Good morning and thank you for standing by. Welcome to the Fiverr Second Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. [Operator Instructions] Please be advised that today's conference has been recorded. I would now like to hand the conference over to our first speaker today, 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 second quarter that ended June 30, 2024. Joining me on the call today are Micha Kaufman, Founder and CEO, and Ofer Katz, President and CFO. Before we start, I'd 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 key performance metrics and non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, and free cash flow. Further explanation and a reconciliation of each of the non-GAAP financial measures to the most directly comparable GAAP measure is provided in earnings release we issued today and our shareholder letter, each of which is available on our website at investors.fiverr.com. And now I'll turn the call over to Micha.

Thank you, Jinjin. Good morning, everyone, and thank you for joining us. Our Q2 results demonstrate continued strong execution and the resilience of our business. Both revenue and adjusted EBITDA came in above the midpoint of our guidance as we continue to expand customer wallet share and improve monetization. We are committed to driving profitable growth and delivering shareholder value in a fluid environment. I'm pleased to report that we have completed the $100 million buyback program announced in April. We remain highly confident about the long-term opportunity of our business and believe our strong cash flow and strong balance sheets allow us to invest in our business while returning capital to our shareholders. I'm very excited to be here today. It has been an incredibly busy and fulfilling few months at Fiverr, culminating in the announcement of our summer product release last week. I want to thank our entire team for their hard work. The level of energy and dedication, especially in the last few weeks, reminded me of Fiverr's early days when we were just a small startup. Fittingly, we are starting up a number of new ventures as we look to take our business to the next level. First is the expansion of Fiverr to enable freelancer hiring capabilities. With the introduction of a professions-based catalog and the ability to initiate time-based transactions and contracts, we are enabling businesses to hire long-term freelancers who act as part of a team with ongoing tasks and goals. This is not an area we competed in historically, but as we increasingly go upmarket and lean into complex service categories, it becomes essential to round up our offerings. We believe it will significantly expand our direct addressable market, allowing us to open up top-of-funnel, specifically for traffic with long-term hiring intentions.…

Thank you, Micha, and good morning everyone. We delivered another strong quarter of results. Revenue for Q2 was $94.7 million, up 6% year-over-year, above the midpoint of our guidance. Adjusted EBITDA was $17.8 million, near the top end of our guidance and representing an Adjusted EBITDA margin of 18.9%. Importantly, Adjusted EBITDA margin increased by 180 bps year-over-year, which underscores our commitment to driving steady, measurable operating leverage. We remain confident in our ability to achieve a 25% long-term adjusted EBITDA margin in the next three years. We also continued to generate impressive cash flow. Operating cash flow was $21 million, up 11.9% year-over-year. Free cash flow was $20.7 million, representing a 12.5% year-over-year increase and an free cash flow margin of 21.8%. This results in a strong balance sheet which we intend to use to increase shareholders value through a prudent capital allocation strategy. As Micha mentioned, we have completed the $100 million share buyback which was authorized in April, and we are committed to optimizing our capital allocation strategy to deliver shareholder value. Over the next three years, we expect to continue growing free cash flow generation with a CAGR in the mid-teens. There are multiple ways we can get there. But as I often say, we always model based on what we know. Based on our line of sight today, we expect to achieve this through steady revenue growth, continued margin expansion, strong free cash flow generation, accompanied by active share count management. Unpacking our Q2 results, we continue to see our strategy of going upmarket work really well, with spend per buyer showing a robust growth of 10% year-over-year. We also see AI continuing to have a net positive impact on our business. It is important to note that we are starting to see stabilizing and…

Thank you. [Operator Instructions] And now we're going to take the first question and it comes from a line of Ron Josey from Citi. Your line is open, please ask your question.

