Q3 2022 Fiverr International Ltd Earnings Call

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Thank you for your patience, everyone five our Q3 fiscal 2022 earnings conference call will begin shortly during the presentation. You will have the opportunity to ask a question by pressing star followed by one on your telephone keypad.

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Yeah.

Hello, everyone and welcome to the five at Q3 fiscal 2022 earnings Conference call. My name is Jay and I'll be coordinating your crude 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.

I would now like to turn the call I've got to Jim Jim Jim. Please go ahead.

Thank you operator, and good morning, everyone. Thank you for joining us on fibers earnings Cobra golf with the third quarter that ended September 30th 2022.

Joining me on the call today are me, how 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 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 factors section in fibers. Most recent form 20-F, and other filings with the SEC.

During the call, we'll be referring to some non-GAAP financial measures.

Completion of the non-GAAP financial measures to the most directly comparable GAAP measure is provided in earnings release, we issued today and on shareholder letter.

Each of which is available on our website at investors <unk> com.

And now I'll turn the call over to meet her.

Thank you Ginger and good morning, everyone and thank you for joining us today.

We're pleased to report strong results 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 market base.

That is improving our efficiency in buyer acquisition, optimizing our catalog and 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 target is also paying off.

Our Q3 adjusted EBITDA margin of seven 9% represents a 250 basis points improvement from Q2 with a strong gross margin of 82, 8% and cost savings 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 a global market base, where millions of buyers purchased digital services from our platform across over 550 category. This allowed us to detect the shifting macro conditions 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 F&B 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.

Gives us the ability to focus on long term value creation.

We are tremendously value the trust we have earned from you.

And we are committed to staying responsible and transparent with our shareholders.

Now all of this in my opinion is providing us with a great set up for future growth.

But 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 trend of moving towards freelancing is only growing according to our latest annual freelance economic impact report U S. 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 the Covid pandemic and in fact in recent months with inflation driving up the cost of living and a flurry of companies conducting live we saw a record level of sellers coming to our market base.

Now many of you have asked me why we havent seen the market base 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 hits first before full time hiring and oftentimes leads broader GDP trends.

That said freelancer demand is also expected to be the first to recover as we climb out of the downturn in the rebound.

Typically well have a bigger magnitude compared to full time employment and the GDP growth itself.

So the first part of the answer is it a matter of timing and we believe fiber will be the first to benefit from the upswing down the road.

The second reason is the gap between talent in businesses in terms of adopting freelancers.

As evident in our recent back to work survey businesses log behind freelancers in terms of willingness to embrace remote work and flexibility and 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 is $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 and the right time, and we expect significant tailwind for our business.

Now the strong flywheel inherent in fibers business model will allow us to benefit from those tailwind much more than others.

You've witnessed the significant uplift in scale, we experienced during the Covid cycle.

I am Super proud that we were able to hold onto 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.

Fibers, increasing wallet share is it.

What has 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 in either stuffing business to help you hire a contractor developer or put it monitor rather we want to provide businesses with the simplicity and nimbleness to engage with freelancers without the overhead of Onboarding contracting time trucking and compliance pink over there.

Difference between leased data centers versus a cloud computing solution.

Have much faster setup, much lower management overhead and much more scalability and flexibility.

We are already seeing many midsized companies using fiber solution extensively today.

Our cover story in the shareholder letter highlights how the head of our creative studio at a gaming company utilizes fiverr is a content generation hub leveraging services across voice over three D animation video project and banner ads design.

It's amazing to see how much productivity inefficiency fiber 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.

As a young entrepreneur there are only two ways to fill the 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 device still applies.

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 towards the future our up so look the unwavering.

With that I'll turn the call now to offer will walk you through our financial highlights.

Thank you Maria and good morning, everyone.

We delivered strong results in Q3 across all metrics.

Revenue up 82 point price median came.

Came in at the top end of our guidance when presenting even if it means.

11%.

Definitely EBITA was $6 6 million above the top end our guidance with.

With an adjusted EBITA margin of seven 9%.

We're able to improve our marketing efficiency strengthen our product focus to drive conversion and retention and continue to make progress going up market.

This benefited from the airlines and our coal marketplace and five of business.

The cost optimization exercise, we did in July also paid off allowing us to improve organization on the efficiency as a whole and accelerate our trajectory of long term adjusted EBITDA margin target of 25%.

Although adjusted EBITDA is also indicative of the strong cash flow, we generate and together with the healthy balance sheet demonstrates the strength of our business and provide us with a strong financial position to pursue.

Zero long term growth opportunities.

I think bayou, well $4 2 million up 3%.

We are encouraged to see active buyer comes stabilize especially given the large cohort size of the acquired in the past three years as well as the macro Edwin.

