Etsy, Inc. Reports Second Quarter 2018 Financial Results

BROOKLYN, N.Y., Aug. 6, 2018 /PRNewswire/ -- Etsy, Inc. (NASDAQ: ETSY), the global marketplace for unique and creative goods, today announced financial results for its second quarter ended June 30, 2018.

"Etsy delivered another quarter of strong performance, including our fourth consecutive quarter of GMS acceleration, continued evidence that increased investments in our core marketplace are working," said Josh Silverman, Etsy Inc. Chief Executive Officer. "We announced the first pricing change in the history of the company, further improving our ability to reinvest in our seller community."

Second Quarter 2018 Highlights

• GMS was $901.7 million in the second quarter of 2018, up 20.4% compared with the second quarter of 2017. We accelerated GMS growth by 60 bps compared with the first quarter of 2018, marking the fourth consecutive quarter of sequential acceleration in this metric on an as-reported basis.
     
• On a currency-neutral basis (excluding the direct impact of currency translation on GMS from goods sold that are listed in non-U.S. dollar currencies) GMS growth accelerated to 19.3% from 17.6% in the first quarter of 2018.
    
• Year-over-year aggregate conversion rate growth increased for the third consecutive quarter led by strong performance across all three devices, desktop, mobile web, and the mobile app.
       
• Revenue was $132.4 million and grew 30.2% in the second quarter of 2018, compared with the second quarter of 2017.
    
• We announced an increased seller transaction fee, which is expected to support additional investments in the growth and health of the marketplace. The new transaction fee of 5% is inclusive of the cost of shipping and went into effect on July 16, 2018.
     
• In July, we announced a referral agreement with DaWanda, a Germany-based marketplace for gifts and handmade items. DaWanda plans to wind down its operations and shut down its site on August 30, 2018. It is encouraging its community of buyers and sellers to migrate to Etsy.
     
• We made progress executing against each of our four key initiatives, including launching several product enhancements aimed at bolstering trust and improving conversion rates, utilizing location as an attribute in search ranking, structural improvements to SEO, and announcing monthly subscription packages.

"Second quarter revenue increased 30.2% from the prior year, with continued growth in Marketplace revenue and out-performance in Services revenue," said Rachel Glaser, Chief Financial Officer. "We've made meaningful progress to enable significantly more investment in the Etsy platform, and are leveraging our strong financial position to support what we believe is a long runway for future growth."

For information about how we define our metrics, see our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, except for Marketplace revenue and Services revenue which are described below.

Second Quarter 2018 Financial & Operational Results

• Total revenue was $132.4 million for the second quarter of 2018, up 30.2% year-over-year, driven by growth in both Marketplace and Services revenue.
    
• Gross profit for the second quarter of 2018 was $87.0 million, up 31.8% year-over-year, and gross margin was 65.7%, up 80 basis points compared with 64.9% in the second quarter of 2017.
    
• Total operating expenses were $74.2 million in the second quarter of 2018, down 4.5% year-over-year. The decrease in operating expenses was driven by restructuring charges and other exit costs stemming from our actions to streamline our cost structure in the second quarter of 2017.
    
• Net income for the second quarter of 2018 was $3.4 million, with diluted earnings per share of $0.03 impacted by non-cash foreign exchange losses of $4.5 million, or $0.04 per diluted share. Net income and diluted earnings per share were significantly lower compared to last year. This was due to foreign exchange fluctuations, primarily related to intercompany balances, and a tax benefit recorded last year due to employee stock-option exercises, which both contributed to the year-over-year decline in net income and diluted earnings per share.
    
• Non-GAAP Adjusted EBITDA for the second quarter of 2018 was $27.7 million and grew 118.1% year-over-year. Non-GAAP Adjusted EBITDA margin (i.e., Adjusted EBITDA divided by revenue) was 20.9%, up 840 bps year-over-year. Adjusted EBITDA performance was driven primarily by revenue growth and increased efficiencies in our operating structure resulting from a reduction in employee-related costs.
    
• Net cash provided by operating activities was $66.5 million the six months ended June 30, 2018 compared with $15.4 million the prior year. The increase in net cash provided by operating activities for the six months ended June 30, 2018 was mainly driven by revenue growth and lower employee-related costs.
    
• Etsy repurchased an aggregate of approximately $21.1 million, or 722,941 shares of its common stock in the second quarter of 2018, completing the authorized stock repurchase program announced in November 2017.
     
• Cash, cash equivalents, and short-term investments were $567.5 million as of June 30, 2018.

2018 Financial Guidance

Etsy is raising its 2018 guidance for GMS and revenue growth, and reiterating our 2018 guidance for Adjusted EBITDA margin, which results in slightly higher Adjusted EBITDA compared to the prior guidance announced on June 14, 2018.

