UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________

FORM 10-Q

__________________________________

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended	June 30, 2023
	OR
☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from              to

Commission File Number 001-36911

__________________________________

ETSY, INC.

(Exact name of registrant as specified in its charter)

__________________________________

Delaware			20-4898921
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
117 Adams Street	Brooklyn,	NY	11201
(Address of principal executive offices)			(Zip code)

(718) 880-3660

(Registrant’s telephone number, including area code) 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	ETSY	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐    No  ☒

The number of shares of common stock outstanding as of July 28, 2023 was 123,013,800.

Table of Contents

Part I - Financial Information
6	Item 1.	Condensed Consolidated Financial Statements (Unaudited)
13		Notes to Condensed Consolidated Financial Statements
25	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
41	Item 3.	Quantitative and Qualitative Disclosures About Market Risk
41	Item 4.	Controls and Procedures
Part II - Other Information
42	Item 1.	Legal Proceedings
42	Item 1A.	Risk Factors
72	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
72	Item 3.	Defaults Upon Senior Securities
72	Item 4.	Mine Safety Disclosures
72	Item 5.	Other Information
73	Item 6.	Exhibits
74		Signatures

Unless the context otherwise requires, we use the terms “Etsy,” the “Company,” “we,” “us,” and “our” in this Quarterly Report on Form 10-Q (“Quarterly Report”) to refer to Etsy, Inc. and, where appropriate, our consolidated subsidiaries.

See Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating and Financial Metrics” for the definitions of the following terms used in this Quarterly Report: “active buyer,” “active seller,” “Adjusted EBITDA,” “currency-neutral GMS growth,” “GMS,” “GMS ex-U.S. domestic,” “new buyer GMS,” “non-U.S. domestic GMS,” and “mobile GMS.”

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.

Note Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements relating to our opportunity; the impact of our “Right to Win” and other growth strategies, marketing and product initiatives, and investments and other levers of growth on our business and operating results, including future gross merchandise sales (“GMS”) and revenue growth; the strength of our capital structure and our ability to meet our cash operating requirements; our ability to attract, engage, retain, reactivate, and grow buyers and sellers; strategic investments or acquisitions and the potential benefits thereof; our impact goals, strategy, and intended progress; global macroeconomic uncertainty and volatility; uncertainty regarding and changes in overall levels of consumer spending and e-commerce generally; and the expected timing and impact of the proposed sale of Elo7. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as “aim,” “anticipate,” “believe,” “could,” “enable,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “potential,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and derivative forms and/or negatives of those terms.

Forward-looking statements are not guarantees of performance and involve known and unknown risks and uncertainties. Other factors may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Those risks include those described in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report. Given these uncertainties, you should read this Quarterly Report in its entirety and not place undue reliance on any forward-looking statements in this Quarterly Report.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report and, although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Moreover, we operate in a competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements made in this Quarterly Report. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. In addition, there continues to be significant global macroeconomic and geopolitical uncertainty, which may amplify many of these risks.

Forward-looking statements represent our beliefs and assumptions only as of the date of this Quarterly Report. We disclaim any obligation to update forward-looking statements.

3

Summary Risk Factors

Our business is subject to numerous risks. The following summary highlights some of the risks we are exposed to in the normal course of our business activities. This summary is not complete and the risks summarized below are not the only risks we face. You should review and consider carefully the risks and uncertainties described in more detail in Part II, Item 1A, “Risk Factors,” which includes a more complete discussion of the risks summarized below as well as a discussion of other risks related to our business and an investment in our common stock.

Financial Performance and Operational Risks Related to Our Business

•We experienced rapid growth in our business during 2020 and 2021 and there may not be sustained demand for our services or the products sold in our marketplaces.

•The trustworthiness of our marketplaces and the connections within our communities are important to our success. Our business, financial performance, and growth depend on our ability to attract and retain active and engaged communities of buyers and sellers. If we are unable to retain our existing buyers and sellers and activate new ones, our financial performance could decline.

•Our quarterly operating results may fluctuate, which could cause significant stock price fluctuations.

•We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which could cause our stock price to decline.

