Good day. And welcome to the thredUP Q3, 2021 Earnings Call. Today's call is being recorded. At this time, I’d like to turn the call over to Lauren Frasch, Senior Director of Investor Relations. Please go ahead, ma’am.

Good afternoon. And thank you for joining us on today's conference call to discuss thredUP's third quarter 2021 financial results. With us are James Reinhart, thredUP's Chief Executive Officer and Co-Founder; and Sean Sobers, Chief Financial Officer. We posted our press release and supplemental financial information on our Investor Relations website at ir.thredup.com. This call is also being webcast on our IR website, and a replay of this call will be available on the website 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 guidance and future financial performance, market demand, growth prospects, business strategies and plans. These forward-looking statements involve known and unknown risks and uncertainties and our actual results could differ materially. Words such as anticipate, believe, estimate and expect as well as similar expressions are intended to identify forward-looking statements. You can find more information about these risks, uncertainties and other factors that could affect our operating results in our SEC filings, earnings press release and supplemental information posted on our IR website. 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 reconciliations with comparable GAAP measures in our earnings release. Now I'd like to turn the call over to James Reinhart.

Good afternoon, everyone. I'm James Reinhart, CEO and Co-Founder of thredUP. Thank you for joining us for thredUP's third quarter 2021 earnings call. As we head into the final quarter of the year, we're excited to share our financial results and key business highlights from our third quarter. I'll start with some perspective on what we're seeing in the broader retail environment and how our strategy is evolving. I'll then discuss our marketplace dynamics and progress with our Resale-as-a-Service offering. And finally, I'll touch on changes in our product experience, how we're scaling our operations and what we're doing internationally. Sean Sobers, our Chief Financial Officer, will follow with a review of our financials in more detail and provide our outlook for the fourth quarter and fiscal year 2021. We'll then close out today's call with a question-and-answer session. Let's start with the results. For the third consecutive quarter, we achieved record revenue, record gross profit, record active buyers and record orders. Our revenue of $63 million is an increase of 35% year-over-year while gross profits grew 41% to $46 million. This is our third quarter of accelerating revenue and gross profit growth. Active buyers and orders increased 14% and 28%, respectively. These growth metrics underscore thredUP's resilience to the headwinds we faced throughout the pandemic and indicate that our long-term investment strategy will lead to sustainable growth over time. Let me first address what we've been seeing in the broader retail sector. We concur with consensus that there was a dip in consumer spending at the beginning of the third quarter amidst Delta variant concerns. But that overall consumer sentiment was robust into September with a significant rise in retail sales. Now having said that, supply shortages, labor costs and logistics surcharges have continued to take a toll, and we see inflationary pressure and higher prices for the consumer as structural changes rather than temporary changes. And how this impacts thredUP is unique. While many retailers have been forced to raise prices due to inflation or supply chain pressure, we do not have the same level of exposure. thredUP's U.S. business is entirely domestically sourced from our sellers, and we do not rely on direct manufacturing for supply. This means that consumers can always find a vast and ever-fresh selection of second-hand items on our site, 100% of which are already in stock and ready to ship. As a result, we see a compelling customer acquisition and wallet share opportunity in the near term. We have chosen to strategically lower prices in order to engage as many customers as possible during a time when consumers are feeling price pressure in many other parts of their life. You can see this clearly in our average listed prices. They were 15% lower on average in Q3 of this year compared to the same time period last year. We expect to continue this strategy of providing the most competitive prices possible in the quarters ahead, leveraging our unrivaled access to high-quality wholly domestic supply. If I dive deeper into recent demand trends we've seen an uptick in sales for colder weather items on our site, including a 26% month-over-month increase in sales for both boots and trench coats and a 20% jump in sales for puffer jackets over the same period. There are also early indicators that consumers are looking to dress up this holiday season. Cocktail dresses experienced 14% month-over-month growth in October. Heels saw a 16% increase during the same time period, and handbags saw a 10% lift in sales last month. Last week, we launched A Holiday Shop with festive outfits, winter wear, gift ideas and our always popular gift cards. I'd also like to take a moment to give a shout-out to a few brands who have built loyal resale followings on thredUP by making great products with important stories and missions. Brands like Tek, Vori and SmartWool, Birkenstock, Rotie's, Aviator Nation, Crocs, Christy Don, Arteris and Icebreaker are all brands where 90% of the items that we listed in Q3 sold within 30 days. It's just remarkable sell-through of these brands. We love to see these types of brands resonate so strongly with retail customers. Let me turn to supply. On the supply side, we continue to see strong demand for our cleanout service. We are processing more bags than ever and yet still managing to keep bag processing times around 12 weeks on average across our distribution center network. As we continue to invest in processing capacity and automation, we expect lead times to come down in 2022. In September, we announced the lease signing of our new $10 million item flagship distribution center just south of Dallas, Texas. This facility will be nearly 600,000 square feet and will be our largest and most automated distribution center. When fully scaled, this 4-level facility will increase our total network-wide capacity by more than 150% to 16.5 million items. We expect to begin processing items in Q2 2022 with demand fulfillment to begin in Q3 2022. In