Rodney LeBecq, and Chief Financial Officer, Ajay Gopal. Before we begin, I would like to remind you that during today's call, we will make forward-looking statements which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties, and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10Q. Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking. We have provided reconciliations for historical non-GAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our Investor Relations website. I would like to turn the call over now to Rati Lavek, Chief Executive Officer of The RealReal. Good afternoon, and thank you for joining us. Q3 was another record quarter for The Real Real, with all-time quarterly highs across GMV, revenue, and orders, reflecting the strength of our business and our continued focus on disciplined execution and profitable growth. We delivered GMV growth of 23% with adjusted EBITDA margin up 290 basis points versus last year. Revenue grew 19% year-over-year. Trailing 12-month active buyers accelerated, up 13% year over year, and those buyers placed 15% more orders, our strongest order growth since 2022. These results point to a resilient customer base buying more across a range of price points. Our Q3 execution gives us the confidence to raise our full-year outlook today. Underlying our results is a fundamental change in how people shop for luxury fashion, and our purpose-built platform is helping to drive it. Increasingly, customers are starting their journey with us and engaging well beyond a transaction to discover what to buy, to track what items are worth, to decide what to sell, and then to discover again. That is the new operating system for luxury ownership, and we are building it. Entering the year, we said 2026 would be the year our advantages began to compound. Three quarters in, you can see it across our business. First, we are deepening our community engagement. Second, we're unlocking supply and accelerating our flywheel. And third, we are accelerating innovation and efficiency through technology. Let's start with deepening our community engagement. Every year, we add a new cohort of customers who make us a long-term part of how they own luxury. In the third quarter, 47% of our GMB came from buyers who have been with us for five years or longer. And at the same time, new buyers grew over 20%. Across our broad customer base, order values and units per order are up, and we're seeing strong growth across categories and price points. Gen Z is our fastest-growing cohort, with buyers up more than 60% since 2023. They care about trust, authenticity, and community, and those are all at the core of what we offer. They're pre-wired for resale, with Gen Z already making up 4 in 10 second-hand sellers across the US, according to a 2026 report by Bank of America. Increasingly, we see them graduate onto the real reel as buyers and consignors, and we are built to crow with them. Because of the depth of our catalog, we are as relevant to someone at 25 as we are to someone over 50. As a customer's style evolves, we evolve with it. We see what people buy, what they sell, and how they search at scale. This gives us data, expertise, and authority to have a clear view on style, and in Q3, we put it to work. In August, we published our annual resale report. In addition to searching by brand, our customers are looking for a designer's name, specific collection, or particular year. Vintage has become a category in its own right, with demand up more than 400% since 2020. This month we also published Real Style, our book about discovering personal style and building a wardrobe with intention. More than a book, it reflects our point of view. Style is personal, great wardrobes evolve over time, and resale is an essential part of the luxury lifecycle. Second, turning to unlocking supply and accelerating our flywheel. This year, we diversified how we source supply, strengthening the core, but also adding layers around it. Trust in estates, partnerships, contractors, international vendors, and our retail stores, resulting in double-digit supply growth in the quarter. Our core differentiator is our sales team and the relationships they build. We've invested in the team, reshaping how it's structured and how it works with our diverse consigner base. We are testing a targeted approach. One group is focused on attracting new consigners to the RealReal, and a second works with repeat consignors who engage more often and bring more of their closets each time. Beyond the core, the new layers are already showing strength. Our trust and estates team delivered 35% more units in Q3 than a year ago, and we are building partnerships with organizations that give us access to new consignors. We also expanded our contractor program into markets our team does not currently cover. And we grew our Japanese dropship vendor network to seven, up from two last quarter. We opened a new store in Boston in October, and our Los Angeles store in Glendale is next. During the quarter, we also hosted pop-up events in test markets, averaging nearly $1 million per market in supply in a single weekend. Our diversified approach is working. In the third quarter, the number of consignors who sold with us grew double digits, with 44% of new consigners coming from our buyer base, highlighting the strong network effects powering our flywheel. And finally, as a tech-enabled marketplace, we are accelerating innovation and efficiency through technology. Our platform is built on the largest authenticated luxury data set in the world. 