1stdibs.com, Inc.

Good evening, and welcome to First Dibs Earnings Call for the quarter ended March 31, 2020. I'm Kevin LaBuzz, Head of Investor Relations and Corporate Development. Joining me today are CEO David Rosenblatt and CFO Tom Energino. David will provide an update on our business, including our strategy and growth opportunities, and Tom will review our first quarter financial results and second quarter outlook. This call will be available via webcast on our Investor Relations website at investors.firstdibs.com. Before we begin, please keep in mind that our remarks include forward-looking statements, including, but not limited to, statements regarding guidance in future financial performance, market demand, growth prospects, and business plans. Our actual results may differ materially. Forward-looking statements involve risk and uncertainties, which are described in our SEC filings. Any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them. Additionally, during the call, we'll present gap and non-gap financial measures. A reconciliation of non-gap to gap measures is included in today's earnings press release, which you can find on our Investor Relations website. along with a replay of this call. Lastly, please note that all growth comparisons are on a year-over-year basis, unless otherwise noted. I'll now turn the call over to our CEO, David Rosenblatt.

Thanks, Kevin. Good evening, and thank you for joining us today. In the first quarter, we delivered results near the high end of guidance, while laying the foundation for future growth. Once again, our trade business posted strong results and continues to have great momentum. In contrast, consumer GMV declined modestly year over year due to lower new buyer conversion, a trend that's continued into the second quarter. In 2020 and 2021, pandemic-related lockdowns and other restrictions shifted consumer spending online. As the world reopens, the pendulum is swinging back in the other direction. with consumers spending more in categories like travel and restaurants. Traffic and top-of-funnel engagement metrics remain strong, but new buyer conversion headwinds resulting from rising macro uncertainty and economic reopening have reduced our GMV growth outlook for the second quarter relative to our previous expectations. While our near-term consumer demand outlook is lower, we remain optimistic about the future. From 1999 through 2019, U.S. e-commerce penetration rates consistently increased. During COVID, they inflected upward, and we're now seeing this trend unwind. We believe this is a temporary dynamic. When we think about the next decade, e-commerce will be a much larger market than it is today. Said another way, when the environment normalizes, we expect that e-commerce will resume its historical growth trend. We aim to capitalize on that growth. Encouragingly, top of funnel activity, as measured by consumer traffic, registration volume, and item favoriting, is strong. However, consumers are not converting their interest into orders at historical levels, likely due to temporary external factors. Given our strong balance sheet and large opportunity, we have chosen to continue to thoughtfully invest for future growth. Despite current consumer headwinds, our high gross margin, asset-light business model, and strong balance sheet provide us the flexibility to continue to execute on our strategic roadmap. Our plan for 2022 and beyond is to enhance our marketplace growth rate by focusing on four strategic areas, supply growth, auctions, international expansion, and NFTs. Each represents a meaningful GMV opportunity. In the first quarter, we made progress on all four. Our first priority is accelerating supply growth. There is no other marketplace with our breadth of unique luxury design. However, the number of our current listings is just scratching the surface of potential qualified items. For two-sided marketplaces, supply begets demand. Given the heterogeneous and long-tail nature of our listings, more supply increases marketplace liquidity. Supply drives traffic, broadens buyers' options, makes search results more robust, and increases the chances that we'll return a match for a given search. Our goal is to aggregate the world's most beautiful items, regardless of where they're located. To accelerate supply growth, we launched a pricing test for new sellers in January. This allows sellers to choose the plan that best fits their business and includes a subscription-free tier with higher commission rates. This option reduces friction by lowering the upfront cost of trying the first DIBS marketplace. Early results have been encouraging. We signed over 700 new sellers in the first quarter, ending March with over 5,400 seller accounts, up over 25% year-over-year. Our monthly seller acquisition was over three times higher than our monthly average in 2021. In general, these new sellers are drawn from our geographies, price points, and verticals in a similar proportion to