Delaware | 001-36911 | 20-4898921 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
Exhibit No. | Description |
• | GMS was $922.5 million in the third quarter of 2018. 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 20.8% from 19.3% in the second quarter of 2018. On an as-reported basis, GMS growth was up 20.4% compared with the third quarter of 2017. |
• | Year-over-year aggregate conversion rate increased for the fourth consecutive quarter led by strong performance across all three devices: desktop, mobile web, and the mobile app. |
• | We made changes to our pricing model which enabled us to increase the level of investment in product, marketing, and customer support. |
• | We fully migrated DaWanda sellers to Etsy’s platform and now redirect all traffic to Etsy.com. As of the end of the quarter, Germany is our second largest international market by domestic activity after the United Kingdom. |
• | We successfully migrated the Etsy marketplace and our mobile applications to Google Cloud, a significant step in our two-year migration plan. |
• | We made progress executing against each of our four key initiatives, including: |
◦ | Improved landing page experiences, including more recommendations to enhance the entry experience on Etsy; |
◦ | Highlighted the personalization and customization features available on so many products and streamlined the purchase flow; |
◦ | Enhanced search algorithms to promote items with competitive shipping; |
◦ | Transformed our customer support experience which now includes live chat for sellers, dedicated inbound phones, and 24x7 service levels; and |
◦ | Invested in new marketing channels such as television. |
Three Months Ended September 30, | % Growth (Decline) Y/Y | Nine Months Ended September 30, | % Growth (Decline) Y/Y | ||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
GMS | $ | 922,513 | $ | 766,354 | 20.4 | % | $ | 2,685,273 | $ | 2,234,157 | 20.2 | % | |||||||||
Revenue | $ | 150,366 | $ | 106,380 | 41.3 | % | $ | 403,665 | $ | 304,963 | 32.4 | % | |||||||||
Marketplace revenue | $ | 110,927 | $ | 77,808 | 42.6 | % | $ | 290,200 | $ | 223,815 | 29.7 | % | |||||||||
Services revenue | $ | 38,194 | $ | 27,976 | 36.5 | % | $ | 110,306 | $ | 77,560 | 42.2 | % | |||||||||
Net income | $ | 19,894 | $ | 25,802 | (22.9 | )% | $ | 36,240 | $ | 37,050 | (2.2 | )% | |||||||||
Adjusted EBITDA | $ | 34,035 | $ | 22,769 | 49.5 | % | $ | 88,151 | $ | 45,187 | 95.1 | % | |||||||||
Active sellers | 2,043 | 1,891 | 8.0 | % | 2,043 | 1,891 | 8.0 | % | |||||||||||||
Active buyers | 37,134 | 31,680 | 17.2 | % | 37,134 | 31,680 | 17.2 | % | |||||||||||||
Percent mobile GMS | 56 | % | 52 | % | 400 | bps | 55 | % | 51 | % | 400 | bps | |||||||||
Percent international GMS | 35 | % | 34 | % | 100 | bps | 35 | % | 33 | % | 200 | bps |
• | Total revenue was $150.4 million for the third quarter of 2018, up 41.3% year-over-year, driven by growth in both Marketplace and Services revenue. |
• | Gross profit for the third quarter of 2018 was $103.4 million, up 47.7% year-over-year, and gross margin was 68.8%, up 300 basis points compared with 65.8% in the third quarter of 2017. |
• | Total operating expenses were $84.7 million in the third quarter of 2018, up 35.3% year-over-year. The increase in operating expenses was driven primarily by digital acquisition marketing focused on driving GMS growth. |
