Hello, everyone, and welcome to the Fiverr Q2 Fiscal 2022 Earnings Conference Call. My name is Charlie and I will be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. [Operator Instructions] I'll now hand over to your host, Jinjin Qian, Head of Investor Relations to begin. Jinjin, please go ahead.

Thank you, operator, and good morning everyone. Thank you for joining us on Fiverr’s earnings conference call for the second quarter ended June 30, 2022. Joining me today on the call is Micha Kaufman, Founder and CEO, and Ofer Katz, President and CFO. Before we start, I would like to remind you that during this call we may make forward-looking statements and that these statements are based on our current expectations and assumptions as of today and Fiverr assumes no obligation to update or revise them. A discussion of some of the important risk factors that could cause actual results to differ materially from any forward-looking statements can be found under the Risk Factors section in Fiverr’s most recent Form 20-F and other filings with the SEC. During this call, we’ll be referring to some non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures are provided in the earnings release we issued today and our shareholder letter, each of which is available on our website at investors.fiverr.com. And now, I will turn the call over to Micha.

Thank you, Jinjin. Good morning everyone and thank you for joining us today. In the second quarter of 2022 Fiverr delivered revenue of $85 million representing the year-over-year growth of 13%. We continue to see a rapid consumer and SMB sentiment shift amidst the challenging global macro environment. Geopolitical volatility, spiking inflation, and elevated energy prices meant that spending power of consumers and SMBs was impacted more than expected. This trickled through to the overall demand for freelancer spending. We are not immune to these macro trends. We are encouraged however that Fiverr continues to serve as a backbone for millions of businesses to connect and engage with freelancers. Active buyers were 4.2 million, up 6% year-over-year and spend per buyer was $259, up 14% year-over-year. Our market base scaled up significantly during the COVID years and most of that gain continues to hold today. We see older cohorts continuing to spend more today versus pre-COVID and we continue to attract a significantly larger amount of new buyers to our market base every quarter compared to our pre-COVID. Take rate remained strong at 29.8, up 200 basis points year-over-year reflecting the tremendous value we provided to our community of buyers and sellers and the continued expansion of value added products. Our Q2 results also demonstrated our continued discipline and operational efficiency. In Q2 we delivered adjusted EBITDA of $4.6 million representing an adjusted EBITDA margin of 5.4%. Fiverr has always run a lean organization, but the macro environment requires us to recalibrate our growth and profitability profile in investment priorities. Post the quarter we made a tough decision to reduce our team by 60 members. It is not a decision made lightly. Over the years we have built an incredible team and an amazing culture at Fiverr, where we gather…

Thank you, Micha and good morning everyone. Our Q2 results demonstrated the combination of a challenging macro environment and our ability to deliver a strong execution with discipline and efficiency under such an environment. In Q2 revenue was $85 million, up 30%. The recent macro headwinds of increasing inflation, higher energy price, rising interest rates, and highly uncertain geopolitical risks, and most significant implication on consumers, SMB, and other world GDPs unexpected, and it is being felt not only in Europe, but also in the U.S. and the rest of the world. Fiverr responded quickly to this challenging macro landscape with streamlining our expenses and executing with the highest level of focus and efficiency. This led to Q2 adjusted EBITDA of $4.6 million above the top end of our guidance with an adjusted EBITDA margin of 5.4%. In addition post the quarter, as Micha mentioned, we further examined and recalibrated our cost structure and investment priorities, which resulted in the reduction of 60 employees. These people did not come from a specific function, but rather across various departments in the company. The process was rigorous and thoughtful to ensure that our long-term roadmap remained intact. In fact, with the completion of this realignment of themes and organization, we expect to be able to strengthen our core focused area, accelerate the pace of execution, maximize team performance, and most important of all maintain a highly motivated corporate culture. Our underlying business is strong. We continue to drive a significant amount of new buyers to our marketplace every quarter, and we continue to do it super efficiently. In just one quarter our Q2 cohort already generate revenue equivalent to 85% of our performance marketing dollars spent in the quarter. This highly disciplined data-driven marketing approach will ensure that we only invest in…

Thank you. [Operator Instructions] Our first question comes from Bernie McTernan of Needham. Bernie, your line is now open.

Great. Thank you. Good morning. Thanks for taking the questions. Maybe just to start, can you talk about the change in strategy for thinking about growth versus profitability? On the last call and during the quarter, I believe the commentary was largely still investing for growth despite the headwinds, but now pulling back on those investments. So can you talk about the decision or the change in tone or anything to share there?

