1stdibs.Com Inc. Q1 2023 Earnings Call
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Good day, and thank you for sending by welcome to the first Dibs Dot Com first quarter 2023 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
To ask a question. During this session you will need to press star one on your telephone you will then hear an automated message advising you. Your hand this waste to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Kevin The bus have head of Investor relation.
<unk> and corporate development. Please go ahead.
Good morning, and welcome to first did the earnings call for the quarter ended March 31 2023.
And Kevin the buys head of Investor.
Relations and corporate development.
Joining me today are Chief Executive Officer, David Rosenblatt and.
And Chief Financial Officer, Tom Edgar Gina.
David will provide an update on our business, including our strategy and growth opportunities.
And Tom will review, our first quarter financial results and second quarter outlook.
This call will be available via webcast on our Investor Relations website at investors got first dibs Dot com.
Before we begin.
Please keep in mind that our remarks include forward looking statements, including but not limited to.
Statements regarding guidance and future financial performance.
Market demand.
Growth prospects.
Business plans.
Strategic initiatives.
Valuation of alternatives.
This is an economic trends, including e-commerce growth rates and our potential responses to them.
National opportunities and competitive position.
Our actual results may differ materially from those expressed or implied in these forward looking statements as a result of risks and uncertainties.
Including those described in our SEC filings.
Any forward looking statements that we make on this call are based on our beliefs and assumptions as of today and.
And we disclaim any obligation to update them, except to the extent required by law.
Additionally, <unk>.
During the call, we will present GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in today's earnings press release.
Which you can find out of your Investor Relations website, along with the replay of this call.
Lastly, please note that all growth comparisons on a year over year basis, unless otherwise noted.
I'll now turn the call over to our CEO David Rosenblatt.
David.
Thanks, Kevin Good morning, and thank you for joining us today.
We delivered first quarter <unk> and revenue at the midpoint of guidance and EBITDA margins at the high end of guidance.
Continuing to make progress against our long term objectives.
Headwinds in the luxury home goods market exacerbated by Comping against a record CMV quarter resulted in a disappointing first quarter growth rate.
We are working to reaccelerate growth, but we believe it will likely take some time before we see significant improvements.
Despite these headwinds supply growth and traffic growth continued and we made progress on our strategic initiatives.
Over the past few quarters, we've taken actions to reduce our expenses and improve our efficiency.
Our work here isn't finished because our growth outlook today is below what we anticipated at the start of the year.
We are evaluating additional steps to align our expenses with current demand.
<unk> through this challenging period to emerge with more growth vectors and improved cost structure and a stronger competitive position.
Digging into the quarter continued conversion headwinds and lower <unk> drove gmg declines.
Although luxury home goods demand was subdued marketplace supply remains robust with record seller acquisition double digit listings growth.
Near a record low churn.
Our annual seller survey indicates that first dibs as the top sales channels for our sellers after their showrooms.
Additionally, we're seeing a larger <unk> contribution from our influx of central sellers in 2022 modestly boosting take rates.
We're also pleased with continued traffic growth.
Our organic traffic mix increased to nearly 75% of total up several percentage points.
Due to continued SCO strengths and pulling back on performance marketing.
This is encouraging because more supply and more organic traffic our barometers of marketplace health.
We are also pleased to see jewelry continued to perform well with double digit order growth highlighting the benefits of operating across multiple verticals.
Though not yet large enough to offset macro softness our strategic initiatives continue gaining traction in the first quarter. We saw a record number of auction orders and record CMV from our French and German marketplaces.
Given our strong international supply physician scalable tech platform and encouraging international results to date, we plan to enter Italy, and Spain later in 2023.
Moving to operations. Our goal is to stabilize and then Reaccelerate GMB growth improving conversion, particularly for new buyers is our largest lever and top priority.
To accomplish this we are focused on four distinct tracks pricing personalization narrowing the conversion gap between U S and European customers and increasing app usage.
Of these we see the largest opportunity in pricing.
Unlike an automobile or smartphone.
