Thank you. Good afternoon and welcome to Etsy's First Quarter Earnings Conference Call. Joining me today are Josh Silverman, CEO; Rachel Glaser, CFO; and Deb Wasser, our new VP of Investor Relations. Before we get started, just a reminder that our remarks today includes forward-looking statement relating to our business strategy, financial guidance, and key drivers, thereof, including the impact of our focused areas and key initiatives, our investment portfolio and product launch roadmap, and expected impact on future GMS and revenue growth, and the external impact of external headwinds. Our actual results may differ materially. Forward-looking statements involve risks and uncertainties, which are described in our press release today and in our 10-K filed with the SEC on March 1st, 2018, and subsequent reports that we filed with the SEC. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we don't have any obligation to update them. Also during the call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of GAAP -- of non-GAAP to GAAP measures is included in today's earnings press release, which you can find on our Investor Relations website. A link to the replay of this call will also be available there. And if you'd prefer to access a replay via phone, you can find that information in the press release as well. Finally, for your reference, we had posted a presentation at our IR website today, highlighting our first quarter progress we be referencing on our call today. With that, I'll turn the call over to Josh. Josh?

Thank you, Gabe and good afternoon everyone. In Q1, we delivered our third sequential quarter of GMS acceleration since embarking on our new strategy. We're pleased with the strong progress we've made in that short amount of time through our focus on our four key initiatives; improving search and discovery, trust and reliability, marketing capabilities, and solid tools and services. I'm delighted to take you through the highlights of our progress as shown on slide three and share with you some of the initiatives and pipeline for future quarters. Last week was my one year anniversary with Etsy and I'm extremely proud of what the team has accomplished. Three quarters ago, on our Q2 2017 earnings call, I stated our aspiration to own special. In a world where e-commerce is increasingly commoditized, Etsy provides a differentiated experience where extraordinary goods handcrafted by creative entrepreneurs all over the world are made for you. At Etsy, we believe that life is full of special moments that deserve imagination and a human touch; moments of gifting, celebration, and trial. Those moments happen often, a wedding, a first day of school, an important meeting, a birthday, or a holiday. We've been working with focus and speed to bring that vision to life through improved products and user experiences on Etsy.com. Our efforts continue to bear fruit. Featured on slide 4, Q1 GMS grew 19.8% year-over-year, a 200 basis point acceleration compared to Q4, marking our third consecutive quarter of accelerating growth. It's worth noting that currency was a tailwind for us in the quarter and GMS growth would have been 17.6% adjusted for FX, a 110 basis point sequential acceleration in constant currency terms. Revenue growth also accelerated to nearly 25% year-over-year and our adjusted EBITDA margins were approximately 22%. We believe the cumulative…

Thank you, Josh and hello everyone. We started the year on a strong note, delivering the highest quarter of GMS growth since Josh and I joined last year. We have been investing for long-term growth, balancing our efforts on enhancing the product and experience to drive acceleration and GMS and revenue, while also fortifying our infrastructure to optimize operations, and to remain efficient and nimble. The result is evident in our financial performance with growth in both top and bottom-line results. Please refer to slide 13, which illustrates these Q1 achievements. My remarks today will cover three areas. First, I will update you on our key operating metrics for the quarter. Second, I'll review highlights of our financial results. And finally, I will provide our updated 2018 guidance. Unless I say otherwise, all numbers presented are rounded for ease of reference and the comparisons I'll be referring to are on a year-over-year basis. Starting with key operating metrics, Etsy generated $861 million in GMS in Q1, up nearly 20%. As Josh mentioned earlier, on a currency-neutral basis, GMS growth would have been approximately 18%. As international becomes a larger part of our business, we believe that currency fluctuations may have a greater impact, so we think it is helpful to share our results in both U.S. dollars and in constant currency beginning this quarter. At the end of the first quarter, Etsy had nearly 35 million active buyers, up 17%, and nearly 2 million active sellers, up 9%. GMS from repeat buyers is gradually improving and represented approximately 18% of overall GMS and was up 20% compared to last year. GMS from paid channels, which was roughly 16% of overall GMS, was up 51% and continued to grow much faster than overall GMS. In Q1, the majority of our marketing…

Thank you. [Operator Instructions] Our first question comes from the line of Matt Yamamoto from D. A. Davidson. Your line is now open.