All right. Thanks for taking the question guys. So I want to ask about the product and then maybe a little bit more about just broader visibility. So on the product, look, I think it's really fascinating the expansion to a broader marketplace with the hiring platform. And so, specifically, Micha, I wanted to hear a little bit more about the benefits of Neo as it relates to conversion rates? And then insights on overall launch plans to have it fully integrated in it. And as we also think about the product, I'd love to hear more from a professional-based catalog, just how you see demand and supply evolving on the marketplace over time as you bring everything together and become more of that hiring and marketplace platform. And then just a little more details on the macrovolatility, the pull forward early in the year and then June, July comments. Was this just a change that happened in June, July and as interest rates maybe come down? Any insights on maybe when we might see some stability here? Thank you.

Good morning, Ron. Thanks for the questions. I'll try to take them by order. So the first one was, I think, about the product release and specifically about Neo. So essentially, I think as I've said in my opening comments, the possibility of actually using AI to make our product better, it's pretty much endless. And we're in the very early stages of doing that. And the experimentation that we've done with Neo as a personal assistant within the Inbox, which was the first version of doing it, taught us a lot about how our customers were actually using it and how it improved the conversion in briefing. Now it allows buyers to complete, and it leads to higher conversion as a result. And so, the idea here is that we're graduating Neo to get out of the Inbox and essentially being integrated in all of our experience. Right now, it's being rolled out gradually because we want to test its accuracy and performance. But essentially, you can find it as a personal assistant throughout the experience. So it allows customers to search better, to be more accurate about their needs, and as a result, get much higher quality match. But it also has awareness about where it exists. So if you're looking at a specific page, you can ask it questions about that page. So it helps people make decisions and get to what they're looking for better. The same goes with the integration in briefing. If customers have a brief pre-made, then they can just upload it. And we help make that brief even better. But if they don't, then the technology that is behind Neo actually helps them write a better, more accurate brief. And again, as a result of that, gets matched with a much more…

Thank you, Michal. Very helpful.

Thank you.

Thank you. Now we're going to take our next question. And the question comes from the line of Bernie McTernan from Needham & Company. Your line is open. Please ask your question.

Great. Thanks for taking the questions. Maybe just to start, I'd love to dive into AutoDS a little bit more and just learn maybe what capabilities that the acquisitions bring that you didn't have before or for its customers and probably most importantly how it's supposed to impact the financials in the second half of the year. And then, I think based on the commentary of the take rate being up 250 basis points this year, it implies GMV down year-over-year in the second half of the year. So just wanted to make sure I was triangulating that right. And then, I know it's early, but how to think about if we should be expecting, in your view, re-acceleration in 2025 or not, or just given the comments of the 2027 targets involving strong revenue growth, just maybe the puts and takes in getting there in terms of your thoughts, in terms of the ability to continue to expand the take rate, how M&A could play in that, but also importantly GMV growth?

Good morning, Bernie. Thanks for the questions. So AutoDS, essentially I think as we said in the opening comment, dropshipping is a category that has been on Fiverr for many, many years. And we've been witnessing a lot of growth in this category. I've been saying in previous quarters that Fiverr has identified a number of faster growing categories in which we intend to double down. And in some cases, it's doubled down organically. And in some cases, there's an opportunity for inorganic growth as well. So we had a very sizable community of people that are either dropshipping or offer services related to dropshippers. And what we're doing with the addition of AutoDS is expanding this space also into the software solution. So that allows us to really double down and accelerate. AutoDS is practically in the software space related to dropshipping, is the number one player in the world. It's a fast growing company, we love the team, it's extremely synergic with our business for a number of reasons. It allows us to double down on dropshipping, e-commerce, social media, user-generated content, and video categories, which is, as I've said, some of the fastest growing categories on Fiverr. It's a community that we know very well and feel very strongly about. And I think competitively, it allows us to extend our offering and grow this further and also add to the value chain by providing more products for them. It's a community that is in many ways rooted in Fiverr's origin. And we're very passionate to empower them. We talked about this idea of the Fiverr Millionaire Award. And this connects really to self-made people, people that have built their businesses and are able to grow it. And lastly, I think it creates a diversified revenue stream, adding its subscription base, which is another step towards making our business, not just the market base, but also a platform that provides freelancers with software solution on top of access to opportunities.

