Etsy, Inc.

Hi, everyone, and welcome to Etsy's second quarter 2022 earnings conference call. I'm Deb Wasser, VP of Investor Relations and ESG Engagement. And joining me today are Josh Silverman, Chief Executive Officer, Rachel Glazer, Chief Financial Officer, and Jessica Schmidt, Senior Director of Investor Relations. Today's prepared remarks have been prerecorded. The slide deck has also been posted to our website for your reference. Once we have finished with Josh and Rachel's presentations, we will transition to a live video webcast Q&A sessions. Questions can be submitted via the Q&A window chat displayed on your screen. Feel free to use it at any time, as it will remain open throughout the entire conference call. I'll be reading your questions, and Jessica will help me try to get as many as we can. Please keep in mind that our remarks today include forward-looking statements related to our financial guidance and key drivers thereof. The global macroeconomic uncertainty, including the impacts of general market, political, economic, and business conditions may have on our business strategy and operating results. our opportunity, our levers for GMS growth, and our plans for investments in our marketplaces and in our member support programs, the potential impact of our strategic, marketing, and product initiatives, and the anticipated return on our investments and their ability to drive growth. Our actual results may differ materially. Forward-looking statements involve risks and uncertainties, which are described in today's earnings release and in our Form 10-Q filed with the SEC on May 5, 2022, and which will be updated in any future periodic reports we file with the SEC. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we disclaim any obligation to update them. Also during the call, we'll present both GAAP and non-GAAP financial measures. Reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which you can find on our IR website, along with the replay of this call. As a reminder, our 2021 financial results and KPIs for the second quarter did not include DPOP and ELO 7, which were acquired in the third quarter of 2021. With that, I'll turn it over to Josh.

Thanks, Deb, and good evening, everyone. We continue to experience striking changes in the global economy and consumer behavior this year, and as a result, our forward visibility is not substantially clearer than it was a quarter ago. Consumers have more choices for where to spend their time and money, and disposable income is under more pressure than it's been in a very long time. In spite of these headwinds, we're encouraged by the tens of millions of shoppers that return to Etsy spending only slightly less with us in the second quarter of 2022 than they did a year ago when choices were far fewer and economic conditions were a lot different. While markets naturally go through cycles, I'm energized by the agility of the Etsy team, the adaptability of our business model, and our ability to deliver solid profitability in a quarter where achieving top-line growth was challenging. We have a lot of conviction that not only is e-commerce poised for meaningful growth over the medium term, but that each of the four Etsy marketplaces has a unique reason to succeed and scale, offering something truly important and different against a sea of sameness. That's why, even through a challenging time, we've continued to invest in our people and our businesses, making bold moves that we very much believe will set us up for continued future growth. And we've been able to do this while delivering strong profitability, thanks to the benefit of our discipline, scale, and business model. The headline for our second quarter results is that despite really meaningful headwinds, we continue to hold the vast majority of our top line pandemic gains while delivering strong profitability. In other words, controlling the things we can control. Our consolidated GMS was $3 billion, basically flat year over year and up 2.6% on a currency neutral basis. Also, when adjusting for the currency impact, GMS for the Etsy marketplace was down only a few percentage points. Our consolidated revenue grew 10.6% and adjusted EBITDA margin was 28%. Before moving into our operating highlights for the quarter, I wanted to review our recently announced leadership changes with our Chief Product Officer, Kruthi Patel-Goyal, moving to become CEO of Depop, and Nick Daniel, VP of Product, promoted to fill Kruthi's former role. In her 11 years at Etsy, Kruthi has led almost every function, including strategy, corporate development, international, trust and safety, and seller services. Four years ago, I asked her to run our product organization, and she's done a stellar job. She, together with Mike Fisher, our chief technology officer, spearheaded Etsy's product development culture, building focus, customer obsession, agility, and accountability into the fabric of our operating rhythms. She's also built an incredibly talented bench of leaders, She's ready to be CEO of a great marketplace brand, and in my opinion, there's no one better positioned to take Depop to the next level. Kruthi