Q3 2019 Earnings Call
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Oh now I turn the conference over to Jinjin, Chad Vice President of strategic Finance.
Thank you operator, and good morning, ladies and gentlemen, thank you for joining us on <unk> earnings Conference call for the third quarter ended September Thirtyth 2019.
Please note that this call is being webcast <unk> Investor Relations section of the company's website.
Details of our result in additional management commentary.
Shareholder letter, which can be found on the west Good relations section of our website, if that's true dark fiber dock.
Joining me today on the core Army, how Kaufman founder and CEO and.
Yeah.
Before we start I would like to remind you that certain matters discussed today are forward looking statements that are subject to risks and uncertainties relating to future events and for the future financial performance of fiber actual results could differ materially from those anticipated coal.
Additional information that could cause actual results. Good for forward looking statements can be found in fiber periodic public fighting with the U.S. Securities Exchange Commission.
Including those factors discussed under the risk factor section in hybrid final prospectus under four to four be filed with the yet.
Forward looking statement seem to come from current based on a card application as of today and fiber assumes no obligation to update over like weather.
Your development.
And now I would turn the call right to me.
Me Huh.
Thank you didn't get.
Good morning, everyone and thank you for taking the time to join US on the call today. The third quarter was extremely strong for fiber revenue grew 42% year over year.
We saw strong growth across all of our TV.
We see that the momentum in the freelance economy is higher than it has ever been in businesses around the world are increasingly in fiber.
Net can transact freelancers to get projects completed quickly easily and efficiently.
Yeah, because the growth we continue to demonstrate the clear price stability.
Margins were strong we drove operating leverage with a 430 basis points improvement in adjusted EBITDA margin.
No in light of our excellent results for the first nine month of the year together with the strength of our business.
We are raising guidance for 29 team.
We now expect revenue in the range of 105.5 million and 106.5 million, reflecting 40% to 41% growth over 28.
We are also raising our EBITDA outlook for the year they offer will pass one.
During our first burning coal I introduced fiber, so I won't go into too much detail today.
Those word knew we are a market based docs connects buyers and sellers print digital services.
Fiber is a technology company nothing stopping company.
Our proprietary technology allows freelancers prototype digital services into a skew like capital.
And then make the experience or buying a digital services from a freeze I'm sure. It's simple is buying something what Amazon.
We have a powerful comprehensive thought formed that use in advance on board.
The my then leverage must quantities of big data and Didnt make everything simple for both buyers and sellers.
On the buyer side, our approach and technology eliminate friction and what this means is not on fiber. They can order digital services like in innovation for a video game. He local design for their business voiceover for their radio commercial and much more.
What is most exciting is that it can be done in approximately 15 minute.
Whereas traditionally you think about 30 days just fine in higher if a doctor.
[laughter] unmatched in the industry.
The power in simplicity of our part for me, what's driving our financial results.
On the color side, they don't need to wait times bidding on job. They may end up not winning.
We give them the tools needed to run their business.
The decline and I'm sure they are satisfied with the job.
And at the same time are you learning platform helps them continually improve their skills.
Fiber takes away the strength of being a freons her.
And allows the seller to focus on what they like that being created and provide customers with a product they love.
Before over it takes you through their financial I'd like to share a few business highlights from Q3.
First we significantly expanded our capital gains deepen our penetration into larger businesses.
With the launch for industry store gaming ecommerce architecture input.
We have observed that adding new category increased its been lifetime body of our buyer since they repeat and buying more frequently as well as by across more categories.
It also increases our total addressable market.
<unk> packaging gig into vertical stores, we enhanced the experience for both buyers and sellers.
This is definitely something you should expect seymour or in the future.
Second.
Our focus on moving up market is working.
Ben Breier increase [laughter] dollar is from $157 in Q2, $263 in Q3, and the percentage of high value buyers within average spend over 500 dollar it reached 52% of our core business.
Well it is still very early we are encouraged by the response to fiber studios.