our existing sellers. Additionally, the new pricing options are helping to reduce churn, particularly for sellers with lower volumes. Sellers are responding well to having a choice of pricing options. Of note, about 85% of new seller accounts are choosing the subscription-free option. Even so, the higher volume of new sellers means that the number of sellers electing plans with the subscription component is still about 50% of our 2021 monthly new seller run rate, highlighting the value of the services we offer on subscription tiers. Given the highly considered nature of our purchases, It takes time for sellers to get up and running. The average seller takes about 90 days to make their first sale. Still, we're encouraged by the early progress we've seen. New seller accounts in the first quarter listed over 12,500 items and generated over $300,000 in GMV. Our second priority is commercializing auctions. We made progress on this front as well. Auctions provide a new way for buyers to discover and own the world's most beautiful things. This new purchase format leverages our existing supply and demand, adds a common luxury purchase format to our marketplace, increases urgency, and creates opportunities for buyers to find exceptional deals. Auctions also provide a new on-ramp to our marketplace for more price-sensitive consumers. While it's still early, we're seeing healthy order growth offset by AOVs below fixed-price marketplace AOVs as expected. Encouragingly, and most important, new buyer conversion rates for auction items are three times higher versus the same metric for non-auction items. Additionally, sell-through rates on auction items are about two times higher than non-auction items. Increasing new buyer activation and sell-through rates were key objectives of introducing the auction format, and we're excited to see them playing out. Since launching in November 2021, we've enhanced the product experience through weekly updates. This quarter, we launched additional buyer urgency drivers through platform updates, email and app notifications, and new tools for sellers to manage their listings, update pricing, and provide second-chance offers. In the first quarter, Our efforts focused on providing sellers with pricing guidance. Listings with low starting bids, competitive reserves, and attractive buy-it-now prices have higher bidding activity and correspond to buyer expectations of value for auctions. We've seen a sharp increase in the adoption of our pricing guidance. The number of auctions that meet all three of our pricing criteria has increased to over 20% at the end of March and from below 1% at the start of January. Optimizing pricing allows us to get more aggressive marketing auctions and building awareness, setting the stage for higher bid participation and ultimately higher future GMV growth. Our third priority is international expansion. We see a meaningful global opportunity and have a multi-year roadmap. Today, about 40% of our sellers, one-third of our traffic, and one-fifth of our buyers are located outside the United States. Additionally, in the first quarter, international seller GMV growth outpaced U.S. seller GMV growth. In late April, we smoothly launched in Germany, and we plan to launch in France in May. These countries are our largest non-English-speaking markets by order volume. Localizing our product strengthens the First Dibs Marketplace and allows buyers and sellers to transact in the language they're most comfortable with. With time, this should grow our buyer base and increase the unique supply on the marketplace. Supporting our launch in the first quarter, we completed the bulk of our upfront translation work, over 400 million words in total, to support localized production for Germany and France. Other international expansion progress included localizing sort order and search, translating marketing campaigns, hosting press events in Berlin and Paris, and building out European buyer and seller support. These launches are a cross-functional effort encompassing product, engineering, operations, logistics, marketing, supply, and customer experience. I'd like to thank everyone involved. Our final priority is NFTs. In the first quarter, we made additional improvements to our NFT platforms. In early March, we launched self-minting capabilities and creator profiles. Self-minting allows digital artists to create and sell their tokens in a self-serve fashion. Since those launches, the supply of NFTs on the First Dibs marketplace has grown over 50%. The number of artists on the marketplace has nearly doubled, and our Twitter followers almost doubled. While expanding NFT supply is our near-term focus, We believe these first quarter accomplishments are precursors to future GMV growth. We are cognizant of the fact that the e-commerce operating environment has become challenging and unpredictable over the past few months. We remain confident that in the long term, e-commerce adoption will continue to grow and