15 years, more than 55 million items, over 100 attributes on each. Accelerated by AI, that data is helping us innovate faster than we ever have. On the consigner side, our new seller experience is one example. Our product teams ran weekly experiments throughout the summer, iterating at a pace we could not have sustained previously. And our seller sign-up completion rates are up over 30% with the new experience. Next year, drawing on the same data that powers Athena, we expect My Closet to enable a customer to send us a photo or a few words about an item to add it to their closet and get an estimate of what it's worth. Shifting to the buyer side, we lead when consumers turn to AI to look for pre-owned luxury. On our platform, Ask TRR, our conversational shopping experience built in partnership with Google is now live. Customers describe what they want and receive a personalized result curated from more than 1,000,000 one-of-one items. Adoption is still building and our early adopters spend 20% more per transaction. On agentic commerce, as customers test agentic shopping, we are building technology and structuring our data to interface with these agents. Every item in our catalog is authenticated, attributed, and priced in a form those platforms can read and recommend. We believe we are well-positioned to capitalize on this evolving trend. Within operations, we've brought AI into customer service. Some routine requests, like initiating return, can now be handled from start to finish through our tools, which means faster answers for customers and more time for our team to spend on the issues that need human judgment. Athena remains on track to handle nearly 50% of all items by the end of the year, and we are extending it into high-value fashion this quarter. And in September, our automated storage and retrieval system successfully went live in our Perth Amboy authentication center, ahead of schedule. When an item sells, a robot retrieves it, and it moves through automated packing and shipping. For items in the ASRS system, this has tripled the number of units picked per hour, allowing us to process growing volumes with minimal incremental costs. It is initiatives like these that drive continued operations and technology leverage in our results, and are expected to shorten the time to launch and ship products while pulling multiple dollars per unit out of our processing costs. In closing, Q3 shows what we have been building toward, growth and profitability moving together, and advantages that compound. At the center of all of it are our customers, who see their closets as a portfolio of assets, to be tracked, managed, and sold, and increasingly, the real real is where that happens. Before I turn it over to Ajay, I want to thank our team for a quarter in which we delivered results and built for the future at the same time. Doing both at once is what a first class team looks like. To everyone at The RealReal, thank you. You are why our consignors and buyers trust us. And you are why I'm so confident in what comes next. With that, I'll turn the call over to Ajay. Thank you, Rathi. Good afternoon, everyone. Q3 was a strong quarter with accelerating top-line growth, expanding margins, and meaningful cash generation. Q3 GMV of $642 million increased 23% year-over-year and accelerated to more than 40% on a two-year stacked basis, reflecting a healthy balance between units and price. Orders grew 15%, and average order value was $629, up 8% year over year. Total revenue of $206 million increased 19%, with consignment revenue up 18% and direct revenue up 19%. Trailing 12-month active buyers exceeded 1.15 million, up 13% year-over-year. Customer engagement continues to deepen with 52% of our consignors during the trailing 12 months also making purchases on the platform, which we believe is a meaningful signal of the platform's compounding network effects. In the quarter, we continue to see strong flywheel trends with 44% of new consigners coming from our buyer base, a direct result of the investments Rathi described in how we attract, engage, and retain both sides of our marketplace. Our Q3 take rate of 36.8% was down approximately 110 basis points year over year due to the ongoing mixed shift towards higher value items. Sequentially, compared to Q2, take rate increased 90 basis points. Our model is designed to generate strong unit economics across a wide range of products and price points. We can move with our customers wherever they transact. Gross margin of 74.9% expanded approximately 60 basis points year over year. Gross profit of 154 million was up 25 million versus last year. Total operating expenses leveraged approximately 440 basis points year-over-year, driven by strong leverage in ops and tech and SG&A, partially offset by investments in marketing. As the leader in luxury resale, we are investing to drive growth and increase our market share. We are seeing strong returns from these investments reflected in buyer quality, customer lifetime value, and brand awareness. In Q3, marketing