•We track certain operational metrics with internal systems and tools or manual processes and do not independently verify such metrics. Certain of these metrics are subject to inherent challenges in measurement, and any real or perceived inaccuracies may adversely affect our business and reputation.

•Our business could suffer if we experience a technology disruption that results in a loss of information, if personal data or sensitive information about users or employees is misused or disclosed, or if we or our third-party providers are unable to protect against technology vulnerabilities, service interruptions, cyber incidents, ransomware, security incidents, or other security breaches.

•Our business depends on continued and unimpeded access to third-party services, platforms, and infrastructure that we rely upon to maintain and scale our platform. If the widely adopted mobile, social, search, and/or advertising solutions that we, our sellers, and our buyers rely on as part of our key offering are no longer available or effective, or if access to these major platforms is limited, the use of our marketplaces could decline.

•Our payments systems have both operational and compliance risks, including in-house execution risk, dependency on third-party providers, and a complex landscape of evolving laws, regulations, rules, and standards.

•Our business could be adversely affected by economic downturns, inflation, natural disasters, public health crises, political crises, geopolitical events, disruptions to the banking industry, or other macroeconomic conditions, which have in the past and may in the future negatively impact our business and financial performance.

•Our ability to recruit and retain a diverse group of employees and retain key employees is important to our success. If we experience significant attrition or turnover it could impact our ability to grow our business.

Strategic Risks Related to Our Business and Industry

•We face intense competition and may not be able to compete effectively.

•If we are not able to keep pace with technological changes, and enhance current and develop new offerings to respond to the changing needs of sellers and buyers, our business, financial performance, and growth may be harmed.

•We are subject to risks related to our environmental, social, and governance activities and disclosures.

•Continuing to expand our operations outside of the United States is part of our strategy, and the growth of our business could be harmed if our international expansion efforts do not succeed.

•The closing of the proposed sale of Elo7 Serviços de Informática S.A. (“Elo7”) is subject to various risks and uncertainties, may not be completed in accordance with expected plans or on the currently contemplated terms or timeline, or at all.

•We have incurred impairment charges for our goodwill and other long-lived tangible and intangible assets, and may incur further impairment charges in the future, which would negatively impact our operating results.

4

•We may expand our business through additional acquisitions of other businesses or assets or strategic partnerships and investments, which may divert management’s attention and/or prove to be unsuccessful.

•We have a significant amount of convertible debt and may incur additional debt in the future.

Regulatory, Compliance, and Legal Risks

•Compliance and protection under evolving global legal and regulatory requirements including privacy and data protection laws, tax laws, product liability laws, laws regulating speech and platform monitoring or moderation, antitrust laws, intellectual property and counterfeiting regulations, may materially impact our time, resources, and ability to grow our business.

•Our operations in Latin America and India may expose us to additional risks.

•We are regularly involved in litigation, arbitration, and regulatory matters that are expensive and time-consuming and that may require changes to our strategy, the features of our marketplaces and/or how our business operates.

•We may be subject to intellectual property or other claims, which, even if meritless, could damage our brands, require us to pay significant damages, and could limit our ability to use certain technologies or business strategies in the future.

Other Risks

•Future sales and issuances of our common stock, or rights to purchase common stock, including upon conversion of our convertible notes, could result in additional dilution to our stockholders and could cause the price of our common stock to decline.

5

Part I - Financial Information

Item 1. Condensed Consolidated Financial Statements (Unaudited).

Etsy, Inc.

Consolidated Balance Sheets (Unaudited)

(In thousands, except share and per share amounts)

