Q2 2024 1stdibs.Com Inc Earnings Call
David Rosenblatt, Unknown Executive, Thomas Etergino, David Rosenblatt, David Rosenblatt, [inaudible]
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Unknown Executive: Hello everyone, and welcome to FirstDibs.com, 2nd quarter 2024 Ernie's conference call. We note that this call is being recorded. As of right now, everyone is joined on you to avoid any background noise.
Speaker Change: Hello everyone, and welcome to 1Stdibs.com's 2nd Quarter 2024 Earnings Conference Call. Please note that this call is being recorded. As of right now, everyone is joined on mute to avoid any background noise.
Unknown Executive: Later on, you'll have the opportunity to ask questions to our presenters, but pressing the start one on your telephone keypad. That's all we need to go through for now.
Speaker Change: Later on, you'll have the opportunity to ask questions to our presenters by pressing the star 1 on your telephone keypad.
Kevin LaBuz: I'd like to hand over the call to Kevin LaBuz. Head of IR, you may now begin.
Speaker Change: That's all we need to go through for now. I'd like to hand over the call to Kevin LaBuz, Head of IR. You may now begin.
Kevin LaBuz: Good morning, and welcome to FirstDibs Ernie's call for the quarter ended June 30th, 2024. I'm Kevin LaBuz, head of investor relations and corporate development. Joining me today are Chief Executive Officer David Rosenblatt and Chief Financial Officer Tom Etergino. David will provide an update on our business, including our strategy and growth opportunities, and Tom will review our second quarter financial results and third quarter outlook. This call will be available via webcast on our Investor Relations website at investors.firstibs.com.
Kevin LaBuz: Good morning and welcome to 1Stibs' earnings call for the quarter ended June 30th, 2024.
Kevin LaBuz: I'm Kevin LaBuz, Head of Investor Relations and Corporate Development.
Speaker Change: Joining me today are Chief Executive Officer David Rosenblatt and Chief Financial Officer Tom Etergino.
Speaker Change: David will provide an update on our business, including our strategy and growth opportunities.
Tom Etergino: And Tom will review our second-quarter financial results and third-quarter outlook.
Speaker Change: This call will be available via webcast on our investor relations website at investors.1stdibs.com.
Kevin LaBuz: 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, business and economic trends, including e-commerce growth rates, but our potential responses to them, international opportunities, and competitive positions. 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 we just claim any obligation to update them, except to the extent required by law.
Speaker Change: Before we begin, please keep in mind that our remarks include forward-looking statements, including, but not limited to.
Tom Etergino: Statements regarding guidance and future financial performance.
Speaker Change: Market Demand
Speaker Change: Growth Prospects.
Speaker Change: Business Plans
Speaker Change: Strategic Initiative.
Speaker Change: Business and economic trends, including e-commerce growth rates, and our potential responses to them.
Speaker Change: International Opportunities and Competitive Positions.
Speaker Change: Our actual results may differ materially from those expressed or implied in these forward-looking statements as a result of risk and uncertainty.
Speaker Change: including those described in our SEC filings.
Speaker Change: Any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them, except to the extent required by law.
Kevin LaBuz: Additionally, during the call, we will present gap 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 on our investor relations website along with the replay of this call.
Speaker Change: Additionally, during the call, we will present GAAP and non-GAAP financial measures.
Speaker Change: A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release.
Speaker Change: which you can find on our Investor Relations website, along with the replay of this call.
Kevin LaBuz: Lastly, please note that all growth comparisons are on a year-over-year basis unless otherwise noted.
Speaker Change: Lastly, please note that all growth comparisons are on a year-over-year basis unless otherwise noted.
Kevin LaBuz: Now, turn the call over to our CEO, David Rosenblatt. David?
David Rosenblatt: Thanks, Kevin.
Speaker Change: I'll now turn the call over to our CEO , David Rosenblatt. David.
David Rosenblatt: Good morning, and thank you for joining us today. In the second quarter, we deliver GMVN revenue at the high end of guidance and adjusted EPA margins above the high end. Moreover, we are pleased to report a return to growth after eight challenging quarters, marking a significant turning point for the business. In addition, we recorded a number of positive developments over the past quarter: a sequential increase in the number of active buyers for the accelerating order growth and ongoing adjusted EBITDA margin improvements. Growing GMVN revenue at a time when syndicated credit card data shows that the broader online furniture and premium furnishings markets are contracting is validation that our strategy is working.
David Rosenblatt: Thanks, Kevin. Good morning, and thank you for joining us today.
Speaker Change: In the second quarter, we deliver GMV and revenue at the high end of guidance and adjusted EBITDA margins above the high end.