investments resulted in approximately 70 basis points of year-over-year deal average. Operations and Technology leveraged approximately 260 basis points year-of-year, reflecting the impact of Athena, on track to process nearly 50% of all items by year-end. And our ASRS system, now live at Perth Amboy, is already delivering faster throughput and efficiency gains. Within SG&A, we delivered approximately 240 basis points of year-over-year leverage, unlocking supply, and benefiting from fixed cost discipline. Together, this drove adjusted EBITDA of $17 million, or 8.3% of revenue, expanding 290 basis points year-of-year, and coming in above the top end of our prior guidance range. We ended Q3 with $145 million in cash, cash equivalents, and restricted cash. Q3 free cash flow was $11.3 million. For the first time, we exited the third quarter with positive year-to-date operating cash flow, historically a fourth quarter milestone for us. With Q4 representing our seasonally strongest period for both revenue and cash generation, we expect full-year operating cashflow to step up meaningfully from where we stand today. Capital expenditures for the quarter were $13.7 million, we continue to anticipate full-year capex on PP&E within 2% to 3% of total revenue. Subsequent to quarter-end, we refinanced our senior secured notes with a new $150 million term loan and $25 million revolving credit facility, both maturing in October 2033. We expect this transaction to reduce interest expense by approximately $4 million annually, and it extends our maturity profile. More broadly, over the last two years, we've lowered total debt by more than $80 million. With consistent adjusted EBITDA growth and a cash-efficient model that converts that growth into strong free cash flow generation, we believe we are well-positioned to reduce total leverage to $150 million or lower in the medium term. With Q3 results above expectations and supply momentum and buyer engagement continuing to compound, we are raising our full-year outlook. For the fourth quarter, we expect GMV of 720 to 735 million, representing approximately 17% to 19% growth year-over-year. Revenue is expected to be between 218 and 222 million, or approximately 12% to 14% growth. Adjusted EBITDA is expected in the range of 27.5 to 29 million, representing a margin of approximately 12.8% at the midpoint. For the full year, we now expect GMV of 2.585 to 2.6 billion, representing approximately 21 to 22% growth year-over-year. Revenue is expected to be between 806 and 810 million or approximately 16 to 17% growth Adjusted EBITDA is expected to be in the range of 71.1 to 72.6 million representing a margin of approximately 8.9% of the midpoint and improvement of approximately 280 basis points versus 2025 And we remain on the path to our medium-term 15% to 20% adjusted EBITDA margin target. In closing, Q3 marks a meaningful step in TRR's evolution, record GMV, record revenue, positive free cash flow, and a stronger balance sheet. We enter Q4 with clear momentum, and I want to thank the entire RealReal team for an outstanding quarter. thank you at this time if you would like to ask a question please click on the raise hand button which can be found on the black bar at the bottom of your screen when it's your turn to talk you'll receive a message on your screen from the host allowing you to talk and then you'll hear your name called please accept unmute your audio and ask your question we will wait a moment for the queue to form. Our first question comes from Anna Glaston from B. Reilly Securities. Please unmute your line and ask your question. Hi, good afternoon. Thanks for taking my questions. I'd like to start with gross margin. It was nice to see the step up in year-over-year expansion in spite of the compression intake rate. Wondering if you could share some perspective on the moving pieces there. Particularly, we saw a nice benefit in shipping year-over-year. Thanks. Hi, Anna. Thanks for the question. Yeah, we're pleased with our gross margin results in Q3. We delivered 74.9%, which was up 60 basis points year- over-year, I think at the core of this, this is, you know, it's driven by consignment margins, which were 89.3% and continue to be fairly stable when you look at that trend earlier in the year. Shipping had some one-time adjustments that sort of propped up that margin. I think on a go-forward basis, the rate we've seen in the first half is more representative of where we are likely to be. It's for us, gross margins, we expect it to be within the range of 73% to 75% on an ongoing basis. And in Q3, we came pretty close to the high end of that range. Great, thanks. And then turning to the growth that we saw, we saw a shift to be more weighted toward order flow, which accelerated nicely in the quarter. Wondering if you could share your perspective going forward, if you expect the balance to be also driven by this order growth and what you can share from the new buyers that came into the model over the quarter? Thanks. yeah thank you thank you for that question so q3 q3 gmv was up 23 percent uh and and you're right we we saw we saw about three-quarters of it uh coming from from order volume orders were up 15 percent and this was actually a high point for us um you know in terms of order growth um we