Thank you for standing by. My name is John, and I’ll be your conference operator for today. At this time, I would like to welcome everyone to the 1stdibs.Com, Inc. Third Quarter 2024 Earnings Conference Call. All lines have been placed in mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Kevin LaBuz, Head of Investor Relations and Corporate Development. Please go ahead.

Good morning. And welcome to 1stdibs earnings call for the quarter ended September 30, 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 third quarter financial results and fourth 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, 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 risk 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’ll now turn the call over to our CEO, David Rosenblatt. David?

Thanks, Kevin. Good morning and thank you for joining us today. Third quarter results reflect continued improvements across our key focus areas. For the second consecutive quarter, we achieved year-over-year revenue growth, accelerating order growth and sequential active buyer growth. We achieved this progress despite prolonged softness in the luxury housing market, which is experiencing the largest slump since the mid-1990s. Despite continued conversion gains and accelerating order growth, GMV contracted due to weaker-than-expected average order values, which we see as temporary. We anticipate returning to GMV growth in the fourth quarter, driven by further conversion gains and moderating AOV headwinds. Our adjusted EBITDA margins came in toward the low end of guidance. Relative to the second quarter, margin compression primarily reflects seasonally lower revenue as operating expenses remain flat sequentially. In the fourth quarter, we anticipate some additional margin compression due to seasonal increases in performance marketing. While margins will be down year-over-year, we are focused on improving efficiency and positioning the business for sustainable growth. Given a muted demand environment, we are focused on lowering the growth threshold required to achieve operating leverage. Our preliminary 2025 plan targets generating operating leverage at mid-single-digit revenue growth. Reviewing the third quarter, increasing conversion remains our operational priority and highest leverage activity. We maintain momentum here. Conversion rates have grown over the past year and growth accelerated again in the third quarter. Encouragingly, these gains are broad-based, with new and returning buyers both seeing double-digit improvements. Additionally, returning buyer conversion hit another record high. Conversion wins fueled order growth, which increased to 7%. Continuing with funnel dynamics, traffic headwinds were stable versus the second quarter, but AOV was softer than anticipated, depressing GMV. Tom will provide more detail later on, but based on quarter-to-date trends, we believe this dynamic will moderate…

Thanks, David. We delivered GMV revenue and adjusted EBITDA margins near the low end of our guidance range as stronger than anticipated AOV headwinds weighed on GMV growth. As I will detail later on, we see this as a temporary dynamic. In contrast, we believe conversion gains and order growth are durable trends. GMV was $84.6 million, down 5%. On a sequential basis, GMV growth rates decelerated approximately 7 percentage points. This was driven by lower than anticipated AOV, partially offset by accelerated order growth. Average order value of approximately $2,500 was down 11%. In contrast, median order value of approximately $1,200 was down 3%. The latter is less impacted by fluctuations in high value orders. Two variables drove AOV down. First, we left a record quarter for orders over $100,000. Last year, these orders accounted for over 8% of GMV, compared to our historical average of 3% to 5%. Second, high value orders were roughly 2% of GMV this quarter, slightly below typical ranges. While third quarter guidance contemplated the first dynamic, it did not anticipate the second. This combination resulted in a stronger than expected average order value headwind weighing on GMV growth. If the third quarter AOV was consistent with July, then GMV growth would have been 4 percentage points higher. We have not seen any change in inventory makeup, on-site engagement or seller discounts. This, combined with stable median order value trends, leads us to believe that both the AOV strength last year and the AOV softness this year are outliers. Additionally, relative to the third quarter, AOV trends improved in October, both on an absolute dollar and year-over-year basis. In contrast to the AOV dynamic, which we view as temporary, we see a long runway for conversion gains. Conversion rates have now increased year-over-year for…

Thank you. [Operator Instructions] Our first question comes from the line of Nick Jones with Citizens JMP. Please go ahead.

Great. Thanks for taking the questions. Could you kind of remind us as we speak to the AOV headwinds and how we should be thinking of a timeline for when those will abate or stabilize? And then I have a second question that is kind of your venture.

Hey, Nick. This is Tom. I will take that one. Yeah. Sure. So, our AOV headwinds that we experienced in Q3 really were twofold, right? First, last year, so, this year we were lapping a record quarter for orders over $100,000 from Q3 of 2023, where it represented about 8% of our GMV. Typically, that number is about 3% to 5% of our GMV. Additionally, in Q3 of this year, orders over $100,000 represented about 2% of GMV, so they underperformed our normal historic averages. So the combined result of those two things really was the result of what caused our headwinds. Looking into Q4, what we are seeing is that is starting to subside. We saw that October was more normalized from what we have seen in the past and what was up from our August and September numbers. So we see that in Q4, we are going to start to see more normalized average order values.

That is helpful. And then, some of the residential real estate exposed companies that have kind of reported this quarter and kind of, I think, their consensus around next year is kind of more muted volumes will be up a little bit, a couple hundred thousand existing home sales. Given the correlation of the electric housing market, do you have any updated thoughts as to kind of the timeline for more normalized transaction volumes? And I think, with the election over, there’s some thought that some of the policy may end up being inflationary, which would potentially impact rates. I guess just curious, is that informing maybe while you’re revisiting what it takes to drive leverage or just any thoughts on kind of a larger term picture to kind of a more normalized environment given the correlation of electric housing? Thank you.