I think the second part of the question is relates to take rate and impact on financials. I will start by saying that we are happy and proud to end Q2 above consensus, both for revenue and EBITDA. And with the confidence to reiterate the guidance for the year, both on revenue with a slight increase in the bottom range, reiterating the EBITDA. And I think this takes into consideration the fact, and Micha referred to the -- what Micha said earlier about June and July weakness results in weak joining of new buyer, of active buyer, compensated both by spend per buyer, growing on double digits and take rate extension. And I think that looking at a spend per buyer, our spend per buyer has a robust growth because we're investing in going up market for some time. It's the maturity of investment with the add-on of the summary list. Hourly rate features that we didn't have before, loyalty program. Those types of features allow us to double down on the community with a bigger wallet and increase the engagement relationship experience to a new level. And the second part that's compensated from the active buyer is the take rate. And take rate has expanded over the last few years with new features that we have added alongside the marketplace. And I'm going all the way back with the Promoted Gigs and then Seller Plus, and I think the AutoDS falls into the same bucket, allowing our community to further utilize our offering to make money. And by having said that, we anticipate that the integration of the community will take some time and then the benefit of the AutoDS will fall into the take rate with much of the opportunity ahead of us. You asked about 2025 and 2027. I think that we put some timeline to the 25% EBITDA in 2027. This is based on the assumption that we continue to grow and continue to improve EBITDA. I think that's what we've been doing ever since. There is no step function or hockey stick. It's just about continuing to do what we're doing and make sure that the fundamentals continue to work.

Great. Thank you both.

Thank you. Now we're going to take our next question. And the question comes from the line of Jason Helfstein from Oppenheimer & Co. Your line is open. Please ask your question.

Hi, this is [Steve Rolman] (ph) on for Jason. So just one question on the consolidated take rate. So where do you see the ceiling on take rate over time kind of long term as you kind of look towards that 2027 target or the 2027 targets you put out today. Thanks.

Hey Jason. So the question -- So essentially the -- if you think about the two parts of take rate, there's the transactional portion of it, and then there's the added value services and products that we offer to our community. The transactional portion of it hasn't really changed. And the growth that we're seeing is coming from the value-added product. So we haven't cut this. For as long as we can continue generating products that our community loves using and thinks that they're worth spending, we'll continue doing that. And we have quite a few in the pipeline. And therefore, we haven't cut it. And the transactional portion has pretty much remained the same. So that's how we're thinking about this.

Great. Thank you.

Thank you. Now we're going to take our next question. And the next question comes from the line of Doug Anmuth from JPMorgan. Your line is open. Please ask your question.

Great. Thanks so much for taking the questions. I just wanted to talk more about the Summer Product Release first, the hiring of long-term freelancers. Micha, maybe you can just talk about what you've seen here in terms of demand from buyers just as you built this product and kind of the drivers behind it. And then how we should think about monetization, is it still project-based or is there a different revenue structure there? And then Ofer, just on the full year outlook, maybe you can just talk a little bit more about what drives the confidence in the 4Q revenue acceleration. Thanks.