will move to London next month to join Depop's very talented leadership team. I'd also like to express my gratitude to Depop's CEO, Maria Raga. Under her leadership, Depop has taken the world by storm and defined itself as a beloved, culturally relevant brand. We wish her the best in her future endeavors. Nick Daniel joined Etsy eight years ago and over the course of his tenure has led many of the most complex and value driving product initiatives in our portfolio. For example, the development and growth of Etsy ads and our offsite advertising program, scaling Etsy's marketing technology capabilities and launching our major push into personalization. Nick has the strategy chops to set a vision, the technical chops to ensure good execution, and the leadership chops to attract and develop world-class talent. I couldn't be more excited about these changes, and I'm immensely proud of the depth of leadership talent we have at Etsy. We've been intentional about building and strengthening that bench over the years, putting us in a position to make moves like these. It also highlights the career adventure we're able to offer our team, and even more now with the addition of Reverb, Depop, and DLO7. I believe that's one of the reasons why our engagement remains strong and attrition low, even in these more challenging times. Nick will now partner with Mike Fisher to lead the teams driving Etsy's right to win product development roadmap. As we've explained on prior calls, this year we're organized around making Etsy feel more made for you, more efficient and making Etsy more reliable, and continuing to support our sellers' growth by offering them more agency and scalability. We've directed more product teams towards active buyer growth, accelerated efforts to deepen personalization in the buyer experience, and resequenced roadmaps to pull forward higher-confidence retention and frequency drivers. Let's start with search. We currently have about 100 million items for sale, an unimaginable selection, and none of it maps to a catalog. Most queries have more than 1,000 relevant search results. We need to get you to the good stuff fast, but each person has their own idea of what the good stuff is. That's why it's so critical that we not only have a world-class search technology, but that we marry it with world-class personalization. In this way, we can make Etsy feel truly made for you. And along the way, build a competitively differentiated value proposition. We used to have only one search engine, which was great at finding search results using text from the listing title, but was limited since it needed to find an exact or near exact text match in order to retrieve results. What we've talked about as the semantic gap. Over the past six months, we've gotten significantly better at leveraging multiple search engines simultaneously, each with different strengths. For example, some are better at head queries or tail queries or understanding the true meaning of phrases. We then intelligently blend the results, personalizing them with insights from what you've done in the past, and as of very recently, real-time data from the breadcrumbs you've left during this particular. engines getting better, but we continue to add to cart in search results made it easier and faster for buyers to find what they love, thereby creating a faster path to purchase with less distractions. This change drove improvements in conversion rate and average order value, a testament to the fact that we've improved the quality of search and the information provided on the search result page, enough that some people are ready to buy without even needing to visit the seller's listing page. Last quarter, we mentioned that we have a portfolio of early-stage visual discovery ideas we're testing to learn how we can engage buyers when they don't know what they're looking for, and to make Etsy more visual, dynamic, and inspirational. Again, more made for you. In June, we held a live Etsy market shopping event on our app. In the days leading up to the event, buyers could watch trailer videos for each stream and set in-app reminders. The event featured 20 sellers streaming live from their studios, sharing their stories, process, and styling tips. It's a great example of ideas we're testing and iterating on to help sellers reach buyers in new and authentic ways. Another visual discovery app experience during the quarter focused on helping buyers gain confidence in a purchase decision by highlighting the experience of other buyers. by enabling buyers to leave video reviews. We've just started to collect video reviews and make it easier for buyers to access and engage with this content. And we continue to iterate on the Explore feed to make it even better. We know that reliability has been an important friction point for buyers. If they can trust that the item will arrive on time, undamaged, and as described, we believe we can unlock significantly more purchases from each buyer. Fortunately, our sellers generally do a great job delivering quality items at a fair price. And we've made major progress improving metrics like on-time arrival