Speaker Change: Moreover, we are pleased to report a return to growth after eight challenging quarters, marking a significant turning point for the business.
Speaker Change: In addition, we recorded a number of positive developments over the past quarter, a sequential increase in the number of active buyers for the first time since late 2021.
Speaker Change: Improving conversion for both new and returning buyers, accelerating order growth, and ongoing adjusted EBITDA margin improvements.
Speaker Change: Growing GMV and revenue at a time when syndicated credit card data shows that the broader online furniture and premium furnishings markets are contracting is validation that our strategy is working. It also shows that cost reductions have not come at the expense of growth.
David Rosenblatt: It also shows that cost reductions have not come at the expense of growth. The actions we took in 2022 and 2023 to lay the groundwork for future financial success. Streamlining operations, re-engineering costs, and narrowing our focus to the highest ROI opportunities continue to pay off. Increasing conversion is our highest leverage activity, and we are pleased to report the third consecutive quarter of conversion rate growth. Returning buyer conversion hit a record high, and new buyer conversion grew double digits. Even with this progress, there is significant headroom to increase conversion, grow orders, and expand our active buyer base.
Speaker Change: The actions we took in 2022 and 2023 to lay the groundwork for future financial success, streamlining operations, re-engineering costs, and narrowing our focus to the highest ROI opportunities continue to pay off.
Unknown Executive: Increasing conversion is our highest leverage activity, and we are pleased to report the third consecutive quarter of conversion rate growth. Because home sales are a trigger for furniture purchases, we expect a benefit as the luxury housing market recovers in the future. Third, approximately two-thirds of our GMV is furniture, a category which saw a substantial demand pull forward during the pandemic. As the leader in our category, we expect to benefit disproportionately when market growth resumes.
Speaker Change: Increasing conversion is our highest leverage activity, and we are pleased to report the third consecutive quarter of conversion rate growth.
Speaker Change: Returning buyer conversion hit a record high and new buyer conversion grew double digits.
Speaker Change: Even with this progress, there is significant headroom to increase conversion, grow orders, and expand our active buyer base. We are optimistic for three reasons.
David Rosenblatt: We are optimistic for three reasons. First, conversion rates in the second quarter were approximately 20% below their peak at the height of the pandemic e-commerce boom. Over time, we believe that conversion can exceed this high watermark, achieving record returning by our conversion rates in the second quarter offers an early proof point. Second, US luxury home sales are still more than 10% below pre-pandemic levels, according to data from Redfin. Because home sales are a trigger for furniture purchases, we expect to benefit as the luxury housing market recovers in the future. Third, approximately two-thirds of our GMV is furniture.
Speaker Change: First, conversion rates in the second quarter were approximately 20% below their peak at the height of the pandemic e-commerce boom.
Speaker Change: Over time, we believe that conversion can exceed this high watermark. Achieving record returning buyer conversion rates in the second quarter offers an early proof point.
Speaker Change: Second, U.S. luxury home sales are still more than 10% below pre-pandemic levels, according to data from Redfin.
Speaker Change: Because home sales are a trigger for furniture purchases, we expect a benefit as the luxury housing market recovers in the future.
David Rosenblatt: A category which saw a substantial demand pull forward during the pandemic. However, furniture is a durable good with a replacement cycle. While purchases can be deferred, they cannot be deferred indefinitely. As we move further away from the pandemic boom, we expect demand to build. We are improving performance in spite of the fact that the market has not recovered yet. The improvements we are making to the business in this period of soft demand position us well to maximize growth when the market recovers. Growth rates improved in the second quarter, with both GMV and revenue inflecting positively.
Speaker Change: Third, approximately two-thirds of our GMV is furniture, a category which saw a substantial demand pull forward during the pandemic.
Speaker Change: However, furniture is a durable good with a replacement cycle. While purchases can be deferred, they cannot be deferred indefinitely. As we move further away from the pandemic boom, we expect demand to build.
Speaker Change: We are improving performance in spite of the fact that the market has not recovered yet. The improvements we are making to the business in this period of soft demand position us well to maximize growth when the market recovers.
Speaker Change: Growth rates improved in the second quarter, with both GMV and revenue inflecting positively.
David Rosenblatt: Orders grew 5%, helped by continued conversion improvements and increased performance marketing investments, as targeting optimizations and higher conversion enabled us to increase investment while maintaining efficiency thresholds. Average order value and traffic remained headwinds to GMV growth, consistent with recent quarters. We expect further conversion gains and order growth in the third quarter. However, we anticipate that average order value headwinds will temporarily intensify due largely to lapping one-time factors from 2023 that Tom will detail. Returning to funnel dynamics, traffic headwinds were stable sequentially with performance marketing optimizations and higher performance marketing investment, offsetting softer organic traffic. We ended the quarter with approximately 70% of traffic from organic sources and 30% from paid.