expected the shift we you know we've uh we expected to start uh the starter seed move towards volume, and it's playing out in line with those expectations. I think we're encouraged by how, when you look at our performance in 2026, we've seen the mix maintain a healthy balance, but shift between units, between orders and average order value, and we have demonstrated that we can grow both top line and continue to expand margins as we work through those shifts. And it's really a testament to our marketplace model, where we can quickly pivot to where our consumer preferences are shifting and bringing in the right kind of supply to meet that demand. Great. Thanks. Best of luck and holiday. Our next question comes from Mark Olschwager from Baird. Please unmute your line and ask your question. Good afternoon. Thank you for taking my question. I wanted to ask also on margin, Ajay, you expanded EBITDA margin 290 basis points in Q2 and again in Q3. I think the high end of the the fourth quarter guide implies something closer to 180. I was hoping you'd just talk us through kind of what's holding back the fourth quarter relative to the recent pace and also how we should think about the margin algorithm heading into 2027. Yeah thanks for the question Mark. Q3 margins expanded, adjusted EBITDA margins expanded by 290 basis points, fairly consistent with what we saw in Q2. You've heard us talk about how we see the business getting to an EBITDA margin range of 15% to 20% over the medium term, and in building towards that, we expect to add between 200 to 300 basis points every year. Our guidance for 2026 contemplates that we would end the year adding 280 basis points of margin at the midpoint. So very much in the range of that 200 to 300 basis points. Q4, quarter to quarter, this is going to change. It just depends on the timing of our investments and when we start to see the returns. So really, we are focused on making sure that we continue to balance growth with profitability and deliver the paths to that 15 to 20% margins in the medium term. Okay. Thank you. And maybe a follow-up for Rati, just on agentic commerce. As you structure the catalog for third-party shopping agents, how do you think about the economics of those relationships, and how do you keep the buyer coming back to the real, real, rather than going to the agent? Thank you. Yes, thanks for the question. So we see agentic as kind of another tool, right, to kind of keep the Buyer in. We're always looking at the Buyor experience end-to-end. For us, we're testing and learning right now, for sure. The agentic traffic is still pretty small. It's, you know, share relative to traditional search, but I'll say it's growing. And we're, I'll Say, well positioned because of the depth of product that we have and the depth of data. When you think of one-for-one items, hundreds of attributes behind each item is why we show up so prominently in AI search today, but it's an area of increasing focus for us. So we're really focused on building for both sides, making sure AI agents find us and making the onsite, our own onsite experience smarter for buyers to come to us directly. So, you know, think about being proactive about how the customer behavior and preferences may just kind of shift over time. But at the end of the day, it's about, you Know, figuring out how to be open to this test and learn while protecting, you Now, our own experience as well. Great, thank you. Thank you. Our next question comes from Marvin Fong from US Bancorp. Please unmute your line and ask your question. Hi, thankyou for taking my questions. I'd love to ask about the growth in the consignor base, the 11% growth you cited, I can't recall if you've mentioned this before as a data point, but it was very good growth. Just love to kind of put that in greater context. You know, how is 11% look kind of compared to what we've been doing in kind of prior quarters? And can you also kind of just talk about, you know, your outlook in terms of your ability to continue to grow a consigner base and and your acquisition costs if you know to uh to accomplish that yeah sure thanks for the question marvin so firstly what we shared was the number of active consignors um sold with us grew double digits actually in q3 um i'm not sure where the 11 specifically came from um but you know the double digit growth quite healthy in line i'm really excited about that progress. But I think what's, you know, most exciting there is that the growth is coming from multiple channels simultaneously. So think about these channels and more of them really focused on diversifying our channels, each reinforcing the others. So now there's no single channel or no single point of failure. And that's what makes the supply engine more durable as we continue to scale and continue to grow. So, you know, like I said, we don't just see this as adding more supply channels, but building a system where each channel makes the other stronger. It's a compounding system. So think about our core business, for example. We moved, like I said from a more generalist model to focused on reps that can go deeper with a customer. Really important that human connection and that relationship that we build there. We've also launched a contractor program. So think about fashion stylists, closet