addition, we have secured our first dedicated processing center in Grapevine, Texas. This facility will focus exclusively on Clean Out Kit processing and will become an immediate feeder to our new Dallas facility. We expect to begin processing items in the new Grapevine facility in Q1 2022. As you might expect, bringing our Dallas distribution center online, our great line processing center online and investments in technology, data science and automation will all pressure operating expenses in the near term. However, our history shows that these J-curve-like expenses ultimately drive up overall processing rates and thus our potential revenue in future quarters. Now let's talk about RaaS. I'd like to share some progress in our Resale-as-a-Service business. We recently launched new RaaS programs with adidas, Crocs and Michael Stars, bringing our total number of paying RaaS clients to more than 2 dozen. Brands and retailers are turning to RaaS to support not just their business strategy, but also to improve their sustainability footprint. As a reminder, our RaaS platform enables brands to offer a quality and seamless resale experience for their customers across 3 main areas: our cleanout service, our cash-out marketplace and our full-service resale shops. We've taken to calling this suite of offerings Resale 360. And we'll continue to update you as our client roster grows and our service modules evolve. Now I've been getting asked a lot lately about how to think about RaaS as it relates to thredUP's core business. And while we're still in the early stages of scaling this business, I think it's important to highlight 2 elements. First, our Clean Out Kit and resale shop offerings for brands leverage our existing infrastructure and amplify the competitive advantages that we've already built in our marketplace. As more brands sign on as Clean Out Kit clients, we deepen our long-term supply advantages at lower cost. As more brands launch online resale shops powered by our technology, we drive faster sell-through and higher turns on the same asset base. Second, for brands who wish to launch premium or enterprise resale services either on the cleanout side or on the resale shop side, we charge a recurring platform and usage fees. Some examples of premium or enterprise offerings include deeper data intelligence, marketing, branding, pricing control, packaging, repair or omnichannel experiences. So in summary, using our marketplace infrastructure, RaaS amplifies our supply advantage, increases our sell-through and return on assets and expands our long-term profitability metrics by adding sources of high-margin revenue. Now let me turn to some developments on the product front. After our business review in late August, we decided to discontinue our Goody Box offering in October. We first explored Goody Boxes 4 years ago with the goal of lowering the barrier to thrift by making it less time-consuming to sift through the millions of products in our marketplace. We only had some success. We typically recorded revenue of $2 million to $3 million per quarter. Goody Boxes were proving difficult to scale efficiently as they consumed outsized labor in our distribution centers. The hours and capacity freed up by not running our Goody Box business, we believe, can be better used to scale bag processing and ultimately serve the core marketplace customer. Yet importantly, learning how the customer valued Goody Box' one-to-one styling service helped us immensely, and it's led us to launch TristaLook. TristaLook is not one-to-one styling like Goody Boxes but one to many styling. TristaLook leverages the algorithms and the data science assets we've built through the Goody Box experience, but makes it easy to recreate our community's favorite outfit with similar second-hand styles across our vast assortment. I encourage you to check it out at www.thredup.com/looks. Moving on to international. Last quarter, we announced the initial phase of our international expansion strategy with the agreement to acquire Remix, one of Europe's leading fashion resale companies. The transaction officially closed in October. Our acquisition of Remix accelerates thredUP's international growth plans and enables us to gain an established foothold in Europe, where Global Data estimates that the second-hand market will grow to $39 billion by 2025. Remix currently operates in 9 countries across Central and Eastern Europe. We plan to leverage Remix' custom single-SKU logistics that can process millions of second-hand items efficiently. And over time, we will introduce our automation technology to strengthen their offerings. We also believe their market intelligence and technology platform will accelerate our growth into the broader European market. One area we will address more quickly is moving Remix' business model from a direct sales model towards a predominantly consignment-based model over the next few years. This means we will undergo a transition very similar to what we've done in the U.S. that will ultimately deliver better gross profits over time, but likely mute revenue growth in the near term. In late October, thredUP announced a strategic investment in Vopero, a managed resale marketplace serving Latin America. Vopero caters to consumers seeking a seamless, fun, convenient and sustainable way of buying and selling second-hand clothing online. Their technology platform also handles single-SKU logistics. And it offers brands and retailers resale experiences that can either be plug-and-play or customizable to their specific audiences. As early investors in Vopero, we will share our expertise in enabling resale at scale and advise their team as they grow and transform the future of sustainable fashion in Latin America. Resale is a global phenomenon and a force for good in the world. And we see thredUP facilitating the industry's growth for many years to come. In conclusion, we are committed to building the world's leading resale company. I'm proud that thredUP is raising awareness about the benefits of resale and elevating the conversation around circularity by educating consumers and brands alike. In October alone, we were recognized for the impact we're creating with award recognitions in Fortune's World-Changing Ideas, Good Housekeeping's 2021 Sustainable Innovation Awards and SaaS Companies Brands That Matter. Every day, we are inspiring a new generation of consumers to think secondhand first and creating a more sustainable future for fashion. And with that, I will now turn it over to Sean to walk through our financial results and our guidance.