The product is gaining traction in since its launch at the end of July hundreds of freeze entrees have now teamed up to provide the larger more complex deep offerings in our marketplace.
Average studios project is near the had been time the price of an average gig.
We're very excited about the potential how fiber studios can fly and for our buyers in the long run.
Beyond the financials fiber studios is an example of how we want to fly the business.
We need to make it easier for buyers to find the services they need large or small and at the same time enable calibration among freelancers.
The third I like I'd like to share is that our global footprint. These expanding.
Our last call, we talked about our launch in Germany.
We see strong acceleration there is the result of local marketing campaign in Q3.
The PDP and buyer levels, well above market based opportunities.
It is our intention to leverage our learning from the new launching birthday into other areas in Germany, and two other German speaking countries.
Create the repeatable playbook for further expansion.
Our maxing the temporary bikes funding support for foreign currency transaction, which is important in driving local audiences.
And finally, a focus on technology and be Dod drives our decision, making and powered our business.
In addition, we are investing heavily in mobile.
Nobody is highly strategic crop, but it's not just about the transaction hopping on mobile you did the transaction that mobile is involved in.
We understand that in todays always on the move market people concept the switch between desktop and mobile.
And what are the prison and support them on all of those scenarios.
One of the best thing talk more about off.
Nobody is becoming a touch point for the majority of transactions on fiber today, and we are constantly working on ways to optimize the user experience and the backend across our market base to widen our lead in the online printing space.
Fiber had an excellent Q3, which will start cop two an even stronger performance for the or.
Well, we are happy with our results in momentum, it's even more exciting to think about what's to come, especially when we look at the global trends towards freelancing, India generating needs of businesses for digital churn.
This is a great opportunity to say how much we appreciate the hard work the fiber team around the world.
I look forward to seeing many of you at the New York you'd be it's gone friends in December and its future events.
And with Dod I'll hand over to offer will review our financial results you have some really great update for you.
Thank you and good morning, everyone.
Isn't even mention I've got the lead us to try to give any day, 40% that well.
This is a blend body robin flown in all three good inventory as one of them you need to do.
I'm fine no shuffle doesn't occur.
In terms of key operating metrics.
Okay Bye-bye grew 16% deals if you <unk> point threemillion.
But the bias <unk> fixed dollar paying 157, though you do you see 100, [laughter] <unk> and I wouldn't think good mm 140 basis and you don't give you did anything [laughter].
Active buyer growth accelerated in the third world countries.
He said that it shows trends in them Garmin kinda.
[laughter] brand marketing investment through all that you.
The only thing that's kind of we make on marketing automation in next year.
Pumping if it seemed very stable from coal.
By a cool.
[laughter] buyers tend to.
58% coal market.
In addition old performance marketing investment continues to be highly efficient.
They are all price we found and then from Q3 that closed in one that.
We trends nearly all dependent and Walter has already been because you want to cool.
This is phenomenal.
It is important to know that's why we are happy to see Q3 Biden spending by parents form here [laughter] corporate these days.
There's no fundamental change you know what were they started to be back yeah why.
For our future quarters to remain consistent with historical levels.
No well just trying to getting.
The industry phone, yes during the quarter [laughter] category.
Right Okay bye.
We also grew our German market.
Sensibly and Biogen has higher spending capacity.
Lastly, the growth of all important topic and stuff and maybe.
Got that buyer with deep awarded.
I want they continued to grow and the modest pace during the quarter.
We continue to generate incremental revenue stream and set our food and foreign currency.
Oh, and sometimes marketing [laughter] platform continues to gain at the healthy pace.
This contributes to the old pig as well.
We are very confident that the Olympics is sustainable, especially when you consider I was particularly Karen and the significant value added each transaction.
We believe that even father room.
The upside and paid as removal.
Now, let's look at the margin Q3, non-GAAP gross margin.
Within an 18.8% or you know whether it'd be cream of 140 basis.
As we've mentioned before our goal small ginny.