Not always a clear market price for rare and unique items. Indeed, our user research suggests that the primary obstacles for new buyers to convert or their perception of price and a lack of pricing context.
For example is paying $3700 for vintage van Cleef and are upheld all hombre ring, a good deal or not.
Furthermore, in this market.
Higher sensitivity to price is elevated.
Our strategy is to leverage our decade, plus of proprietary transactional data to provide buyers and sellers more pricing transparency and advice.
We're doing this in three ways first by giving buyers richer pricing insights second by offering sellers more guidance on competitive pricing strategies, and lastly by boosting the visibility of listings representing compelling value.
For buyers, we launched new discovery experiences called shops.
Shops are dynamically generated pages that algorithmically aggregate, our most performance supply.
Historically listings and collections have seen higher engagement and sell through versus non collection items.
While it's early we are seeing positive results for example in December we introduced the design value shop, which highlights well priced items. This collection generated over $3 million of gmg in March despite representing less than 2% of overall listings.
Data points like this increase our confidence in our pricing hypothesis.
Shops reward sellers, who price their items competitively and regularly add items to the marketplace.
These behaviors drive seller's success and will continue to encourage them.
They also make it easier for buyers to discover great products in.
In addition to design values, we launched most saved items in February and new arrivals in April with more planned in the coming months.
We also introduced several pricing related features for sellers. For example, we added pricing guidance to item upload in early March this leverages historical sales data to provide pricing recommendation when sellers create a new lifting.
Throughout 2023 will increase coverage and proactively share insights with sellers. Additionally, pricing guidance has been incorporated into auctions listings.
While it's still early we are also exploring a number of different AI applications that could help to increase conversion and drive savings.
These areas include pricing guidance search and browse personalization.
So content creation and reducing manual workloads.
We are also making progress on our strategic initiatives.
<unk> marketplaces in France, and Germany posted strong traffic growth translating into record CMT.
Sessions from German and French IP addresses grew over 300%.
Furthermore.
Traffic continued growing over 220% in both markets.
Orders from Germany, and France, Ips grew 20% year over year, while orders on our localized marketplace grew over 10% sequentially.
To foster the growth of our international business. Our product team continues working on features to drive supply and demand in the second quarter, we will rollout localized seller tools and Italian.
Pilot of the program is already underway. Our objective is to accelerate the growth of highly sought after Italian supply.
Additionally, based on the encouraging results of our French and German sites, we plan to launch localized marketplaces in Italian and Spanish by the end of the third quarter.
Relative to our initial launches these markets will be faster and cheaper as we apply our learnings and leverage upfront infrastructure work from 2022.
For example.
It took about seven months to launch French and German sites, we expect that it will take about three months for Italian and Spanish despite having a smaller team.
We're also anticipating meaningfully lower translation costs compared to France, and Germany due to more efficient machine translation models and renegotiated rates.
Auctions continues to deliver on our priorities of buyer activation order growth and higher sell through.
Orders hit a record in the quarter growing approximately 10% sequentially.
Accounting for over 6% of the total.
During the quarter, our product development efforts focused on demand generation and refining item level pricing recommendations.
We expect these to help drive page views and bids.
On the supply side, our strategy is evolving to focus on a narrower set of the most performance supply.
Like specific categories of art and jewelry.
Additionally in January we also ran our first no reserve auction, which had the higher sell through of any of our monthly <unk>.
Turning to supply seller listings growth remained robust we ended the quarter with over 8100 seller accounts up nearly 50% while seller churn remains near record lows.
Additionally, listings grew 20% to over one 6 million items.
While demand remained soft we believe our supply growth signals growing relevance to our end markets.
Indeed, our recent seller survey indicated that first dibs as the top sales channel for our sellers after their showrooms. Furthermore.
For legacy sellers defined here as those joining the marketplace before 2022 first dibs is typically the primary sales channel.
Our goal is to aggregate the world's most beautiful items, regardless of where they are located.
While maintaining our high curatorial standards, because we're a marketplace of one of a kind items.
Since selection matters.
Growing supply improves marketplace liquidity drives traffic and deepen search results, creating new opportunities to transact.