Thanks, James. And again, thanks, everyone, for joining us on our third quarter earnings call. I'll begin with an overview of our results and follow with guidance for the fourth quarter and full year. I will discuss non-GAAP results throughout my remarks. Our GAAP financials and a reconciliation between GAAP and non-GAAP are found in our earnings release, supplemental financials and on our 10-Q. We are extremely proud of our Q3 results especially delivering our third consecutive quarter of accelerating revenue and gross profit dollar growth. For the third quarter of 2021, revenue exceeded our expectations totaling $63.3 million, an increase of 34.8% year-over-year. Consignment revenue increased 42.8% year-over-year, while product revenue grew 14.5%. Active buyers and orders are amongst the most important KPIs that we use to track our business. For the trailing 12 months, active buyers rose 14% to 1.4 million. Third quarter orders reached 1.3 million, increasing 28% as compared to the same period last year. Gross margin expanded to 72.8%. This is a 300 basis point improvement over a 69.8% gross margin for the same quarter last year. Gross profit totaled $46.1 million representing growth of 41% year-over-year. Gross margin expansion has come as a result of expanded automation, larger distribution centers and more items per order, offset by continuing headwind from wage inflation and increasing logistics and shipping costs. We believe gross profit dollar growth is the best way to measure our business growth as we continue to transition to a mostly consignment-based business. For the third quarter of 2021, GAAP net loss was $14.7 million compared to a GAAP net loss of $11 million for the third quarter of 2020. Adjusted EBITDA loss was $7.8 million or 12.4% of revenue, a 350 basis point improvement compared to the adjusted EBITDA loss of $7.5 million or 15.9% of revenue for the third quarter of 2020. Q3 GAAP operating expenses increased $18.2 million or 42% year-over-year. This includes $3 million of stock-based compensation. We continue to invest in the expansion of processing capacity, marketing efforts and technology infrastructure to support our growth. Turning to the balance sheet. We began the third quarter with $233.5 million in cash and investments and ended the quarter with $266.9 million. The Q3 ending balance includes $45.5 million of net proceeds from our follow-on offering that closed in August. Third quarter basic and weighted average shares were 97.3 million shares, included 2 million shares issued by us in our August follow-on offering. We closed our acquisition of Remix in October. Remix provides the platform to accelerate our international expansion into the European resale market that is predicted to be $39 billion in 2025. We funded the Remix acquisition with a mix of cash from our balance sheet and shares. Total cash paid at closing was approximately $19.2 million. Shortly after closing, we also paid approximately $6.2 million of other Remix liabilities, bringing the total payment to $25.4 million. Subject to customary purchase price adjustments, we will pay approximately $3.5 million in the form of 131,000 shares of newly issued Class A common stock to be issued 18 months following the closing of the Remix acquisition. Remix operates in 9 countries with Bulgaria and Romania representing approximately 70% of revenue. Remix has a smaller footprint in Austria and Germany, which we view as a longer-term opportunity. Remix sells both second-hand apparel and slightly worn returns from brands and retailers, plus Remix also operates in the men's category. At Remix, gross margins are in line with thredUP margins of about 5 years ago leading us to believe that there is ample runway to leverage the thredUP model and expertise to generate meaningful profitability improvements over the long term. For example, historically, a significant portion of the Remix business has been direct sale in which they own their own inventory. This is lower margin than consignment. In addition, a significant portion of their supply has been from wholesalers, which is also lower margin than individual sellers. Over time, we plan to migrate