Speaker Change: Orders grew 5%, helped by continued conversion improvements and increased performance marketing investments, as targeting optimizations and higher conversion enabled us to increase investment while maintaining efficiency thresholds.
Speaker Change: Average order value and traffic remained headwinds to GMV growth, consistent with recent quarters.
Speaker Change: We expect further conversion gains and order growth in the third quarter. However, we anticipate that average order value headwinds will temporarily intensify, due largely to lapping one-time factors from 2023 that Tom will detail.
Tom Etergino: Returning to funnel dynamics, traffic headwinds were stable sequentially with performance marketing optimizations and higher performance marketing investment offsetting softer organic traffic.
Tom Etergino: We ended the quarter with approximately 70% of traffic from organic sources and 30% from paid.
David Rosenblatt: Our performance demonstrates that our revamped AB testing program and accelerated product velocity are paying dividends. The number of tests we ran in the second quarter grew over 150% a record high, helping drive order growth and conversion improvements. Our product roadmap is focused on these three areas: personalized and frictionless buying, competitive inventory pricing, and scalability. We made progress in all three areas during the quarter. For example, we scored our largest AB test win since revamping our program in mid-2023. In May, we expanded the First Dibs promise and tested promoting it more prominently. This resulted in higher checkout entry and checkout completion rates, ultimately generating more orders.
Tom Etergino: Our performance demonstrates that our revamped A-B testing program and accelerated product velocity are paying dividends. The number of tests we ran in the second quarter grew over 150%, a record high, helping drive order growth and conversion improvements.
Tom Etergino: Our product roadmap is focused on these three areas, personalized and frictionless buying, competitive inventory pricing, and scalability. We made progress in all three areas during this quarter.
Tom Etergino: For example, we scored our largest A-B test win since revamping our program in mid-2023. In May, we expanded the 1Stdibs promise and tested promoting it more prominently.
Tom Etergino: This resulted in higher checkout entry and checkout completion rates, ultimately generating more orders.
David Rosenblatt: We also made progress giving sellers actionable insights to drive conversion. In April, we introduced our seller recommendations page and listing optimization score features. The goal of these is to provide sellers with tactics to increase self-through based on our proprietary analytics and first-party transactional data. These recommendations include actions like add to sale, add automated offers, lower list price, and add to auction. To increase visibility, engagement, and adoption of our recommendations, we created a centralized recommendations page in the seller dashboard with an individual optimization score for each seller to prioritize recommended actions based on estimated conversion uplift.
Tom Etergino: We also made progress giving sellers actionable insights to drive conversion. In April , we introduced our Seller Recommendations page and Listing Optimization Score features.
Tom Etergino: The goal of these is to provide sellers with tactics to increase sell-through based on our proprietary analytics and first-party transactional data.
Tom Etergino: These recommendations include actions like add to sale, add automated offers, lower list price, and add to auction.
Tom Etergino: To increase visibility, engagement, and adoption of our recommendations, we created a centralized recommendations page in the seller dashboard with an individual optimization score for each seller to prioritize recommended actions based on estimated conversion uplift.
David Rosenblatt: Early results have been encouraging, with sellers who increase their account level optimization score seeing an increase in conversion, on average. We also made progress on our makeoffer flow, which represents a potentially rich vein to tap. Given the highly considered nature of our listings, many orders involved negotiations between buyer and seller. In fact, over 40% of orders originate as buyer-initiated negotiations. In tune, we completed our first makeoffer test. Our objective was to make this process more seamless, ultimately driving more orders and higher conversion. Based on our learnings from the June test, we have four additional makeoffer tests related for the coming months.
Tom Etergino: Early results have been encouraging, with sellers who increased their account level optimization score seeing an increase in conversion on average.
Speaker Change: We also made progress on our make-offer flow, which represents a potentially rich-veined ATAP.
Speaker Change: Given the highly considered nature of our listings, many orders involve negotiations between buyer and seller. In fact, over 40% of orders originate as buyer-initiated negotiations.
Speaker Change: In June , we completed our first make-offer test. Our objective was to make this process more seamless, ultimately driving more orders and higher conversion.
Speaker Change: Based on our learnings from the June test, we have four additional make-offer tests slated for the coming months.
David Rosenblatt: Conversion to the game of incremental improvements that compound and snowball over time. We believe our snowball is starting to gain momentum. We also scored a large infrastructure win, while we are constantly iterating on our buyer and seller experience. We are also committed to maintaining a stable, scalable infrastructure. During the quarter, our engineering team upgraded our routing infrastructure, which increased site speed and reduced error rates. Our pre-posts analysis suggests a double-digit latency improvement for our product and search and browse pages, making the site more performant. Over time, we expect to see this translate into higher organic traffic, conversion improvements, and more orders.