This is based on mix impact I think we're going to frequency on our core marketplace and also by growth.
I can do subscription we had its highest they trade, but no real smoking.
Wonderful, we expect gross margins to remain stable to RMB 87, this quarter over quarter calculation. It's all based on economics based on product I woke up.
Our airport, though I've got that you thought was negative $4.4 million <unk> and <unk> EBITDA margin was negative 2.8 [laughter].
This is about 430 basis 0.2 men, primarily driven by continued to gain on R&D and have the marketing.
This bottom line performance and I was trying to get the economy show that we are making significant progress on our pet people seem to be.
Now you guys on.
So if you fall, we expect revenue up 20 $829 million because anything are you ever in Brazil.
40%.
We expect Q4 adjusted EBITDA between negative open 3 million and I'm not going to be reporting finally got though because something negative 13.7% adjusted EBITDA margin at the me.
We expect continued leverage from southern marketing and R&D expense.
In addition core conducted IPO.
The CE Gen eight I'm, probably not and styles to gain leverage as well.
Yeah, I think I will fall in guidance based on our performance in the first nine month, you know as well as positive trends in our business.
The for 29 PM, we now expect revenue between 105.5 feet and.
Well, if there's anything any <unk> revenue growth of 40% to 41%.
We expect adjusted EBITDA negative 19 medium to make up $18.2 billion.
Right.
Adjusted EBITDA margin and then.
You are very happy with our performance in Q3 look forward ending the year.
I don't know cutting it doesn't seem to momentum into pretty funny.
I would know turned the corner over to the operator, we'll open it up for questions Albright, though.
We will now begin the question answer session.
Good question you can press Star then one on your telephone keypad.
Speakerphone, please pick up your handset before pricing.
Withdraw your question. Please press Star then too.
At this time, we'll pause momentarily to assemble our roster.
The first question will come from Doug Anmuth of JP Morgan.
Great. Thanks for taking questions Ive to Ah first Utah I know, it's early but can you talk more about fiber studios increased capesize, you're seeing just how it's helping you go more market second Oh for just in light of your improving EBITDA over the past couple of quarters could.
You share your latest thoughts around the top to profitability, each oh, well balanced grows and the bottom line going forward. Thanks.
[laughter]. Thank you dogs I think for the question Doug Good morning, So what we're seeing wood fiber studios, obviously, it's a very new product and B you in a pilot mode. However, what we're seeing is we're seeing great traction.
Andrew do you being created and bear in mind that we've limited audience that cannot be open studios to Barry you gathered.
We've seen some some amazing examples that speak to be calling people to work with studios and what if you did the degree so as one example for diabetes, we have Dom and offer well the cool.
What does it create and audio books in front, that's what do you book you want it to create it seems all no even over it'll be doesn't understand anything about leerink.
Decomposing production or playing an instrument.
So for the country, that's a customer daily thing, it's pretty obvious.
We didn't see locally much like any other deepen fiber you were able to oh, how the studio.
Don seems some free [laughter] worthy of being like you know what he and the radio.
We were blown away by the accordingly.
So I think [laughter] signal nobody's exactly what we wanted it to be which means it allows our customers who perform or achieve more complex BLAIC huh.
Down additional complexity there side.
Well, we're seeing also if not the D. H E b, the average selling price well see if he gig <unk> seven times.
Thanks Mark.
But she's done which is another great thing. So he speaks to both be experienced and being able to to achieve more team and the platform any contribute to a more spend per buyer.
And so we're very encouraged about it won't pay tyvek, Okay you quarter.
Our two moved it from a from a testing mode TWIC scaling those.
But we love what we see right now.
So question what was ever did over maybe maybe I can I can start.
It may be ofer can kinda or not.
So.
Instant book, if he were very hockey would be continued improvement in our operating leverage.
It is driven primarily through sales and marketing and R&D I Didnt border.
As we said, we see any expenses will start summarizing this quarter.
Well to generate unlevered.
Not that growth continues to be our top priority.