the business towards higher-margin consignment and away from the wholesale supply in order to be more in line with the current thredUP business model. At the same time, while the acquisition is modestly accretive to EBITDA, as previously disclosed, we plan to aggressively invest in the business to accelerate top line growth and gain share in the European market. Including these near-term investments in Remix, we remain confident we will achieve our previously discussed long-term financial targets. Since this is our first Q4 as a public company, I would like to note some unique aspects regarding the seasonality of our business. Seasonality and resale purchasing differs from traditional retail. This is particularly true in the back half of the quarter as resale is not leaned on for holiday gift-giving. As a result, Q4 is not typically our strongest sales quarter. Furthermore, we actually tend to pull back on marketing as a percentage of sales due to its high cost during Q4 and reallocate those dollars towards our processing efforts. In December, we tend to shift our associates to aggressively process bags and build selection in advance of Q1 and Q2 of the next year. This acceleration of inbound processing tends to increase our operating expenses in Q4, which pressures EBITDA. I think in this quarter, I would also remind you of what James said earlier in that we decided to discontinue our Goody Box program in late August and expedited this whole wind-down by mid-October. We estimate Goody Boxes would have contributed approximately $2.5 million in revenue in Q4 with minimal impact to EBITDA. As we look ahead to Q4 2021 and next year, we are actively investing in the business both here in the U.S. and in Europe. We've begun building out our Dallas DC as well as continuing to invest in additional processing capacity to process our backlog of supply and facilitate new listings. As we bring on our Dallas DC, investments in technology, data science and automation in the near term will drive long-term value in this facility and eventually across our global network. While we expect Dallas to eventually be our largest and most automated DC yet, we know from experience that the build-out process tends to be less cost-efficient as we ramp to scale. We expect to see this dynamic play out in particular in the early part of next year, but we'd also expect the additional processing capacity to accelerate sales growth in the second half. We are also expanding Remix processing infrastructure, investing in its technology and data science stack and spending marketing dollars as we seek to capitalize on the large opportunity in Europe. Additionally, like other U.S. companies, we are dealing with the ongoing wage inflation and competitive labor markets as well as rising freight costs. In Q4, we anticipate an incremental $4 million negative impact to EBITDA versus Q3 as a result of higher labor and freight expenses. While we are planning for these quarter-over-quarter increases to moderate from Q4, we continue to expect elevated levels on both the labor and freight front for the foreseeable future. However, we plan to continue to offset the rising labor rates and shipping costs as we expand our DC automation, scale into larger DCs and innovate on shipping logistics. Now I'd like to share our financial outlook for the fourth quarter, including Remix since the acquisition closed in October of 2021. For the fourth quarter of 2021, we expect revenue in the range of $69 million to $71 million, gross margins in the range of 65% to 67% and adjusted EBITDA loss of 17% to 15% of revenue, and basic weighted average shares outstanding of approximately 98 million. For the full year of 2021, we now expect revenue in the range of $248 million to $250 million, gross margin of approximately 71%, an adjusted EBITDA loss of approximately 15% of revenue and basic weighted average shares outstanding of approximately 77 million. In closing, we are very pleased with our third quarter performance. We remain highly confident that we can continue to execute on our model and make our planned progress towards achieving steady growth aligned with our long-term targets.