	As of June 30, 2023		As of December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	841,512	$	921,278
Short-term investments	235,263		250,413
Accounts receivable, net of expected credit losses of $10,425 and $8,303 as of June 30, 2023 and December 31, 2022, respectively	22,594		27,888
Prepaid and other current assets	93,240		80,203
Funds receivable and seller accounts	221,147		233,961
Total current assets	1,413,756		1,513,743
Restricted cash	5,341		5,341
Property and equipment, net of accumulated depreciation and amortization of $235,203 and $204,189 as of June 30, 2023 and December 31, 2022, respectively	243,129		249,744
Goodwill	138,076		137,724
Intangible assets, net of accumulated amortization of $176,005 and $92,179 as of June 30, 2023 and December 31, 2022, respectively	474,201		535,406
Deferred tax assets	170,477		121,506
Long-term investments	73,983		29,137
Other assets	49,789		42,360
Total assets	$	2,568,752	$	2,634,961
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	14,997	$	28,757
Accrued expenses	231,673		331,234
Finance lease obligations—current	4,674		4,731
Funds payable and amounts due to sellers	221,147		233,961
Deferred revenue	14,411		14,008
Other current liabilities	16,317		19,064
Total current liabilities	503,219		631,755
Finance lease obligations—net of current portion	102,618		105,699
Deferred tax liabilities	28,982		44,735
Long-term debt, net	2,281,684		2,279,640
Other liabilities	116,424		120,406
Total liabilities	3,032,927		3,182,235
Commitments and contingencies (Note 9)
Stockholders’ deficit:
Common stock ($0.001 par value, 1,400,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 123,249,136 and 125,054,278 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)	123		125
Preferred stock ($0.001 par value, 25,000,000 shares authorized as of June 30, 2023 and December 31, 2022)	—		—
Additional paid-in capital	957,738		815,085
Accumulated deficit	(1,135,412)		(1,048,267)
Accumulated other comprehensive loss	(286,624)		(314,217)
Total stockholders' deficit	(464,175)		(547,274)
Total liabilities and stockholders' deficit	$	2,568,752	$	2,634,961

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Etsy, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except share and per share amounts)

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2023		2022		2023		2022
Revenue	$	628,876	$	585,135	$	1,269,753	$	1,164,401
Cost of revenue	188,638		171,421		384,091		344,416
Gross profit	440,238		413,714		885,662		819,985
Operating expenses:
Marketing	165,870		164,068		337,184		318,348
Product development	121,988		102,095		237,912		191,571
General and administrative	86,661		74,990		166,648		153,190
Asset impairment charges	68,091		—		68,091		—
Total operating expenses	442,610		341,153		809,835		663,109
(Loss) income from operations	(2,372)		72,561		75,827		156,876
Other income, net	7,786		601		10,858		2,273
Income before income taxes	5,414		73,162		86,685		159,149
Benefit (provision) for income taxes	56,501		(39)		49,767		83
Net income	$	61,915	$	73,123	$	136,452	$	159,232
Net income per share attributable to common stockholders:
Basic	$	0.50	$	0.58	$	1.10	$	1.25
Diluted	$	0.45	$	0.51	$	0.98	$	1.11
Weighted-average common shares outstanding:
Basic	123,463,325		127,088,053		123,971,210		127,171,302
Diluted	141,010,561		145,683,336		142,010,943		146,373,492

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Etsy, Inc.

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In thousands)

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2023		2022		2023		2022
Net income	$	61,915	$	73,123	$	136,452	$	159,232
Other comprehensive income (loss):
Cumulative translation adjustment	11,552		(145,596)		27,179		(160,299)
Unrealized (losses) gains on investments, net of tax (benefit) expense of $(103), $(159), $130, and $(576), respectively	(327)		(499)		414		(1,813)
Total other comprehensive income (loss)	11,225		(146,095)		27,593		(162,112)
Comprehensive income (loss)	$	73,140	$	(72,972)	$	164,045	$	(2,880)

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

Etsy, Inc.

Consolidated Statements of Changes in Stockholders’ (Deficit) Equity (Unaudited)

(In thousands, except share amounts)

	Three Months Ended June 30, 2023
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance as of March 31, 2023	122,953,145	$	123	$	913,672	$	(1,156,134)	$	(297,849)	$	(540,188)
Stock-based compensation (1)	6,018	—		80,791		—		—		80,791
Exercise of vested options	147,612	—		2,750		—		—		2,750
Settlement of convertible senior notes, net of taxes	46	—		—		—		—		—
Vesting of restricted stock units, net of shares withheld	553,736	1		(39,475)		—		—		(39,474)
Stock repurchase	(411,421)	(1)		—		(41,193)		—		(41,194)
Other comprehensive income	—	—		—		—		11,225		11,225
Net income	—	—		—		61,915		—		61,915
Balance as of June 30, 2023	123,249,136	$	123	$	957,738	$	(1,135,412)	$	(286,624)	$	(464,175)

