Thank you for standing by, and welcome to the 1stdibs First Quarter 2024 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to your host, Kevin LaBuz, Head of Investor Relations and Corporate Development. You may begin.

Good morning, and welcome to 1stdibs earnings call for the quarter ended March 31, 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 first quarter results and second quarter outlook. This call will be available via webcast on our Investor Relations website at investors.1stdibs.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, business and economic trends, including e-commerce growth rates and our potential responses to them, international opportunities and competitive position. Our actual results may differ materially from those expressed and 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 disclaim any obligation to update them, except to the extent required by law. Additionally, 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 on our Investor Relations website, along with the replay of this call. Lastly, please note that all growth comparisons are on a year-over-year basis unless otherwise noted. I will now turn the call over to our CEO, David Rosenblatt. David?

Thanks, Kevin. Good morning, and thank you for joining us today. In the first quarter, we delivered GMV and revenue ahead of the high end of guidance and adjusted EBITDA margins at the high end of guidance. . In 2022 and 2023, we laid the groundwork for future financial success by streamlining operations, reengineering our cost structure and focusing on a narrower set of priorities that represent our highest ROI opportunities. The most important of these is increasing conversion rates. These efforts are paying off. Starting in the third quarter of 2022, we have seen 7 consecutive quarters of conversion improvement with 5 consecutive quarters of moderating declines followed by 2 quarters of growth. Encouragingly, conversion rates grew for both new buyers and returning buyers. Additionally, order volumes were flat, a meaningful acceleration versus the fourth quarter and revenue take rates increased. On a sequential basis, GMV growth rebounded by 11 percentage points. GMV grew by 6% and active buyers stabilized. Lastly, we continue to demonstrate the impact of our leaner cost structure on our P&L with adjusted EBITDA margins improving substantially. We see this as validation that our strategy is working. While headwinds on luxury housing and high-end discretionary items remain, we are hopeful that the worst of the down cycle for luxury home furnishings is now behind us. We will remain disciplined on expenses and focused on high leverage projects as we work to reaccelerate growth and achieve breakeven. Growth rates improved in the first quarter. Order volume was flat, our first positive result since the fourth quarter of 2021, helped by conversion improvements, performance marketing optimizations and a record quarter for auctions. Additionally, GMV year-over-year growth rates rebounded 11 percentage points sequentially from negative 17% in the fourth quarter to negative 6% in the first, driven by…

Thanks, David. We delivered GMV and revenue above the high end of guidance and adjusted EBITDA margins at the high end of guidance. GM was $91.7 million, down 6%, with growth rates increasing 11 percentage points versus the fourth quarter. On a sequential basis, GMV grew 6%. While we continue to see soft demand for luxury home goods and high-end discretionary items, we believe that the worst of the down cycle for luxury home furnishings is now behind us. During the quarter, traffic and average order value were headwinds to GMV growth, partially offset by conversion gains. This was our second consecutive quarter of conversion improvements. Encouragingly, conversion increased for both new and returning buyers as we see ample headroom to increase both over time. Since mid-2023, we have ramped our A/B testing velocity and launched more product enhancements into production. We believe this is aiding conversion. Consistent with recent trends, average order value was another headwind to GMV growth. Average order value of approximately $2,600 was down 5%. We saw a slight mix shift to orders under $2,000. Additionally, orders over $100,000 accounted for approximately 3% of GMV towards the low end of our historical range of 3% to 5%. In contrast, our median order value of approximately $1,200 was flat. The latter metric is less sensitive to fluctuations in high-value orders. Consumer GMV and trade GMV declined at similar rates. Encouragingly, consumer orders grew for the first time since the third quarter of 2021. Turning to verticals. Jewelry, Art and Vintage and Antique furniture all posted positive order growth. We entered the quarter with approximately 60,700 active buyers, down 9% year-over-year and flat sequentially. Because this is a trailing 12-month metric, we expect it to remain choppy near term. However, we see a return to order growth as…

[Operator Instructions] Your first question comes from the line of Nick Jones from Citizens JMP.

Great. I have 2. I guess, one, the A/B tests are up over 100%, driving a lot of enhancements to the site, conversions are improving. Historically, I think we've tied maybe a more meaningful acceleration to GMV to a return to luxury housing transactions. I guess, to what level are you able to kind of maybe accelerate GMV while we wait for rates to come down or just overall housing transaction volumes to increase. So I guess that's question one. And then the second question is, to the extent that maybe things take longer to accelerate, if there is wood chop on expenses to kind of maybe more quickly drive positive EBITDA margins. That said, I acknowledge that there's quite a bit of cash on the balance sheet, so you have quite a bit of runway. So just how are you thinking about cost and maybe getting more aggressive in driving profitability in the near term?

So thank you for the question. So macros certainly are improving, although based on syndicated data, the luxury housing market, while across in the positive territory in the first quarter was only marginally so, I think it was up 2% or so based on the data that we saw. And we do think we're receiving the benefit of 2 years' worth of focus on conversion. As you point out, conversion rates have improved 7 quarters in a row on a year-over-year basis the last 2 quarters of which have been positive, and we've got a pretty full pipeline ahead of us, which we're very optimistic about. So it's very hard to disaggregate the relative contribution of those 2 things. But if you just look at the trends in terms of year-over-year GMV down 17% in Q4, down 6% in Q1 and at the midpoint of guidance, down 2% in Q2. I do feel like things are moving in the right direction. And like I said, I am confident that our road map can continue to deliver. Tom, do you want to talk about costs?

Sure. Yes. I mean, look, we're really pleased with the progress that we've made on improving our financial foundation. But we have not achieved our long-term goals. We continue to focus on achieving profitability. And part of that will be maintaining expense discipline, over the past 2 years, as I've mentioned in the past, we reduced expenses by over $28 million on an annualized basis. And we think we've addressed the vast majority of the cost savings opportunities in front of us. We successfully subleased our New York City office space. And so we've addressed a lot of the large discrete issues that we had. But like I said, we are going to remain vigilant on expense management, and we're going to be responsive to demand. Additionally, we're going to continue to focus on scalability so that as we layer on meaningful GMV and revenue with our proportionately increasing expenses. But right now, we don't have any plans to change our cost structure from where it is. But again, we will be responsive to demand.

And we have reached the end of our question-and-answer period. This concludes today's conference call. Thank you for your participation. You may now disconnect.