• | Net income for the third quarter of 2018 was $19.9 million, with diluted earnings per share of $0.15 primarily impacted by the non-cash interest expense and amortization related to the Company’s convertible senior notes, and partially offset by a tax benefit due to employee stock-option exercises. |
• | Non-GAAP Adjusted EBITDA for the third quarter of 2018 was $34.0 million and grew 49.5% year-over-year. Non-GAAP Adjusted EBITDA margin (i.e., Adjusted EBITDA divided by revenue) was 22.6%, up 120 bps year-over-year. Adjusted EBITDA performance was driven primarily by revenue growth related to changes in the Company’s pricing model. |
• | Net cash provided by operating activities was $97.1 million for the nine months ended September 30, 2018 compared with $32.3 million in the prior year. The increase in net cash provided by operating activities for the nine months ended September 30, 2018 was mainly driven by revenue growth. |
• | Cash, cash equivalents, and short-term investments were $584.1 million as of September 30, 2018. |
2018 Guidance August 6, 2018 | 2018 Revised Guidance November 6, 2018 | |||
GMS Year-Over-Year Growth | 18-20% | 19-20% | ||
~$3.84B - $3.90B | ~$3.87B - $3.90B | |||
Revenue Year-Over-Year Growth | 33-35% | 35-36% | ||
~$587M - $596M | ~$596M - $600M | |||
Adjusted EBITDA Margin* | 21-23% | 22-23% | ||
~$124M - $136M | ~$132M - $138M |
* | Assumes the midpoint of our revenue guidance. |
As of September 30, 2018 | As of December 31, 2017 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 362,727 | $ | 315,442 | |||
Short-term investments | 221,409 | 25,108 | |||||
Accounts receivable, net | 36,385 | 33,677 | |||||
Prepaid and other current assets | 23,958 | 20,379 | |||||
Funds receivable and seller accounts | 63,470 | 44,658 | |||||
Total current assets | 707,949 | 439,264 | |||||
Restricted cash | 5,341 | 5,341 | |||||
Property and equipment, net | 119,243 | 117,617 | |||||
Goodwill | 37,802 | 38,541 | |||||
Intangible assets, net | 36,360 | 4,100 | |||||
Other assets | 673 | 720 | |||||
Total assets | $ | 907,368 | $ | 605,583 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 14,130 | $ | 13,622 | |||
Accrued expenses | 37,191 | 28,743 | |||||
Capital lease obligations—current | 4,284 | 5,798 | |||||
Funds payable and amounts due to sellers | 63,470 | 44,658 | |||||
Deferred revenue | 7,180 | 6,262 | |||||
Other current liabilities | 2,676 | 3,394 | |||||
Total current liabilities | 128,931 | 102,477 | |||||
Capital lease obligations—net of current portion | 2,791 | 4,115 | |||||
Deferred tax liabilities | 30,851 | 23,786 | |||||
Facility financing obligation | 60,008 | 60,049 | |||||
Long-term debt, net | 272,790 | — | |||||
Other liabilities | 17,378 | 18,262 | |||||
Total liabilities | 512,749 | 208,689 | |||||
Total stockholders’ equity | 394,619 | 396,894 | |||||
Total liabilities and stockholders’ equity | $ | 907,368 | $ | 605,583 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenue | $ | 150,366 | $ | 106,380 | $ | 403,665 | $ | 304,963 | |||||||
Cost of revenue | 46,947 | 36,383 | 133,651 | 106,766 | |||||||||||
Gross profit | 103,419 | 69,997 | 270,014 | 198,197 | |||||||||||
Operating expenses: | |||||||||||||||
Marketing | 39,516 | 23,520 | 94,651 | 74,495 | |||||||||||
Product development | 24,418 | 16,958 | 68,707 | 56,828 | |||||||||||
General and administrative | 20,748 | 22,094 | 61,359 | 73,268 | |||||||||||
Total operating expenses | 84,682 | 62,572 | 224,717 | 204,591 | |||||||||||