	Six Months Ended June 30, 2023
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance as of December 31, 2022	125,054,278	$	125	$	815,085	$	(1,048,267)	$	(314,217)	$	(547,274)
Stock-based compensation (1)	18,371	—		$	151,778	—		—		151,778
Exercise of vested options	332,812	—		5,755		—		—		5,755
Settlement of capped call	(1,194,006)	(1)		34,224		(34,223)		—		—
Settlement of convertible senior notes, net of taxes	278	—		(1)		—		—		(1)
Vesting of restricted stock units, net of shares withheld	653,975	1		(49,103)		—		—		(49,102)
Stock repurchase	(1,616,572)	(2)		—		(189,374)		—		(189,376)
Other comprehensive income	—	—		—		—		27,593		27,593
Net income	—	—		—		136,452		—		136,452
Balance as of June 30, 2023	123,249,136	$	123	$	957,738	$	(1,135,412)	$	(286,624)	$	(464,175)

(1) Includes the partial payments of Depop deferred consideration. See “Note 11—Stock-Based Compensation” for additional information.

9

Etsy, Inc.

Consolidated Statements of Changes in Stockholders’ (Deficit) Equity (Unaudited)

(In thousands, except share amounts)

	Three Months Ended June 30, 2022
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance as of March 31, 2022	126,969,418	$	127	$	672,486	$	95,285	$	(91,031)	$	676,867
Stock-based compensation	—	—		63,997		—		—		63,997
Exercise of vested options	143,841	—		2,064		—		—		2,064
Settlement of convertible senior notes, net of taxes	101	—		—		—		—		—
Vesting of restricted stock units, net of shares withheld	319,244	1		(26,494)		—		—		(26,493)
Stock repurchase	(690,992)	(1)		—		(62,167)		—		(62,168)
Other comprehensive loss	—	—		—		—		(146,095)		(146,095)
Net income	—	—		—		73,123		—		73,123
Balance as of June 30, 2022	126,741,612	$	127	$	712,053	$	106,241	$	(237,126)	$	581,295

	Six Months Ended June 30, 2022
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance as of December 31, 2021	127,022,118	$	127	$	631,762	$	71,744	$	(75,014)	$	628,619
Stock-based compensation (1)	28,010	—		115,011		—		—		115,011
Exercise of vested options	394,186	—		5,458		—		—		5,458
Settlement of convertible senior notes, net of taxes	159	—		—		—		—		—
Vesting of restricted stock units, net of shares withheld	408,529	1		(40,178)		—		—		(40,177)
Stock repurchase	(1,111,390)	(1)		—		(124,735)		—		(124,736)
Other comprehensive income	—	—		—		—		(162,112)		(162,112)
Net income	—	—		—		159,232		—		159,232
Balance as of June 30, 2022	126,741,612	$	127	$	712,053	$	106,241	$	(237,126)	$	581,295

(1) Includes the partial payments of Depop deferred consideration. See “Note 11—Stock-Based Compensation” for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements.

10

Etsy, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Six Months Ended   June 30,
	2023		2022
Cash flows from operating activities
Net income	$	136,452	$	159,232
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	145,964		113,628
Depreciation and amortization expense	46,118		49,781
Provision for expected credit losses	10,258		5,409
Foreign exchange loss (gain)	2,289		(10,164)
Deferred benefit for income taxes	(67,568)		(14,941)
Asset impairment charges	68,091		—
Other non-cash (income) expense, net	(1,395)		4,658
Changes in operating assets and liabilities:
Current assets	70		20,148
Non-current assets	(4,877)		2,437
Current liabilities	(137,437)		(147,535)
Non-current liabilities	(6,063)		2,645
Net cash provided by operating activities	191,902		185,298
Cash flows from investing activities
Purchases of property and equipment	(3,852)		(5,633)
Development of internal-use software	(12,603)		(11,567)
Purchases of investments	(197,565)		(133,642)
Sales and maturities of investments	171,307		124,370
Net cash used in investing activities	(42,713)		(26,472)
Cash flows from financing activities
Payment of tax obligations on vested equity awards	(49,256)		(39,787)
Repurchase of stock	(187,037)		(124,736)
Proceeds from exercise of stock options	5,755		5,458
Payment of debt issuance costs	(2,186)		(25)
Settlement of convertible senior notes	(90)		(32)
Payments on finance lease obligations	(3,150)		(3,188)
Other financing, net	(278)		(4,335)
Net cash used in financing activities	(236,242)		(166,645)
Effect of exchange rate changes on cash	7,287		(13,503)
Net decrease in cash, cash equivalents, and restricted cash	(79,766)		(21,322)
Cash, cash equivalents, and restricted cash at beginning of period	926,619		785,537
Cash, cash equivalents, and restricted cash at end of period	$	846,853	$	764,215