Thank you. We'll take our first question from Erinn Murphy of Piper Sandler.

Great. Good afternoon. A couple of questions for me. First, James, I was curious if you could share a little bit more about your strategy of lowering prices here as a competitive advantage. How are you marketing this change to the consumer? Have you seen kind of a new consumer come into the top of the funnel? And then maybe for Sean, what is this doing potentially to the margin structure in the near term? And then I've got one follow-up.

Sure. Erinn. I think customers come to us for predictable and particularly low prices and great deals. And so I think what we've tried to do with our messaging and the storytelling we've done on site and in e-mail and our app is just let people know the great deals that they're getting. And I think the sort of broader sense that people aren't getting promotions and discounts at other places they're shopping at, we just keep hitting hard that like thredUP is the place where you can find the best prices on the brands you love in a sustainable way. And so I think it's more of us just doubling down on the idea of how great our prices are and reminding people that while they're feeling the pinch in other parts of their life, we're going to kind of be there to support them. And I'll let Sean kind of talk about the margins.

Yeah, Erinn. Yeah, on the lower prices, I think some of the dynamics there that work with it is the fact that with lower prices, we're going to discount less. So we have less discounts, we'll be less promotional. So you have fewer sales happening at the same time, so you don't end up with kind of a lower overall pricing charge. You also get returns coming down as well because we know there's a direct correlation between the average selling price and then returns happening. I think generically, if you think longer term, what I think this drives is more new customers, which drives better growth and more revenue over time. So we think that all works together really well.

And you're definitely seeing it, Erinn, in the conversion rates and sort of how new customers are coming onto the platform. And I think we feel like the whole strategy really holds together with that in mind.

Great. Super encouraging. And then my second question is one thing we noted during the quarter is the seller could no longer request a cleanout bag. And I'm sure it's just given the backlog you have at 12 weeks now. But should we expect that 12-week processing time to continue until the new Dallas DC ramps? Or just help us think about the interplay there between what you're attempting to do to reprioritize labor into processing bags with that new DC opening up. Just curious on expectations there. Thank you so much.

We're also expanding our RaaS partnerships, Erinn. There's significant demand coming from our launches with adidas, Crocs, and Michael Stars. We have many cleanout bags that are returning to us. However, not everyone can request online. We're opening a new processing center in Dallas in Q1 and Q2, which should help us reduce the backlog. I want to reiterate what we mentioned last quarter: the demand for our cleanout service is increasing, and thredUP's visibility in the market is improving. We're working to reduce the backlog, but we can't provide a specific timeline for when it will be resolved.

Got it. Well, you’re going to get a new bag from me this week. So I’m going to track your time. All right, thank you so much. I’ll let someone else jump in.

We'll take our next question from Ike Boruchow of Wells Fargo.

Hey. Congrats, James, Sean. And welcome, Lauren. Two for me. I guess, James. I think you know we spent a lot of time thinking about the potential sales opportunity that RaaS could be for thredup over the long term. But could you maybe help us all understand the most impactful ways that the RaaS can drive profitability for the business?

Yes. Sure, Mike. Yeah, and I appreciate the note. I think you captured a lot of the sentiment correctly. I think the 2 ways to think about that are. One, all the ways that it amplifies our supply advantage allows us to leverage other people's supply chains to get supply in the door. And so that means on the backs of the distribution, whether it's in store or online and the way we work with our RaaS partners on the payouts to the supplier and what the RaaS partner contributes. So I think that really helps sort of lower our supply costs. And then of course, with our pro shops and our premium and our enterprise versions, the brands that we're working with are going to pay overtime SaaS-like fees, right? And so whether that's for the types of customizations that they want or the omnichannel experience they want. And so as I've joked, RaaS rhymes with SaaS for a reason. And so we think there's high-margin revenue to monetize on a client-by-client basis as well as just lower operating costs as RaaS partners work in our supply chain. So that's really the 2 ways that we think about it. And we're going to continue to try and give folks more information as we bring new clients onto the platform.

Got it. And then just one follow-up to follow Erinn's anecdote. I placed an order last week, and I got 3 bags in the mail today. I guess what I want to understand is how atypical is that to see that level of split shipment. Is that just because of what happened with COVID and opening up a new processing center? Like at this time next year, if someone places a bundle order like that, should it all come in one bag? Or can you just kind of help explain how that all should work?

Yeah. Ike, it depends a little bit on what you're buying and where you're buying it from. And we continue to kind of experiment with how we move goods around through our network. But certainly, there's an experience where you get things from multiple distribution centers. But ideally, over time, as we bring on a facility like Dallas that will hold 10 million items, our expectation is that the customer you, for example, would be able to find a selection of items for your basket all out of that facility. And so instead of getting 3 packages, you would get 1. And part of the strategy over time is to really reduce logistics costs by having people shop out of one facility and not 3. So that's sort of the plan, and we're excited to bring Dallas online in the middle part of next year.