Speaker Change: Conversion is a game of incremental improvements that compound and snowball over time. We believe our snowball is starting to gain momentum.
Speaker Change: We also scored a large infrastructure win. While we are constantly iterating on our buyer and seller experience, we are also committed to maintaining a stable, scalable infrastructure.
Speaker Change: During the quarter, our engineering team upgraded our routing infrastructure, which increased site speed and reduced error rates.
Speaker Change: Our pre-post analysis suggests a double-digit latency improvement for our product and search and browse pages.
Speaker Change: Making the site more performant.
Speaker Change: Over time, we expect to see this translate into higher organic traffic, conversion improvements, and more orders.
David Rosenblatt: The net effect of these wins is that we exited the quarter with a better buyer experience, a better seller experience, and better performing infrastructure. Turning to supply, we continue to see consistent listing growth, ending the quarter with over 1.8 million listings, up 6%. As expected, we saw an uptick in the number of churned sellers due to our new pricing structure and inventory minimum requirements. This is a result of our decision in the fourth quarter of 2023 to revise our seller acquisition and monetization approach to focus on sellers with higher engagement. We are seeing this shift pay off in the form of higher take rates.
Speaker Change: The net effect of these wins is that we exited the quarter with a better buyer experience, a better seller experience, and better performing infrastructure.
Speaker Change: Turning to supply, we continue to see consistent listing growth, ending the quarter with over 1.8 million listings, up 6%.
Speaker Change: As expected, we saw an uptick in the number of churned sellers due to our new pricing structure and inventory minimum requirements.
Speaker Change: This is a result of our decision, in the fourth quarter of 2023, to revise our seller acquisition and monetization approach to focus on sellers with higher engagement
David Rosenblatt: We ended the quarter with approximately 7,450 unique sellers, down 5%. The majority of churn was initiated by us due to low engagement or performance on behalf of sellers we churned. In total, the churn cohort only accounted for approximately 50 basis points of GMV over the trailing 12 months and less than 2% of listings. While we anticipate some volatility in unique seller accounts through 2024, as we lap inventory minimums and pricing changes, we expect continued listing growth.
Speaker Change: We are seeing this shift pay off in the form of higher take rates.
Speaker Change: We ended the quarter with approximately 7,450 unique sellers, down 5%.
Speaker Change: The majority of churn was initiated by us due to low engagement or performance on behalf of sellers we churned.
Speaker Change: In total, the CHIRN cohort only accounted for approximately 50 basis points of GMV over the trailing 12 months and less than 2% of listings.
Speaker Change: While we anticipate some volatility in unique seller count through 2024 as we lap inventory minimums and pricing changes, we expect continued listing growth.
David Rosenblatt: We also made significant strides on the capital allocation front, completing our $25.2 million share repurchase program in June. We believe that this will be a creative and the long run, given the size of our opportunity, the fact that we are well positioned to capitalize on the market recovery, and that we executed the program at a discount to our assessment of intrinsic value. While the luxury home furnishings industry is still contracting, we are hopeful that the worst of the down cycle for this market segment is now behind us. As a leader in our category, we expect to benefit disproportionately when market growth resumes.
Speaker Change: We also made significant strides on the capital allocation front, completing our $25.2 million share repurchase program in June .
Speaker Change: We believe that this will be accretive in the long run, given the size of our opportunity, the fact that we are well positioned to capitalize on a market recovery, and that we executed the program at a discount to our assessment of intrinsic value.
Speaker Change: While the luxury home furnishings industry is still contracting, we are hopeful that the worst of the down cycle for this market segment is now behind us.
Speaker Change: As the leader in our category, we expect to benefit disproportionately when market growth resumes.
David Rosenblatt: Our roadmap is focused squarely on this. The progress we have made on conversion, orders, and top line growth, signify that our roadmap and strategy are bearing fruit. Given the operating leverage in our model, returning to growth was the first step towards profitability. Our mission now is to accelerate and sustain growth, improve margins, and ultimately generate growing free cash flow. While this will play out over years, we are encouraged by recent progress.
Speaker Change: Our roadmap is focused squarely on this.
Speaker Change: The progress we have made on conversion, orders, and top-line growth signify that our roadmap and strategy are bearing fruit.
Speaker Change: Given the operating leverage in our model, returning to growth was the first step towards profitability.
Speaker Change: Our mission now is to accelerate and sustain growth, improve margins, and ultimately generate growing free cash flow.
David Rosenblatt: Thank you for your continued support.
