1stdibs.com, Inc.

Good day and thank you for standing by. Welcome to the FirstDibs.com second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin LaBuzz, Head of Investor Relations and Corporate Development. Please go ahead.

Good morning, and welcome to First Dibs Earnings Call for the quarter ended June 30th, 2023. I'm Kevin LaBuzz. Head of Investor Relations and Corporate Development. Joining me today are Chief Executive Officer David Rosenblatt and Chief Financial Officer Tom Edergino. David will provide an update on our business, including our strategy and growth opportunities, and Tom will review our second quarter financial results and third 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 and future financial performance, market demand, growth prospects, business plans, strategic initiatives, evaluation of alternatives, business and economic trends, including e-commerce growth rates and our potential responses to them, international opportunities, and competitive position. Our actual results may differ materially from those expressed or implied in these forward-looking statements as a result of risk and uncertainties, including those 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 except to the extent required by law. Additionally, during the call, we'll present GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, which you can find on our investor relations website, along with the 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. David?

Thanks, Kevin. Good morning, and thank you for joining us today. We delivered second quarter GMV and revenue at the midpoint of guidance and EBITDA margins above the high end. Excluding one-time restructuring costs, operating expenses were down 14%, reflecting our commitment to align expenses to demand. In addition, at the end of the quarter, we made the difficult decision to reduce headcount by approximately 20%. Importantly, second quarter results do not include any material benefit from the June restructuring. These will be realized starting in the third quarter. Over the past year, we've taken multiple steps to re-engineer our cost structure, including actively managing headcount, reducing non-headcount related operating expenses, and divesting design manager. Over this period, we have reduced expenses by more than $25 million on an annualized basis. We are also committed to re-accelerating growth. While it is encouraging that year-over-year GMV declines moderated sequentially and that we expect further improvement in the third quarter, growth rates are below where we would like them to be. We are working hard to change this, but expect that significant improvements will take time to materialize. There is no question that we face headwinds, most importantly, a continued decline in demand in the luxury housing market. For example, luxury housing sales were down 24% year-over-year in the second quarter, according to data from Redfin. Despite this softness, many other indicators of marketplace health remain strong. Organic traffic mix increased, supply growth remained brisk, seller churn remained low, We expanded into two new international markets, and we revamped our AB testing framework, allowing for faster product velocity. All seeds for future success. In contrast to GMV growth, expense management is completely under our control, and we've taken decisive action here. At the end of the second quarter, we made the difficult decision to reduce headcount by approximately 20%, and eliminate approximately $4.5 million in non-headcount expenses, which Tom will elaborate on shortly. At the end of July, employee headcount was down by 37% versus the second quarter of 2022. We don't believe that fewer resources results in a smaller opportunity. We reorganized the business to maximize our ability to scale in an efficient manner. As part of the reorganization, we have focused our product and engineering teams on the areas with the highest ROI potential, personalized and frictionless buying, competitive inventory pricing, and scalability. These priorities address the biggest constraints to growth. The June restructuring substantially reduces our cash burn and accelerates our path to profitability. Although growth rates are not where we would like them to be, Signals like increasing organic traffic mix and steady double-digit listings growth give us confidence in the future. Inherently, asset-light online marketplaces are businesses with high potential for operating leverage. When we return to growth, we expect to generate strong incremental flow-through and margin expansion. Turning to the quarter, we continue to see a discrepancy between the demand side and the supply sides of the marketplace. Consistent with recent trends, conversion headwinds and lower AOV drove GMV declines. On a sequential basis, the improvement in Euro Rear GMV growth was driven by more moderate AOV and conversion declines, partially offset by a modest slowdown in traffic growth. In contrast, supply remains robust. We've seen consistent double digits growth of listings since the first quarter of 2021. One new dynamic this quarter was that consumer GMV, which accounts for approximately two-thirds of our total, outperformed the company average for the first time in two years. Meanwhile, trade slowed due to prolonged softness in the luxury housing market. Overall, traffic grew modestly, with organic growth partially offset by fewer paid sessions as we continued to pull back on our least efficient performance marketing channels. We're seeing persistent growth in our organic traffic mix, which reached nearly 80% of total, up several percentage points