1stdibs.com, Inc.

Thank you for standing by. My name is John, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the FirstDibs.com Inc. Third Quarter 2024 Earnings Conference Call. All lives have been placed in mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Kevin Labuz. Head of Investor Relations and Corporate Development. Please go ahead.

Good morning and welcome to First Gibbs Earnings Call for the quarter ended September 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 third quarter financial results and fourth 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, 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 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. Third quarter results reflect continued improvements across our key focus areas. For the second consecutive quarter, we achieved year-over-year revenue growth, accelerating order growth, and sequential active buyer growth. We achieved this progress despite prolonged softness in the luxury housing market, which is experiencing the largest slump since the mid-1990s. Despite continued conversion gains and accelerating order growth, GMV contracted due to weaker than expected average order values, which we see as temporary. We anticipate returning to GMV growth in the fourth quarter, driven by further conversion gains and moderating AOV headwinds. Our adjusted EBITDA margins came in toward the low end of guidance. Relative to the second quarter, margin compression primarily reflects seasonally lower revenue as operating expenses remain flat sequentially. In the fourth quarter, we anticipate some additional margin compression due to seasonal increases in performance marketing. While margins will be down year over year, we are focused on improving efficiency and positioning the business for sustainable growth. Given a muted demand environment, we are focused on lowering the growth threshold required to achieve operating leverage. Our preliminary 2025 plan targets generating operating leverage at mid single digit revenue growth. Reviewing the third quarter, increasing conversion remains our operational priority and highest leverage activity. We maintain momentum here. Conversion rates have grown over the past year and growth accelerated again in the third quarter. Encouragingly, these gains are broad-based, with new and returning buyers both seeing double-digit improvements. Additionally, returning buyer conversion hit another record high. Conversion wins fueled order growth, which increased to 7%. Continuing with funnel dynamics, traffic headwinds were stable versus the second quarter, but AOV was softer than anticipated, depressing GMV. Tom will provide more detail later on, but based on quarter-to-date trends, we believe this dynamic will moderate in the fourth quarter. Order growth and active buyer trends are accelerating at a time when the luxury housing market and high-end furniture sales remain soft. According to the National Association of Realtors, U.S. existing home sales are on track for their worst year since 1995 for the second year in a row. This is a cyclical issue, not a structural one. Although calling the timing of a recovery is difficult, demand for luxury homes and high-end furnishings will eventually rebound. When it does, we stand to benefit from our ongoing operational improvements and lower cost structure. However, we strongly believe in creating our own luck and are not waiting around for the market to recover. We demonstrated this in 2022 and 2023 by reducing operating expenses and narrowing our focus. We are demonstrating this today by accelerating our pace of product velocity and reallocating resources from lower return projects to higher return projects. Regarding product velocity, the number of A-B tests we ran during the quarter grew double digits sequentially and triple digits year over year, hitting a new record. Increasing conversion was the primary focus of our tests, and we had several notable wins. One was integrating urgency metrics into our mobile app product detail page, boosting the rate at which buyers placed orders. Another was incorporating pricing guidance into our make offer flow, increasing the number of offers that converted into orders. Given the highly considered nature of our listings, many orders involved negotiations between buyer and seller. Because over 40% of orders originate as buyer-initiated negotiations, optimizing this process is a target-rich opportunity and will be an area of continued experimentation. Lastly, we launched our first machine learning-based pricing model for furniture, providing stronger, more precise recommendations tailored to maximize conversion. Competitive inventory pricing is one of three focus areas on our product roadmap. To achieve this, we have a multi-pronged approach ranging from enforcing price parity policies to incorporating machine learning based pricing recommendations. Despite recent gains, there is significant headroom to increase conversion, grow orders, and expand our active buyer base. For example, active buyers and new buyer conversion remain approximately 10% and 30% below their peaks. Given our long runway of opportunities, we expect to meaningfully outperform historical levels over time. Auctions is another area where we are not sitting still. After a thorough review, we decided to discontinue the feature in late September for two reasons. First, auctions was intended to induce sellers to price more competitively. We now have a roadmap that we believe will accomplish this more effectively and applies to all listings rather than only those in auction. Second, We determined that the resources allocated to the feature were not commensurate with its financial contribution and that they would be better deployed elsewhere. Approximately 10% of engineering time was spent working on auctions-related projects, but it generated roughly 2% of GMV and 5% of orders. This move reduces complexity, making it faster to build new features, simpler to run tests, and easier to maintain existing features. Supply is another area where we challenged assumptions and took action. After reviewing the initiative, we decided to retire the essential seller program on November 1st. Launched in January 2022, the offering provided a subscription-free pricing option. This was a great tool for seller acquisition, but the bulk of these sellers did not engage deeply with the platform. Compared to subscription-paying sellers, essential seller engagement was materially lower on a number of fronts, including listings, sales, and logins. From our data, we know that engagement is a precursor to seller success. For instance, more listings correlates with more sales. As a result, in late 2023, we shifted our seller acquisition strategy and monetization approach to concentrate on fewer but more highly engaged sellers. Retiring the essential seller program is another step in this direction. Although unique seller count has been volatile due to policy changes, we continue to see steady listings growth and ended the quarter with over 1.8 million listings, up 7%. Healthy listings growth should continue in the fourth quarter. We ended the quarter with nearly 7,000 unique sellers, down 13%. As anticipated, seller churn remains elevated as we manage out low-performing sellers. Consistent with previous quarters, the majority of churn was initiated by us due to low engagement or performance. In total, the churn cohort accounted for less than 20 basis points of GMV over the trailing 12 months and under 40 basis points of total listings. Churn will be temporarily elevated in the fourth quarter as we retire our essential seller program. This change requires existing essential sellers to upgrade to a monthly subscription plan to remain on the marketplace. Approximately 2,200 unique sellers are affected. We expect the change to modestly increase revenue while reducing operational complexity, and we will provide an update on our fourth quarter call. Because our path to profitability will be driven by operating leverage, we are focused on ensuring that resources are best deployed to accelerate and sustain growth. Discontinuing auctions and winding down the essential seller program are two examples of this. We are also not sitting still with capital allocation. After completing a $25 million share repurchase program in June, we instituted a new $10 million repurchase program in August. We believe that this will be very accretive in the long run, given that we are buying back shares at a discount to our assessment of intrinsic value. the size of our opportunity, our operational progress, and the fact that we are well positioned to capitalize on a market recovery. We are not waiting for external conditions to improve. We are creating opportunities through deliberate action, be it cost reductions, resource allocation, or share repurchases. By focusing on what matters most, we have made progress across key metrics. Although it can be hard to measure progress in a market that is contracting, We feel that positive momentum in conversion, order growth, active buyers, and revenue, as well as our continued focus on costs, are building a solid foundation to drive results when the market rebounds. Thank you for your continued support. I will now turn it over to Tom to review our third quarter financial results and fourth quarter outlook.