over the past two years. That's why we couldn't be more excited that our new Etsy purchase protection program goes into effect next week. It's going to help make shopping and selling on Etsy far clearer, easier, and more reliable. This program will protect sellers and buyers for qualifying orders up to $250 when the item doesn't match the description, arrives damaged, or never arrives. Etsy expects to invest approximately $25 million annually to cover refunds at no additional cost to sellers. And the refund process will become clearer, faster, and easier for many buyers. You'll see us get louder on these new policies as we go through the rest of the year, building up to the all-important holiday season in Q4. And we've been doing more than ever to help our sellers grow. We've created an entirely new, simple, and we believe very lovable sell-on Etsy mobile app, more maintainable and extensible, with improved usability versus our legacy seller app. Key new features include the ability to purchase shipping labels and to receive a heads-up when a repeat buyer is messaging you. We've incorporated new technology to enable the release of more functionality at a faster rate than ever before. Also during the quarter, we incorporated seller feedback into our star seller badge, making it more achievable for sellers that provide excellent customer support. We continue to invest to help sellers who have the skill and the will to succeed on Etsy, and we're proud of the results. While we're on the subject of helping our sellers to grow, this quarter I also want to shine a spotlight on Etsy ads. Over the years, we've made meaningful improvements to the availability of ads on our marketplace, the relevancy of ads we show to buyers, and the tools we offer sellers to manage their spend and how we bid on their behalf. This product has been a win-win-win for our sellers, buyers, and Etsy. Etsy ads revenue has grown 516% over the last five years, even faster than Etsy Marketplace's 253% GMS growth. We've continued to close the semantic gap by leveraging new machine learning techniques to capture intrinsic styles and properties, thereby providing more relevant ad inventory for buyers without compromising conversion rate. We also recently expanded Etsy ads inventory to the homepage while maintaining listing relevance consistent with organic search results. Seller budgets are up 80% year to date, and we're maintaining strong ROAS for them as well. We've ramped our investments meaningfully in Etsy ads, as it's an area where we see a long runway for continued growth. As you know, we've been hyper-focused this year on driving engagement and frequency, and one area I'd like to highlight is how we've been working to engage low-frequency buyers. More engaged or habitual users are generally more adept at coming up with ideas and or finding what they're looking for, which is generally not how a low-frequency buyer experiences Etsy. By making Etsy more accessible and hence giving novice buyers an experience closer to that of habitual power users, we believe we can unlock significant frequency gains over time. And we've been making encouraging progress. Recent examples of wins include a revamped, more diverse presentation of items above the fold on the homepage to generate interest and engagement, and a revamped user interface prompting signed-out buyers to download the app. Once again, app downloads had impressive growth, up 53% versus last year's second quarter. Our research and experimentation are giving us creative ideas for layouts that work to encourage scrolling by incorporating trending shops, searches, and categories. All of which, of course, get far more powerful when combined with the personalization investments discussed earlier. This work is just at its infancy and we'll continue to tell you more about it as we make additional progress. Another important vector for our engagement and frequency work is our international efforts. Getting the flywheel turning in additional international markets we believe can unlock significant growth. Recall from the last call the insight that penetration rates in the next 15 markets beyond the US and UK are about 80% lower than those top two Etsy markets. a great data point to support our belief in just how early our growth journey really is. Some recent international wins include the launch of the first version of localized Exwalk in all our non-US markets. We're now applying this powerful search engine technology to optimize results to find the perfect listing for our non-US buyers. Our fulfillment team has been hard at work moving the needle on expected delivery date, postal code coverage for non-US orders, and other transparency and confidence building initiatives. And we recently added another eight countries to the list of places buyers can buy now and pay later. So making Etsy more made for you and reliable no matter where you are. Our research shows that one of the top reasons buyers don't shop more often on Etsy is because we aren't top of mind for enough purchase occasions or moments. That's what gives us continued conviction in our marketing efforts. and I'm proud