We're still very young company operating in an industry with U.S market opportunity.
The only penetration it on field services, you, even low single digit.
And we're very focused on growing our business and increasing our market share.
No we make in both brought up in Murphy.
Right now I think that we are very confidence in achieving.
The wrote and we're making good progress already.
We we have a highly attractive business model with over 80% gross margin.
And we implement their highly efficient discipline data driven marketing strategy governed by your line.
And our growing you know consistent cohort b.
Provides us with the inherent ability to to improve leverage.
We scale so all in all in we are committed to achieving profitability.
And you should expect us to get there.
Consistent and steady pace consistency very important.
Yeah I. Thank you.
Thank you.
The next question will come from Eric Sheridan.
Thanks for taking the question too if I could you know things for the detail on Germany I just wanted to just get a little bit of how are the piece of investments going forward might be aimed at targeting a further expansion of the German market or how we should think about health for and how fast you can go in terms of investing.
Of course, other geographies, you've identified as sort of key for the medium to long term plans dumping number one number two on the demand side of the equation. We've heard a lot up from a lot of different companies. This quarter on direct traffic versus that C O headwinds or what's your own experience in terms of driving on the demand side and how you may.
I'd be changing some of the allocation of marketing dollars, what kind of returns you're seeing on the demand side. Thanks much guys.
Thank you Eric I'm facing the questions I'll take them all by order.
So as to Germany.
In Germany, we've seen a very successful summer campaign in Berlin.
Well, we've seen there was actually dot tropic doubled from Q2 Q3.
And therefore, we decided to expand the competing to other cities such as Hamburg.
And I think that that led us to be understanding or two to collect a single upon which we can expand our geo I'll try to GE into other German speaking country.
We do intend to launch two languages in Q1 next year.
Because we understand from soft localization in Germany that that has an impact.
Definitely somebody interesting things that we've learned on the German market.
Oh led us to understand about a lot of the local learning can be embedded into our our algorithms. For example, we noted in Germany and this is something we lobbies dot Jared it's likely higher focused on quality and that drives the higher spend per buyer.
Despite higher quality and more complex that's appropriate.
So we can you stop data feed our Alberta make sure that we serve the rights services with the right audience.
Sorry. This is the purpose of writing did.
They are.
Playful on on housekeeping Peter funding, so a disciplined German speaking a country launching a new or two languages in Q1.
Now they can be expected from a well not phone.
The second question.
With about a direct tropic versus if you.
So wouldn't when you look at their numbers and D Aki buyer or growth on fiber.
What do you see that you.
Acceleration over three quarters in a row.
In the the majority or the biggest part of not what Youre guiding for you.
These investments we've made on brand marketing it all.
The investment that we've done on at T. O paid off the introduction of industry story paid off and obviously, we had some headwinds from the IPO itself.
But that coupled with the part that we have a very very fish and Oh, he marketing strategy.
This quarter Q3 quarter <unk>.
<unk> Onex, MTR white, which meant that the investment that we made was paid by the worried about order.
Well the team through efficiency, all our diversification of channel.
Conversion improvement.
No protests new products that says Oh fibers choice is an example.
In addition to that we've seen very consistent forward behavior.
50 acres and of our revenues coming from repeat so I think.
We've seen strong across the board I would I would mention specifically the organic this quarter because it was very very strong trust.
Thank you.
Thanks.
The next question will come from Ron Josey of JMP Securities.
Great. Thanks for taking the question maybe me I wanted to follow up on on Oprah on the marketing spend in T. ROI, reaching one times, which effectively means revenue in the quarter from new clients or you know accounted for the acquisition cost and I know over you talked about getting back to more of a normalized GR like going forward, but as you think about.
The newer channels that maybe Eric was talking about but also how you think about you know the growth in the business and awareness can you just talk about how or how you view marketing how you view awareness should you be spending more here in light of what you just talked about in the packet profitability. So just wondering about how you're investing in marketing to grow awareness in growth not in Germany, Germany, but also in.