Sure, good morning, Bernie. So essentially as we said in our opening remarks, what we've seen throughout Q2 was a worse than anticipated headwind during the quarter. And we've seen a more expensive growth. As a result of that macro change and given the fact that from a technically standpoint, we are in a recession. I mean, we have two consecutive quarters of negative GDP. Inflation continues to be high, and there is pressure certainly on small and micro businesses and we felt that. And because of that change in environment, we decided that since growth has been more expensive, it doesn't actually constitute or justify to grow at any cost. And in that situation it is -- we felt that it was the prudent decision to prioritize EBITDA and free cash flow, accelerate the pace towards the long-term target model. And I think that this would put us in a strong financial position to double down on growth investments when the market condition improves. So that was the basis for our decision. It doesn't mean that we stopped prioritizing growth. It will always be a priority for us, but we don't think that it should come at any cost.

Understood. Is it possible to put context around that 85% payback for the two cohort 85% of the performance marketing spend, how that trended versus other periods of time?

Yes, so this is Ofer, and I think that if you guys track historical record of the return in our last quarter it was 1.9 or 90%. I think the quarter before it was approximately three months or one quarter. So all the time there is a kind of fluctuation in the return, but if you track historical numbers, if you go to Q1 2017, the multiple of return is 5x. If you go to Q1 2020, our Q2 2020, two years ago the market base is already 3x and we believe that the cohort that we are acquire throughout previous periods, but also this period happened to be consistent with a very high multiple. The fact that the headwind that we are seeing barely impact the return on the new cohort that has acquired, give us high confidence. So our ability to keep an acquire new cohort there is a high lifetime value to cut with a very short return on investment.

Understood. And then just one last one from me, the opportunity for strategic partnerships to form another funnel for the company, it seems like an intriguing proposition. Just wondering, what you're looking for in a partner, how the integration goes between the two products, how big of an opportunity is this to add another funnel for you guys?

We're working on the partnership channel. We believe that at this point it would be too early to share news about that. But we're seeing very exciting things around partnerships and we'll be happy to share that with the market in the upcoming quarters.

Understood. Thank you both.

Thanks.

Thank you. Next question comes from Doug Anmuth of JPMorgan. Doug, your line is now open. Please go ahead.

Thanks for taking questions. Just a couple on kind of mix. I’m just trying to understand, I guess across categories, perhaps if there are some things that are -- that might be holding up a little bit better than others? And then Micha, I know you talked about going up market with Fiverr Business and I recognize it's still early there. But just curious in this kind of environment, if you just talk about the traction that you're getting there and how those businesses might be behaving a little bit differently perhaps than the SMBs? Thanks.

Thank you, Doug. Good morning. So for the first question, question about categories, our category mix are doing pretty stable. We see small trends and some of these trends indicate that there's a slight less interest in categories that are related to very, very young businesses. And there are period of start and there are categories that are related to more mature businesses that are seeing slight increase in trend, but these are not very significant. And over the year and over the years, we've been seeing those trends shift across different months of the year and different years. So we didn't record anything unusual across those categories. And I think we’ve provided some color in the shareholder letter on specific categories. Again, the mix remains very healthy and stable. On the up market, the signals that we're seeing from Fiverr Business are very, very strong. It's a fast growing product and we continue to double down our investments into Fiverr Business. The improvement that we've done in Fiverr Business in adding tens of thousands of vetted sellers or top 1% of sellers, upgrading the experience the listings of, and sellers pages, putting talents in the forefront and adding decision indicators, all of them contributes to the growing activity of our Fiverr Business customers. We're also building marketing muscle for larger customers and optimizing the funnels for Fiverr for business, and also increasing our category coverage within Fiverr Business. So we're streamlining the onboarding funnel, and now we see that attracting more large customers from Fiverr into Fiverr Business, where we can increase their activity and spend over time and maximize their spend capacity with Fiverr. So, all-in-all, very good signals and doubling down on Fiverr Business.

Great. Thank you, Micha.

Thank you.

Thank you. Our next question comes from Brad Erickson of RBC Capital Markets. Brad, your line is now open.

Hi, just a few from me. So I guess first, when you speak to this SMB weakness, just to clarify, do you think this is more of a funnel issue and maybe a function of fewer small businesses, or is it more of just an existing cohort issue and some of the spending headwinds you called out just to clarify first?

Hey, this is Ofer. Brad, I think that is, it's an issue across the board. It's not about the funnel. It goes both for new cohort, it goes up for existing cohort, whether it's a very old cohort or new cohort, whether it is a U.S. or European. So that this headwind, goes across all dimensions, that’s how we see that.