of the agility of our team, continuously adapting our strategies and creative to the market environment. With macro headwinds continuing to be strong in 2022, our team has modified our very successful meant for you and why buy boring campaigns to remind people of the many purchase occasions for which Etsy is relevant, that all important shoulder tap, while leaning into value and affordability. So the what and the why to shop Etsy during these times. The message in a nutshell is Etsy has home decor, fashion, jewelry, and gifts. It's affordable and better on Etsy. We've also incorporated the messaging about extraordinary and affordable into our earned media engagements, our social channels, and the marketplace itself. Our team has been really creative during this time utilizing our CRM tools, app notifications, emails, and other on and offline techniques to drive buyer engagement and frequency. And we also had some great brand building earned media during the quarter from tried and true features such as the Etsy Design Awards. Turning to our subsidiary brands, 2022 has been a challenging year for all three, each of whom faced reopening and other headwinds similar to those faced by our core marketplace. Current business conditions notwithstanding, We have a lot of conviction that we're in the extremely early days of realizing value from our house of brands. Kruthi will hit the ground running at Depop in September, where she'll be focused on incorporating our product development culture to increase product velocity, with goals that will sound a lot like what she's accomplished for the Etsy marketplace, highlighting sellers' unique inventory, improving search and discovery, elevating the human connections on the marketplace, and making Depop more relevant to more of its target audience. and building trust in the brand, and of course, driving ROI-focused marketing investments that deliver results. We believe Depop has fostered one of the most passionate communities in e-commerce, and it has only scratched the surface when it comes to reaching its full potential. Reverb and Elo7 each have responded to macro challenges with creative approaches designed to set themselves up for future growth. Reverb helped buyers find their perfect instrument with updates to on-site search algorithms, localization enhancements, and improved domestic discovery in the UK. To meet buyer expectations on free shipping and returns, they helped buyers connect with sellers offering customer services like free two-day shipping and 30-day return policies. In addition, Reverb built SEO-optimized landing pages and drove adoption of My Collection, a feature that helps buyers track the value of their music gear over time. ELO 7 improved the buyer experience by introducing signals and nudges into the purchasing journey, while expanding delivery carrier options for sellers to materially reduce shipping costs, increase speed, and improve transparency for buyers. Performance marketing remained an important focus as ELO 7 continues to leverage the Etsy playbook for improving spend efficiency. Rachel will talk a bit about our business model, which we want to highlight today as one of the key factors that gives us comfort in uncertain times. We see multiple scenarios possible for the remainder of 2022, but even in downside scenarios, we believe we are well positioned to deliver healthy profitability. We'll keep focusing on the things we can control, driving great customer experiences, investing with discipline and care, and helping our team to minimize distractions and focus on getting the job done. It's not an easy time for the world, but we take heart in the fact that our work has purpose. delivering value and economic opportunity for millions of sellers, and giving tens of millions of buyers experiences they can't find anywhere else. And most of all, the chance to keep commerce human. Thank you for your time. And with that, I'll turn it over to Rachel.

Thanks, Josh. And thank you, everyone, for joining us for our second quarter earnings call. My commentary today will cover consolidated results, key drivers of performance, and Etsy Marketplace standalone results where appropriate. As a reminder, Reverb, Depop, and Elo7 are all reflected in our consolidated financial results and KPIs for the second quarter of 2022, but Depop and Elo7 are not included in our second quarter 2021 results. On a consolidated basis, our second quarter GMS was basically flat year over year at $3 billion. while revenue increased 10.6% year-over-year to $585 million, and adjusted EBITDA was $163 million with a 28% margin. The Etsy marketplace transaction fee increase and growth in Etsy ads drove strong revenue performance, and we delivered adjusted EBITDA margins ahead of our expectations due to disciplined marketing spend and solid profit flow-through. On a currency neutral basis, GMS increased 2.6% year over year, as FX was a 300 basis point headwind. The second quarter featured challenging comparisons, as our consolidated GMS increased 13% year over year in the second quarter of 2021, on top of a 146% expansion in the second quarter of 2020, fueled