1stdibs.com, Inc.

Good day and thank you for standing by. Welcome to the first DIBS Q4 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, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 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 LaBuz. Head of Investor Relations and Corporate Development.

Good morning and welcome to First Stib's earnings call for the quarter and year ended December 31st, 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 Medergino. David will provide an update on our business, including our strategy and growth opportunities. And Tom will review our fourth quarter financial results and first 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, 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 will present GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings 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. Throughout 2023, we laid the groundwork for future success. While there is no denying that high-end furniture demand has been under pressure for the past two years, we have used this period to reorganize our business. We have undertaken rigorous efforts to optimize our operations, re-engineer our cost structure, and focus our efforts on a narrower set of priorities, laying a strong foundation for future growth and profitability. Encouragingly, we are starting to see tangible results. For example, in the fourth quarter, conversion rates increased for the first time since late 2021. In many respects, 2023 was a continuation of the efforts we started in the second half of 2022 to recalibrate our expenses, reprioritize our roadmap, reduce our cash burn, and accelerate our path to profitability. While category demand remains subdued and GMV growth is far from where we would like it to be, we have made meaningful progress on all of these fronts. First, by reorganizing our operations teams and finding other efficiencies, we expanded gross margins from the high 60s to the low 70s. Notably, this happened on lower revenue. Second, we took decisive action to align our expenses with demand and reorganize our business. For example, we reduced headcount, increased performance marketing efficiency thresholds, and downsized our New York City real estate footprint. As a result of these and other actions, year-end headcount was down over 20% and fourth quarter operating expenses were down 19%. The benefit of this lower cost structure are showing up in our P&L. Adjusted EBITDA margins in the second half of 2023 were negative 8.4% compared to negative 21.7% in the second half of 2022. In dollar terms, Adjusted EBITDA improved to negative $3.5 million in the second half of 2023 from negative $9.9 million in the second half of 2022. This improvement occurred at a time when revenue declined approximately 9%. A point worth stressing is that the majority of our operating expenses, about two-thirds, are headcount-related. From our new cost base, we expect to be able to add meaningful GMV and revenue without proportionate increases in headcount. Said another way, the changes we made over the past two years increase our operating leverage potential. We expect this to be on full display when revenue growth resumes. Third, we refined and refocused our product roadmap. Having fewer resources necessitated a narrower aperture and shifting resources away from areas where returns were further afield, like auctions and international expansion, to areas where payoffs are expected to be more immediate, like checkout and seller experience. The underlying logic is that the highest return investments we can make are on platform-wide product changes. Today, we are focused on the handful of areas that we believe represent our highest ROI opportunities, which I will detail below. We also revamped our A-B testing infrastructure and accelerated our testing velocity. First Dibs has always been experimental and data-oriented, but we are moving faster today. While it is still early, there have been some encouraging developments in this regard. We are releasing a high number of new features into the market, and we believe this is contributing to conversion improvements. In the fourth quarter, conversion rates increased year over year, for the first time since the third quarter of 2021. Fourth, based on the strength of our balance sheet, confidence in our prospects, the value of our strategic assets and the disconnect between market prices and our assessment of intrinsic value, we initiated a $20 million share repurchase program. Since inception in mid-August, we have opportunistically repurchased $3.5 million or approximately 820,000 shares. While much has changed in our business throughout the past two years, our financial goals have not. Over time, our objective is to deliver sustainable revenue growth, expand margins, become profitable, and ultimately grow free cash flow per share. Moving to the fourth quarter, we deliver GMV at the midpoint of guidance and revenue and adjusted EBITDA at the high end. Similar to the third quarter, traffic and average order value were headwinds to GMV, partially offset by conversion rate improvements, particularly from returning buyers. As I noted above, after seeing declines moderate for five consecutive quarters, conversion rates returned to growth for the first time since the third quarter of 2021. Lastly, supply remained healthy, with listings up 12%. As we look towards 2024, our focus is on reinvigorating growth while maintaining our leaner cost structure. Our roadmap centers on three themes, personalized and frictionless buying, competitive inventory pricing, and scalability and order retention, which I will briefly preview. All of these ultimately roll up to driving conversion and operating leverage. The First Dibs Marketplace is home to over 1.7 million of the world's most beautiful items. Personalized and frictionless buying means making it easier for shoppers to find the perfect piece. This spans improving item discovery to making it easier to complete a purchase by reducing checkout friction after finding that special item. Optimizing our make offer flow is an example of a project in this work stream that we are focused on in the first half of the year. Purchases on first dibs are highly considered. Many involve back-and-forth communications or negotiations between buyer and seller. In fact, over 40% of orders originate as buyer-initiated negotiations. As such, optimizing the make-offer process has the potential to lift conversion and order volumes. Competitive inventory pricing is our second theme. The objective here is ensuring that listings are transparently and competitively priced. To do this, we are giving sellers more insights and tools to list their items at the market clearing price. For example, we will soon be launching a test of our listings optimization score and seller recommendation page. This provides sellers with data-driven recommendations aimed at improving sell-through and conversion. For example, depending on item attributes and the performance of similar listings, we might recommend that the seller reduce the product price, move the item from marketplace to auction, or add more images. Success here looks like sellers adopting our recommendations, ultimately driving more conversions. Lastly, scalability and order retention is about streamlining processes to improve efficiency. Focus projects here include optimizing our operational teams and enhancing the performance of our tech platform. Success here is growing our GMV and revenue well in excess of our costs. During the fourth quarter, we started rolling out our first dibs parcel rates and labels. This suite of tools gives sellers complete control to select the best shipping methods for their business with our seamless integration of calculated shipping rates, competitively priced shipping labels, and automated tracking for parcel shipments, which account for approximately 70% of our shipping volume. In addition to giving sellers more control, once fully implemented, we expect these tools to reduce the load on our operations team. Lastly, turning to supply, we were pleased with double-digit listings growth despite the soft demand environment. In this quarter, we revised our approach to seller acquisition and monetization. A lesson from our essential seller test was that subscription-paying sellers had higher engagement. For example, essential sellers accounted for about half of our sellers but only approximately 10% of listings. As a result, We instituted a new pricing structure whereby all newly acquired sellers will pay a monthly subscription fee while allowing existing essential sellers who meet inventory posting minimums to continue with a subscription-free plan. We will continue to monitor this and adapt our pricing and acquisition accordingly. We also updated our commission tiers for high-value orders. As a consequence of these changes, we would expect to see some volatility in seller count through mid-2024. However, during this period, we expect to see continued listings growth. In closing, despite the challenges we have faced over the past two years, I am proud to say that we have remained resilient and have not shied away from difficult decisions. As conditions changed, we responded. We have taken actions to reduce our cost structure lower our cash burn, channel our focus on the highest ROI projects, and opportunistically return capital to shareholders. While we continue to navigate through market softness, I am encouraged by the progress we have made. The steps we have taken to reduce costs and sharpen our focus are beginning to yield results, as evidenced by our progress towards breakeven and improving conversion rates. As we move forward, We remain committed to adapting the market dynamics, maintaining cost discipline, re-accelerating growth, and doing so in a capital efficient manner. Thank you for your continued support. I will now turn it over to Tom to review our fourth quarter financial results and first quarter outlook.