organizers, people with deep networks, building density and markets around our sales team that may not cover now, which just amplifies word of mouth. Another channel would be trust in estates, working with trade shows, auction houses and events. You know, think multi-thousand dollar consignments that come in. We saw Trusted Estates delivering 35% more units this year, so gaining great traction. Our stores, always a piece of that channel mix. Seeing really great payload, continue to see that and meaningfully. And then last, dropship. So we talked a little bit about that in the past. That's starting to become more meaningful. Onboarding not just Japanese vendors, but european vendors as well so high value watches handbags jewelry um and so by the end of the year we'll actually be have launched um over a hundred million dollars of supply in this channel so excited about the progress um of diversifying our channel mix here i got it yes and you're right yeah jotted jotted down that too fast that it was double digits so thank you for uh correcting that um and then a question on AOV uh you know down uh sequentially I think that actually kind of fits with kind of normal seasonality but can you just kind of comment we did see the the take rate kind of come back up so um in terms of like the product mix we kind of see that as maybe higher value items kind of like returning more to an inline historical mix things like handbags and watches kind of just comment on the trends there yeah thanks for that question marvin you're right we we saw growth in average order values um you know slow down a bit but but you know they were still up eight percent so a pretty healthy number in terms of uh still continuing to go up as as represented in our shift um i i also think you're right on the seasonality we you know in q3 our average order value is 10 to come in slightly lighter because of just a seasonal mix of what sells. And then in Q4, we see that go the other way as more and more interest grows for holiday shopping and resale. So this is fairly consistent with the changes in the mix that we would expect to see on a quarter-to-quarter basis. Okay. Awesome. Thanks, Ajay. Thanks Rati. Yes, thanks. Our next question comes from Bobby Brooks from Northland Capital Markets. Please on your line and ask your question hey good afternoon team thanks for taking my question so kind of following up on marvin's piece of the consigner growth a little bit different edge though is really nice growth you talked about on both new buyers as well as the consignors but just curious to unpack that a littlebit more is are you seeing any and the trends that you might be seeing like is AOV from new buyers following the same trend as overall business and curious what are the typical categories you see as someone's first consignment does that greatly vary between a buyer flipping to becoming a consigner versus someone brand new coming into your network just really kind of here curious to hear more insights there yeah maybe i'll start and i'll um let ajay weigh in as well so yes um we're happy to see the progress on both buyers and consignors the growth there but really it's about looking at the full experience um end to end for the buyer and consigner um you know we have 45 million members and growing active buyers who are increasingly becoming consigners so we're really focused on the quality of buyers and designers we're bringing in and in looking at those new cohorts what gets me excited is that we're seeing them more engaged with us they're becoming more engaged with our platform whether that's buying more in the same in the first purchase whether that'S retention of those newer cohorts and so forth and that'S again because we're really focused on the experience and that end-to-end experience for the consigner while still continuing to build trust in community. Yeah, thanks, Rafi. The only thing I would add there is we're also seeing really strong progress on Gen Z buyers. They are up more than 60% over three years. And we see these buyers coming into our platform, graduating to the real, real, as we like to refer to them. They're pre-wired for participating in resale. They move very naturally between buying and and selling and their relationship continues to mature and deepen as uh as they as they gain more experience on the platform got it and then uh just excited to hear kind of the expand the steps that you've taken and grown drop ship a little bit more i think one that last you mentioned 100 million is that like by year end or is that and is that gmv uh but just kind of curious to hear a little bit more of like what that you know what what the next year or so looks like on expansion of drop shipping and just adding more international sellers onto the platform yes thanks bobby for the question yeah so we 100 over 100 million launched this year um we probably won't get in the habit of sharing channel numbers um but i wanted to make sure that you understood that it was, you know, a meaningful amount and making some good progress. I think the real thing to take away is, you Know, focused on dropship will continue to expand our international partners there. We think that there is meaningful business here over the medium term. But really, it's about diversifying the mix