by the initial broad-based pandemic lockdowns. In contrast, today we are seeing mobility nearing 2019 levels, a challenging global macroeconomic environment, and ongoing geopolitical uncertainties. I'll dive into these factors shortly. Marketplace revenue increased 11% year over year, and services revenue expanded 9%. The growth in our marketplace revenue was largely driven by the Etsy marketplace transaction fee increase from 5% to 6.5%, effective April 11th. as well as a benefit from the inclusion of our acquisitions of Depop and Evo 7. Within services revenue, consolidated ads revenue increased 12.1% year over year, primarily due to ongoing enhancements to Etsy ads relevance and click-through rate, as well as more ad inventory throughout the buyer experience. Better than expected growth of Etsy ads also drove consolidated take rate to 19.3% ahead of the take rate implied by our guidance. Our second quarter consolidated adjusted EBITDA margin was 28%, above our expectations and above the 26% reported last year. The primary driver of the adjusted EBITDA margin improvement was disciplined marketing spend and the continued growth of Etsy ads. Consolidated EBITDA margins are also impacted by headwinds related to our two new lower margin subsidiaries that were not included in year-ago financials. Our three subsidiaries were more than a 400 basis point headwind to our consolidated adjusted EBITDA margin, with DPOP representing the primary drag. We have a lot of conviction that the strategic rationale for acquiring DPOP and ELO7 is sound, providing us access to the large resale apparel market and opening up an untapped market opportunity in Brazil. It's also fair to say that given current significant macroeconomic headwinds, Both companies have, to date, performed below the financial expectations that we had a year ago. That said, we remain confident in the long-term growth models for each of these businesses and believe it is early days in unlocking that value. Other factors contributing to our bottom line results include investments in headcount growth and increased compensation, including stock-based compensation, with the largest portion in product development where the majority of our engineers sit. I will dig deeper into headcount growth in a moment. In the second quarter, our stock-based compensation increased sequentially due to the annual refresh grants that were priced in March and therefore had a full quarter of impact. Finally, we had higher cloud computing costs related to greater development activity on a year-over-year basis. As you know, our marketplace operates with minimal capital requirements, and there are relatively few expense items we designate as fixed. These would include our leases, the minimum obligations associated with our cloud computing costs, certain portions of our compensation, and our public company costs. The vast majority of our consolidated expenses are variable or semi-variable. Variable expenses such as performance marketing move dynamically with revenue. Semi-variable costs are less dynamic, but are those we can moderate by tapering up or down as business demands rise and fall. So for example, we significantly slowed new hiring this past quarter in order to better align with our pace with top line trends. That decision enabled us to invest appropriately in our existing team and stay the course on marketing and other investments while maintaining healthy profit margins. Moving to product development, in the second quarter, consolidated product development spend was $102 million, up 65% year over year, largely driven by headcount growth, including the DPOP and ELO 7 acquisitions. Our product development expenses as a percentage of revenue moved sharply lower when revenue rose dramatically in 2020 and 2021. Meanwhile, during this time, we hired at a steady pace in order to scale in a more sustainable way. Product development as a percentage of revenue is now at a healthier level of spend, similar to our pre-pandemic percentage, which we believe is appropriate to enable future growth. On a trailing 12-month basis, revenue per average full-time headcount for Etsy Marketplace was in excess of $1.1 million, which we estimate to be our peer group average. Our product development resources, including stock-based compensation and cloud computing costs, are factored into our measurement of ROI for product investment. So when we add incremental people, we also increase our GMS and revenue targets and maintain our expectation that product investment is ROI positive in the portfolio within about two years. We continue to make strategic investments that do not directly generate incremental GMS, but help us to scale our business, optimize development capabilities, and keep the marketplace safe. During the second quarter, consolidated marketing spend declined 2% from the prior year to $164 million, And as a percentage of revenue, quarterly marketing spend has been relatively consistent overall for a couple of years. Our performance marketing spend declined year over year, driven by our improving model and data feed efficiencies, combined with softer consumer