Got it. And then I guess the guide maybe seems to reflect active buyers looking to be down again sequentially in Q3. Just curious how we should think about, maybe timeframe in getting back to the sort of sequential active buyer growth?

Yes, so when you look at active buyers, I think that what we’ve seen are really three things. The first is worse than anticipated market that traded this headwind. So macro is influencing that. The second is growth has been more expensive which meant that we need to make changes into our growth investments. And the third is more focus on quality of buyers which is well reflected in our spend per buyer up 14% year-over-year. So all-in-all that have been the factors that have been influences active buyers and certainly our focus continues to be on the quality of our buyers over time as we can focus on those who have their spending capacity that is much larger than the average spend per buyer on our market base.

Got it. That's great. Thank you.

Thank you. Our next question comes from Matt Farrell of Piper Sandler. Matt, your line is now open.

Thanks for letting me ask a question. I was wondering if you could help quantify the cost streamlining efforts in order to look at it from an impact to adjusted EBITDA as we go forward. And then you've been able to expand adjusted EBITDA margin as we've moved through 2022 despite the lower revenue levels. I just wanted to understand is that something that we should expect moving forward? Is continued leverage in the model through 2023? And if not what could be the factors there? Thank you.

So, I saw the quantified cost streamline. I don't think we share the specific numbers, but the guidance definitely reflects this adjustment that we did a few weeks ago. Then I looked at the – I’ll give you a hint, look at the adjustment of the revenue and bear in mind that we have increased the EBITDA target for the reminder of the year. This would give you pretty good indication as to the overall cost streamline and the expected margin, I think it's too early to discuss the expected margins for next year. Both because it's the middle of the year, but there is a lot of uncertainty and volatility that we experience as we speak, yet to be said. And I think it's mentioned on the shareholders letter and the prepared remarks. We do plan to accelerate the pace for its long-term target.

And maybe as a follow up, could you give any more color here on just kind of the strong growth that you're seeing in Promoted Gigs and kind of the success that's that is having here as of late, you mentioned in the shareholder letter and just any more clarity would be great? Thank you.

Yes. So as I think we mentioned in previous quarters, there's a continued expansion of Promoted Gigs across more categories and more assets within our market base and also with additional cohorts of sellers that can benefit and enjoy from this product. So what we're seeing in that growth is just a very healthy, steady growth of this product. And I think it's reflected in the continued expansion in our take rate as demonstrated.

Thanks for taking my questions.

Thank you.

Thank you, Matt. Our next question comes from Andrew Boone of JMP Securities. Andrew, your line is now open.

Great, good morning and then thanks for taking my questions. I'd like to start on June in the letter, it talked about U.S. demand slowing in the month. As we think about July and just the guide for 3Q. Does 3Q imply a further step down from where you guys were in June? Are you seeing any stabilization as we get into 3Q or kind of what's the trajectory? And then secondly, as we think about more disciplined OpEx, can we just go back and revisit tROI? Should we expect levels that have been consistent as we as kind of the earlier question mentioned or is there a chance that you guys would step that up and then how do we think about brand spend? Thanks so much.

Thank you. So, as for what we're seeing in July in the past few weeks in July, we've seen activity better than June. That's been slightly better and definitely stabilizing, but it is too soon to call it a trend, but this is what we've seen from it. And I think that that is reflected in the range of our guidance, meaning that on the midpoint, what we're assuming is that the current situation or level of headwind will continue to be as we're seeing it right now on the lower end a deterioration or a more, a stronger headwind, and on the upside an improvement in the current macro environment and headwind that we're seeing.

And the second part of the -- second part of the question I think that the restructuring or the streamline of the expenses that we discussed earlier brought us to position of super efficient operation in the company was lean even before, used to, yet to be said, if needed we can send the company further to make sure that we meet the EBITDA target and to secure the accelerated test through long-term. In terms of brand spend, we keep spending on brands as previously. You know we always monitor this investment as compared to PPC. We haven't spent changes these strategies of investments we used to be lean, and we continue to believe to make sure that the marketing are being expensive in a very efficient manner. Thank you.

Thank you.

Thank you, Andrew. Our next question comes from Eric Sheridan of Goldman Sachs. Eric, your line is now open.