of supply. And like I said, no one point of failure, as we think about like trust in estates and contractor programs, partnerships, we're seeing some really great traction in in all of these key areas for ourselves terrific and just last one for me in the prepared remarks it seemed like leaning a little bit more into like the reshape like reshaping the sales sales force luxury managers and kind of investments into them you know just curious to hear kind of what that's looked like aside from the smart sales tool initiative that you guys rolled out a few quarters ago to help folks kind of plan out their day more efficiently yeah so on this on the sales side yes we restructured on some of the sales organization to again focus on the right kind of supply but you know with the flywheel that we have in our business it's also focusing on the Rightbuyers that we bring to the platform up front so we're getting smarter about those quality buyers and consignors that we're bringing in and you know think about, you know, we talked about conversational search and our partnership with Google, for example, it's driving higher conversion, deeper buyer engagement, but now they're more likely to become a consigner. So we're really leveraging and expanding S-T-R-R. We're leveraging Athena item enrichment to enhance our listings, starting with like occasion and trend information. And these results, these AI results, deliver higher quality listings so that the consigner can get more for their item. But it also improves discovery on our site, so it helps customers find what they're looking for faster. So think about less discounting. So the real focus here is really making sure that we're looking at this customer-consigner-buyer-consignor end-to-end. and broadening our service on platform to kind of create this unique catalog of discoverable items across the broader AI ecosystem. That's great to hear. Congrats on the strong quarter. I'll return to the queue. Our next question comes from Ashley Owens from KeyBank Capital Markets. Please unmute your line and ask your question. Hi, good afternoon, and I'll add my congrats as well. Maybe just to start on the top line into the fourth quarter, you mentioned that the AOV typically comes back in Q4 with holiday and the orders accelerated really nicely in the third quarter, but the guide still implies that that GMV growth will be moderating from high teens to high teens. I would just be curious as to how much that is tougher compares from last year versus some conservatism and any color on how trends have looked quarter to date heading into the holiday? Ashley, thanks for that question. So just to clarify, my reference to Q4 versus Q3 is just a sequential change, right? With what we have seen in our businesses in Q4, average order values tend to be slightly higher versus Q4. And that really reflects growing interest in using in people coming to the real real as they think about holiday shopping and gifting. So we would expect that seasonal pattern to play out in Q4 relative to where we find ourselves in Q3. Your other question was on Q4 guidance. Q3 was a really strong quarter for us, 23% growth in GMV, 19% revenue growth, and 290 basis points of adjusted EBITDA margin expansion. You know, we are entering Q4 with strong momentum and high confidence in the business trajectory that we bring. And you see that reflected not just in the results in Q3, but also in us raising our guidance for the full year, including Q4 on all three metrics. Okay, great. And then just to follow up. So on the supply side, historically, some pressure on the consumer can actually be a tailwind as people are looking to monetize their closets. I would just be curious as to if you're seeing any change in the cosigner motivation, like more urgency to sell or even cosigning items people might normally hold, if that is showing up more or does show up more in mid-value or high-value items. Thank you. yes sure i'll take that one thanks for the question um so we're seeing a resilient consumer i would say across our platform um you know i think our advantage is our model sits we always say at the intersection of luxury and value um and that position of structural positioning is an advantage of ours um a more expensive maybe primary market or in the primary market faces pressure. I think the case for TRR does get stronger. So sellers have motivation to maybe unlock value in their closets and buyers find that value even more compelling. So we talked about new buyers growing 20% in Q3, continue to see this trend, stronger early cohort and retention, like I mentioned, new buyers spending more, sellers more engaged, but Gen Z being up more than 60% in the last three years. It's a really great stat for us, but growing adoption as well. So almost a half of luxury consumers now check the secondary price before they're buying new. But I think one of the great things about our marketplace as well is I believe the breadth across thousands of designers, categories and price points. So when consumer preferences may shift, we can shift with them pretty quickly so our model works well regardless of where the mix you know demand may land great appreciate all the color thank you thank you our next question comes from jay so from ubs if you can press star six to