demand and weaker Google search trends for our related terms. This was partially offset by a higher LTV related to our transaction fee increase, which allowed us to spend more. Our brand marketing spend increased 4% year-over-year in the second quarter, as Etsy was on-air in our top three core markets, with spending somewhat elevated versus the same time last year. So to summarize, while we modestly pulled back our performance marketing spend during the quarter, the ongoing improvements to our marketing models allowed us to deliver greater profitability with minimal impact to our GMS. Moving to our Etsy Marketplace performance metrics, We have maintained the vast majority of our pandemic gains with GMS increasing 141% on a year over three year basis. For context, we delivered $2.6 billion in GMS this quarter compared to 1.1 billion in the second quarter of 2019. It's a nice reminder to also look at how well we are doing today compared with the second quarter of 2020 when we had such a large impact from sales of face masks. From a geographic perspective, 44% of Etsy Marketplace GMS in the second quarter of 2022 was from transactions where either the buyer or the seller or both were outside the United States. Non-US GMS was up 3% year over year on a currency neutral basis, which was driven in part by strength in Germany, where we've intentionally built our brand over the past few years offsetting weakness in the UK, which continues to face difficult comparisons primarily due to strict lockdowns in that country a year ago. It's also worth noting that we continue to see that our mobile app share of GMS, which crossed desktop to become the highest GMS contributor in the first quarter of this year, climb as a percentage of GMS in the second quarter. Let me take a moment to unpack the various macro factors impacting the Etsy marketplace. Starting at the top, the Etsy marketplace declined about 6% in this quarter versus prior year, meaning we kept 94% of our GMS in the same quarter a year ago. As a reminder, in the second quarter of 2021, we continued to experience elevated GMS levels related to economic stimulus payments in the U.S., high COVID case counts, and low vaccination rates. In contrast, today we are seeing the mobility indices approach 2019 levels as people continue to spend more time out of their home, leaving less time and money for at-home shopping. This slide shows a walk for Etsy Marketplace GMS on a year-over-three-year view from mid-January through June. Based on third-party data and our own estimates, we believe there has been a very high inverse correlation between Etsy US GMS trends and U.S. retail and recreation mobility trends, particularly given our exposure to pandemic-winning categories such as home and living and craft supplies. On this chart, we've estimated that about 75 percent of our year-to-date declines can be attributed to these factors. We attribute the remainder of the decline to FX pressures, macroeconomic factors impacting consumer discretionary spending, including inflation, as well as the ongoing crisis in Ukraine, which was a supply-side factor for us throughout the second quarter. Overall, consumers have many more places to spend their money and less disposable income, which has driven week-to-week volatility in our business. Similar to our commentary last quarter, we have only seen a modest impact from inflation on the price of goods on Etsy.com, as it appears our sellers remain largely hesitant to increase prices, and they often offset pricing increases with discounting. Diving a bit deeper into categories, reopening headwinds have specifically pressured the home and living and craft supply categories, which collectively represented over 40% of our second quarter GMS and were meaningful beneficiaries of stay-at-home related consumer purchasing trends during the pandemic. Trends remain positive in paper and party and apparel categories as consumers continue to shift to in-person events and activities. Demand was also strong for travel-related needs, including luggage tags, travel wallets, and fanny packs. Weddings and parties remained bright spots, especially wedding favors, as larger in-person weddings resumed. GMS per active buyer on a trailing 12-month basis for the Etsy marketplace was $136 in the second quarter, down slightly on a sequential basis. On a cohort basis, spend levels for all of our cohorts remain ahead of pre-pandemic levels. as all of our buyer cohorts remain more valuable today than before the pandemic. As an example, we looked at our 2020 cohort, which was first acquired during the pandemic, compared to our 2017 cohort, which is an example of a typical cohort short-term performance pre-pandemic. Slide 26 shows that our 2020 cohort materially outperforms that earlier cohort in terms of value. We also monitor the spending trends of by buyer demographic, specifically income level. So far this year, we have seen fairly consistent GMS distribution across income levels, although it has shifted slightly away from lower income buyers as we continue to lap last year's stimulus check benefits, similar to trends we are seeing reported across