Speaker Change: While this will play out over years, we are encouraged by recent progress.
Tom Etergino: I will now turn it over to Tom to review our second quarter of financial results and third quarter outlook. Thanks, David. We delivered GMB and revenue at the high end of guidance and adjusted EBITDA margins above the high end. We also returned to top line growth for the first time in two years. GMB was $91.5 million, up 2% with growth rates increasing 7 percentage points sequentially. While we continue to see soft demand for luxury home goods and syndicated data suggests that the broader online furniture and premium furnishings markets are contracting, we believe that the worst of the down cycle is now behind us.
Speaker Change: Thank you for your continued support. I will now turn it over to Tom to review our second quarter financial results and third quarter outlook.
Tom Etergino: Thanks, David. We delivered GMB and revenue at the high end of guidance and adjusted EBITDA margins above the high end. We also returned to top-line growth for the first time in two years.
Tom Etergino: GMV was $91.5 million, up 2%, with growth rates increasing 7 percentage points sequentially.
Tom Etergino: While we continue to see soft demand for luxury home goods and syndicated data suggests that the broader online furniture and premium furnishings markets are contracting, we believe that the worst of the down cycle is now behind us.
Tom Etergino: GMB growth was propelled by double-digit conversion gains offset by continued traffic and average order value headwinds. And, courageingly, this was our second consecutive quarter where conversion increased for both new and returning buyers, and the third consecutive quarter of overall conversion growth. Going deeper, returning buyer conversion hit a record high, and new buyer conversion grew double digits year over year. We are confident in our roadmap and see ample headroom to increase conversion rates over time. This confidence is bolstered by the recent success of our AB tests and newly launched product enhancements. Average order value of approximately $2,700 was down 3%; median order value of approximately $1,200 was down 2%.
Unknown Executive: GMV growth was propelled by double-digit conversion gains, offset by continued traffic and average order value headwinds. Encouragingly, this was our second consecutive quarter where conversion increased for both new and returning buyers, and the third consecutive quarter of overall conversion growth. Going deeper, returning buyer conversion hit a record high, and new buyer conversion grew double-digits year-over-year. General administrative expenses were $6.9 million, down 8%, driven primarily by lower rent expense attributable to the sublease of our former headquarters at 51 Astor Place and lower insurance costs, partially offset by the impact of the annual merit increase awarded in March and severance expenses. Adjusted EBITDA margin was a loss of 7% versus a loss of 22% last year due to savings from cost reductions and a return to revenue growth.
Tom Etergino: GMV growth was propelled by double-digit conversion gains offset by continued traffic and average order value headwinds. Encouragingly, this was our second consecutive quarter where conversion increased for both new and returning buyers and the third consecutive quarter of overall conversion growth.
Tom Etergino: Going deeper, returning buyer conversion hit a record high, and new buyer conversion grew double digits year over year.
Tom Etergino: We are confident in our roadmap and see ample headroom to increase conversion rates over time. This confidence is bolstered by the recent success of our A-B tests and newly launched product enhancements.
Tom Etergino: Average order value of approximately $2,700 was down 3%. Median order value of approximately $1,200 was down 2%.
Tom Etergino: Similar to the first quarter, we saw a slight makeshift to orders under $2,000. Lastly, orders over $100,000 accounted for approximately 4% of GMB, in line with our historical range of 3-5%. Consumer GMB and trade GMB grew at similar rates, with trade returning to growth for the first time since mid-2022. Turning to verticals, are the fashion and vigilant and antique furniture all posted GMB growth. We ended the quarter with approximately $61,200 active buyers, down 6% year over year but up 1% sequentially. Because active buyers are a trailing 12-month metric, they are a lagging indicator. However, we see order growth as a leading indicator of future active buyer growth.
Tom Etergino: Similar to the first quarter, we saw a slight makeshift to orders under $2,000. Lastly, orders over $100,000 accounted for approximately 4% of GMV, in line with our historical range of 3 to 5%.
Tom Etergino: Consumer GMV and Trade GMV grew at similar rates, with trade returning to growth for the first time since mid-2022.
Tom Etergino: Turning to Verticals, Art, Fashion, and Vintage and Antique Furniture, all post-GMV growth.
Tom Etergino: We ended the quarter with approximately 61,200 active buyers down 6% year-over-year but up 1% sequentially.
Tom Etergino: Because active buyers are trailing 12-month metric, they are a lagging indicator.