unmute your line and ask your question great can you hear me all right Yes, Ajay. Super. Well, thank you. My question is about Athena's next wave of savings. I think last quarter you described that many dollars per item of savings and that the next iteration of Athena would remove some even more manual intake steps. So maybe beyond reaching roughly 50% penetration, what additional reduction in processing costs per item is achievable next year? And maybe can you separate the opportunity from higher adoption, deeper automation within and other factors that can help achieve those savings? Yeah, thanks for that question, Jay. So when we think about efficiencies, particularly within the operations part of our income statement, there's two things that we look at as driving that productivity and margin expansion. One of it is automation. So the recently launched automated storage and retrieval system, the ASR system that we put in place, is a great example of how we see improvements like that, allowing us to manage greater growing volume without necessarily having that much more incremental cost. So that's a source of efficiency gains for us. In the past, we've put in automated packaging equipment and also redone the layout of the op centers to have more automation and more conveyor belts. et cetera. So that's one source of margin expansion. The other one that we talk about quite extensively is Athena. And this is really about how we are using the power of our data and creating custom algorithms that are helping take a lot of manual touches out of the process and finding efficiency as we get more and more items through that workflow. We started Athena last year at the end of the year we were successful and then expanding it to 35 percent and this year we we see that getting to nearly 50 percent of all items that are running through our operation center the cost savings will grow with the volume of what we process so so that's one source of how we continue to drive efficiencies you know last time we also did touch on how as we look at the items going through Athena, you know, we see additional opportunities. So even within the 35% or maybe 50%, you know we see other opportunities that we could do to further take costs out. We're not quantifying what that translates to on an annual basis, but it continues to be multiple dollars per item as we move these items onto that process. okay if i can ask one more on balance sheet uh if you don't mind what's the minimum liquidity cushion that you want to maintain ahead of 2028 repayment and and what's the contingency if the 2031 notes don't convert yeah thanks thanks for that question so you know we are i would say we're pretty far away from a sort of minimum liquidity covenant like the business is is is in a great place and our model is extremely cash-efficient. As we continue to grow the business, we get a net working capital benefit. And you're also seeing, particularly in some of the remarks I made in my script around how we've crossed the threshold of adjusted EBITDA, where we are seeing strong cash flow generation from growing EBITda. So that's our focus going forward. We see the business continuing to generate stronger cash flows, stronger operating cash flows as we continue to grow top line and expand margins. um going forward yeah well maybe just to follow up quickly i mean how should we model cash interest and sort of like the the pricing and the step downs under the new facility the so the uh well i'll just describe sort of how how the facility works but happy to take a follow-up if you want if we if i can have more clarity to it so uh the the new what we recently announced is 150 million dollars of debt uh that is priced at an interest rate of so far plus 5.75 percent um it that rate does have a the option to drop down to so far plus 5 5 based on us achieving certain net leverage ratios um the rate is locked for the next year in this at 5 575 basis points it it will float a bit uh with you know if if and and when the underlying SOFR rate changes. I think the headline for us with the change we just announced is we expect that to bring down interest costs on an annual basis. The comparison versus what I just described is our prior $150 million of debt, which had an interest rate of 13%, and that was split between a PIC as well as a cash component. So essentially, we're going from that 13 to a low rate of interest, which is going to bring down our annual interest burden going forward. For next year, we expect that to be roughly $4 million. Got it. Super helpful. Okay. Thank you so much. Our next question comes from Ike Barachow from Wells Fargo. Please unmute your line and ask your question. Hey, good afternoon, everyone. Ajay, a couple for you. On the model, AOV up a good amount in the third quarter, little bit less than the first half. Have you seen any price resistancy from your consumer to any degree and how should we be thinking about the direction of AOV go forward from here? Yeah, thanks for the question. You're right. AOV in Q3 grew 8%. I think in the prior quarter it was up 13%. So, you know, a few points lower than what it was in Q2. We're not seeing what you described, you know, price resistance from customers. We are seeing a shift in mix and, you know, part of it is seasonal. We