Hello, everyone, and welcome to the Fiverr Q3 Fiscal 2022 Earnings Conference Call. My name is Julie, and I will be coordinating your call today. [Operator Instructions] I'd now like to turn the call over to Jinjin Qian. Please go ahead.

Thank you, operator, and good morning everyone. Thank you for joining us on Fiverr’s earnings conference call for the third quarter that ended September 30, 2022. Joining me on the call today are 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 is 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. We are pleased to report strong results today. In the third quarter of 2022, revenue was $82.5 million at the top end of our guidance, and adjusted EBITDA was $6.6 million, above our guidance range. This performance is the direct result of the actions we took to strengthen the flywheel of our marketplace. That is improving our efficiency in buyer acquisition, optimizing our catalog, building a better product experience and, in turn, driving more buyers to buy more from our platform. Our decision a few months ago to optimize our cost structure and accelerate our pace towards long-term margin targets is also paying off. Our Q3 adjusted EBITDA margin of 7.9% represents a 250 basis point improvement from Q2 with a strong gross margin of 82.8% and cost savings across all expense lines. The scalability, efficiency and highly diversified nature of our business model is setting us apart in navigating through this economic cycle. We operate a global market base where millions of buyers purchase digital services from our platform across over 550 category. This allowed us to detect the shifting macro conditions as early as March. Our bottom-up go-to-market strategy with a highly efficient and data-driven approach allows us to stay disciplined when overall SMB spending is facing headwinds. In fact, we took a step ahead and even accelerated our pace of improving the bottom line when growth became more expensive. In addition, we have a strong balance sheet and are generating strong cash flow. We believe maintaining a healthy cash flow and cash balance is essential in protecting shareholder value in the current macro environment and gives us the ability to focus on long-term value creation. We tremendously value the trust we have earned from…

Thank you, Micha, and good morning, everyone. We delivered strong results in Q3 across all metrics. Revenue of 82.5 million came in at the top end of our guidance, representing year-over-year growth of 11%. Adjusted EBITDA was 6.6 million, above the top end of our guidance with an adjusted EBITDA margin of 7.9%. We were able to improve our marketing efficiency, strengthen our product focus to drive conversion and retention and continue to make progress in upmarket, all of this benefited from the realigned focus in our core marketplace and Fiverr business. The cost optimization exercise we did in July also paid off, allowing us to improve organizational efficiency as a whole and accelerate our trajectory towards long-term adjusted EBITDA margin target of 25%. Our adjusted EBITDA is also indicative of the strong cash flow we generate and together with the healthy balance sheet, it demonstrates the strength of our business and provide us with a strong financial position to pursue long-term growth opportunities. Active buyers were $4.2 million, up 3% year-over-year. We are encouraged to see active buyers come stabilized, especially given the large cohort sites we acquired in the past two years, as well as the macro headwind that we are facing today. The resilience of our active buyers reflects the strong cohort behavior in our marketplace. Even in an uncertain environment like now, Fiverr provides an essential platform for SMBs to execute their digital strategy with speed and cost efficiency unmatched anywhere else. We also had strong execution on the new buyer growth form. We saw improvements in marketing efficiency, some of the work we did in pushing fusion and influencer channels as well as more granular campaign optimization contributed to the efficiency gain. We also saw a nice uplift in traffic following our launch of the…

Thank you. We will now start today's Q&A session. [Operator Instructions] Our first question today is from Doug Anmuth from JPMorgan. Your line is now open.

Thanks for taking the questions. Micha, you talked about getting more sales to existing buyers and saw spend per buyer up 12% in the quarter. Can you just talk about your efforts there and perhaps that includes growing up market as well? And then just thinking more from a macro perspective, you talked about seeing the macro pressure early, perhaps as early as March? And then if you look back, freelancing request come back somewhat quicker in the past? Are you seeing any signs of pickup there or signs that perhaps greater supply could help drive some more demand as well? Thanks.