Good morning, Doug. Thanks for the question. So, the Summer Product Release, as we go up markets and as we become more for our customers, they can envision doing more with us. In some cases, when you think about the predefined catalog of services, in some cases, it's very hard for customers to define their need in the format of a well-defined service with a beginning and an end. In some cases, when they need to hire talent, all they know is that they need a highly qualified graphic designer for three months because they have a variety of projects. Some of them, they're not even aware of what their specifics are, but they know that they have a lot of pressure right now and they need talent for the next couple of months. When that is the case, the best way of doing that is not necessarily going through the gig or services catalog, but rather to find the right talent and engage in an ongoing arrangement, which is why we created this mechanism. Now, it's not competing with the services because when you know exactly what you need and that is well-defined and it has a beginning and an end, it's very easy for our community. They're very accustomed to providing the transparency and clarity of having a predefined scope of work where you know how long does it take and exactly how much it's going to cost. But these are the more variable tasks, the more variable ongoing projects. And so, both the community from the supply side and the demand side have been asking for this. And we're happy to get to the maturity of extending our marketplace into this platform idea that really allows multiple ways of engaging with talent and multiple ways of contracting and paying to talent. So we just launched it. The community is highly, highly excited about this. Obviously, we're seeing a lot of transactions coming into the system already. But since it's been about a week, there's no numbers that we can talk about at this point.

The second part, Doug, of the question was about the confidence in Q4 revenue. I think the confidence is based on what we are seeing, products that we have released and numbers of potential spend per buyer growth and active buyer. I think that the current guidance implies more muted growth for GMV this year. And from a product standpoint, we haven't taken into account any impact from product release. We do think that professional catalog and time-based contracts open up a whole new world with super funnel traffic. Historically we haven't compete in this area at all, so there's definitely a potential to drive additional GMV uplift in the second half. So all in all, when we build a model based on what we see, we think that the add-on of the AutoDS later this year to our audience will have a positive impact on top of everything that we are doing internally. And the sum all is a nice exit rate for this year.

Got it. Thank you both.

Thank you. Now we're going to take our next question. And it comes from the line of Andrew Boone from JMP Security. So your line is open, please ask your question.

Good morning, Thanks so much for taking my questions. Micha, you've been fairly clear that AI has been a net positive, but can you talk about what you're seeing on the simple tasks and whether there's a path to underlying stabilization for those categories? And then secondly, as you transition from a marketplace into more of a platform with software solutions, how should we expect that to manifest going forward? It sounds like AutoDS is going to be operating independently. How do you think about the synergies and then how do you build out more software solutions and what's the obvious adjacencies that you're seeing there? Thanks so much.

Good morning, Andrew. Thanks for the question. So starting with AI. So essentially AI continues to be net positive for us. We're seeing -- stabilizing and improving trends on simple services. We mentioned in the past that AI is impacting low ticket size jobs mostly. So we continue to see improving trends on simple overall mix of projects. So the overall mix of projects shifts towards higher end skills. Now, several quarters in, we are actually seeing that in our -- or this in our data. So for example, writing and translation as a vertical, is the vertical with the biggest exposure to AI impact. In Q2, we're actually seeing traffic in that vertical improved 10 percentage points in terms of year-over-year growth rate compared to Q1. And on complex services they're still growing much faster than simple and neutral categories, but the growth rate has moderated recently due to the volatility that we've been speaking about in June and July. That said, with us now opening professions catalog and hourly contracts, this will open up new funnels and create growth opportunities, especially for complex services categories. And remember that we have over 700 categories. So our exposure to specific categories is relatively low, and seasonal trends in categories spend are a regular thing in our line of business. When we think about the overall mix complex is in the mid-30s of GMV and simple is about 20%. I would be careful about calling anything we've spoke about on June and in July a trend. Because it's very hard to see stable things. Things seem to change over the year, and as I've said, there's many reasons why that is, and I would wait before we can actually call it a trend. The second question was a transition to platform.…

Thank you.

Thank you. Now we're going to take our next question. And the question comes from the line of Matt Farrell from Piper Sandler. Your line is open. Please ask your question.

Thanks, guys. Impressive free cash flow generation in the quarter, and congrats on completing the buyback. For the $300 million of free cash flow over the next 3 quarters. Should we be thinking about all of that being deployed in some way, just given where your balance sheet is today? And is the preference for continued buybacks or more M&A?

Matt, should I assume you meant three years? $300 million or…

Yes, it's $300 million over the next three years, yes.