11

Etsy, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Six Months Ended   June 30,
	2023		2022
Supplemental cash flow disclosures:
Cash paid for income taxes, net of refunds	$	29,299	$	24,856
Supplemental non-cash disclosures:
Stock-based compensation capitalized in development of capitalized software and asset additions in exchange for liabilities	$	9,646	$	8,708
Lease assets obtained in exchange for new lease liabilities	$	7,751	$	—
Deferred consideration (1)	$	2,116	$	3,822

(1) See “Note 11—Stock-Based Compensation” for additional information on the settlement of deferred consideration related to the Depop acquisition.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown above:

	Six Months Ended   June 30,
	2023		2022
Beginning balance:
Cash and cash equivalents	$	921,278	$	780,196
Restricted cash	5,341		5,341
Total cash, cash equivalents, and restricted cash	$	926,619	$	785,537
Ending balance:
Cash and cash equivalents	$	841,512	$	758,874
Restricted cash	5,341		5,341
Total cash, cash equivalents, and restricted cash	$	846,853	$	764,215

The accompanying notes are an integral part of these condensed consolidated financial statements.

12

Etsy, Inc.

Notes to Condensed Consolidated Financial Statements

Note 1—Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

Etsy operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world. These marketplaces - which collectively create a “House of Brands” - share the Company’s mission, common levers for growth, similar business models, and a strong commitment to use business and technology to strengthen communities and empower people. The Company’s primary marketplace, Etsy.com, is the global destination for unique and creative goods made by independent sellers. The Company generates revenue primarily from marketplace activities, including transaction, listing, and payments processing fees, and fees for optional seller services, which include on-site advertising and shipping labels.

Basis of Consolidation

The condensed consolidated financial statements include the accounts of Etsy and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). The Company has condensed or omitted certain information and notes normally included in complete annual financial statements prepared in accordance with GAAP. These unaudited interim condensed consolidated financial statements should therefore be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2023 (the “Annual Report”). In the opinion of management, all material adjustments, which are of a normal and recurring nature, necessary for a fair statement of the results for the periods presented have been reflected in the condensed consolidated financial statements. The results of operations of any interim period are not necessarily indicative of the results of operations for the full annual period or any future period due to seasonal and other factors.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates and judgments. The accounting estimates that require management’s most subjective judgments include: stock-based compensation; income taxes, including the estimate of the annual effective tax rate at interim periods and evaluation of uncertain tax positions; the valuation of acquired intangible assets, developed technology, and goodwill as part of purchase price allocations for business combinations; valuation of goodwill; and leases. As of June 30, 2023, there continues to be significant global macroeconomic and geopolitical uncertainty which may impact the Company’s business, results of operations, and financial condition. As a result, many of the Company’s estimates and judgments require increased judgment and carry a higher degree of variability and volatility. As additional information becomes available, the Company’s estimates may change materially in future periods.