Got it. Good luck.

Our next question comes from Ross Sandler of Barclays.

Hey, guys. Sean, so it sounded like the labor cost and the freight were most of the headwind from 3Q going into 4Q. Just can we confirm if that's the case? And then Remix, what's baked in, in terms of revenue gross margin impact and EBITDA margin impact for the 4Q guide? How should we think about Remix for next year as well? And then maybe one for James. On all these new RaaS partnerships, you've got a bunch of different strategies or different versions that you're offering. So for someone like adidas could you just give us a little color on like which one are they getting? And do you guys have the capability of having these partners send product into all your facilities? Or do you have to set up dedicated facilities like Dallas that can handle more as RaaS volume? Just any color on like how the bag processing works on that versus the regular business. Thanks a lot.

Sure. Let me start with the RaaS aspect, and then I'll pass it to Sean to discuss labor freight and Remix. On the resale front, we collaborate in three main ways: through our Clean Out Kit partnership, the cash-out marketplace, and the resale shops. Ideally, we onboard participants from either the Clean Out Kit or the resale shops, striving to offer a comprehensive service on both ends. For true circularity in the resale market, aligning supply and demand is essential. For instance, with adidas, we initiated our partnership with the Clean Out Kit and will transition to a resale shop strategy, just like we did with Madewell. Getting partners started on the Clean Out Kit side tends to be easier, allowing us to build supply that supports the launch of high-quality resale shops. This forms our approach to Resale 360, which resonates well with brands because we deliver a full-service experience. Regarding bag processing and fulfillment, we can utilize all our distribution centers. However, over time, we might consolidate operations in our larger facilities for a simpler processing method. Yet, we retain the flexibility to operate across our network. I find it exciting that as we expand in Europe, we see significant opportunities for RaaS for our U.S. partners to engage with their counterparts in Europe. Thus, we can effectively provide a full-service solution for both supply and demand, both in the U.S. and internationally. There’s a lot of positive momentum on the RaaS front. I'll let Sean address the next points.

Yes, Ross, regarding labor and freight, you're correct. There is an impact of about $4 million to Q4 from Q3, which is significant. Additionally, it's important to note that we will continue to be more focused in our processing. You'll notice this in the operating expense line as we work through Q4 to bring more online and process, which will lead to an increase in that expense line. Consider this an investment for future revenue. It's a positive move that we'll maintain throughout our processes. As for Remix, they generated approximately $33.5 million in the last full year, indicating they haven't been heavily investing in growth. The business hasn't likely changed much. The gross margin faces challenges when consolidated, as I mentioned in the prepared remarks – there are no consignment items, and they do have some wholesale, which also has a lower gross margin. Overall, they are running their business with relatively better EBITDA compared to us. However, we plan to invest significantly in marketing and infrastructure for Remix to seize growth opportunities in Europe.

Our next question comes from Anna Andreeva of Needham.

Hi. Good afternoon. Congrats, guys. Great results. I have 2 quick ones for James, another one on Ross for you. Can you talk about the economics of each structure versus your initial expectations? Maybe what have been some of the surprises? And how should we think about the cadence of these partnerships as we look into '22? And congrats also on the Texas DC. Just for the modeling purposes, I guess this is for Sean. As we look into next year, can you remind us how we should think about the incremental rent expense as part of the ops and technology line, I guess, for 1Q and 2Q? Thanks so much.

Sure, thanks for the question. Regarding the RaaS side, we aren't disclosing the specific economics for each partner. However, I believe it gives us leverage on the supply side. Selling items in branded resale shops boosts our sell-through and enhances our return on assets. Additionally, if you consider what retailers or brands are investing in SaaS vendors that facilitate new distribution channels, you can view it in that context. We see significant revenue opportunities that will grow over time and are high margin. As for the cadence, we believe there are hundreds, if not thousands, of brands that could engage with our Resale-as-a-Service offerings. You can expect us to announce new partnerships regularly and strengthen our relationships with those brands over time, not only in the U.S. but also globally, given the scale of these opportunities.