Yeah. Hey, Nick. It’s David. Thank you for the question. Look, we’re not macroeconomic forecasters. So what we try to do, though, is index our performance to the market. The biggest driver certainly is the luxury real estate market. We also look at syndicated credit card data having to do with luxury furnishing and we were actually pretty happy with our performance versus market in the last quarter. I mean, I think the BofA data said that luxury furnishing spend was down 8% and compared to that, obviously, orders grew 7%, which was a sequential increase from 5% last quarter. Revenue was up 3% and active buyers grew for the second quarter in a row on a sequential basis. And as Tom said, we think the AOV trend will normalize in the fourth quarter. So looking beyond that, I mean, again, I’m not -- our goal is to try to grow faster than the market and take share and what our performance says in Q3 is by the metrics that we look at, that happened and we think the sort of drivers that are causing that won’t change next year. And if we get some kind of recovery, that’s a plus, but we’re not anticipating one.

Got it. Thank you both.

Our next question comes from the line of Mark Mahaney with Evercore. Please go ahead.

Hey. Thanks. Two questions, please. I think, David, you talked about cutting back on or reducing or removing Auctions format. Can you just talk about how material you think that is, could be to the business? How material has it been? And then secondly, I think you gave some color commentary on next year revenue growth being mid-single-digit percent. And I guess maybe this is a question for Tom. Is the cost structure such that mid-single-digit percent allows you to get to EBITDA break-even for the full year or how should we think about what that topline forecast suggests for the bottomline? Thank you.

Hey, Mark. Sure. So the financial impact of Auctions is relatively minimal. I think Auctions accounted for 5% to 6% of orders and 2% of revenue. And so, again, we remove -- we think we will -- what we’re going to do is remove Auctions. What we have done is remove Auctions, redeploy those resources and other initiatives focused on pricing and we think that’s a positive reallocation of capital. Otherwise, we wouldn’t have done it. So I don’t think the net effect will be negative. And I think it’s important to note the reason why we’re pulling back from it is because the original purpose of introducing more efficient and market-based pricing on the site is better served by other pricing strategies that we have that we feel very good about. And specifically, what we’re doing is we’re focused on using machine learning to produce price recommendations to both sellers and buyers. We rolled out our first category recently and we have plans to roll it out to the remaining ones. But we think, unlike Auctions, which, of course, only impact items in Auction, this machine learning-based approach to introducing more rational or market-based pricing impacts all items on the marketplace and therefore should have a much bigger impact on overall conversion and ultimately growth.

And, Mark, this is Tom. I’ll take the second question. Let me clarify. We were not and do not give forward-looking guidance past one quarter. So we were not guiding towards any number for 2025. What we were stating -- what I was talking about is that, we are reviewing the business. We’re always identifying opportunities to improve our efficiency and drive operating leverage. And what we’re right now focused on is lowering our revenue growth threshold required to generate further operating leverage and we’re looking at the mid-single digits of revenue growth in order to start showing additional operating leverage and that’s what we were talking about for 2025.

Our next question comes from the line of Ralph Schackart with William Blair. Please go ahead.

Good morning. Two questions if I could. I think you talked about accelerating order growth again in Q4. Just curious, is that a trend you saw, I guess, quarter-to-date that gives you sort of the confidence that that will continue? And then can you just remind me, going back to some of your prior comments, about churn normalizing in the first half of 2025 and what are the factors that will help churn normalize? Thank you.

Yeah. Hey, Ralph. So, on order growth, I think what we had said was that, in Q3, we had sequentially accelerating order growth. I don’t think we talked about anticipated order growth in Q4. Of course, at the midpoint of guidance in Q4, we do expect GMV to be back to kind of mid-single digit growth. So I don’t know if that was a number that you’re referring to. But regardless, no guidance on order growth for Q4. But we did see a sequential increase in order growth in Q3. In terms of seller churn, the background to that is roughly two years ago, we launched a program called Essential Seller, which offers sellers a zero subscription fee option. That resulted in a significant increase in the number of sellers. But what we learned is those sellers were much less engaged than subscription fee-paying sellers. And so what we have been in the process of doing for the last couple of quarters, but which reached its culmination or is reaching its culmination this quarter, is terminating that program and converting the remaining sellers into fee-paying, sub-fee-paying sellers and so that will be over this quarter. We don’t think then that that will impact, as you note and as we said in the script, a higher than average churn number for this quarter. However, in terms of the metrics that ultimately really matter, you listings growth and GMV impact and so on, there’s really no real impact. Listings grew 7% last quarter. We anticipate something similar this quarter. And both the, well, primarily the GMV, but also the listings impact will be sub-0.5-percentage-point going forward. In terms of churn itself, that’ll stabilize beginning in the first quarter once we’re done fully transitioning the remaining Essential Sellers onto sub-fee-paying packages.

Okay. Great. Thank you.

As there are no further questions at this time, that concludes our Q&A session, as well as 1stdibs earnings conference call. Thank you all for attending today’s session and for your participation. You may now disconnect. Have a pleasant day, everyone.