Tom Etergino: On this point, we expect continued order growth in the third quarter based on quarter-to-date trends. On the supply side of the marketplace, we closed the corridor with approximately 7,450 unique sellers, down 5%. However, we experienced steady listings growth engine quartered with over 1.8 million listings, up 6%. The decline of the number of unique sellers was due to higher than usual churn, the majority of it initiated by us related to recent policy changes. This churn had a de minimis impact on GMV and listings. While we anticipate some volatility to unique seller counts in 2024 as we cycle to the introduction of inventory minimums, changes to commissions, and the launch of monthly minimum subscription fees, we expect persistent listings growth throughout the year.
Tom Etergino: However, we see order growth as a leading indicator of future active buyer growth. On this front, we expect continued order growth in the third quarter based on quarter-to-date trends.
Tom Etergino: On the supply side of the marketplace, we closed the quarter with approximately 7,450 unique sellers down 5%. However, we experienced steady listings growth, ending the quarter with over 1.8 million listings up 6%.
Tom Etergino: The decline of the number of unique cells was due to higher-than-usual churn, the majority of it initiated by us, related to recent policy changes. This churn had a de minimis impact on GMV and listings.
Tom Etergino: While we anticipate some volatility to unique seller counts in 2024 as we cycle through the introduction of inventory minimums, changes to commissions, and the launch of monthly minimum subscription fees, we expect persistent listings growth throughout the year.
Tom Etergino: Turning to the P&L, net revenue was $22.2 million, up 6%, marking the first quarter of revenue growth since early 2022. Transaction revenue, which is tied directly to GMV, was approximately 75% of total revenue, with subscriptions making up most of the remainder. Take rates improved modestly due to a combination of several factors, including a higher proportion of orders below our $25,000 commission rate, growing GMV contribution from the central sellers, which carry a higher commission rate, and a revised commission rate structure that went into effect late in the fourth quarter of 2023. Gross profit was $15.9 million, up 9%, driven by revenue growth and cost reductions.
Tom Etergino: Turning to the P&L, net revenue was $22.2 million, up 6%, marking the first quarter of revenue growth since early 2022. Transaction revenue, which is tied directly to GMV, was approximately 75% of total revenue, with subscriptions making up most of the remainder.
Tom Etergino: Take rates improved modestly due to a combination of several factors, including higher proportion of orders below our $25,000 commission break, growing GMV contribution from essential sellers, which carry a higher commission rate, and a revised commission break structure that went into effect late in the fourth quarter of 2023.
Tom Etergino: Gross profit was $15.9 million up 9%, driven by revenue growth and cost reductions.
Tom Etergino: Gross profit margins were 72%, up approximately 2% of its points, primarily driven by lower headcount related expenses as a result of our restructuring initiatives, partially offset by the impact of the annual merit increases awarded in March. Sales and marketing expenses were $9.3 million, down 5%, driven by lower headcount-related expenses as a result of our restructuring initiatives, partially offset by higher performance marketing investment, and the impact of the annual merit increases awarded in March. Sales and marketing as a percentage of revenue was 42%, down from 47% a year ago. Technology development expenses were $5.5 million, down 21%, driven by lower headcount-related costs as a result of our restructuring initiatives, partially offset by the impact of the annual merit increases awarded in March.
Tom Etergino: Gross profit margins were 72%, up approximately 2 percentage points, primarily driven by lower headcount-related expenses as a result of our restructuring initiatives, partially offset by the impact of the annual merit increases awarded in March.
Tom Etergino: Sales and marketing expenses were $9.3 million down 5%, driven by lower headcount-related expenses as a result of our restructuring initiatives, partially offset by higher-performance marketing investment and the impact of the annual merit increases awarded in March.
Tom Etergino: Sales and marketing as a percentage of revenue was 42% down from 47% a year ago.
Tom Etergino: Technology development expenses were $5.5 million, down 21%, driven by lower headcount-related costs as a result of our restructuring initiatives, partially offset by the impact of the annual merit increases awarded in March.
Tom Etergino: As a percentage of revenue, technology development was 24%, down from 33%. General administrative expenses were $6.9 million, down 8%, driven primarily by lower rent expense, attributable to the sub-lease of our former headquarters at 51 After Place and lower insurance costs, partially offset by the impact of the annual merit increase awarded in March and 7's expenses. As a percentage of revenue, general administrative expenses were 31% down from 36%. Lastly, provision for transaction losses were approximately $800,000, 4% of revenue, flat year over year. We continued to manage operating expenses with this point. Total operating expenses were $22.4 million, down 10%, reflecting the benefit of cost reductions.
Tom Etergino: As a percentage of revenue, technology development was 24% down from 33%.
Tom Etergino: General administrative expenses were $6.9 million down 8%, driven primarily by lower rent expense attributable to the sublease of our former headquarters at 51 Astor Place and lower insurance costs, partially offset by the impact of the annual merit increase awarded in March and severance expenses.