sequentially and year over year. This is being driven by the combination of continued SEO strength and lower performance marketing spend. Having millions of pages with expert created content has attracted many millions of links throughout our 20 plus years of operation. Through our unique content and backlinks, we've built strong domain authority, enabling a high mix of organic traffic. Moving to operations, improving conversion, particularly for new buyers, is our largest lever and top priority. To accomplish this, we're focused on personalized and frictionless buying and competitive inventory pricing. To aid these efforts, we revamped our A-B testing framework, allowing us to create and run tests more efficiently. We've already seen an uptick in test velocity and currently have a number of tests in market to improve the checkout experience, grow mobile app usage, and increase engagement with our product detail pages. Moving on, we continue to make progress on our strategic initiatives. Once again, localized marketplaces in France and Germany posted strong traffic and order growth. Sessions from German and French IP addresses grew over 200%. Furthermore, SEO traffic grew over 175%. Orders from French and German IPs grew 25% year-over-year, accelerating five percentage points from the first quarter. We launched a number of new international product features over the past few months. First, to accelerate the growth of highly sought-after Italian supply, we localized our seller tools for Italian speakers in late May. Second, at the end of the quarter, we launched a localized buyer-facing marketplace in Italian. Lastly, we launched our Spanish site in late July. Relative to our French and German sites, launching the Italian and Spanish localized experiences was faster and cheaper as we applied learnings and leveraged upfront infrastructure work from 2022. Auction orders grew 32%, accounting for over 6% of total orders, up from approximately 4% a year ago. Auctions continue to have a sell-through rate that is roughly twice as high as the marketplace overall. During the quarter, our product development effort focused on supply quality and pricing. For example, we had notable success with our May no reserve auction, and we plan to increase the frequency of this type of auction moving forward. Turning to supply, seller and listing growth remained robust. We ended the quarter with over 8,800 seller accounts, up over 40%, and seller churn near record lows. Additionally, listings grew 19% to nearly 1.7 million items. We have seen steady listings growth over the past few years. In addition to our conversion projects, plans to re-accelerate growth and cost savings initiatives, we have also undertaken a strategic review process over the past year. As part of this process, we evaluated multiple alternatives, including buy and sell side M&A, capital return strategies, and partnerships. After a comprehensive review, we have decided that our best path forward at this point is to supplement our existing plans to re-accelerate growth and drive efficiency with a share repurchase of up to $20 million. I'd like to take a moment to walk through our underlying beliefs and assumptions regarding this decision. First, we see a large secular growth opportunity ahead. While the last year has been challenging as the industry confronts a softer luxury real estate market, our expectation is that luxury e-commerce will resume growth. consumer behavior will continue to shift towards digital as the leader in our category we will benefit disproportionately from this resumption of growth second scale is critical for online marketplaces while the market is large and we are the digital leader in our industry e-commerce adoption of our categories and price points lags behind other categories while there's more work to do our product roadmap is focused squarely on gaining scale. Additionally, as opportunities arise, we will continue to evaluate both buy and sell side M&A opportunities. Management and the board are always open to inorganic means of maximizing shareholder value. Third, we believe our current valuation is low relative to the strength of our brand, our long-term market opportunity, and our intrinsic value. Over the past 20 years, we have developed a number of attributes that are valuable and difficult to replicate, including aggregating a fragmented offline supply base, building a trusted brand that provides buyers with the confidence required to transact online at high AOVs, and cultivating a deep well of unique expert content, resulting in strong SEO domain authority and high organic traffic mix. These are durable competitive advantages. Fourth and last, we believe that we have ample cash on our balance sheet to achieve profitability with a cushion. Given the discrepancy between our current valuation and our assessment of our intrinsic value, we believe it is accretive to use a portion of our surplus cash to repurchase shares. In closing, we are committed to maintaining expense discipline, accelerating growth, achieving profitability, and enhancing shareholder value. In the second quarter, we took decisive action and made significant progress in cutting costs, substantially reducing cash burn and shortening the ramp to profitability. We have more work to do to re-accelerate growth. While softness in the luxury housing market is weighing on demand today, the prerequisites for a successful online marketplace, growing supply, high organic traffic, and more localized buying experiences are all in place. I'll now turn it over to Tom to review our second quarter financial results and third quarter outlook.