The Dallas distribution center and the processing center will start affecting rent expenses for the entire facility beginning in the first quarter. It will take some time to ramp up, and we won't actually begin processing at the Dallas distribution center until the second quarter. At that point, we will handle 500,000 items, and this number will increase gradually over the subsequent quarters. We anticipate a significant level of inefficiency through 2022, particularly in the early stages. For modeling purposes, you should consider a 600,000 square foot building with eventually 2,000 employees handling 10 million items, but it will initially start with only 500,000 items, which won’t begin processing until the second quarter. This will create some inefficiencies on the operational expense side as we scale up the facility.

Okay, super helpful. I’ll take the rest offline. Good luck, guys.

Thank you.

Next question comes from Ed Yruma of KeyBanc.

Hey, guys. Thanks for taking my question. I guess 2 questions. First, on the changes in pricing. Is it your intention that over time, the consignor is the one that's really bearing it, so it's margin-neutral, I guess, is a to Erinn's question? And second, I know you guys have been doing a lot of investment the unit economics and some of your more recent vintage DCs. I guess, relative to your expectations how are they trending? Thanks so much.

On the pricing front, the supplier may take a slight hit in margins, but it ultimately results in more predictable pricing for buyers. Unlike previously promotional environments where customers waited for sales, consumers now recognize that prices are fundamentally lower. We aim to foster an environment where buyers feel inclined to choose thredUP first due to our competitive pricing without needing to wait for discounts. Each item in our inventory is unique, and we believe that the economic impact is margin-neutral. The focus is on attracting more buyers, retaining existing ones, and increasing order frequency per buyer. This is a crucial element of our pricing strategy, at least for the near future. I'll turn it over to Sean to discuss the investment aspect.

Yeah. On the unit economics piece, that's where your focus is, I think from what we put out early on when we were looking at ETO2 or Phoenix and mechanics, we're well past that with Atlanta coming on. So I think the overall order economics have gotten better than what you guys saw last. I do think there is that headwind that we've been talking about. Shipping as well as the labor costs. They are a bit of a headwind, but we're continuing to innovate our way around that. James talked about innovations where we can have more items coming from one DC that helps in shipping and then just general automation where we're less reliant on manpower and helping reduce the risk of the rising labor wages.

Thanks so much, guys.

We'll take our next question from Dana Telsey of Telsey Advisory Group.

Good afternoon, everyone. Just to go back to the pricing one more time. The 15% lower average price, is that going to remain that way? Or how do you see the pricing architecture of how you maneuver with the lower prices? And then I see you made another acquisition in Latin America. What do you see as that opportunity? Is it as significant as Remix? Thank you.

Thank you, Dana. On the pricing front, we believe that thredUP offers high-quality used products, which allows us to provide the best prices when consumers consider new versus used. Our aim has always been to target prices that are up to 90% off. Generally, we seek to lower our operating costs through automation and technology, utilizing our data to determine how much pricing power we can pass on to consumers. This enables us to offer an extensive selection at great prices. It’s encouraging to see that despite rising prices elsewhere, we can assure customers that thredUP will maintain competitive pricing, building trust over time. Now, regarding Latin America and Vopero, we did not acquire Vopero. It’s a relatively new company based in Uruguay and currently operating in Mexico, with a fantastic founding team. We are minority investors alongside Grupo Axo, which is a valued partner for us in Latin America. Together, we hold minority stakes, and we are excited about the opportunities we see in the Latin American market and Vopero's potential for growth.

Thank you.

We'll take our next question from Tom Nikic of Wedbush Securities.

Hello everyone. I appreciate your time for my questions, and congratulations, Lauren, on your new position. Sean, I’d like to ask about the new distribution center. Historically, you've opened a distribution center approximately every two years. Given the larger scale of this one, can we assume that you won’t need to open another distribution center in two years? How many years of growth do you project the Dallas center will support?

That's a great question. It's interesting to consider because we have a lot of data showing how much clothing ends up in landfills that could be reused. The estimate we've seen suggests it's equivalent to a billion thredUP Clean Out Kits annually. If you think about that in relation to 10 million items in the Dallas distribution center, we will need to open more centers. However, your question specifically addresses the timing, which remains to be determined. We need to consider how quickly we can process, sell, and ramp up operations. Historically, we've been opening a center every 18 months, so we'll just have to see how quickly the Dallas center can become operational.

But Tom, I think you're going to see us continue to invest a lot. I mean, I just think we see the opportunity is so large. And I think you can see a little bit with the processing center, it feeds into Dallas. And you'll just see us continue to try and scale to attack the supply opportunity.