<unk> today.

The resilience of our active buyer reflect the Franco that'd be the in our marketplace.

Even in an uncertain environment like cloud.

I'm going to provide an essential platform for smbs to execute their digital strategy with speed and cost efficiency unmatched anywhere.

We also had strong execution on the new buyer growth from.

We saw improvement in marketing efficiency some of the work we did in pushing for scale and influence in China as well as more granular and campaign optimization contributed to the efficiency gain.

We also saw a nice uplift in traffic following our launch of the new brand campaign team up in August .

Lastly, I think coming out of the peak summer travel season provide some uplift for September and October activities Central buyer for Q3 was $262 <unk> up.

12%.

As we continue to make progress and going up market.

The number of buyers of spend over $10000 annually grew over 50% of people with it.

We continue to round up our offering and fiber business.

This includes our continuous investment in the quality of our business supply.

The action on the product and building targeted marketing from them.

This quarter, we also started rolling out some value added services.

Our business come from.

Border Balkan out in such an example that removes a lot when the critical friction and our customer experience, but also create additional revenue opportunities for them.

They could for the quarter was 30% in Q3, representing a year over year.

Expansion of 160 basis points.

This is consistent with our long term strategy, we believe our take rate will be sustainable.

With the modest upside overtime driven by value added services.

Promoted gig continues to expand its exposure on the marketplace, which now includes a recommendation colorful and mobile up listing.

Seller plus implemented a two tiered pricing model this quarter in order to expand adoption and allow more seller to take advantage of the advanced tools in the program.

Now, let's turn to guidance for the fourth quarter of 2022.

Revenue is expected to be 17, nine eight to $85 8 million representing growth of <unk>.

Two 8%.

Adjusted EBITDA is expected to be seven to 8 million, representing an adjusted EBITDA margin of 9% at the midpoint.

For the full year 2022.

We expect revenues to be in the range of 334 $340 million.

Presenting a growth of 12% to 14%.

Adjusted EBITDA is expected to be in the range of 22 to 23 million, representing an adjusted EBITDA margin of six 7% at the midpoint.

Our Q4 and updated full year revenue guidance are largely consistent with our previous outlook in August .

We do not have a vision on the macro assumption underlying the Q4 guidance and given the continued macro uncertainty we see.

Think it's for them to provide a guidance range.

Is a bit wider than our typical Q4 guidance.

The adjusted EBITDA guidance reflects our continued discipline and commitment to accelerate the path towards our long term adjusted EBITDA target of 25% to close I want to say that fiber is in a much stronger financial position compared to when we went public over three years ago, we have three final.

Joe in terms of revenue with a throne, adjusted EBITDA profitability and improvement of over 23 percentage points and.

And we enjoy strong cash flow and a healthy balance sheet.

We believe that the macro headwinds we are facing are temporary in nature.

I am confident that's.

We are well positioned to navigate through this macro cycle and we as a company are making prudent and smart investment.

To capture the exciting opportunity of shaping the future of work with that we'll now turn the call over to the operator for questions.

Thank you we will now start today's Q&A session. If you would like to ask a question. Please press star followed by one on your telephone keypad now if you changed your mind. Please press star followed by Chi.

Our first question today is from Doug Anmuth from Jpmorgan. Your line is now open.

Thanks for taking the questions.

You talked about getting more sales to existing buyers and so I'll spend per buyer up 12% on the quarter can you just talk about your efforts there.

So that includes growing up market as well and then just thinking more from a macro perspective, you talked about seeing the macro pressure early perhaps as early as March.

And then if you look back freelancing has come back somewhat quicker than the past or are you seeing any signs.

There were signs that perhaps greater supply.

Could help drive some more demand as well thanks.

Okay.

Hey, good morning, Yeah. Thanks for the question. So first on the spend per buyer. What we've seen is we saw an opportunity.

To do more acquisition in the later part of the quarter.

Those cohorts have been haven't had the opportunity to spend yet. So so this is why we've seen a slightly higher number than expected on the active buyer and and a slight.

Slightly lower on the spend per buyer is just because of that from market conditions. What we've seen is essentially.

It's all about June .

We started seeing some stabilization in the market, which actually continues into this quarter into a into October .

And I think that the first signs.

Can you you mentioned that we were one of the first to see that pretty early on the first signs that we're seeing now is we're seeing.

Probably.

Above usual trends on the supply side.

And this is very typical for us any supply comes first.

That is a result of both.

And they all which I think is just going to.

Drive our supply much more meaningfully in the next few quarters. If the currently will continue to happen because a lot of the people that were laid off.

Unlike before are facing with other companies that are in freeze, which means that some people are going to find themselves without option and I think that you know.

