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transcript
Q1 2018 Financial Results
May 8, 2018
This presentation contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements related to our business strategy, market size, financial guidance and key drivers thereof, the impact of our focus areas and key initiatives, our product launch roadmap and potential future growth. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “may,” “plans,” “will,” “intends,” or similar expressions and the negatives of those words.
Forward-looking statements involve substantial risks and uncertainties that may cause actual results to differ materially from those that we expect. These risks and uncertainties include: (1) our history of operating losses; (2) the fluctuation of our quarterly operating results; (3) our ability to implement our business strategy; (4) our ability to attract and retain an active and engaged community of Etsy sellers and Etsy buyers; (5) macroeconomic events that are outside of our control; (6) our ability to recruit and retain employees; (7) the importance to our success of the trustworthiness of our marketplace and the connections within our community; (8) our ability to enhance our current offerings and develop new offerings to respond to the changing needs of Etsy sellers and Etsy buyers; (9) the effectiveness of our marketing efforts; (10) the effectiveness of our mobile solutions for Etsy sellers and Etsy buyers; (11) our ability to expand our business in our core geographic markets; (12) regulation in the area of privacy and protection of user data; (13) our dependence on third-party payment providers; and (14) the potential misuse or disclosure of sensitive information about our members and the potential for cyber-attacks. These risks and uncertainties are more fully described in our filings with the Securities and Exchange Commission, including in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017, and subsequent reports that we file.
Forward-looking statements represent our beliefs and assumptions only as of the date of this press release. We disclaim any obligation to update forward-looking statements.
Forward-looking Statements
This presentation is a high-level summary of our Q1 2018 financial results. For more information please refer to our press release dated May 8, 2018 and filings with the SEC
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Q1 Key Accomplishments and Highlights
Accelerated GMS and Revenue Growth with stable margins
Improved buyer experience driving conversion rate gains
Created efficiencies from key foundational investments
Executed a $345 Million Convertible Debt Offering
Repurchased approximately $70 Million of Etsy shares
Raised 2018 guidance for GMS, Revenue and Adjusted EBITDA Margin
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GMS
$861M +19.8% Y/Y
+17.6% Y/Y (FX adj.)
Revenue
$121M +24.8% Y/Y
Net Income
$13M $0.10 EPS1
Adjusted EBITDA*
$26M 21.9% margin
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Our Strategy Continues to Yield Strong Financial Results
*Reconciliation of non-GAAP financial measures is contained in the Appendix. **Revised to reflect the correction of an immaterial error 1EPS reflects diluted earnings per share, basic EPS is $0.11
GMS Growth Revenue Growth Adj. EBITDA Margin*
1Q17 2Q17 3Q17 4Q17 1Q18
24.8%23.6%21.5%
19.1%18.4%
1Q17 2Q17 3Q17 4Q17 1Q18
21.9%
25.6%
21.4%
12.5%10.0%
1Q17 2Q17** 3Q17 4Q17 1Q18FX-Neutral GMSAs-Reported GMS
19.8%17.8%
13.2%11.8%
14.2%
FX-Neutral GMS 17.6%
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Etsy’s Virtuous Marketing Cycle
Improved experience
Leads to a higher conversion rate for new and repeat buyers
Leads to a higher LTV
Higher LTV enables more marketing spend
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2018 Balanced Portfolio of Investments
Foundational Longer TermImmediate
~20% ~60% ~20%
Focused on foundational investments, incremental growth initiatives and longer term projects
Examples:
• Help Center • Google Cloud • Technical Debt
Examples:
• Discovery • Machine Learning • Engagement
Examples:
• Search & Discovery • Trust & Reliability • Marketing Capabilities • Seller Tools and Services
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Foundational Investments Support our Product Roadmap
• Focus on improved operational efficiency and use of resources • Enhanced experience for buyers and sellers
• Faster processing speed and page load times • More nimble capacity utilization
• More agile development infrastructure to maintain velocity • Streamlined code base to improve page load times
• Data and privacy transparency, accountability and security for our community
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Delivering on our Four Key Initiatives
We estimate product enhancements launched in Q1 will generate over $75M in annualized GMS
Trust & Reliability
Search & Discovery
Marketing Capabilities
Seller Tools & Services