In 2022, we introduced our central seller plan.
The subscription free peer with higher commissions, spurring, a strong year of seller acquisition and helping to reduce churn.
In 2023, we are focused on making this influx of new sellers successful in part by growing listing volumes and launching new data driven seller tools like pricing recommendations.
To this end in early March we launched the next evolution of this program introducing minimum inventory posting requirements for new with central sellers.
We know that sellers, who post more sell more and our goal with inventory minimums as to encourage engagement and drive sales.
Before I conclude I'd like to take a minute to welcome Ryan boat Shea, our new Chief product Officer.
Brian joined first Dibs in March following a decade at Google where he most recently led the product management organization for Google ads core experiences.
Higher to that Ryan oversaw business development and strategy for Google shopping and before that launched Groupon goods. He brings a strong understanding of online business models and monetization strategies.
We entered 2023 facing headwinds from subdued demand for luxury home goods, but continued gains in traffic seller acquisition and supply growth as.
As well as performance in out of home categories like jewelry give us confidence that we remain as important as ever to our buyers and sellers.
Our goal remains to be leaner and have more growth drivers when demand recovers.
I will now turn it over to Tom to review, our first quarter financial results and second quarter outlook.
Thanks, David we delivered first quarter G&P and revenue at the midpoint of guidance and adjusted EBITDA margins at the high end of guidance.
<unk> was $97 $1 million down 17% due to the soft demand for luxury Homegoods as a reminder, we're lapping record high <unk> from a year ago.
Conversion remained a headwind, particularly for new buyers more than offsetting continued traffic growth.
In addition, the mix shift to orders under $1000 that we saw in the fourth quarter continued.
These orders accounted for 46% of total orders in the first quarter up from 42% a year ago.
This trend is partially explained by auctions, which has a lower IOP, but it holds true even when excluding options. We believe this reflects a more cautious consumer amid macroeconomic uncertainty and some trading down.
Consumer and trade G&P decline at similar rates a departure from the past seven quarters, where trade outperformed.
As the luxury housing market has remained volatile we've observed that trade projects are taking longer to complete and that and buyers are becoming more price sensitive.
We have also seen instances of clients opting to spread out spending by planning for multiple smaller installations as opposed to one larger project.
Once again truly showed the best relative performance.
Jewelry orders grew 12% year over year in contrast demand for at home categories, like art vintage and antique furniture, and new and custom furniture, which account for the bulk of our GMB remains soft.
We ended the quarter with approximately 66400 active buyers down 7%. We expect this metric will remain choppy near term as we manage through a period of soft luxury home good demand.
On the supply side of the marketplace, we closed the quarter with over 8100 seller accounts up nearly 50%.
Additionally, there are now over $1 6 million listings on our marketplace up 20%.
While continued supply growth sets us up for long term success, the near term demand outlook for durables and luxury Homegoods is challenging accordingly, we remain focused on driving efficiency and improving productivity, while operating expenses were down 2% and head count was down 16%. Our work here isn't finished because.
Demand Disney evolving the way we expected at the beginning of the year, we're evaluating further cost reductions.
Turning to the P&L net revenue was $22 2 million down 17% on a pro forma basis net revenue was down approximately 14% when adjusted for the sale of design manager in June 2022.
Transaction revenue, which is tied directly to GMP, because approximately 70% of revenue with subscriptions, making up most of the remainder.
Take rates improved modestly due in part to growing <unk> contribution from our central sellers, which carry a higher commission rate.
Gross profit was $14 9 million down 21%.
Gross profit margins were 67% down from 71% a year ago.
Gross margins were negatively impacted by approximately a $5 million in amortization expense due to the acceleration of internal use software amortization related to our NFC platform, which was discontinued supporting in the quarter.
Excluding this onetime charge gross margins would have been approximately 69%.
Sales and marketing expenses were $9 8 million down, 17%, driven primarily by lower performance marketing spend consistent.
Consistent with the recent quarters, we pulled back on performance marketing and increased our efficiency thresholds to better align expenses with demand.
Sales and marketing as a percentage of revenue was 44% flat versus a year ago.