The state.
And whether this you know one time is something we should expect going forward. Thank you great quarter.
Thank you want in thank you for the questions about twice and I think that the way we look at but the way we looked at the marketing pool is the continued the decided that he had been implementing for you.
Which is a very soon to fix to expansion.
I will marketing that's yet.
With Oh without with a clear path for full efficient then fit the bill it though we blend to create.
Our marketing investment or within the framework of Oh, the phones, you have a like a lifetime values to clock.
To.
Who maintained a healthy growth I'm, a strong called I behavior that not only I'm on the first cool well done with Oh, yeah, why but on the longer.
It's enable us to use these doesn't marketing overall as the Finfet just wasn't.
I don't know.
Can you talk little bit about awareness as well please thank you.
Yeah. So.
So I think I mentioned, the fact that are being <unk>, we are making one brand marketing is paying off.
We're definitely seeing how not creates the ryka, where it is I think dot in certain areas, such as Germany, which we've done awareness campaigns, we've seen Doc trickle down into doubling our tropic as I've mentioned and so that's definitely a that definitely helped both of these gains.
In organic traffic is improving conversion is because when these customers.
Come across our on online they already have it then we are so talk also battles improves conversion older No working that's truck strategy work and this is why we find that you own youngest building a in Germany, and obviously the brain.
The brain marketing, but we do in the U.S. continues to be a very effective.
He is also deals not just with awareness what we take it down from people that are being the awareness campaign down into consideration campaign and onto conversion debate. So all in all dot integrated.
Marketing worked very well for us.
Got it thank you.
The next question will come from Jason Helfstein of Oppenheimer.
Thanks, I used two questions. One can you give us some thoughts on launching promoted listings in the future.
You talked in the letter about success around.
The you know the unpaid product the recommendations, but turning that into a paid product longer term and secondly interest industry stores seems like a terrific idea positioning the company did disrupt agency in consulting businesses. However, the sellers of these services tend to be more specialized do you think you'll be more difficult to add sellers burst.
As a traditional gigs that you've done in the past and do you think you need to spend.
To market to those sellers relative to you know the historical seller growth has been organic thanks.
Hey, Jason Thank you for the question.
So we didnt mention promoted listings and this is a protocol. We are excited about it is getting to make even in hopefully we will be able to start speaking about Iceland, we're going to start piloting.
Again, I think what were Oh, we're making sure that but it's important that we get right.
Oh, we spend a lot of time with other company larger market basis that Oh introduced promoted listing in about two years.
I think we've learned a lot from very very well.
One of the thing that we've learned.
I was too [laughter] fully integrate and open mind such as it's been.
Pick up through year end.
And so what we want to make sure we want to make sure that we come we launched the pilots with a high quality products into making so so this is something that I'm sure. We're going to talk about into next couple of quarters.
And in definitely this is something Dodd with contributes to our sellers at BP to promote themselves, but also generate a product.
To be complement.
To our take rate.
Your second question was a was the industry stores.
I think here well, it's really or do you understand if it the way we think about industry story is open time.
You would find a little different category that our top under very different verticals.
So for specific customers that have multiple need.
It might be inconvenient to find them around the mark.
We think the example of.
Okay any the gating store. So you have to developing side you will see the economy can give it seems like music.
Well it seems like a streaming and support each one of the category.
<unk> or even under needs a different vertical and do you have you heard the industry to hurt was really to jewelry.
A lot of these categories in sometime in <unk>.
As we as we introduced the beat the street door to make it very convenient very efficient.
Where customers are coming from dot industry, you find everything they need and to get inspired about things that they didn't even know existed on our marketplace.
[laughter] ever be needed.
We need different supply than what we how we do have.
[laughter] Bieschin high quality specialized supplied the industry store allows them to actually put a spotlight.
On top.
Thank you.
The next question will come from Nick Jones of Citi.