luxury design will continue shifting online. This confidence is reinforced by the healthy top of funnel activity we've seen year to date. Additionally, Our past success with initiatives like SEO and expanding the marketplace beyond the vintage and antique furniture category give us the confidence to invest in our roadmap. Today, about half of our GMV comes from our newer verticals, like new and custom furniture, jewelry, art, and fashion, and SEO traffic mix has increased substantially. Each of our initiatives is a tried and true marketplace growth tactic, and has the primitives in place to be successful. For example, auctions are a common luxury purchase format. A significant percentage of our supply and our traffic come from outside the U.S. Growing supply increases marketplace liquidity. The hardest part of scaling an online marketplace is cracking the chicken and egg problem with supply and demand. We've done this with auctions, international, and supply. We are making these investments because we expect attractive ROIs in terms of new buyers and GMV. Margins matter to us. Profitability matters to us. Generating free cash flow matters to us. As we think through our roadmap, we do so with these considerations in mind. Turning away from strategic initiatives, we also continue to improve our core platform. While new buyer conversion declined, top of funnel activity remains healthy. with traffic, registrations, and item favorites growing double digits. We also redesigned our mobile web product pages and increased parcel pre-quote coverage. Today, 99% of our eligible parcel items have a pre-quote to buyers in the U.S., Europe, and other international markets. However, continued shipping inflation represents a conversion headwind. Since our last earnings call, changing consumer behavior, rising macroeconomic uncertainty, and consumer conversion headwinds have reduced our second quarter GMV growth outlook relative to our previous expectations. Undoubtedly, the macroeconomic environment has become more uncertain due to inflation, rising interest rates, geopolitical tensions, increased mobility, changing consumer spending patterns, stock market volatility, and other issues. Our high gross margins, asset-light business model, and strong unit economics provide us the flexibility to think long-term and make disciplined investments in our growth. I'll turn it over now to Tom, who will discuss our financial results and outlook. Thanks, David.

I'm delighted to have joined First Dibs a few weeks ago, and I'm looking forward to helping drive growth for years to come. In addition to being a First Dibs customer, I'm a longtime admirer of the brand, the business model, and the company's unique position in luxury e-commerce. Turning to the first quarter, we delivered results at the high end of our guidance range, which I'll review, along with providing an outlook for the second quarter. First quarter GMV was $117 million, up 3%. As a reminder, we lapped historically strong GMV growth of 64% from the first quarter of 2021. Similar to the last few quarters, trade GMV growth outpaced consumer GMV growth, with trade GMV hitting a quarterly record. Once again, we grew both the number of spending trade firms and the average spending per firm. Many of the firms we work with have full pipelines, and the trade business continues to have great momentum. While trade GMV growth remained robust, consumer GMV modestly declined due to traffic mix shipped from returning buyers to new buyers and softness in new buyer conversion. Additionally, as the world reopens, we believe there is pent-up demand for spending on experiences and travel. As a reminder, when we reference trade GMV or consumer GMV, we are speaking of the subsets of on-platform GMV attributable to each of these buyer groups. Fashion and new and custom furniture were our fastest growing verticals, consistent with the fourth quarter. Vintage and antique furniture accounted for less than 50% of GMV, and the majority of our first-time orders continue to come from our new categories like art, jewelry, and new and custom furniture. Continuing our trend from 2021, average order value was over $2,900, up 11% on broad-based strength across categories. This illustrates the trust we've built over the past two decades. There's no other digital marketplace operating at our scale, transacting at our price points across multiple verticals. Average order value growth was offset by order softness due to two traffic mix shifts, a shift towards mobile web and a shift towards new buyers, both of which have lower conversion rates. For context, returning buyer conversion is materially higher than new buyer conversion, so a traffic mix shift towards new buyers puts downward pressure on overall conversion. Many of these new buyers are coming from organic channels like SEO. We have several projects and tests in flight to increase conversion engagement from new buyers, including overhauling remarketing for a post IDFA