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Search & Discovery: Helps Buyers Find “Special”
Context Specific RankingPromoted Listings for a “wedding dress” search without CSR
Promoted Listings for a “wedding dress” search with CSR
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Trust & Reliability: Relieves Friction in the Buying Process
Scarcity Badges
New Structured Return Policy Free Shipping FiltersScarcity SignalsGuest Checkout
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Marketing Capabilities: Unique Inventory “Made With Love”
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Seller Tools & Services: Enable our Sellers to Drive Growth
Targeted Offers Custom Orders
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Q1 Results Highlight Improvements in the Product Experience
GMS Growth (y/y) Consecutive quarters of accelerated growth
Revenue Growth (y/y) Consecutive quarters of accelerated growth
*Reconciliation of non-GAAP financial measures is contained in the Appendix. **Revised to reflect the correction of an immaterial error
Adj. EBITDA Margin* Solid Adjusted EBITDA margin
Focused on initiatives that we believe have the highest probability of driving growth
1Q17 2Q17** 3Q17 4Q17 1Q18FX-Neutral GMSAs-Reported GMS
19.8%17.8%
13.2%11.8%
14.2%
1Q17 2Q17 3Q17 4Q17 1Q18
24.8%23.6%21.5%
19.1%18.4%
1Q17 2Q17 3Q17 4Q17 1Q18
21.9%
25.6%
21.4%
12.5%10.0%
FX-Neutral GMS 17.6%
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New Revenue Categories: Marketplace & Services
27%
73%
MarketplaceServices
Marketplace Revenue(Required)
• Listing Fee • $0.20 listing fee per item
• Transaction Fee • 3.5% transaction fee on
goods sold • Etsy Payments
• 3-4% + a flat fee charged in local currency
• 2.5% - 5% fee for foreign currency transactions
Services Revenue(optional)
• Promoted Listings
• Etsy Shipping Labels
• Pattern by Etsy
$88M, up 24.7%
$33M, up 35.0%
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1Q18 1Q17
(in thousands)
Revenue $120,912 $96,891
Cost of revenue 41,295 34,659
Gross profit 79,617 62,232
Marketing 26,194 23,454
Product development 20,721 18,116
General and administrative 18,904 22,763
Operating expenses 65,819 64,333
Income (loss) from operations 13,798 -2,101
Other (expense) income, net (817) 628
Net income (loss) $12,967 ($421)
Net income (loss) per share — diluted $0.10 $0.00
Condensed Consolidated Statement of Operations
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Convertible Debt Transaction
Launch Date: March 8, 2018Issue: Convertible Senior Notes due 2023Offering Size: $300 millionGreenshoe: $45 millionRanking: Senior unsecuredMaturity: 5 yearsCoupon: 0%Conversion Premium: 37.5%Concurrent Stock Repurchase: $42 million, 1.6 million sharesUse of Proceeds: Capped call transactions, general corporate purposes
Leveraging the strength of our balance sheet for long-term growth investments
Full Year 2018 Guidance
* Reconciliation of non-GAAP financial measures is contained in the Appendix. ** Based on the mid-point of 2018 revenue guidance
1 Original guidance issued on 2/27/2018 and revised guidance issued on 5/8/2018
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2018 Original Guidance1 2018 Revised Guidance1
GMS Growth 14 - 16% 16 - 18%
~$3.7B - $3.8B ~$3.8B - $3.84B
Revenue Growth 21 - 23% 22 - 24%
~$534M - $543M ~$538M - $547M
Adjusted EBITDA Margin* 20 - 22% 21 - 23%
~$108M - $118M** ~$114M - $125M**
Appendix
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1Q18 4Q17
(in thousands)
Cash and cash equivalents $533,855 $315,442
Short-term investments 67,526 25,108
Property and equipment, net 116,385 117,617
Accounts receivable, net 31,292 33,677
Other assets 121,107 113,739
Total assets $870,165 $605,583
Accounts payable $8,094 $13,622
Facility financing obligation 60,041 60,049
Long-term debt, net 265,415 -
Other liabilities 152,128 135,018
Total liabilities 485,678 208,689
Total stockholders’ equity 384,487 396,894
Total liabilities and stockholders’ equity $870,165 $605,583
Condensed Consolidated Balance Sheets
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1Q18 1Q17
(in thousands)
Net income (loss) $12,967 ($421)
Excluding:
Interest and other non-operating expense, net 2,667 2,152
Provision (benefit) for income taxes 14 (1,052)
Depreciation and amortization 6,320 6,938
Stock-based compensation expense 5,740 4,043
Stock-based compensation expense-acquisitions 714 842
Foreign exchange gain (1,850) (2,780)
Restructuring and other exit costs (income) (151) —
Adjusted EBITDA $26,421 $9,722
Etsy is not able, at this time, to provide GAAP targets for net income margin for 2018 because of the unreasonable effort of estimating certain non-cash items that are excluded from non-GAAP Adjusted EBITDA margin, including, for example, provision or benefit for income taxes and foreign exchange gain or loss, the effect of which may be significant.
Reconciliation of Quarterly Net Income (Loss) to Adj. EBITDA