Technology and development expenses were $5 $8 million up 1% due to increased stock based compensation, partially offset by lower translation costs and lower salaries and benefits.
As a percentage of revenue technology development was 26% up from 22%.
General and administrative expenses were $8 1 million up 26%, primarily driven by increases in legal and professional service fees related to our strategic alternative expenses and stock based compensation.
Excluding the approximately $900000 in strategic alternative expenses general and administrative expenses were up approximately 12% year over year.
As a percentage of revenue general and administrative expenses were 37% up from 24%.
Lastly, provision for transaction losses were $1 4 million, 6% of revenue flat year over year.
Adjusted EBITDA loss was $5 3 million compared to a loss of $4 7 million last year. Adjusted EBITDA margin was a loss of 24% versus a loss of 18% last year.
Year over year change was driven primarily by negative operating leverage from lower revenue.
Moving on to the balance sheet, we ended the quarter with a strong cash cash equivalents and short term investment position of $155 million.
<unk> interest income increased to approximately $1 5 million up from roughly $50000 a year ago.
Turning to the outlook.
This reflects our quarter to date results and our forecast for the remainder of the period.
We forecast second quarter, GNP up 85 million to $92 million down 19% to 12%.
Net revenue of $20 1 million to $21 $3 million down 18% to 13%.
And adjusted EBITDA margin loss of 34% to 28%, primarily driven by lower revenue, resulting in negative operating leverage.
Our GMP guidance reflects a number of converging factors, including shifting consumer behavior ongoing economic uncertainty continued conversion headwinds and lower average order values.
Turning to adjusted EBITDA margins guidance reflects the fact that lower revenue is driving the substantial majority of the sequential decrease in EBITDA margins and a full quarter of annual merit increases.
To close we are in a period with limited visibility while comps ease moving throughout the year the macroeconomic environment remains difficult to handicap.
Given recent softer than anticipated demand, we will continue realigning our expenses.
When demand rebounds, our goal is to have more growth drivers and improved cost structure and a stronger competitive position.
Thank you for your time I'll now turn the call over to the operator to take your questions.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Our first question comes from Mark Mahaney with Evercore ISI. Your line is now open.
Okay. Thanks, two questions if I just look at the numbers.
You are guiding to for the June quarter, maybe at the optimistic end of the range. It implies that the year over year trends are the same or maybe even a little bit better is there anything that you've seen quarter to date that suggests that.
Sort of.
Stabilization or improvement in end market demand.
Hey, Mark it's David.
Listen I think overall, we're continuing to see both quarter to date and also in the first quarter essentially a continuation of the same kind of underlying drivers that we have seen before a positive and negative so on the positive side traffic strong supply our supply position is great retention is good as it's ever been.
Sub fees actually for the first quarter in the first quarter were flat sequentially for the first time in three quarters.
And our strategic strategic initiatives continue to make progress both auctions and international and on the downside. We saw a further deceleration of AAV that Hasnt changed and then similarly, the conversion rate while improving.
Sort of improving in the sense that it's not declining as fast and that rate of deceleration has improved it is still meaningfully negative and.
The biggest drag on performance. So overall I'd say not a fundamental change in any direction.
And then the second question is can you tell to what extent is this.
What you are looking at the demand trends. These are probably very representative of whats happening in the market is there any particular reason to think that you are.
Versus the category that you're underperforming or outperforming.
No not at all I mean that is actually how we based on the data that we've seen.
Our assessment as well both in terms of our comp and then also just commonsensical. So much of our business not all of it but so much of it is driven by luxury real estate and Thats, obviously under pressure the meaningful component of our business, that's not really driven by luxury real estate jewelry is performing pretty well I mean orders were up in the first quarter.
By double digits double digits.
But again thats only the minority of our business today. The majority is still driven by the macros in those macros.
We're producing an impact for us that we think is consistent with the market.
As a whole.
Okay. Thank you very much David.
One moment for our next question.
Our next question comes from Trevor Young with Barclays. Your line is open.
Great. Thanks first one just.