world, redesigning our mobile web product pages, updating our mobile web checkout and increasing awareness of auctions, which have higher new buyer conversion versus non auction orders. Importantly, Conversion for returning buyers grew year over year, and top of the funnel activity remains healthy. We ended the quarter with approximately 71,300 active buyers, up 10% year over year, but down 2% quarter over quarter. As a reminder, active buyers is a trailing 12-month metric and could be choppy near term as we cycle through some strong comps from the pandemic-related e-commerce boost. On the supply side of the marketplace, we closed the quarter with over 5,400 seller accounts, up over 25%. As David mentioned, we've seen great response from our new seller pricing test, which launched in January. Net revenue of $26.6 million grew 4%, driven by GMV growth. Transaction revenue, which is tied directly to GMV growth, was approximately 70% of revenue, with subscriptions making up the bulk of the remainder. Gross profit was $18.9 million, up 2%. Gross profit margins were 71.1%, down from 72.5% a year ago. As expected, gross margins normalized following elevated shipping losses in the fourth quarter. While we continue to see shipping price inflation, the measures we implemented starting in December have kept shipping costs in line with historic norms. We are reviewing shipping data on a regular basis and we'll continue adjusting our shipping rates to reflect market trends. Sales and marketing expenses were $11.8 million, up 2%. Consistent with the fourth quarter, we pulled back on some performance marketing due in part to continued IDFA headwinds. Sales and marketing as a percentage of revenue was 44%, down versus 45% a year ago. Technology development expenses were $5.8 million, up 46%. driven by headcount growth and expenses supporting the launch of our localized sites in France and Germany, including translation. As a percentage of revenue, technology development was 22% up from 15%. General administrative expenses were $6.4 million, up 45%. The increase was mainly driven by expenses related to public company costs, including D&O insurance and increased headcount. As a percentage of revenue, general administrative expenses were 24%, up from 17%. Lastly, provision for transaction losses were $1.7 million, up 59%, driven primarily by an uptick in transactional losses related to shipping damages and items lost in transit. Looking forward, we are working to mitigate these issues by optimizing our carrier network, re-evaluating carrier SLAs, and partnering with sellers to improve packaging practices. Provision for transaction losses were 6% of revenue, up from 4%. Adjusted EBITDA loss was $4.7 million compared to a loss of $1.3 million last year. Adjusted EBITDA margin was a loss of 18% versus a loss of 5% last year. This year-over-year change was driven primarily by higher G&A expenses due to public company costs and higher investment in technology development spend due to headcount growth and product localizations. Moving on to the balance sheet, we ended the quarter with a strong cash and cash equivalence position of $161 million. Now, turning to our outlook, we forecast second quarter GMV of $104 million to $111 million, equating to a year-over-year change between a decline of 3% and growth of 3%. Net revenue of $24.4 million to $25.5 million, equating to year-over-year change between a decline of 1% and growth of 3%. Adjusted EBITDA margin loss of minus 32% to minus 28%. As David mentioned, due to shifting consumer demand, rising macroeconomic uncertainty, and consumer conversion headwinds, it's a tricky environment to forecast e-commerce demand. While we are not providing full-year guidance, we'd like to share some additional context on the assumptions underlying our GMV outlook. We have widened our GMV guidance range to reflect increased uncertainty. Last quarter, Our outlook was that year-over-year GMV growth would be the lowest in the first quarter. This is no longer the case due to the issues David and I discussed earlier. The midpoint of our second quarter guidance implies that GMV growth is flat year-over-year. We continue to expect GMV contribution from our strategic initiatives to increase in the second half of the year. Turning to adjusted EBITDA margins, guidance reflects a sequential decline in revenue, continued disciplined investment in our four long-term growth drivers. When we resume growth, we expect to generate operating leverage. That said, 2022 EBITDA margins will be dictated by the pace of GMB growth. In the first quarter, we made foundational progress in our four strategic initiatives, which represent meaningful upside potential over the next few years. Over time, our objective remains scaling the first DIBS marketplace, improving our buyer and seller experience, and achieving profitability and free cash flow generation. Thank you for your time. I'll now turn the call over to the operator to take your questions.