retail. Encouragingly, our buyer metrics remained largely stable across active, repeat, and habitual. We ended the quarter with nearly 8 million habitual buyers, down 2% sequentially, and 1% versus last year. These loyal buyers accounted for 46% of our GMS in the second quarter. Habitual buyer growth in core non-US markets was a bright spot, particularly in Germany and Australia. We continue to have a high conviction that moving the needle further on frequency will unlock significantly more value. We added 6.4 million new buyers in the quarter, nearly 50% higher than in pre-pandemic periods. Still, this was down 20% from the prior year, and as expected, creates a material headwind to our growth. We again reactivated about 5 million lapsed buyers in the second quarter. The composition of our lapsed buyer segment is increasingly compelling. Recently lapsed buyers, those that made their last purchase between 13 and 24 months ago, now represent about 40% of the lapsed buyer total. We believe these buyers are ripe for reactivation with strategic product and marketing investments, particularly given our improved CRM tools. Moving to the balance sheet, as of June 30th, we had $1.1 billion in cash, cash equivalents, and short and long-term investments, and a $200 million revolver that is currently undrawn. During the second quarter, we repurchased $62.2 million in stock under our $250 million December 2020 board-authorized repurchase program, which we completed in early July. As noted in our 10Q, in May 2022, the Board authorized a new $600 million repurchase program. Operating cash flow for the quarter was a healthy $125.8 million. Now turning to the outlook. First, I want to highlight that our guidance assumes currency exchange rates remain unchanged at current levels. As a reminder, in the third quarter of 2021, ETSI reported consolidated GMS growth of 18% on a year-over-year basis, and GMS increased 159% from the third quarter in 2019. We currently estimate our third quarter 2022 consolidated GMS to be approximately $2.8 billion to $3 billion, down about 7% to 8% at the midpoint compared to the third quarter of last year, and up about 140% compared to the third quarter of 2019. For the Etsy marketplace, this implies a decline of mid to high single digits. Said another way, at the midpoint of our guidance, we expect to deliver a GMS of around $2.9 billion compared to $1.2 billion in the third quarter of 2019, nearly two and a half times larger than before the pandemic. We are forecasting revenue of $540 million to $575 million, up about 5% at the midpoint compared to the third quarter of last year, and up about 180% compared to the third quarter of 2019. Our two new subsidiaries also contributed to growth in the third quarter of last year, and we passed the anniversaries of these acquisitions a few weeks ago. We currently expect an adjusted EBITDA margin of approximately 26%, with investment in Etsy purchase protection and higher compensation costs related to a full quarter of our now larger employee base being the primary factors in the sequential decline. We are encouraged to see that the year-over-three-year deceleration we have experienced in the past two quarters has shown signs of slowing significantly over the past eight to ten weeks, as you can see on this chart. In our view, it appears the curve has started to flatten. However, we have not yet seen a return to growth on a year-over-year basis, nor are we certain that year-over-year growth rates have bottomed given the present macro uncertainty, and would therefore recommend you consider these trend lines when you are modeling fourth quarter GMS. Recall that in the fourth quarter of 2021, ETSI reported consolidated GMS growth of 17% on a year-over-year basis, and GMS increased 154% from the fourth quarter of 2019. very high comp hurdles, to be sure. It's also fair to say that we are now more cautious than we were on our last earnings call, given continued macro pressures, particularly on consumer discretionary spending, the strong correlation between our business and mobility, and the inflation factors described earlier. Unless macroeconomic factors become significantly more volatile, we believe the fourth quarter will track historical holiday seasonality as our largest GMS quarter for the year. Lastly, for your models, we substantially adjusted our hiring plans during the second quarter, which will result in a slower pace of hiring in the second half. However, our second half P&L will reflect the additional headcount we have already added. In terms of marketing spend, we generally spend more in marketing in the second half of the year versus the first, in particular leaning into brand marketing during the holiday season. Our performance marketing investment is largely variable with demand, and we continue to set ROI thresholds for our spend that keep the last marginal dollar of spend at or above those thresholds. We currently expect consolidated take rate for the second half of the year to be largely in line with the second quarter. Thank you all for your time today, and I'll now turn the call back to Deb to take your questions.