Income (loss) from operations | 18,737 | 7,425 | 45,297 | (6,394 | ) | ||||||||||
Other (expense) income, net | (4,141 | ) | 5,815 | (13,095 | ) | 20,393 | |||||||||
Income before income taxes | 14,596 | 13,240 | 32,202 | 13,999 | |||||||||||
Benefit for income taxes | 5,298 | 12,562 | 4,038 | 23,051 | |||||||||||
Net income | $ | 19,894 | $ | 25,802 | $ | 36,240 | $ | 37,050 | |||||||
Net income per share attributable to common stockholders: | |||||||||||||||
Basic | $ | 0.17 | $ | 0.22 | $ | 0.30 | $ | 0.32 | |||||||
Diluted | $ | 0.15 | $ | 0.21 | $ | 0.29 | $ | 0.31 | |||||||
Weighted-average common shares outstanding: | |||||||||||||||
Basic | 119,870,711 | 119,592,191 | 120,469,066 | 117,387,714 | |||||||||||
Diluted | 129,086,137 | 123,224,559 | 126,497,281 | 121,346,921 |
Nine Months Ended September 30, | |||||||
2018 | 2017 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | 36,240 | $ | 37,050 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Stock-based compensation expense | 21,829 | 17,389 | |||||
Stock-based compensation expense—acquisitions | 2,158 | 3,179 | |||||
Depreciation and amortization expense | 19,116 | 20,620 | |||||
Bad debt expense | 3,617 | 2,059 | |||||
Foreign exchange loss (gain) | 2,973 | (26,952 | ) | ||||
Amortization of debt issuance costs | 831 | 164 | |||||
Non-cash interest expense | 7,632 | 6,752 | |||||
Interest on marketable securities | (1,575 | ) | 384 | ||||
Loss on disposal of assets | 26 | 395 | |||||
Deferred income taxes | (4,038 | ) | (23,051 | ) | |||
Changes in operating assets and liabilities | 8,323 | (5,667 | ) | ||||
Net cash provided by operating activities | 97,132 | 32,322 | |||||
Cash flows from investing activities | |||||||
Cash paid for asset acquisition | (35,323 | ) | — | ||||
Purchases of property and equipment | (442 | ) | (3,872 | ) | |||
Development of internal-use software | (13,674 | ) | (8,042 | ) | |||
Purchases of marketable securities | (359,182 | ) | (46,808 | ) | |||
Sales of marketable securities | 164,443 | 96,540 | |||||
Net cash (used in) provided by investing activities | (244,178 | ) | 37,818 | ||||
Cash flows from financing activities | |||||||
Repurchase of stock for tax on RSU vesting | (17,136 | ) | (4,897 | ) | |||
Repurchase of stock | (89,661 | ) | — | ||||
Proceeds from exercise of stock options | 15,573 | 21,936 | |||||
Proceeds from issuance of convertible senior notes | 345,000 | — | |||||
Payment of debt issuance costs | (9,962 | ) | — | ||||
Purchase of capped call | (34,224 | ) | — | ||||
Payments on capital lease obligations | (4,748 | ) | (5,838 | ) | |||
Payments on facility financing obligation | (7,817 | ) | (4,330 | ) | |||
Net cash provided by financing activities | 197,025 | 6,871 | |||||
Effect of exchange rate changes on cash | (2,694 | ) | 1,685 | ||||
Net increase in cash, cash equivalents, and restricted cash | 47,285 | 78,696 | |||||
Cash, cash equivalents, and restricted cash at beginning of period | 320,783 | 186,933 | |||||
Cash, cash equivalents, and restricted cash at end of period | $ | 368,068 | $ | 265,629 |
Quarter-to-Date Period Ended | Year-to-Date Period Ended | ||||||||||||||||||||||||||||||
Previous Presentation | Updated Presentation | Previous Presentation | Updated Presentation | ||||||||||||||||||||||||||||
Marketplace Revenue | Services Revenue | Marketplace Revenue | Services Revenue | Marketplace Revenue | Services Revenue | Marketplace Revenue | Services Revenue | ||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||