Results on the quarter the prior few quarters you'd come in at or above the high end of GMP guide, but this quarter coming in right down the fairway, even given the guide was given more or less two thirds of the way through the quarter can you just talk a little bit about the cadence throughout the quarter month on month.
And did things kind of deteriorated in March around some of the banking turmoil and has that persisted into April and then second one for Tom just on the gross margin I appreciate the commentary around that amortization charge just to clarify that's a one time charge and then does that 69 or 70% range a reasonable bogey going forward.
Yes. This is David.
Didn't see.
Relative to the overall performance of the quarter I mean, there's always variability month to month, we didn't see anything that was material.
Within the quarter in terms of the impact of the banking situation I mean look it's not it wasn't positive.
Hard to quantify the exact impact.
And I guess I would just leave it at that I don't know that we can kind of fairly attribute any change in performance to that specifically.
Tom on the gross margin side, yes.
Yes, so youre correct.
Discontinue of the NFC platform in the World.
<unk> recognized about $5 million and accelerated instead.
Internal use software it did have a 2% impact on gross margins for the quarter.
And yes, I think you can expect that.
We'll revert back to more normalized historic trends in gross margins going forward that is a onetime item.
Great. Thanks, and just one quick follow up on the strategic alternative cost realized in the quarter should we interpret that to mean that the strategic review with Allen and co is largely completed at this point.
We really can't I can't offer any commentary on that I mean, it's active and underway, but but beyond saying that we are committed to evaluating every possible alternatives. Both in terms of buy side M&A sell side M&A and.
We're working on our balance sheet.
To improve the shareholder value of the company there isn't much I can say.
Okay. Thanks, David Thanks, Tom.
One moment.
We have a question from Nick Jones with JMP Securities. Your line is open.
Great. Thanks for taking the questions two if I can the first one on <unk>.
If I have this right.
It did kind of accelerated declines year over year, but sequentially it actually increased.
Maybe these are the right levels for <unk>.
From here as we think about the rest of the year in <unk>.
Hey, Yes, I mean, so <unk>.
In the first quarter was down 8% year over year, which was an acceleration versus Q4 of Q4 was down 6%. What we're seeing is a decline in <unk> across all price tiers, which does suggest that it's primarily a macro phenomenon.
In addition to that the growing share of auctions auctions is about 6% of orders in Q1 and grew on an order basis sequentially, roughly a little bit more than 10% that does contribute to an auction that are of value is the value format and has a lower <unk> than the rest of the marketplace, but I.
I think primarily it.
As I said it is a market phenomenon.
Great. Thanks, and then I guess as you continue to add supply and listings, but demand remains strained is there any evidence that you are potentially diluting some of the stronger performing sellers as essentially add Marshall part of the platform, giving what demand there is more options.
Yes.
No we haven't seen that actually retention is as high as it's ever been in the history of the company.
Ultimately the most important metric for the satisfaction of sellers.
We so no we haven't seen that.
I think at the end of the day, what drives conversion more than anything else is the perception of value fair value and Thats why.
It's important for us to continue to make progress not just on our new auction platform, but also we've got a whole range of efforts around helping sellers price competitively relative to market clearing prices on one hand, and also arming sellers with better historical transactional data with which to.
And what we see is that.
When when that results in market based pricing the conversion rate is very strong. So for example, we added a collection, which we call design values.
Specifically highlights well price listings based on historical transactions for comparable items.
That collections generated over $3 million in Gms in March despite the fact that the items represented only 2% of our total supply. So that's where a lot of our energy is increasingly is around the communication of value as it relates to pricing.
Great. Thank you for taking the questions.
Thank you maam.
We have a question from Ralph <unk> from William Blair. Your line is open.
Hi, good morning, Thanks for taking my question.
You talked about pricing being the biggest lever, particularly tough macro providing more transparency and providing more to the buyers.
On that side as well as sellers.
Better pricing tools, and then maybe you had mentioned boosting value listings, maybe sort of talk about is this a newer initiative continuation of something you had been working on and then just any more color you can share that'd be great and I have a follow up.