Got it. And if I could also follow up. It sounds like 2022 will be a fairly heavy investment year between investing in the international business, the new DC and there's probably some cost inflation that rolls through the P&L next year as well. I mean, how do we think about like the EBITDA line next year? I mean, is it possible that the EBITDA kind of takes a step backwards before it starts going forward again? Or just is there any directional help you can give us?

Yeah. I wouldn't think of it as a step-back period. I do think we're investing for what I called earlier tomorrow's growth, but it's not 4 quarters out. It's literally sometimes 1 quarter out or less. And I think we're going to really focus on continuing to drive the actual growth revenue and the rate at which revenue grows. But I don't think you should take away anything that we're not driving towards expansion of the EBITDA margins or closing of the EBITDA loss.

Understood. All right. Thanks very much and good best of luck the rest of the year.

Thanks, Tom.

Our next question comes from Brian McNamara of Berenberg Capital Markets.

Hey, thanks for taking my questions. Congrats on the strong results. So my Remix question was already answered. But I was also wondering if you're currently seeing any benefit or if you contemplate in your Q4 guidance. Any benefit as the primary apparel market deals with shortages driven by supply chain headwinds?

Yeah, Brian. I think there's a lot of conversation happening about the supply chain in the traditional apparel markets. In a typical quarter, we might experience some positive effects from that. However, as I mentioned earlier, Q4 is usually not our strongest quarter due to holiday gift-giving trends. So, I'm not anticipating any significant advantage from macro trends at this time. If supply chain challenges continue into Q1 and Q2 of next year, then yes, I could see us gaining from some of those broader trends.

Got it. And then secondly, on RaaS, can you provide some color on your white-label offering and what common characteristics a white-label partner has relative to your more traditional RaaS partners?

I believe it's a clear distinction between white-label offerings. In white-label situations, thredUP operates in the background, making our involvement in the partnership less visible. For instance, FARFETCH exemplifies this white-label approach through their Clean Out Kit program powered by thredUP, but it’s not immediately obvious. In contrast, with our recent announcement with Crocs, thredUP is a key collaborator, and together we are establishing a resale relationship. This illustrates the difference between the two strategies. As brands increasingly prefer white labeling, it's important to note that the associated fees tend to increase. This reflects our perspective on how we view our role, fees, and white-label arrangements in comparison to more traditional partnerships.

Great. Thank you. Best of luck.

Thanks.

(Operator Instructions) We'll take our next question from Lauren Schenk of Morgan Stanley.

This is Nathan Feather on for Lauren. As you've seen a pretty tight labor market, is that impacting your ability also to ramp up processing power? And then on the Europe side of the business, you noted you're really investing into Remix as a brand. What are the key areas of investments you're making in that business in '22? And then more from a logistics and infrastructure side, are you able to expand the RaaS partners in Europe with just Remix's current infrastructure? Or do you need to take additional steps in order to really bring the RaaS platform there? Thank you.

Yes, Nathan, regarding labor, as Sean mentioned, we anticipate a $4 million headwind in Q4 compared to Q3. This is partly due to higher hiring costs, including hourly rates. It's a mix of attracting quality talent and the associated expenses for recruiting and retention. This is the headwind we've highlighted. On the Remix side, we're planning to invest in infrastructure, likely moving to a new facility for more efficient processing and faster outbound capabilities, which will incur some costs. However, we believe the business can grow significantly faster than its current pace, and we plan to allocate more budget towards marketing. Similar to thredUP in the U.S., as we increase processing and supply, we can boost marketing spending, and we expect these factors to contribute to significant growth from Remix in 2022 and beyond. Regarding your last question about scaling RaaS in Europe using Remix's current infrastructure, the answer is no. We need to continue investing in infrastructure to support our growth in European RaaS clients. Nonetheless, we have time to focus on core marketplace growth in 2022, with plans to gradually onboard clients in the latter half of 2022 or even into 2023. We see tremendous potential in the European business, but we have only owned Remix for about 30 days, so we understand that it will take some time, and we are optimistic about the opportunity.

That concludes today's question-and-answer session. James Reinhart, at this time, I will turn the conference back to you for any closing remarks.

Yeah. Thanks, everyone, for tuning in to our call and for the great questions. Very excited about the quarter ahead and the year ahead. And I look forward to talking to all of you again in the New Year. Thanks.

This concludes today's call. Thank you for your participation. You may now disconnect.