For a summary of the key items that we expect to impact our updated guidance, please read our Q2 investor presentation that is available on Etsy's investor relations website, investors.etsy.com.

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.

Webcast and Conference Call Information

Etsy will host a webcast to discuss these results at 5:00 p.m. ET today. To access the live webcast and accompanying slide deck, please visit the Etsy Investor Relations website, investors.etsy.com, and go to the Investor Events section. To join the call by phone, please dial 1-855-852-1946 (toll free) or 1-720-634-2903 (toll) and use the passcode 3481578. A replay will be available through the same link following the conference call, or by dialing (toll free) 1-855-859-2056 or 1-404-537-3406 (toll) with the passcode 3481578 starting at 8:00 p.m. ET tonight through August 20, 2018.

About Etsy

Etsy, Inc. is the global marketplace for unique and creative goods. Our mission is to keep commerce human, and we're committed to using the power of business to strengthen communities and empower people. We connect millions of buyers and sellers from nearly every country in the world. Buyers come to Etsy to be inspired and delighted by items that are crafted and curated by creative entrepreneurs. For sellers, we offer a range of tools and services that address key business needs.

Etsy was founded in 2005 and is headquartered in Brooklyn, New York.

Etsy has used, and intends to continue using, its investor relations website and the Etsy News Blog (blog.etsy.com/news) to disclose material non-public information and to comply with its disclosure obligations under Regulation FD. Accordingly, you should monitor our investor relations website and the Etsy News Blog in addition to following our press releases, SEC filings and public conference calls and webcasts.

Investor Relations Contact:

Deb Wasser, Vice President, Investor Relations
[email protected]
Gabriel Ratcliff, Sr. Manager, Investor Relations
[email protected]

Media Relations Contact:

Kelly Clausen, Director, Corporate Communications
[email protected]

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements relating to our business strategy, financial guidance and key drivers thereof, upcoming product launches, investments in marketing and international growth, and the impact of our four key initiatives and new pricing model on future GMS and revenue 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 success of our new pricing model and the impact of that model on our sellers; (11) the effectiveness of our mobile solutions for Etsy sellers and Etsy buyers; (12) our ability to expand our business in our core geographic markets; (13) regulation in the area of privacy and protection of user data; (14) our dependence on third-party payment providers; and (15) 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, and subsequent reports that we file with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, we cannot guarantee future results, levels of activity, performance, achievements or events and circumstances reflected in the forward-looking statements will occur.

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.

Revenue Categories

In connection with the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers, we renamed our revenue categories Marketplace and Services revenue. Marketplace revenue represents the fees we charge sellers to list items in the marketplace, the fees we charge for transactions between buyers and sellers, and the use of Etsy Payments by our sellers to process payments. Services revenue, formerly called Seller Services revenue, is derived from the optional services we provide to our sellers, which include Promoted Listings, Etsy Shipping Labels, and Pattern by Etsy. Revenue from Etsy Payments, our payments processing product, formerly included in Services revenue, is now included in Marketplace revenue because Etsy Payments is required to be used by Etsy sellers in the countries where it is available. All numbers presented in this press release reflect this reclassification.

The following table provides our Marketplace and Services revenue under our previous and current presentation:

Currency-Neutral GMS Growth

We calculate currency-neutral GMS growth by translating current period GMS for goods sold that were listed in non-U.S. dollar currencies into U.S. dollars using prior year foreign currency exchange rates.

As reported and currency-neutral GMS growth for the periods presented below is as follows:

Non-GAAP Financial Measures

Adjusted EBITDA

In this press release, we provide Adjusted EBITDA, a non-GAAP financial measure that represents our net income adjusted to exclude: interest and other non-operating expense, net; provision (benefit) for income taxes; depreciation and amortization; stock-based compensation expense; foreign exchange loss (gain) and restructuring and other exit costs (income). Below is a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure.

We have included Adjusted EBITDA in this press release because it is a key measure used by our management and Board of Directors to evaluate our operating performance and trends, allocate internal resources, prepare and approve our annual budget, develop short- and long-term operating plans, determine incentive compensation and assess the health of our business. As our Adjusted EBITDA increases, we are able to invest more in our platform.

We believe that Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business as it removes the impact of certain non-cash items and certain variable charges.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

• Adjusted EBITDA does not reflect other non-operating expenses, net of other non-operating income, including net interest expense;
    
• Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
    
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
    
• Adjusted EBITDA does not consider the impact of stock-based compensation expense;
   
• Adjusted EBITDA does not consider the impact of foreign exchange loss (gain);
    
• Adjusted EBITDA does not consider the impact of restructuring and other exit costs (income); and
    
• other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net income and our other GAAP results.

SOURCE Etsy

Related Links

http://www.etsy.com

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