always see a shift in mix in Q3 towards the mid-value. So, we're seeing a bit of that play out in Q4. Q3, jewelry still continues to grow really strong. But, you know, in the past, we've highlighted that it's been our fastest growing category. Today, it's growing in line with the rest of the business. So fairly strong, but no longer or over-indexing as a source of growth. Got it. To your question, like how do you model that forward? Sorry, I think we will expect to continue to see a healthy balance between average order value and order volume growth in the business. That was tilted a little more towards the AOV component in the first half, and we think Q4 is going to look more similar to Q3. At the end of the day, though, I will point out that we're indifferent to how that mix plays out, right? as a marketplace, our take rate protects our unit economics, regardless of how people mix in and out of categories and price points. And you can see that in our results. We've been successful in growing both top line and expanding margins in Q3, just as we were in Q1 and Q2. Got it. Thanks, Ajay. And then a follow-up. You referenced some interesting points on operating cash flow, free cash flow at the beginning of the call. You have one quarter left, not sure if you'd be so kind, is to offer a free cash flow guide for the year that we should expect. And then my last question would be, I know it's early and we're not in next year yet, but you continue to expand EBITDA at the high end or above the high-end of your 200 to 300 BIPs annual algo. Any thoughts on how we should be thinking about 2027? Thanks. thanks thanks for the question uh questions uh so on on cash flow yeah we're very pleased with with the milestone we accomplished in q3 uh you know we we are operating cash flow positive three quarters in typically we wouldn't get to that until the end of the year uh so we have 10 million dollars of operating cashflow and that number uh we expect that number to grow uh just given q4 and then the role it plays in our in our typical annual cash cycle uh i don't have a free cash flow number for you for the year, but we're excited with the progress we're making and we expect it to be meaningful compared to what we had last year. What was your second question? Sorry. You continue to kind of generate EBITDA expansion at the high end or above the high end of your 200, 300 BPS. I'm just curious how we should be thinking about that in the near term? Yeah, no, thanks for the reminder. So this year, we expect to expand EBITDA margins by 280 basis points. We are on a path to get to that 15% to 20% EBITda margin over the medium term, and that to us translates to a range of 200 to 300 basis points within that range. We will pace our investments. We'll make sure we are achieving a healthy balance between growth and expanding margins great thanks guys our final question comes from matt caranda from roth capital partners please unmute your line and ask your question good afternoon guys it's joseph on for matt just a couple for me um looking across your supply channels i guess could you guys speak about which channels the teams are excited about as the biggest supply growth drivers heading into 4Q and 2027? Yes, sure. Thanks for the question. Like I mentioned before, you know, we're really excited about the results and supply that we're seeing come through our system. We're really focused on the end-to-end seller experience. We are seeing engagement go up, especially with our most value consignors that mix from high to low when they're giving us their basket and so forth. But the main thing is, like I said, we're really focused on diversifying our channel mix. There's no single point of failure. The team's really excited about some of these newer pieces that we've talked about, like trust in estates, seeing more products come from some of these auction houses or trading shows, the pop-up events. That's something a little bit newer for us. It's a part of our retail strategy, but instead of having to commit to a retail location right away, it's a way for us to test new regions to see if we still continue to see the halo effect there. And then, of course, some of the international vendors that we're onboarding, excited about some of The Higher Value product coming through. And then the demands that we're seeing for some of these channels are also quite exciting. Got it. Thank you. And then I guess it's still very early, but just any thoughts on Athena implementation as we look out to 2027 and then anything that you can share on impact to margins? Thank you thanks for that thanks for that question you know this we've we're making good progress on on expanding Athena's coverage last year with 35% this year we we expect to end at nearly 50% over the longer term we you know we will continue to work on expanding its coverage is you know reason why it couldn't extend nearly every item that comes into our into our fulfillment center you're already seeing the impact on margins in Q3 and as well as in prior quarters, we generated about 250 basis points of leverage from our ops and tech line. Within that, Athena is a key contributor to how operations is contributing to our margin expansion story. The meeting has now concluded. Thank you for joining. You may now disconnect.