Hi guys. Thanks for taking my question. In regards to the EBITDA margin, you suggested in the past that eBay was a good proxy for your long-term margin potential, except for the fact that you got a higher portion of revenue from Payments. That said, could you achieve a long-term adjusted EBITDA margin north of 30%?

Hi, Matt, this is Rachel. So, I think what we've said is that our EBITDA margin, there's no reason to think that our margin at scale wouldn't be the same as the marketplace companies or an entire group of peers, and that eBay might be the one exception because of the way that they have their payments platform on another P&L. So, -- and I -- we haven't given any firm guidance on what number might win, but what we said, high 20 seems realistic compared to what our peers are reporting.

Thanks for the color. And just as a follow-up on the sales front. If you are successful with your four initiatives to drive GMS growth, could you generate a high-teens sales CAGR over the next 3.5 -- three and a half years?

So, we are facing a really big total addressable market. We've talked about if you just take our top six categories and you take just our top six markets and you look at only the online portion of those, you get to $155 billion, which would suggest that we're at 2%, heading to 3% penetration with a highly differentiated product. So, we think that our market opportunity is substantial. We think with this being our third quarter of sequential acceleration, we're demonstrating that we're making progress towards that. So, we feel great about that. We feel really excited about that. We haven't given any specific long-term guidance, but we feel like the opportunity is big, and we're pleased with the progress we're making on unlocking the potential.

Thanks for the color. I'll step back.

Thank you.

Thank you. And our next question comes from Heath Terry of Goldman Sachs. Your line is now open.

Great. Thank you very much. I was wondering if you could give us a sense -- obviously, really strong growth in Payments this quarter. Wondering if you can give us a sense of sort of what was underlying that, whether it was adoption by consumers or adoption by sellers in terms of what drove that? And then also, to the extent that we saw the traction that you did in advertising or seller promotion within that platform, is that -- can you give us -- sort of disaggregate that a bit? And how much of that is pricing versus seeing higher levels of volume or seller adoption? Thanks.

So, Heath, this is Rachel. I'll take the first part of that. On the Etsy Payments side, so you may recall that in May of 2017, that was the first month that we mandated the use of Etsy Payments for all sellers that were in countries where we offer Etsy Payments. So, in Q1, you're still seeing the -- we haven't yet anniversaried that mandate, so about 85% of our GMS is now flowing through Etsy Payments and the growth is coming largely from there. In fact, what we did say on this call was that we actually saw growth coming from other countries in which Etsy Payments is not offered. So, that was a slight dampening effect, because the growth of Etsy Payments, it helped our growth margins a little bit because of the higher margins that Etsy Payments have. But we're still seeing nice growth and we'll be anniversarying the Etsy Payments mandate in next week actually. So, going forward, we'll be showing that Etsy Payments will grow more in line with GMS.

And on the Pro List side, there's a number of levers that affect Pro List. Some of them, the big ones are how many sellers have adopted it and how much budget have they given us to use, on one side. The other side is how many ads do we show, so how much real estate if we dedicated it to the site and then how good are we at picking the right ad for the right -- for any given visit, which results in higher revenue per page view. And so much of the upside this quarter was driven by improvements in relevance so that we are doing a better job of picking the right ad, which gets higher click-through rates and higher conversion resulting in better sales. We do hold ourselves to a high standard in Pro List in terms of delivering good return on investment for our sellers. So, we make sure that when we're spending their money, we're doing in a way that we feel good at driving incremental sales. We think there's a long runway to do a better job picking the right ad at the right moment, which drives better yield and is a real win-win for everybody. We're starting on that. We saw great progress on that this quarter, but there's still a long, long way to get better.