Yes so.
That's something just to sort of start with first principles based on.
Consumer research has extensive consumer research that we've done and not surprisingly price both the belief that an item is too expensive and also.
Importantly, an inability to evaluate the list price given that these are one of a kind items is the biggest obstacle to conversion, especially among new buyers, who arent as familiar with the ability that we offer to negotiate.
So pricing has been a focus for I don't know a year and a half or so.
I think kind of our first initial offering to address that was auctions in auctions I think remains an important part of the story going forward. What's changing now is that we're beginning to leverage the historical transactional data that uniquely we have in this market.
To help to both help buyers negotiate better pricing by showing them historical.
Item pricing, our transactional pricing for comparable items on one hand, and using that same data to help sellers price more effectively. These are both things that we had never done before and there are new as of we began this we began to commercialize it probably about two quarters ago.
And again as I mentioned in the example of the design values collection, where we're able to scale that it has a meaningful and quick impact on CMV I think thats true in all markets, but of course as you point out it is especially true in a weak macro environment like the one we're in.
Great. Thanks, and then just you had mentioned trade projects taking.
A little bit longer.
Completing some clients spreading that out is that something new in the quarter or is it something that's continued or acceleration of that trend anything you can add there on tray would be great. Thank you.
Yes, I mean, certainly in the <unk>, it's new so over the last two years.
Trade has outperformed consumer that changed in the first quarter, where both trade and consumer had similar growth rates and we expect that consumer will grow faster than trade over the coming quarters and.
I think thats again for a very straightforward reason trade as <unk>.
Proxy.
The end of the luxury commercial luxury real estate residential market and.
That state is not great right now so thats reflected in and trade purchasing.
Great. Thank you.
One moment our next question.
Our next.
Comes from Curtis Nagle with Bank of America. Your line is open.
Good morning, Thanks for taking the question.
I guess a quick update on.
Jimmy attributable to auctions in international I know you had mentioned that orders.
Could you say about 6%, but in terms of how.
Those two.
New categories translate to gmg.
Where is that now.
Should we expect that to be by end of the year. It feels like it's around low single digits combined but.
Any any color that would be very helpful.
Yes, so we don't break out the percentage of <unk> that is attributable to both of those initiatives. What I can say is we're happy with with where both of them are not satisfied.
But happy so on auctions like I said the primary driver on auction is.
Conversion, specifically new buyer conversion.
There, we're seeing we're seeing a positive impact and as I mentioned in order to grow sequentially was up over 11% <unk> from auctions was down sequentially because that order growth was offset by <unk>.
<unk> declines again those declines given the fact that auctions is by definition a value product is something that we we.
That weakness and <unk>.
Of course over time, we are investing to grow <unk> and we expect that order volume will offset those declines internationally. Similarly, we're pretty happy with where the progress today. So.
As you May remember, we launched our first two non English language markets.
In France in Germany in the summer last year, and Q1, we had organic traffic growth of over 200% year over year and like I mentioned double digit order growth based on the successful experience. There we're going to launch our next two largest international markets, which are Italy and Spain.
We anticipate doing that before the end of the third quarter.
We're hopeful that we'll see similar results there as well we have yet to put paid behind these markets in a major way.
But again, we're very happy with with the organic.
<unk> that we've seen to date.
Okay, Great and then just a quick modeling question just how to think about.
G&A dollars.
We're <unk> in the rest of the year and presumably.
EBITDA does not include any.
Additional cuts is that correct.
Hey, this is Tom so on the <unk> side, we gave the guidance for Q1, we don't really guide to full year.
On the expense side of things.
EBITDA does not anticipate.
Any major cost actions in Q2.
Again, we did talk about.
<unk>.
<unk>.
Adjusting our expense structure to reflect our.
Current demand.
And we are looking at all items.
On the expense side to adjust to that.
Across the board.
But right now our guidance does not anticipate.
Large changes to our to our expense structure in Q2.
Okay. Thanks I appreciate it.
Okay. Thank you and I'm showing no further questions. This concludes today's conference call. Thank you for participating you may now disconnect.
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