Or is it is a very viable.

A great option for them. So we're starting to see that on the supply side at some point, it's going to happen on the demand side that I in my opening remarks.

I did emphasize the fact that this is this is the sequence.

The timing it takes time for that cycle to hop in and sometimes companies.

Would cut back on freelancers first because it's variable expenses and it's easier to cut or not then been on full timers.

But over time as they need to meet their goals. The go to people are also going to be freelancers. So we're going to see that cycle coming in at this point. What we're seeing is stabilization. This is why we're I think we provided the guidance that we provided there's still a lot of uncertainty, which I think all of.

You have seen from many of your earnings in this season.

Theres a lot of uncertainty, it's very very hard to predict how Q4 is going to play out and then you know.

How that would be dropped or not into next year, but.

But essentially I think that we're gonna be we're going to be the first or one of the first to see that rebound and this is what I've stressed we have seen that during COVID-19.

And I think we'll see that again and there was something very important to stress, which is you know we were considered during COVID-19 to be one of the COVID-19 beneficiary, but this was not a coincidence we benefited from it because of the investment that we've done to be pre COVID-19 everything we've done with growing up market the investment in catalog Geo expansion and all of that.

Were areas, where we benefited tremendously during COVID-19 and this is exactly what we're doing now so we expect to be set up extremely well to enjoy that rebound.

Yeah.

Very helpful. Thank you for your call.

Okay.

Yeah.

Our next question today comes from Brad Erickson from RBC capital markets. Please go ahead.

Thanks, maybe just a follow on to that last comment you talked about the accelerated supply coming to the marketplace.

And I guess the question is could you add additional percentage points of growth upcoming if you are able to just improve utilization beyond just active buyer growth and spend per buyer.

Yeah.

Thank you Brad and good morning.

So in terms of unfulfilled demand.

That this is this is kind of a moving target.

And the reason is that the more we feel the supply side the more of a shift towards more professional offerings and supply the more we fill it.

Those who can actually perform more sophisticated and larger project so as the demand for that.

If there's if there's an offering we know how to match it with demand.

So I would I would like to think that when we look at matching and unfulfilled demand.

Pretty stable, meaning that the more supply we have the more demand we can talk to it.

And but.

But essentially the size of the catalog and the variety and the catalog allows us to have a relatively.

Think small degree of unfulfilled demand and demand grows with supply.

I said so before supply comes first so when we bring supply when we open new categories demand comms most of it organically very very fast.

And through our marketing machine and we know how to bring additional demand to it.

Got it got it thanks, and then just a follow up.

Take rate obviously continues to go up.

Where are you would you say on AD load for promoted listings and I guess should we just generally maintaining that trajectory here going forward any reasons why you know.

Great with increased faster or slower as a function of either promoted listings or other value adds you're including in there. Thanks.

Thank you. So so we're very happy with how promoted listings is growing and I think we've alluded to Dod we talked about this in previous quarters. We said that there is there is ample room to grow into and this this actually trickles down into take rate. So a lot of what you've seen the take rate.

So it's promoted listings and it's the added value services that we offer that's more buyers and sellers are enjoying we do believe that there's a there's a pretty long runway to build into these product and this is why we always say that there is there's always this modest.

<unk> room for improvement on the take rate and I think we've demonstrated very consistently over the past few quarters that this is the case.

Got it thanks.

Our next question comes from Matt Farwell from Piper Sandler. Please go ahead.

Thanks, guys. Congrats on the really strong execution here in this uncertain environment.

For my first question, taking a step back it's been a couple of months now since the cost realignment actions.

What are some of the biggest takeaways you have from those efforts either on execution culture product momentum anything there would be helpful. Thanks.

Hey, Matt Good morning, Thanks for the question.

So I think you know we were one of the first companies to actually do a cost saving and improving the cost efficiency.

Obviously, we've seen a very positive outcome out of it.

Should noted I should note that we haven't seen the full extent of that improvement given the fact that when for example, when when you do cut backs, where when you do layoffs.

That is being paid so it's not it's not fully you know it doesn't trickle down.

Through the P&L. So over time you you you wouldn't you wouldn't enjoy quote unquote this more.

Everything that we've done in terms of focusing on our core business without neglecting the strategic investments that we're doing are really focusing on the on the money, making parts of our machine improving them improving the way we do.

Our acquisition and our continued focus in high value buyers larger bars, the focus on fiber business all of that.

Obviously been contributing.

Both on the growth side and definitely on the efficiency side on the on the EBITDA side and cost side.

So all in all I think that from that perspective, obviously, we're very happy with the outcome and I think they've brought us to a good place where it also will allow us to accumulate cash. So we can be opportunistic when the market rebounds or show signals, where there is opportunity to go back into growth.

