Fiverr International Ltd.

Hello, everyone, and welcome to the Fiverr Q3 Fiscal 2022 Earnings Conference Call. My name is Drew, and I'll be coordinating your call today. During today's presentation, if you would like to ask a question, you may do so by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I'd now like to turn the call over to Jinjin Chin. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us on Fiverr's earnings conference call for the third quarter that ended September 30th, 2022. Joining me on the call today are Miha Kaufman, founder and CEO, and Ofer Katz, president and CFO. Before we start, I'd like to remind you that during this call, we may make forward-looking statements and that these statements are based on our current expectations and assumptions as of today, and Fiverr assumes no obligation to update or revise them. A discussion of some of the important risk factors that could cause actual results to differ materially from any forward-looking statements can be found under the risk factor section in Fiverr's most recent Form 20-S and other findings for the SEC. During this call, we'll be referring to some non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in earnings release we've issued today in our shareholder letter. each of which is available on our website at investors.fiber.com. And now, I'll turn the call over to Miha.

Thank you, Jinjin. Good morning, everyone, and thank you for joining us today. We are pleased to report strong results today. In the third quarter of 2022, revenue was $82.5 million at the top end of our guidance and adjusted EBITDA was $6.6 million above our guidance range. This performance is the direct result of the actions we took to strengthen the flywheel of our marketplace. That is improving our efficiency in buyer acquisition, optimizing our catalog, building a better product experience, and in turn, driving more buyers to buy more from our platform. Our decision a few months ago to optimize our cost structure and accelerate our pace towards long-term margin targets is also paying off. Our Q3 adjusted EBITDA margin of 7.9% represents a 250 basis points improvement from Q2 with a strong gross margin of 82.8% and cost saving across all expense lines. The scalability, efficiency, and highly diversified nature of our business model is setting us apart in navigating through this economic cycle. We operate at global market base where millions of buyers purchase digital services from our platform across over 550 categories. This allowed us to detect the shifting macro condition as early as March. Our bottom up go to market strategy with a highly efficient and data driven approach allows us to stay disciplined when overall SMB spending is facing headwinds. In fact, We took a step ahead and even accelerated our pace of improving the bottom line when growth became more expensive. In addition, we have a strong balance sheet and are generating strong cash flow. We believe maintaining a healthy cash flow and cash balance is essential in protecting shareholder value in the current macro environment and gives us the ability to focus on long-term value creation. We tremendously value the trust we have earned from you, and we are committed to staying responsible and transparent with our shareholders. All of this, in my opinion, is providing us with a great setup for future growth. For the rest of my remarks, I want to talk about why we have confidence, conviction, and optimism in our future growth. First, the opportunity in front of us is huge, and the secular trends of moving towards freelancing is only growing. According to our latest annual freelance economic impact report, US independent professionals earned a total of $247 billion in 2021. To quantify this further, according to a recent survey by McKinsey, 36% of the American workforce makes their living through independent work a considerable increase from 27% back in 2016. Talents are increasingly demanding freedom, flexibility, and control over their own work-life balance. Furthermore, macro volatility is also driving talent to embrace freelancing more. We saw this during COVID pandemic, and in fact, in recent months, with inflation driving up the cost of living and a flurry of companies conducting layoffs, we saw a record level of sellers coming to our marketplace. Now, many of you have asked me why we haven't seen the marketplace benefit from those trends yet. The answer is twofold. One, we looked into the industry hiring trends around the last economic cycle and noticed that during the economic downturn, freelance demand gets hit first before full-time hiring and oftentimes leads broader GDP trends. That said, freelance demand is also expected to be the first to recover as we climb out of the downturn and the rebound is typically of a bigger magnitude compared to full-time employment and the GDP growth itself. So the first part of the answer is a matter of timing and we believe Fiverr will be the first to benefit from the upswing down the road. The second reason is the gap between talent and businesses in terms of adopting freelancers. As evident in our recent Back to Work survey, businesses lag behind freelancers in terms of willingness to embrace remote work and flexibility in engagement. This is why we see smaller businesses ahead of larger businesses in terms of utilizing freelancers for a much bigger portion of their talent needs. That said, we believe large businesses are getting there. The recent news around Amazon's $8 billion annual cost of employment attrition just illustrates the urgency and necessity of a change in talent strategy. All of this is to say that we are in the right place in the right time, and we expect significant tailwind for our business. Now, the strong flywheel inherent in Fiverr's business model will allow us to benefit from those tailwinds much more than others. You have witnessed the significant uplift in scale we experienced during the COVID cycle. I am super proud that we were able to hold on to most of those gains. Active buyers were 4.2 million, nearly double what we had three years ago. Spend per buyer grew over 60% and take rate grew 340 basis points. This speaks to the loyalty of our buyer base, their increasing need for digital transformation, Fiverr's increasing wallet share, as well as us extending our role in the value chain. And we are going to continue investing in our flywheel during this economic downturn, building product, improving supply, and delighting our customers so we will be in a stronger position to take advantage of the rebound. The last thing I want to highlight is our progress on fiber business. The vision we have there and the innovations we are making. We are going to significantly speed up the bottleneck in business adoption that we talked about earlier. We are not building another staffing business to help you hire a contractor, developer, or project manager. Rather, we want to provide businesses with the simplicity and nimbleness to engage with freelancers without the overhead of onboarding, contracting, time tracking, and compliance. Think of the difference between leased data centers versus a cloud computing solution. You'll have much faster setup, much lower management overhead, and much more scalability and flexibility. We are already seeing many midsize companies using Fiverr's solution extensively today. Our cover story in the shareholder letter highlights how the head of a creative studio at a gaming company utilizes Fiverr as a content generation hub, leveraging services across voiceover, 3D animation, video projects, and banner ads design. It's amazing to see how much productivity and efficiency Fiverr can bring to his team. This is one of the many examples that give us the confidence and ambition to extend those tools to every business. We are investing in many areas, including increasing brand awareness among business customers, building partnerships and educating potential customers on use cases, improving our product across matching transactions, communication and productivity tools, and lastly, expanding our supply into more specialized skill sets with demonstrated industry experiences. There is a lot to do and there is no better timing than now to dig deeper and relentlessly focus on building out these innovations. I'll wrap it up today with advice I received when I was a young entrepreneur. There are only two ways to fail a startup. You either run out of money or you give up. We are probably a long way from what you would consider a young startup, but I think in many ways the advice still applies. The scale we have and the strong cash flow we enjoy will allow us to build toward long-term sustainable growth, and our passion, commitment, and excitement toward the future are absolutely unwavering. With that, I'll turn the call now to Ofer, who will walk you through our financial highlights.