Thanks so much for taking the questions, maybe two if I can. Can you help us understand a little bit better how Fiverr Business, as an initiative will ramp over the next couple of years? You are putting in place the pieces to go to market, and then the time it might take to sort of execute on the go to market strategy. So we could better understand a little bit of how the revenue cadence around Fiverr Business can build over the next few years? That would be number one. And number two, maybe just philosophically, I think there's this debate among investors about as you know, workers continue to look for balance in their life, and now employers might be looking for cost flexibility in their business models, how you think the opportunity set might shift and create different opportunities or challenges for you as a platform when you look at this environment over the next maybe 12 months or so? Thanks so much.

Thank you, Eric. So as for cyber business, cyber business is really a transformational move for Fiverr and we anticipated, and we said that when we launched Fiverr Business, that this is going to be a motion that will start being very impactful within two or three years, and it's a multi-year investment. It -- the size of it right now, we haven't been recording it separately or guiding for it, but as we've said many times, it is growing faster than the market base, and we're very happy what we're seeing there. It allows us to engage with customers that have a much larger spend capacity and maximize their spend capacity with our product. And we've done so by improving our catalog and the quality of supply and adding functionality to the product that is sought for by larger customers. And we see tremendous success by doing so, by optimizing the funnels of entry into Fiverr Business, we optimize the move of those right customers from Fiverr into Fiverr Business, but we can also use Fiverr Business as a channel of acquisition and that is thanks to the improvements in the funnel. Eric, sorry, can you repeat the second question, please?

Just curious on the broader environment you're seeing, because I think there's sort of a push and build between your workers that still want flexibility and you increasingly could find employers who want cost flexibility and how, even though there might be some headwinds you're seeing from the macro environment, maybe there's a broader theme around aligning flexibility with your platform that could offset some of it. So I was just kind of curious philosophically how you thought about the evolution of the long-term secular theme versus some of the back row headwinds. Thanks.

Thanks, Eric. So definitely when we think about the way we market Fiverr and that has been in our brand for many years. It is all about flexibility and I’ve spoken in previous quarters about the fact that companies need more control over the balance between fixed expenses and variable expenses. And using talent from the Fiverr market base gives that flexibility. It allows you to hire people per project, and that allows you to also scale up or down as needed. And I think that if anything, the remote work or the work from home for a certain amount of time opened up the eyes of all employees, all employers to the option of actually enjoying from the fact that not all of their employees need to be on location and not all of them need to be full-timers. So we're definitely seeing that. And we think that in the current environment, where a lot of companies are also doing cost reductions are thinking about how to lower their fixed expenses, they're using variable expenses or flexible talent as a way to close talent gaps and make sure that their performance doesn't decrease while their cost structure needs to improve over time.

Thank you.

Thank you. Our next question comes from Jason Helfstein of Oppenheimer. Jason, your line is now open.

Guys, I have two questions. So maybe talk a bit more, how you think about the puts and takes as we kind of enter what’s probably going to be a worsening environment for at least a few quarters or so. So as you think about buyer spending cost to attract a new buyer, seller pricing, like what they choose to price themselves and take rates, just, how do you think of kind of those all fluctuate as you go into a weak environment and kind of what you can do that maybe favors Fiverr? And then the second question, can you rank what features or capabilities drive conversion and you talked a little in the letter about it, but where do you think you have upside or the ability to roll out new features or geographies in the next 12 to 18 months? Thanks.

Thank you, Jason. Good morning. So on the puts and takes, I think what we're seeing right now is definitely pressure. Mostly on small and micro businesses to be more cautious on how they spend their budget. I think that if we look at public data from public search engines, we're seeing that there's a decrease in searches in public searches for keywords that are related with our industry, because of that, that decreases or shrinks the top of funnel, which makes the acquisition or adding new customers more expensive. If that continues to be the case, then we'll continue to opt based on our current strategy, which is to optimize our EBITDA and maximize our free cash flow, so that when the market improves, we can invest that free cash flow again and double down on growth. In terms of features that drive conversions, now it’s all about being able to do the right segmentation of our, both customers and talent and do great matching. It sounds very simple in reality it's extremely complex. And we've been talking about our technology and how we create our technology moats to make that magic happen. It's not getting simpler. The more we go upmarket and the more we entertain larger types of customers, that matching becomes more challenging, but with a larger reward. And this is why we continue to invest in our search technology, recommendation, technology algorithm, matching segmentation and there's also opportunities to do that from the top of the funnel. And that's why we continue to invest in search engine optimization and so forth. We're seeing good results on conversion improvement. The more we use the metadata that we collect, being a transactional database to improve our algorithms, the better our matching is and the higher the satisfaction of our customer is which means that we can maximize their spend with us over time.