That is going to give us a lot of ammunition talks.

So all I can do that very effectively.

And I know you aren't providing 2023 guidance right now, but as we think about bigger picture product themes or macro dynamics. How are you just thinking about the major tailwind and headwind as we move over the next couple of quarters here.

Hey. This is this is all fell and I think you know as you said.

We're not we're not providing guidance at this point of time.

And there was a lot of fun certainly ahead of US both in terms of economics and go politics.

Yet to be said and I want to touch on two items. The first is.

The first is our EBITA.

Which we have control and plan.

Plan to maintain this past.

For long term EBITDA in front of me.

Full upside next year in terms of EBITDA.

So again despite the fact that this is another time to talk about guidance, we do feel confident with our ability.

To improve EBITDA next year.

Second the second comment on my end is more on the long term.

Given where we are in terms of number of active buyer, but also spend so by them.

We feel there is an infinite it's a blue Ocean ahead of us I'm not only on the SMB SMB and little Big organization.

I have much to accomplish and we think that as long as this economy.

Tons of stabilize.

And.

And get better I think that would be one of the company to enjoy significant uplift in growth both in terms of proxy by telephone by them.

Top line growth, though we are very positive.

And I think we'll navigate pretty well during this uncertain.

Uncertain period.

So that's kind of the the best guidance, we can provide for the 19th quarter to augmenting what I'll first say it on the on the product side.

I think that when we look at it that there is there's really two areas. One is the core business, where we continue to improve top of funnel efficiency improve conversion and retention, there's a lot to do.

In a true e-commerce market base, there theres a lot too.

Improved there and that also contributes to a toy even higher and stronger flywheel effect and.

And I think that even in a slowing macro environment. It's you know it really gives us an opportunity to look more inside and find those growth opportunities.

And the other area is really a hardware business.

So it's it's.

It's really continuing.

Continuing to build dark machine identify the customers that should be moved into fiber business. So we can we can give them a great service and we can also improve their engagement a lot of exciting work there.

And I think on our side one of the great sign. These when we look at the top of our funnel.

We have enough customers, we have enough customers that fiber business is a perfect fit for them and it's really it's really optimizing the ideals of identifying those segments and driving them into into fiber business, where they spend many multiple times are what what an average customer spends on hybrid.

Thank you.

Thanks, guys Congrats again.

Thank you.

Our next question today comes from Andrew <unk> from JMP. Your line is now live in.

Hi, guys. Good morning, and thanks for taking my questions.

You talked about stability within cohorts within the letter.

Sure why remains healthy and I think a 90% payback period. This last quarter can you just shed some additional light on what you're seeing in terms of existing buyer spend and just the consistency there versus past quarters.

And then I'm curious about the personal consumption of fiber is the letter I think mentioned, 75% plus of buyers come to fiber for business purposes.

It's the other side of that can you talk about the minority spend and that his personal what are people buying and is there an opportunity to lean into that thanks. So much.

Thanks for Andrew Thanks for the questions and good morning.

So it's the one cohort behavior.

I think that the message now is very consistent with what you've heard in previous earnings which is what we're seeing is we're seeing COVID-19 behavior being better than pre pandemic. It is not as good as the height of the pandemic.

But it is not going back to the levels of pre pandemic. So so essentially we're seeing good cohort behavior. When you see macro headwinds micro influencers, everyone. It influences new business and repeat business, but essentially the loyalty of our customers he's not he's not being hurt when they have a need they come to us.

And so and so that's that's kind of our view on on a cohort.

Second question was what's on our own business consumption versus private.

Remember that.

Every person who.

Comes to purchase something let's say you wrote a book any one someone who added that book or illustrate that book or.

I don't know if you do what you do a private project for a family or a friend.

That is your that is your personal persona.

But you also work somewhere so we've spent a lot of overlap of either people that our business buyers, but then they sometimes they use the platform also personal need.

That'd be whatever a hobby or something else.

And we've seen the other situation, which is someone would.

Start by coming in because they don't know they compose music in their free time.

But to get exposed to the euro.

The variety of the Internet's capital that we have and then become a business buyer overtime.

But we pointed out this.

Because we thought that this was a interesting.

0.2 or two sure.

Great. Thank you.

There are no further questions at this time I'll hand, you back over to Nisha cousins for closing remarks.

Thank you drew and thank you everyone for joining this morning, we look forward to seeing you in one of the conferences or Oh to speak in person.

And so you are next door next quarter. Thank you have a great day.

Yeah.

That concludes todays <unk> Q3 fiscal 2022 earnings Conference call. You May now disconnect your line.

Uh huh.

Uh huh.

Okay.

Okay.