Great. Thank you, both.

Thank you.

[Operator Instructions] Our next question comes from the line of Edward Yruma from KeyBanc Capital Markets. Your line is now open.

Hey, good afternoon guys. Two quick ones from me. First, on the targeted seller promo that I know you said that there was some good initial response. I guess, could you quantify the opportunity from an economic perspective relative to Promoted Listings? And then second, we noticed that you're changing the terms by which sellers pay Etsy, I think, beginning early June. I guess kind of what was the driver behind that? And will you receive any economic benefit from the new process? Thanks.

Yes, great. I'll take the first, maybe and Rachel, you take the second?

Sure.

Terrific. So, the number one thing sellers ask us is for more tools so that they can drive their own success and they're ready, willing and able to invest behind that. So, Promoted Listings is one opportunity to do that where they're getting more promotion on etsy.com. Google Shopping is another opportunity where they can leverage our capabilities to get themselves exposure in Google. This new capability that we just launched this quarter is really about allowing them to reach out to buyers who've interacted with their products before, maybe they favorited a product or they've put it in the cart, but they didn't buy it. And so this allows the seller to reach out with a targeted offer to that community of buyers. And we think, over time, the potential for that is meaningful. But really, I would think about all of these together as giving sellers more tools to drive their own growth on Etsy, off Etsy and even in places like Google and elsewhere. By the way, we did launch not this most recent quarter, but the quarter before, the opportunity for sellers to promote their listings in social channels as well and there's been good uptake of that. So, it's one of the most exciting things about Etsy is we've got 1.9 million sellers that are highly motivated to go and evangelize their products in places. And the more we do that, the more we drive their growth and the growth of Etsy.

And the second thing that you asked, the project, we call it the single ledger project and just to note that we announced it to our sellers a couple of weeks ago, but it has not yet launched. So, you may be observing some discussion about that in the seller forum. That project is really -- our sellers spend a lot of time for every hour that they spend working on creating products. They spend an hour just on the administration. So, part of this is designed to help them streamline what they do, the administrative part of their job. And yes, there is also an economic benefit to Etsy. What we've done is we've -- we're creating a single bill, basically, so that when we disburse funds to them, we disburse some net of the fees that they owe us rather than having those two separate transactions. What that does will also save Etsy some of its payment processing fees that are attached to them charging for the fee that they owe us. So, we do net some economic benefits, but it also has a net benefit to our sellers.

The one thing I'd pile in on there is our sellers report that for every hour they spend making a product and taking care of customers, they spend an hour on administration and overhead. So, anything we can do to save them time is really important and this is an important streamlining that will make life easier for sellers.

Thanks so much guys.

Thank you.

And our next question comes from the line of Brian Nowak from Morgan Stanley. Your line is now open.

Hey everyone. This is Brandon Hoffman on for Brian Nowak. So, yes, we had a question on -- where is the current buyer frequency per year at this point? And what they assumed in the guide? And then a follow-up to that, essentially, what would be the driver then to improve that frequency? Thank you.

So -- thanks for the question. So, we have -- the metric we've given on buyer frequency actually comes from annual cohort data. And so I think the most quoted metric we've given there is that 60% of our buyers come only one time a year. So, -- but what we have observed, we have some early encouraging signs from the last 90 days because both new buyers and repeat buyers grew approximately 20% in the quarter. And so we're seeing that as -- and we've only really been at our new strategy since mid to late May. So, we're starting to see the cumulative positive effect that those strategies are having on repeat visits and repeat purchases. So, it's a little early still to tell what -- we're not going to claim victory on a sequencing number at this point, but we're seeing some encouraging signs that people see is beginning to pick up. The good part about that, and Josh spent some time talking about this in his prepared remarks, is that we actually look at our LTV continuously literally every day and the higher the LTV, the more we can spend on buying traffic that we think has a positive ROI. So, we -- when we get higher frequency, that's one of the ways that we're actually growing lifetime values, so we're encouraged by that.