Tom Etergino: As a percentage of revenue, general administrative expenses were 31% down from 36%.
Tom Etergino: Lastly, Provision for Transaction Losses were approximately $800,000, 4% of revenue, flat year over year.
Tom Etergino: Adjusted EBITDA was a loss of $1.6 million, compared to a loss of $4.6 million last year. Adjusted EBITDA margin was a loss of 7% versus a loss of 22% last year, due to savings from cost reductions and a return to revenue growth. This was our best result as a public company for adjusted EBITDA dollars and margins. During the second quarter, adjusted EBITDA benefited by approximately $250,000 in favorable one-time items regarding our lease and the conclusion of a sales tax audit. Moving on to the balance sheet, we entered the quarter with a strong cash, cash equivalence, and short-term investments position of $111 million.
Tom Etergino: Adjusted EBITDA was a loss of $1.6 million compared to a loss of $4.6 million last year.
Tom Etergino: Adjusted EBITDA margin was a loss of 7% versus a loss of 22% last year due to savings from cost reductions and a return to revenue growth.
Tom Etergino: This was our best result as a public company for adjusted EBITDA dollars and margins.
Tom Etergino: During the second quarter, Adjusted EBITDA benefited by approximately $250,000 in favorable one-time items regarding our lease and the conclusion of a sales tax audit.
Tom Etergino: Moving on to the balance sheet, we ended the quarter with a strong cash, cash equivalents and short-term investments position of $111 million. The sequential decline was largely driven by our share repurchase program.
Tom Etergino: The sequential decline was largely driven by our Sherry Purchase Program. During the quarter, we repurchased $19 million of shares, upsizing and completing the program. Since inception in August of 2023, we repurchased approximately $4.9 million shares for a total of $25.2 million dollars. Turning to the outlook, our guides reflect quarter-day results and our forecast for the remainder of the period. We forecast third quarter GMB of $84 million to $91 million, down 6% to up 2%. Net revenue of $20.8 million to $22.1 million, up 1% to up 7%. And adjusted EBITDA margin loss of minus 15% to minus 10%.
Tom Etergino: During the quarter, we repurchased $19 million of shares, upsizing and completing the program.
Speaker Change: Since inception in August of 2023, we repurchased approximately 4.9 million shares for a total of $25.2 million.
Speaker Change: Turning to the outlook, our guidance reflects quarter date results and our forecast for the remainder of the period.
Speaker Change: We forecast third quarter GMV of $84 million to $91 million, down 6% to up 2%, net revenue of $20.8 million to $22.1 million, up 1% to up 7%, and adjusted EBITDA margin loss of minus 15% to minus 10%.
Tom Etergino: Our GMB guidance reflects typical seasonal softness. Historically, we see GMB decline by approximately 2% to 4% in the third quarter versus the second quarter. While we expect to see continued conversion rate improvements and order growth, we also anticipate a temporary intensification of average order value headwinds as we lap a record quarter for high value sales. In the third quarter of 2023, we had a record 8% of GMB from orders over $100,000, including a handbag that sold for over $1 million dollars and several high value jewelry purchases. Historically, orders over $100,000 account for 3% to 5% of total GMB.
Speaker Change: Our GMB guidance reflects typical seasonal softness. Historically, we see GMB decline by approximately 2% to 4% in the third quarter versus the second quarter.
Speaker Change: While we expect to see continued conversion rate improvements and order growth, we also anticipate a temporary intensification of average order value headwinds as we lap a record quarter for high-value sales.
Tom Etergino: We expect these pressures to be one-time in nature and to normalize in the fourth quarter. Our revenue guidance reflects modest take rate expansion due to a number of factors, including updated commission tiers, a higher mix of orders under our commission break, a higher mix of GMB from our central sellers, and instituting a minimum monthly subscription fee for new sellers. Lastly, adjusted EBITDA margin guidance reflects gross margins in the range of 71 to 73%. Lower revenue on a sequential basis due to the aforementioned seasonality and temporary AOV headwinds, and that sequentially we expect operating expenses to increase modestly due to plant hiring and backfilling open roles and mailing our semi-annual catalog.
Tom Etergino: However, we are expecting minimal net headcount growth in 2024. Lastly, as a reminder, during the second quarter, adjusted EBITDA benefitted from approximately $250,000 in favorable one-time items regarding our lease and the conclusion of a sales tax audit. Over the past few years, we have improved monetization, expanded gross margins, and meaningfully reduced our operating expenses. This quarter marks another significant milestone as we resume growth. This quarter represents a third consecutive quarter of conversion rate growth, a return to year-over-year order growth, and quarter-over-quarter active buyer growth, and our best adjusted EBITDA margins as a public company. These developments show that our strategy is working.