Oh, good. So, at first maybe you know something, I don't know. But I think we laid off the capital allocation priorities in the shareholders' letter. Pretty extensive. I will name it now, but again, that's pretty extensive details in the shareholder letter. So the way we see the capital allocation goes from investing product to drive growth. That's something that we've been doing for a while and will continue to do because we think the time is ahead of us. There's a lot of opportunity to capture. The second goes to optimize balance sheet and cash flow generation. I think a quick look into our balance sheet today. So we have a little bit over $700 million of cash and cash equivalent. And this is after we have completed the [$100 million] (ph) buyback. So this $700 million allows us a lot of flexibility and also making sure we have enough liquidity to pay off if needed the convert end of next year. And then if there is an opportunity for the value of the shareholders to do some more share buyback, if price is attractive, we may consider that. And lastly it's M&A. We've been opportunistic in the past and plan to continue and seek for alternatives for us to grow inorganic by M&A. You need to take into consideration that on top of the $700 million, we are generating free cash flow every year, approximately $80 million. As we look forward, we're pretty positive and confident from cash flow standpoint. And I think we intend to strategize our cash usage with the goal of driving steady and consistent free cash flow per share in the next three years. As we mentioned in the prepared remarks with the current line of sight, we believe we can drive CAGR of 14% in free cash flow for the next three years and a similar trajectory for free cash flow per share.

Thanks. And maybe just one more. You mentioned, you know, not competing in the new long-term freelancer category until the recent product announcement. First, is there a way to size how big this opportunity is relative to the part of the market that you've been going after historically? And second, do you have to change your go-to-market strategy at all to compete in this new area with what I would assume to be a different set of competition to some degree? Thanks.

Yes, so I think, when we look at this -- as we go up market, this opens up the ability to have a significantly larger ticket size project that are by definition more longer term or resemble more long term freelancer hiring. And as a result of that, that has a number of implications. One it allows to increase the top-of-funnel traffic, because it allows us to get into more relevant keywords. As we invest in the profession catalog, it allows us to exist also on keywords that have to do with specific skills and not only on services. And lastly, also on conversion, it provides a way for buyers to search talent and initiate time-based contracts without having full scope and, as a result, get into a more ongoing engagement. These are the types of engagements that Fiverr wasn't a part of. When you think about this competitively and what does it do to the market, we still think that the vast majority of opportunity is offline. It doesn't reside in specific market bases or platforms, but it is actually pretty scarce, widely spread either in directories or in offline ways of engagement. And we think that this is where the opportunity is in bringing that offline activity to the online and this is why it is important for us to invest again to create this opportunity for top-of-funnel relevant keywords to create more opportunity for new business traffic coming into Fiverr.

Thank you. Now we're going to take our next question. And the question comes from the line of Marvin Fong from BTIG. Your line is open. Please ask your question.

Hi, good morning. Thanks for taking my questions. Just a couple for me. Just so curious on the volatility fall in June and continuing in July. I know you said it was kind of across the top of funnel, but could you kind of speak to the larger businesses on your platform? I think in the past you've referenced like the TikTok’s and Deltas of the world. I mean, the larger organizations are you also seeing this level of volatility or is it isolated to SMB? And then secondly, I know you referenced in your shareholder letter that Promoted Gigs and Seller Plus continue to do well. I'm just wondering if you could just drill a little deeper on that, I think in the past you've given us some growth rates, but anything more you could share just on your view of that in the context of the choppiness we're seeing, freelancers leading into these types of services to grow their businesses even more, that'd be helpful. Thanks so much.