And I think we all feel like it's a huge opportunity for Etsy. The data that we've shown in the past suggest that people shop on average -- they visit more than once here, but they shop on average -- many people buy here once a year. And when you look at the broad range of things and occasions where Etsy is relevant, we are relevant far more often than that. We've also talked about how our Net Promoter Score among people who've shopped in the past is very, very high. So, they like us. We just need to make sure that they know when to think of us. And you're seeing us try lots of things like in Valentine's Day promotion that we did, the world of imagination sale was not tied to the season. It's just trying to trigger them to think of us in different times of the year. Most importantly, though, if a visit results in a purchase, it means it's a pretty satisfying visit in general. So, as we drive conversion rate up, visits are being satisfying and that means they're more likely to come back more often. So, I'd say we're encouraged. I'd also reinforce its early days. It was tens of millions of people who've shopped on Etsy before. Most of them haven't been back in the past three to six months. And so it takes time for them to come back and feel and explore the experience and then have that translate into behavior. But it's also big numbers, so small basis point improvements can have a meaningful impact.

Thank you. And our next question comes from the line of Ronald Bookbinder from IFS Securities. Your line is now open.

Good afternoon and congratulations on a nice start to the year. You guys did a terrific job on your Black Friday special event, which was your first sort of targeted promotional event. Then you did a Valentine's event. You're going to be doing a Mother's Day or you're doing a Mother's Day event. Given that the guidance simply looks like you're passing through the Q1 beat, why shouldn't we expect continued acceleration in revenue going forward at least in Q2? And are you just being conservative as you pass through the beat?

So, -- I'm sorry. I'm not quite sure I'm following the pass through the beat, but let me just talk about our guidance for a minute. So, we're really comfortable with the GMS guidance that we gave, because at the midpoint of that guidance, it would imply 17% year-over-year GMS growth. Last year, we did 14.2%. So, we're pleased with that amount of acceleration. And we outlined on the call a number of headwinds that are actually incorporated into that guidance. So, if not for those headwinds, perhaps the number would have been higher. So, we're -- that's the first thing. And both revenue and EBITDA are also benefiting from that GMS growth. So, you see the flow-through to EBITDA. We're hitting nice double-digit numbers, with the two in front of them on our EBITDA margins what we never dreamed of getting there over some long period of time. So, I think the implied guidance of acceleration on all three numbers maybe -- is there some -- now tell me if I'm misunderstanding part of what your question is.

No, no. I think you got it. And so why would you think that the high 20s -- or is that just the interim goal for the EBITDA margin? Why will it level out somewhere down the road?

No, I think what we've said is that there's -- we're a marketplace model and marketplace models are wonderful things. If you can get a two-sided marketplace to work, it's lightning in a bottle. It happens very rarely to get supply and demand to meet at scale. And there's a couple of things that are great about marketplace models. First, they get better as they get bigger. And second, they scale really nicely. The economic architecture is great. So, they tend to have very high margins. And we've said that there's no reason to think of us different than other marketplace models. I don't think we've set sort of medium term guidance for margins. But we've said if you're thinking about other good marketplaces at scale, we don't see any reason why we should be any different. We've also said repeatedly that our focus is growth and that when we see good opportunities to invest to drive growth, we're going to take them because that is the most important thing. And we feel really good about our growth and about our progress. So, this is our third consecutive quarter of sequential acceleration. We feel great about that. We've got a long list of ideas that we're working to get to market as quickly as possible that we think can continue to drive growth. And we feel really good about that. And we think we've got a really big market opportunity ahead of us. And at the same time, we're aware of some things that state sales tax, GDPR, things like that, that we think are real and will have an impact in the second half of the year. And when you balance those two things, our continued good execution and optimism about our ability to build the business and some known headwinds in the external environment, we still feel good taking guidance up this quarter and we feel great about that.

Okay. Well, thank you and congratulations once again on a nice start to the year.

Thank you very much.

Thank you so much.

Thank you.

Thank you. And I'm showing no further questions at this time. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.