December 31, 2017 | $ | 54,251 | $ | 82,319 | $ | 102,261 | $ | 34,309 | $ | 179,492 | $ | 258,453 | $ | 326,076 | $ | 111,869 | |||||||||||||||
September 30, 2017 | 42,413 | 63,371 | 77,808 | 27,976 | 125,241 | 176,134 | 223,815 | 77,560 | |||||||||||||||||||||||
June 30, 2017 | 42,069 | 58,816 | 75,445 | 25,440 | 82,828 | 112,763 | 146,007 | 49,584 | |||||||||||||||||||||||
March 31, 2017 | 40,759 | 53,947 | 70,562 | 24,144 | 40,759 | 53,947 | 70,562 | 24,144 |
Quarter-to-Date Period Ended | Year-to-Date Period Ended | ||||||||||||||||
As Reported | Currency Neutral | FX Impact | As Reported | Currency Neutral | FX Impact | ||||||||||||
September 30, 2018 | 20.4 | % | 20.8 | % | (0.4 | )% | 20.2 | % | 19.2 | % | 1.0 | % | |||||
June 30, 2018 | 20.4 | % | 19.3 | % | 1.1 | % | 20.1 | % | 18.5 | % | 1.6 | % | |||||
March 31, 2018 | 19.8 | % | 17.6 | % | 2.2 | % | 19.8 | % | 17.6 | % | 2.2 | % | |||||
December 31, 2017 | 17.8 | % | 16.5 | % | 1.3 | % | 14.5 | % | 14.3 | % | 0.2 | % | |||||
September 30, 2017 | 13.2 | % | 12.6 | % | 0.6 | % | 13.0 | % | 13.4 | % | (0.4 | )% |
• | 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. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(in thousands) | |||||||||||||||
Net income | $ | 19,894 | $ | 25,802 | $ | 36,240 | $ | 37,050 | |||||||
Excluding: | |||||||||||||||
Interest and other non-operating expense, net (1) | 3,768 | 2,254 | 10,122 | 6,559 | |||||||||||
Benefit for income taxes | (5,298 | ) | (12,562 | ) | (4,038 | ) | (23,051 | ) | |||||||
Depreciation and amortization (1) | 6,439 | 7,022 | 19,116 | 20,620 | |||||||||||
Stock-based compensation expense (2) | 8,191 | 5,832 | 21,829 | 14,756 | |||||||||||
Stock-based compensation expense—acquisitions (2) | 725 | 724 | 2,158 | 3,179 | |||||||||||
Foreign exchange loss (gain) (3) | 373 | (8,069 | ) | 2,973 | (26,952 | ) | |||||||||
Restructuring and other exit costs (income) (4) | (57 | ) | 1,766 | (249 | ) | 13,026 | |||||||||
Adjusted EBITDA | $ | 34,035 | $ | 22,769 | $ | 88,151 | $ | 45,187 |
(1) | Included in interest and depreciation expense amounts above, are interest and depreciation expense related to our headquarters under build-to-suit accounting requirements, which commenced in May 2016. In the three and nine months ended September 30, 2018 and 2017, those amounts are as follows: |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(in thousands) | |||||||||||||||
Interest expense | $ | 2,249 | $ | 2,384 | $ | 6,748 | $ | 6,752 | |||||||
Depreciation | 819 | 819 | 2,457 | 2,457 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(in thousands) | |||||||||||||||
Cost of revenue | $ | 894 | $ | 469 | $ | 2,367 | $ | 1,231 | |||||||
Marketing | 642 | 447 | 1,819 | 1,419 | |||||||||||
Product development | 4,697 | 2,180 | 11,361 | 6,253 | |||||||||||
General and administrative | 2,683 | 4,425 | 8,440 | 11,665 | |||||||||||
Total stock-based compensation expense | $ | 8,916 | $ | 7,521 | $ | 23,987 | $ | 20,568 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(in thousands) | |||||||||||||||
Cost of revenue | $ | (6 | ) | $ | 5 | $ | (19 | ) | $ | 699 | |||||
Marketing | (12 | ) | 337 | (82 | ) | 2,686 | |||||||||
Product development | (14 | ) | 79 | (110 | ) | 3,180 | |||||||||
General and administrative | (25 | ) | 1,345 | (38 | ) | 6,461 | |||||||||
Total restructuring and other exit costs (income) | $ | (57 | ) | $ | 1,766 | $ | (249 | ) | $ | 13,026 |