Thanks, Marvin. That's a good question. So, when we look at our larger customers, that segment is growing faster than the rest. So yes, when we think about macro, macro does influence smaller businesses more. It should be said though, and we called out that, for example, one of the things that were surprising that volatility is that, categories like programming and technology which are always growing were a little bit more volatile during that period of time. And again, I think I called out the number of statistics on professional hiring that I think are troubling and are saying that there is an impact of macro. That said, it is mostly top-of-funnel, meaning, what you see is reduced levels of top-of-funnel traffic. Now this doesn't necessarily touches our existing customers. Actually, if you think about it and you look at cohort behavior, actually we're seeing cohorts behave better than before. And I called that in previous earnings and that hasn't changed. Meaning, that newer cohorts are spending more on their first purchase, first month, first quarter, first year, and we're seeing those trends. So it's less of a volatility of existing customers and those larger customers that work with us, in most cases only extend the scope of work that they do. And yes, it is impacting SMB more than that. I think the second part of your question was about Promoted Gigs and Seller Plus.

Yes, just like the value-added services and…

Yes, they're doing well. And I think I said in the previous earnings, when we gave a little bit more color in the form of actual number of growth, I said that there's a very nice road ahead for continued growth in both of these programs. And that continues to be the case, right? Sellers are very eager to get in. And obviously these are -- in some cases, these are programs that are not open to all of them. The reason why they love using these products is it does create more income. It does create more value, more transparency, more analytics into their business. So we continue to create more ways for them to enjoy. It in Promoted Gigs, increasing real estate, in Seller Plus. In part of the Summer Release, we talk about starting to build a Kickstarter program that would provide more value to actually newer sellers, meaning it will help them start selling much faster and help them grow their business. So there's plenty of road ahead and we're not close to consuming the maximum potential of these programs.

Thanks a lot, Micha and Ofer. Appreciate it.

Thank you. And the last question for today comes from of Rohit Kulkarni of ROTH Capital Partners. Your line is open. Please ask your question.

Hey, thanks for taking my question. A couple of them. I guess, like, looking ahead, it feels like GAAP profitability is not too far in the future for you guys. Maybe talk about once you turn GAPP profitable, how does that change your philosophy of running the business? I see you already have put out bullish free cash flow generation potential, but it feels that the model brings us to a GAAP profitability by end of this year and every quarter going forward. So we'd love to get your take on that. And then in terms of this June, July trends, I know a lot has been asked and you've shared quite a few things. Perhaps again, asking you guys a hard question, what gives you confidence that this volatility does not linger into August and September? Any leading indicators that you would point us towards?

I'll take the first part on the GAAP. As we usually take and guide on long-term EBITDA and free cash flow, less on GAAP, but we have turned into GAAP profitability already, so that's a good news. And as we look into the future, we anticipate that the gap between the EBITDA and GAAP is going to decrease because of the share-based compensation that we are carrying from 2021. So that within a 12 months ahead of us, what we anticipate is that the share-based compensation is going to be reduced from 18% of revenue as of now to 13%, which is pretty much in the range of the industry. And GAAP EBITDA will grow side-by-side with EBITDA. I think we set the EBITDA target, the long-term target to 2025. We now gave it a timeline of 2027, free cash flow, follow EBITDA. And I think that now that we are GAAP positive, I think we'd see improvement in GAAP income profitability over the next two quarters.

And the next question about June and July trends. So it should be said, I said that it's hard to call them a trend. There is some volatility, and that volatility is something that the guidance takes into account. It does take into account that it's continuing into July and potentially impacts on the second half of the year. Hence, the updated color around active buyers. At the same time, spend per buyer take rates going up, which we think is going to cover it. And I mean, volatility might be influenced also as you think about how the year will seem to progress on decisions about the interest rates and the outcome of the election in the U.S. So obviously, we're not prophets and it's very hard to know, but since we've taken into the guidance the possibility of this volatility continuing, but the confidence that we have on the spend per buyer and take rate, we believe that we're going to cover it.

Thank you, Rohit. Now I would like to hand the conference over to your speaker, Micha Kaufman, for any closing remarks.

Thank you, Nadia, for moderating the call today, and thank you, everyone, for joining us. We're looking forward to seeing you in person very soon during the quarter. Thanks so much and have a great day.

This concludes today's conference call. Thank you for your participation. You may now all disconnect. Have a nice day.