Hey, good morning Doug. Yeah, thank you for the questions. So first, on the spend per buyer, what we've seen is we saw an opportunity to do more acquisition in the later part of the quarter. Those cohorts haven't had the opportunity to spend yet. So this is why we've seen a slightly higher number than expected on the active buyer and slightly lower on the spend per buyer. It is just because of that. From market conditions, what we've seen is essentially, as of about June, we started seeing some stabilization in the market, which actually continues into this quarter into October. And I think that the first sign -- so again, you mentioned that we were one of the first to see that pretty early on. The first signs that we're seeing now is we're seeing probably above usual trend on the supply side. And this is very typical. So usually, supply comes first. That is a result of both the layoffs, which I think is just going to drive our supply much more meaningfully in the next few quarters if the current layoffs continue to happen, because a lot of the people that were laid off unlike before are facing with other companies that are in freeze, which means that some people are going to find themselves without option. And I think that Fiverr is a very viable and a great option for them. So we're starting to see that on the supply side. At some point, it's going to happen on the demand side. And in my opening remarks, I did emphasize the fact that this is the sequence. It's a matter of timing. It takes time for that cycle to happen. And sometimes, companies would cut back on freelancers first because it's variable expenses, and…

Very helpful. Thanks, Micha.

Our next question today comes from Brad Erickson from RBC Capital Markets. Please go ahead.

Thanks. Maybe just a follow-on to that last comment. You talked about the accelerated supply coming to the marketplace, how much unfulfilled demand would you say is on the platform, where you think there's an appetite to buy, but they're just not able to find the freelance or that they want for whatever reason. And I guess the question is, could you add additional percentage points of growth upcoming if you are able to just improve utilization beyond just active buyer growth and spend per buyer. Thanks.

Thank you, Brad, and good morning. So in terms of unfulfilled demand, I think that this is kind of a moving target. And the reason is that, the more we sell the supply side, the more we feel it with more professional offerings and supply. The more we fill it, we did those who can actually perform more sophisticated and larger projects. So is the demand for that. So if there's an offering, we know how to match it with demand. So, I would like to think that when we look at matching and unfulfilled demand, it's pretty stable, meaning that the more supply we have, the more demand we can trap to it. And -- but essentially the size of the catalog and the variety in the catalog allows us to have a relatively, I think, small degree of unfulfilled demand and demand grows with supply. And I said so before, supply comes first. So when we bring supply, when we open new categories, demand comes most of it organically, very, very fast. And through our marketing machine, we know how to bring additional demand to it.

Got it. Got it. Thanks. And then just a follow-up. Take rate obviously continues to go up. Where are you, would you say on ad load for Promoted Listings? And I guess, should we just generally maintain that trajectory here going forward? Any reasons why take rate would increase faster or slower as a function of either Promoted Listings or other value adds you're including in there? Thanks.

Thank you. So we're very happy with how Promoted Listings is growing. And I think we've alluded to that. We talked about this in previous quarters. And we said that, there is ample room to grow into -- and this actually trickles down into take rate. So a lot of what you see in the take rate is that. So it's promoted listings and it's the added value services that we offer that more buyers and sellers are enjoying, we do believe that there's a pretty long runway to build into with these products. And this is why we always say that, there's always this modest room for improvement on the take rate. And I think we've demonstrated very consistently over the past few quarters that this is the case.

Got it. Thanks.

Our next question comes from Matt Farrell from Piper Sandler. Please go ahead.

Thanks, guys. Congrats on the really strong execution here in this uncertain environment. For my first question, taking a step back, it's been a couple of months now since the cost realignment actions. What are some of the biggest takeaways you have from those efforts, either on execution, culture, product momentum, anything there would be helpful? Thanks.

Hey, Matt. Good morning. Thanks for the question. So I think we were one of the first companies to actually do cost saving and improving the cost efficiency -- and obviously, we've seen a very positive outcome out of it. I should note it – I should note that, we haven't seen the full extent of that improvement given the fact that when – for example, when you do cut back when you do layoffs, there's severance that is being paid. So it's not fully – it doesn't trickle down into the P&L. So over time, you enjoy “this more” everything that we've done in terms of focusing on our core business, without neglecting the strategic investments that we're doing, are really focusing on the money making parts of our machine, improving them, improving the way we do our customer acquisition and our continued focus in high-value buyers, larger buyers, the focus on fiber business. All of that has obviously been contributing both on the growth side and definitely on the efficiency side on the EBITDA side and cost side. So, all-in-all, I think that from that perspective, obviously, we're very happy with the outcome, and I think it brought us to a good place where it also will allow us to accumulate cash so we can be opportunistic when the market rebounds or show signals where there's opportunity to go back into growth, that is going to give us a lot of ammunition to actually do that very effectively.