Hi, Thank you for taking the questions I guess, a first you mentioned you know you spoke to launched two new languages and the first quarter, probably 20, how should we think about.
The investment after you launch those languages I mean do you start a little.
Specific cities, and then kind of roll out in certain countries or can you be more aggressive next year.
And it kind of rolling out additional.
Countries.
Hey, Nick Thanks, a question.
So so really the idea is to you to introduced two new languages I think that's what we're fortunate right now he is talking about privacy Oh learning from our experience in Germany to understand how much a little bit DVD do we need in every country.
Well, we invest in is to maintain our then just localizing the five.
Why do you didn't the marketing area, which means.
We do get the human economy over the country to know we can be efficient on marketing.
Great.
And secondly.
Branding and community.
It was fiber either community powered marketing, it's all about our freelancers and businesses stuff work with them.
So do you do a few these are the the minimum Oh excuse me that we do within a country.
And we'll decide if we want to risk burping.
Some of our branding work into these countries as well he is.
As we were talking about the people who is the one we feel confident or the confidence in our thing that they do build huh.
To introduce or get into more countries sector.
Got it and one one follow up I'm on the industry stars.
The kind of the political campaign industry Star, maybe that is that kind of opportunistic going into 2020.
In the U.S. and then you know can we expect additional industry stars to kind of roll out quickly and how should we think about that I mean, the political industry star seems similar to kind of.
A media site.
What are kind of like he puts and takes into how you're thinking about rolling out additional industry stores. Thanks.
Picture that question, so to see Electioneer and we've been we've been in that scenario before and we know there's a little bit computers are you didn't say oh for their need.
And and so each would you just made sense to make their life easier. So we view redid the rights categories the right services.
For political can pay eight years to make dot easier and I think as I've mentioned, the ideal indices dorky something that you're seeing.
Seeing more about in the future.
We haven't given its specific targets for the number of industry store.
It's not a T I, a basically were ever we see dot there's an industry, we didn't need in which we can in 13 creep.
Or improve the experience of finding what they need we will introduce one it onto the you just be stores have been being very careful in the sense not the categories that appear within the industry or I've seen and uplifting Directv.
So that gives us the are the tailwinds.
Thank you.
Got it thank you.
Once again, if you have a question. Please press Star then one our next question will come from Brad Erickson with Needham and company.
Hi, guys, thanks, or just a couple of follow up you mentioned a lot about the T. ROI here. This morning, a ball to looking at I guess just cost from new buyer that was probably down a lot year over year, just talk about the linear already in what we should expect to see related to capture going forward and then second I'm just.
Maybe remind us the cadence of new buyer adds we should be thinking about seasonality. Obviously just had a really strong quarter. There reason or reasons, why Q3 might be high versus a year or the year versus historical periods, where I think the beginning yet to be more of a high points a year.
<unk>.
Hey, Bob so.
So what do you actually experiences that they are out there do you have like coming shortly.
Yes, it's not necessarily that the cost a few bio long enough that the lifetime value on the spend on the marketplace.
Is going high as well so that the this is why the P.L. I've got two children I think that's the kind of the quality and the mill product, we intend to use I think nagel our moral.
That's on a I'm I'm big up on deduction.
And why we are focusing more business bio enable us to go up model to a while maintaining the vivia fishing.
And.
At the kind of me and one of the product up units economies they depend on indefinitely.
That's a you know when we when we look forward.
We plan to keep going up markets and a fish in a fish tend to be.
The four minutes that moccasins band together with with that conversion and open more China.
So that's that we plan to be to stay within the yeah why framework.
In terms of seasonality.
And the thing before I, usually in Q1.
We expect our investment because of market condition.
And then you're not dealing begin.
Oh, it's more or less more with the stabilized.
In terms of a return on investment.
[noise].
And this concludes our question and answer session.
I'll now turn the conference back over to management for any closing remarks.
Fit here when I just want to say, we appreciate everyone joining up a good morning, and now we look forward to speaking a few soon.
The greedy.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines have a great day.