Perfect. Thank you. We have a follow up question from Brad Erickson of RBC Capital Markets. Brad, your line is now open.

Yes, thanks. Just a quick follow up. Just on how quickly things changed after you guided in May kind of like last year, I guess, just curious, is there any aspect of that hyper seasonality we saw last year that’s maybe going on here alongside just pure macro? Just, just curious. Thanks.

We haven't seen any unusual seasonality. Obviously there's, and you can see that from leisure, you see much more travel than usual. You see people taking long, extended vacations, but we haven't seen that impacting as much as the macro environment. We believe that this is the macro environment being worse than anticipated, by the way, not just anticipated by us. I think that in general, as I said, technically we're in a defacto recession and inflation continues to be very high. And I think that Fiverr is just more sensitive because it's still more focused on small and micro-businesses, and they are the first to respond to it, much like they were the first to jump up during, COVID and show triple digit growth. They're now being more cautious, and this is why we're feeling it a little bit more and we're responding to it.

Got it, thanks.

Thank you. Our next question comes from Daniel Shahrabani of Fard Investments. Daniel, your line is now open.

Yes, hi. Thanks for taking my question. Two questions. First of all, in your last quarter, you said that a lot of the marketing expenses were preloaded in the first quarter. So is that, do you see that giving benefits going forward for the next three quarters? And second question, in terms of macro, like in how are you guys doing with the other languages like Spanish, German? Is that a source of growth for you and how are you expanding in other markets besides English? Thank you.

Good morning, Daniel, thank you. On the marketing expense in the first quarter from a seasonality standpoint Q1 is our strongest quarter, and this is why we invest more in that quarter because that investment is extremely efficient and that creates a new baseline for us for the rest of the year and that is why we made that comment on Q1. That has been the case ever since we started the company.

Okay, thanks.

Thank you, Daniel. Our next question comes from Nat Schindler of Bank of America. Nat, your line is now open.

Yes, hi guys. Just a couple things. One on the upmarket approach, are you seeing this as more an approach to get and the higher spend provider, are you suggesting larger enterprise do more purchases of similar sized things? Call it the $50 logo that people buy on traditionally small businesses buy on your service or are you, or, and is your market developing into larger enterprise purchasing bigger projects, longer term projects through your system or is it still same with the same basic world that you have been in the overnight largely?

Hey, good morning, Nat. Thanks for the questions. So I would say on your first question, the answer is probably both. We're definitely creating a catalog where larger customer can achieve more and acquire more complex types of projects, if that is what they desire, but it is also built to offer best-in-class, vetted supply to allow for the small projects to be done very effectively. But we think that the profile of customers is such where their spend capacity is higher. Their needs are higher. Sometimes it manifests in more frequent purchases that are not necessarily very large, and sometimes it's less frequent and much larger types of projects depending on their complexity and within that, within Fiverr Business also the ability to use not just individual talent, but also agencies that have higher capacity and multiple talents to accommodate for more complex projects.

Does this move put you on a more of a collision course? You've been kind of free from any substantive competition in these kind of fast, quick catalog projects that you have been traditionally doing these, again, the $50 logo. In that area you have owned and been free from competition, as you get into the larger projects, there are a lot of other players, particularly Upwork, which has kind of tried to come down to your world and not really done very well and now are you going into its world?

So when you think about the, the roots of where Fiverr started, we started from the SMB world with maybe focus on micro and small types of businesses. If you look at our current user base, we have 4.2 million active buyers on our platform. Half of them are from the U.S. So let's call it 2 million or 2.1 million out of 31.7 million. In that market, there's endless space to grow into. Now, as we move now, we're not moving into the enterprise space. We're moving more into the mid-market, more into the mid-size and sometimes large. It doesn't mean that we don't have enterprise customers, but we're not marketing for them. In that space, there's tremendous space to grow into and I don't think that the majority of competition is going to be there. And again, I think that the majority of activity anyway happens offline, happens from direct connections with talent or direct connections with agencies. And we have the ability to actually move that from the offline to the online, without much of interruption. So I don't think that this will increase our competition that much.

Great, thank you.

At this time, we currently have no further questions. So I’ll hand back over to Micha Kaufman, CEO for any closing remarks.

Thank you, Charlie. And thank you everyone for joining the call today. Have a great rest of the day and we’ll see you at the upcoming investor events.

Ladies and gentlemen, this concludes today’s call. Thank you so much for joining. You may disconnect your lines.