Speaker Change: Over the past few years, we have improved monetization expanded gross margins and meaningfully reduced our operating expenses.
Speaker Change: This quarter marks another significant milestone as we resumed growth.
Tom Etergino: We are making meaningful progress and are committed to driving further. While challenges remain for the luxury home goods and high-end discretionary market, we are gaining market share and are optimistic about our trajectory. There is still work to be done, but our team's dedication gives us confidence in our ability to deliver sustained growth and profitability in the future.
Tom Etergino: We appreciate your continued support and look forward to updating you on our progress in the coming quarters. Thank you.
Unknown Executive: I will now turn the call over to the operator to take your questions. Thank you. We are now opening the floor. Question and answer session. If you would like to ask a question, please press star one. Again, please press star one.
Nicholas Jones: Our first question comes from Nicholas Jones from Citizens JMP.
Luke Meindl: Your line is now open. This is Luke on for Nick. Thanks for taking our question. I guess first, it was a really solid quarter. You know, you returned the JMP growth and saw what seems to be positive trends across various business metrics. I know you mentioned some seasonality in AOV headwind, but could you just provide some additional color on what went into the three two guys, particularly given such a solid two? You just had thanks.
David Rosenblatt: Hey, it's David. Thank you for that. We were happy with the second quarter, and we're actually happy with our prognosis for the third quarter as well.
David Rosenblatt: What's going on in the third quarter in GMV is that we're copying a quarter last year with an unusually high cluster of high average order value orders. So we typically average around three to five percent of our orders at 100 K plus, and this quarter last year roughly, or GMV roughly 8% of our GMV was 100 K plus. We don't expect that to continue past the third quarter, and outside of that, you know, at the midpoint of guidance, we're still projecting that orders will grow, active buyers will grow, and revenue will grow.
Speaker Change: Some of our orders at 100 K plus.
Speaker Change: And this quarter last year, roughly or <unk>, roughly 8% of our <unk> was 100, K plus we don't expect that to continue past the third quarter and outside of that.
Speaker Change: At the midpoint of guidance, we're still projecting that orders will grow active buyers will grow and revenue will grow.
Tom Etergino: Makes sense. And then active buyers stabilize a bit into queue, you know, grew sequentially.
Speaker Change: Makes sense and then.
Speaker Change: Active buyers stabilized a bit and <unk> grew sequentially is that a trend we can kind of expect to continue going forward or should we still expect some choppiness near term.
Tom Etergino: Is that a trend we can kind of expect to continue going forward, or, you know, should we still expect some shopiness in your term?
Tom Etergino: Yeah, this is time. I'll take that. So yeah, active buyers did grow sequentially 1%, kind of reminding you that's a trailing 12-month metric. So it is a lagging indicator. Order growth, which is a leading indicator of active buyer growth, we saw 5% year over year. And yeah, what sent you a question, we do expect to see continued order growth in Q3, which would convert into active buyer growth. Okay.
Speaker Change: Yes. This is Tom I'll take that so yes active buyers did grow sequentially 1%.
Speaker Change: Reminding you that is a trailing 12 month metric. So it is a lagging indicator.
Speaker Change: Order growth, which is a leading indicator of active buyer growth, we saw 5% year over year.
Speaker Change: Yes.
Speaker Change: To answer your question, we do expect to see continued order growth in Q3, which would.
Speaker Change: Convert into active buyer growth.
Speaker Change: Okay, and maybe if I can just fit one more in on macro.
David Rosenblatt: And maybe if I can just fit one more in on macro, you know, I understand that there are still some pressures, but you mentioned last call that demand metrics were recovered across the board. Is that still the case, and, you know, what are your expectations for the back half of this year, you know, particularly given the increased likelihood of rate cuts. Thanks.
David Rosenblatt: Yeah, I mean, I think the macros, you know, the macros based on the syndicated data that we saw for last quarter said that our core market for luxury furnishings was down mid to high single digits. And compared to that on an order basis, you know, we were up 5%, and of course, we were up also on a GMB basis. So we do feel pretty good. And that we're outperforming a weak market right now.
David Rosenblatt: You know, as we look forward, again, I'm not a macro economist. I mean, you know, if interest rates go down, that should be a positive driver for us, right? Because it should stimulate more activity in the real estate market.
Tom Etergino: Tom, I don't know if you have anything to add on that. Great.
Unknown Executive: Thank you. As of right now, we don't have any raised questions on the screen.
Unknown Executive: We are now closing the Q&A session, and we'd like to thank everyone for attending today's call.
Unknown Executive: You may now disconnect. Have a wonderful day.
Speaker Change: Yeah.