And I know you aren't providing 2023 guidance right now. But as we think about bigger picture product teams or macro dynamics, how are you just thinking about the major tailwinds and headwinds as we move over the next couple of quarters here? Thanks.

This is Ofer. And I think, as you said, we're not providing guidance at this point of time. And there is a lot of uncertainty ahead of us, both mainly in terms of economics and geopolitics. Yet to be said, I want to tackle on two items. The first is the first year EBITDA, which we have control and plan to maintain this test for long-term EBITDA. We plan a meaningful upside next year in terms of EBITDA, so again, despite the fact that this is not a time to talk about guidance, we do feel confident with our ability to improve EBITDA next year. And the second comment on my end is more on the long-term. Given where we are in terms of number of active buyers, but also center buyer, we feel there is an infinite. It's a blue ocean ahead of us. Not only on the SMB, SMB a little bigger organization. And we have much to accomplish. And we think that once this economy circumstances stabilized and get better, I think that Fiverr would be one of the company to enjoy a significant uplift in growth both in terms of active buyer and center buyer and top line growth. So we are very positive. And I think we navigate pretty well during this uncertain period. So that's kind of the best guidance that we can provide for the next few quarters.

To augment on what Ofer said on the product side, I think that when we look at it, there's really two areas, where one is the core business, where we continue to improve top-of-funnel efficiency, improve conversion, retention, there's a lot to do in a true e-commerce market base. There's a lot to improve there. And that also contributes to an even higher and stronger flywheel effect. And I think that in a sowing macro environment, it really gives us an opportunity to look more inside and find those growth opportunities. And the other area is really Fiverr Business. I mean so it's really continuing to build that machine, identify the customers that should be moved into Fiverr Business, so we can give them a great service, and we can also improve their engagement. A lot of exciting work there. And I think on our side, one of the great signs is when we look at the top of our funnel, we have enough customers. We have enough customers that Fiverr Business is a perfect fit for -- and it's really optimizing that idea of identifying the segments and driving them into Fiverr Business, where they spend many multiple times, what an average customer spend on Fiverr. Thank you.

Thanks, guys. Congrats, again.

Thank you.

Our next question today comes from Andrew Boone from JMP. Your line is now open.

Hi, guys. Good morning and thanks for taking my questions. You talked about stability within cohorts, within the letter, ROI remains healthy at I think a 90% payback period this last quarter. Can you just shed some additional light on what you're seeing in terms of existing buyer spend and just the consistency there versus past quarters? And then I'm curious about the personal consumption of Fiverr. The letter, I think, mentioned 75%-plus of buyers can be fiber for business purposes. What's the other side of that? Can you talk about the minority spend that is personal, what are people buying? And is there an opportunity to lean into that? Thanks so much.

Thanks, Andrew. Thanks for the question and good morning. So on core behavior, I think that the message now is very consistent with what you've heard in previous earnings, which is what we're seeing is we're seeing cohort behavior being better than pre-pandemic. It is not as good as the height of the pandemic, but it is not going back to the levels of pre-pandemic. So essentially, we're seeing good core behavior. When you see macro headwinds macro influences everyone, it influences new business and repeat business. But essentially, the loyalty of our customers is not being hurt. When they have a need, they come to us. And so that's kind of our view on cohort. Second question was on business consumption versus private. Remember that every person who comes to purchase something, let's say, you wrote the book, and you want someone to edit that book or illustrate that. Or I don't know, you do a private project for your family or a friend. That is your personal persona, but you also work somewhere. So we've seen a little overlaps of either people that are business buyers, but then they -- sometimes they use the platform also for their personal needs. That would be whatever a hobby or something else. And we've seen the other situation, which is someone would start by coming in because I don't know, they compose music in their free time, but get exposed to the variety, the infinite capital that we have and then become a business buyer over time. But we pointed out this because we thought that this was an interesting point to share.

All right. Thank you. There are no further questions at this time. I'll hand you back over to Micha Kaufman for closing remarks.

Thank you, Drew, and thank you, everyone for joining this morning. We look forward to seeing you in one of the conferences or to speak in person and see you next quarter. Thank you. Thank you. Have a great day.

That concludes today's Fiverr Q3 fiscal 2020 earnings conference call. You may now disconnect your lines.