1stdibs.com, Inc.

Hello everyone and welcome to FirstDevs.com's second quarter 2024 earnings conference call. Please note that this call is being recorded. As of right now, everyone is joined on mute to avoid any background noise. Later on, you'll have the opportunity to ask questions to our presenters by pressing the star 1 on your telephone keypad. That's all we need to go through for now. I'd like to hand over the call to Kevin LaBuzz, head of IR. You may now begin.

Good morning and welcome to First Dib's earnings call for the quarter ended June 30th, 2024. 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.firstibs.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 positions. 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 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. In the second quarter, we delivered GMV and revenue at the high end of guidance and adjusted EBITDA margins above the high end. Moreover, we are pleased to report a return to growth after eight challenging quarters. marking a significant turning point for the business. In addition, we recorded a number of positive developments over the past quarter, a sequential increase in the number of active buyers for the first time since late 2021, improving conversion for both new and returning buyers, accelerating order growth, and ongoing adjusted EBITDA margin improvements. Growing GMV and revenue at a time when syndicated credit card data shows that the broader online furniture and premium furnishings markets are contracting is validation that our strategy is working. It also shows that cost reductions have not come at the expense of growth. The actions we took in 2022 and 2023 to lay the groundwork for future financial success, streamlining operations, reengineering costs, and narrowing our focus to the highest ROI opportunities continue to pay off. Increasing conversion is our highest leverage activity, and we are pleased to report the third consecutive quarter of conversion rate growth. Returning buyer conversion hit a record high, and new buyer conversion grew double digits. Even with this progress, there is significant headroom to increase conversion, grow orders, and expand our active buyer base. We are optimistic for three reasons. First, conversion rates in the second quarter were approximately 20% below their peak at the height of the pandemic e-commerce boom. Over time, we believe that conversion can exceed this high watermark. Achieving record returning buyer conversion rates in the second quarter offers an early proof point. Second, U.S. luxury home sales are still more than 10% below pre-pandemic levels, according to data from Redfin. Because home sales are a trigger for furniture purchases, we expect a benefit as the luxury housing market recovers in the future. Third, approximately two-thirds of our GMV is furniture, a category which saw a substantial demand pull forward during the pandemic. Furniture is a durable good with a replacement cycle. While purchases can be deferred, they cannot be deferred indefinitely. As we move further away from the pandemic boom, we expect demand to build. We are improving performance in spite of the fact that the market has not recovered yet. The improvements we are making to the business in this period of soft demand position us well to maximize growth when the market recovers. Growth rates improved in the second quarter, with both GMV and revenue inflecting positively. Orders grew 5%, helped by continued conversion improvements and increased performance marketing investments, as targeting optimizations and higher conversion enabled us to increase investment while maintaining efficiency thresholds. Average order value and traffic remained headwinds to GMV growth, consistent with recent quarters. We expect further conversion gains and order growth in the third quarter. However, we anticipate that average order value headwinds will temporarily intensify, due largely to lapping one-time factors from 2023 that Tom will detail. Returning to funnel dynamics, traffic headwinds were stable sequentially, with performance marketing optimizations and higher performance marketing investment offsetting softer organic traffic. We ended the quarter with approximately 70% of traffic from organic sources and 30% from paid. Our performance demonstrates that our revamped A-B testing program and accelerated product velocity are paying dividends. The number of tests we ran in the second quarter grew over 150%, a record high, helping drive order growth and conversion improvements. Our product roadmap is focused on these three areas. personalized and frictionless buying, competitive inventory pricing, and scalability. We made progress in all three areas during this quarter. For example, we scored our largest AB test win since revamping our program in mid-2023. In May, we expanded the first DIB's promise and tested promoting it more prominently. This resulted in higher checkout entry and checkout completion rates, ultimately generating more orders. We also made progress giving sellers actionable insights to drive conversion. In April, we introduced our seller recommendations page and listing optimization score features. The goal of these is to provide sellers with tactics to increase sell-through based on our proprietary analytics and first-party transactional data. These recommendations include actions like add to sale, add automated offers, lower list price, and add to auction. To increase visibility, engagement, and adoption of our recommendations, we created a centralized recommendations page in the seller dashboard with an individual optimization score for each seller to prioritize recommended actions based on estimated conversion uplift. Early results have been encouraging, with sellers who increased their account level optimization score seeing an increase in conversion on average. We also made progress on our make offer flow. which represents a potentially rich vein to tap. Given the highly considered nature of our listings, many orders involve negotiations between buyer and seller. In fact, over 40% of orders originate as buyer-initiated negotiations. In June, we completed our first make-offer test. Our objective was to make this process more seamless, ultimately driving more orders and higher conversion. Based on our learnings from the June test, We have four additional make offer tests slated for the coming months. Conversion is a game of incremental improvements that compound and snowball over time. We believe our snowball is starting to gain momentum. We also scored a large infrastructure win. While we are constantly iterating on our buyer and seller experience, we are also committed to maintaining a stable, scalable infrastructure. During the quarter, our engineering team upgraded our routing infrastructure, which increased site speed and reduced error rates. Our pre-post analysis suggested double-digit latency improvement for our product and search and browse pages, making the site more performant. Over time, we expect to see this translate into higher organic traffic, conversion improvements, and more orders. The net effect of these wins is that we exited the quarter with a better buyer experience, a better seller experience, and better performing infrastructure. Turning to supply, we continue to see consistent listing growth, ending the quarter with over 1.8 million listings, up 6%. As expected, we saw an uptick in the number of churned sellers due to our new pricing structure and inventory minimum requirements. This is a result of our decision in the fourth quarter of 2023 to revise our seller acquisition and monetization approach to focus on sellers with higher engagement. We are seeing this shift pay off in the form of higher take rates. We ended the quarter with approximately 7,450 unique sellers, down 5%. The majority of churn was initiated by us due to low engagement or performance on behalf of sellers we churned. In total, the churn cohort only accounted for approximately 50 basis points of GMV over the trailing 12 months and less than 2% of listings. While we anticipate some volatility in unique seller count through 2024, as we lap inventory minimums and pricing changes, we expect continued listing growth. We also made significant strides on the capital allocation front. completing our $25.2 million share repurchase program in June. We believe that this will be accretive in the long run, given the size of our opportunity, the fact that we are well positioned to capitalize on a market recovery, and that we executed the program at a discount to our assessment of intrinsic value. While the luxury home furnishings industry is still contracting, we are hopeful that the worst of the down cycle for this market segment is now behind us. As the leader in our category, we expect to benefit disproportionately when market growth resumes. Our roadmap is focused squarely on this. The progress we have made on conversion, orders, and top line growth signify that our roadmap and strategy are bearing fruit. Given the operating leverage in our model, returning to growth was the first step towards profitability. Our mission now is to accelerate and sustain growth, improve margins, and ultimately generate growing free cash flow. While this will play out over years, we are encouraged by recent progress. Thank you for your continued support. I will now turn it over to Tom to review our second quarter financial results and third quarter outlook.