Interim Impairment Evaluation

During the quarter ended June 30, 2023, the Company evaluated whether events or circumstances had changed such that it would indicate it is more likely than not that its goodwill, finite-lived intangible assets, and other long-lived assets were impaired (a “triggering event”). Given the current macroeconomic conditions, challenges applying the Company’s technological, marketing, and operational expertise to help scale Elo7’s business, and the resultant headwinds to the business, the Company revised its business forecasts for Elo7 downwards. The Company concluded a triggering event had occurred for the Elo7 reporting unit, and conducted an impairment test of its finite-lived intangible assets and other long-lived assets as of June 30, 2023. The Company prepared an updated fair value for the Elo7 reporting unit based on a quantitative assessment, which included estimates of future revenue, and the net available cash flows; as well as a determination that the Company would more likely than not use the Elo7 asset group, including its intangible assets, for a period of less than twelve months. Based on this assessment, the Company concluded that the book value of the finite-lived intangible assets and other long-lived assets for the Elo7 reporting units were fully impaired. The Company recognized impairment charges of $68.1 million for the Elo7 reporting unit as a result of this quantitative assessment during the three months ended June 30, 2023. See “Note 5—Asset Impairment Charges” for further details.

The Company concluded for its Etsy standalone and Reverb and Depop reporting units, that events and circumstances had not changed such that it was more likely than not that their fair values were less than their carrying amounts at June 30, 2023.

13

Etsy, Inc.

Notes to Consolidated Financial Statements

Note 2—Revenue

The following table summarizes revenue disaggregated by Marketplace revenue and optional Services revenue for the periods presented (in thousands):

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2023		2022		2023		2022
Marketplace revenue	$	452,957	$	439,549	$	920,473	$	867,240
Services revenue	175,919		145,586		349,280		297,161
Revenue	$	628,876	$	585,135	$	1,269,753	$	1,164,401

Contract balances

Deferred revenues

The amount of revenue recognized in the six months ended June 30, 2023 that was included in the deferred balance at January 1, 2023 was $14.0 million.

Note 3—Income Taxes

The Company’s provision or benefit from income taxes in interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate, and if its estimated tax rate changes, the Company makes a cumulative adjustment. The estimate of the annual effective income tax rate for the full year is applied to the respective interim period, taking into account year-to-date amounts and projected results for the full year.

The Company’s quarterly tax provision, and its quarterly estimate of the annual effective tax rate, is subject to significant variation due to several factors, including variability in accurately predicting its income or loss before tax and the mix of jurisdictions to which they relate, taxable income or loss in each jurisdiction, changes in its stock price, audit-related developments, acquisitions, divestitures, changes in its deferred tax assets and liabilities and their valuation, foreign currency gains (losses), changes in statutes, regulations, case law, and administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions, and relative changes of expenses or losses for which tax benefits are not recognized. Additionally, the effective tax rate can be more or less volatile based on the amount of income or loss before tax. For example, the impact of discrete items and non-deductible expenses on the effective tax rate is greater when income before income taxes is lower.

For the six months ended June 30, 2023, the Company’s effective income tax rate was (57.4)% representing an income tax benefit recorded on net income before tax. The effective tax rate for the six months ended June 30, 2023 was lower than the U.S. statutory rate of 21% primarily due to the impact from a $54.0 million tax benefit related to Elo7, foreign operations taxed at a lower rate, and a benefit related to a research and development tax credit, partially offset by a valuation allowance established in a foreign jurisdiction and state income taxes.

Although management believes its tax positions and related provisions reflected in the condensed consolidated financial statements are fully supportable, it recognizes that these tax positions and related provisions may be challenged by various tax authorities. These tax positions and related provisions are reviewed on an ongoing basis and are adjusted as additional facts and information become available, including progress on tax audits, changes in interpretation of tax laws, developments in case law and closing of statute of limitations. To the extent that the ultimate results differ from the original or adjusted estimates of the Company, the effect will be recorded in the provision for income taxes.

The provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective tax rate and tax balances recorded by the Company. In addition, tax authorities periodically review income tax returns filed by the Company and can raise issues regarding its filing positions, timing and amount of income and deductions, and the allocation of income among the jurisdictions in which the Company operates. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a revenue authority with respect to that return. Any adjustments as a result of any examination may result in additional taxes or penalties against the Company. If the ultimate result of these audits differ from original or adjusted estimates, they could have a material impact on the Company’s tax provision.

14

Etsy, Inc.

Notes to Consolidated Financial Statements

The amount of unrecognized tax benefits included in the Consolidated Balance Sheets increased $1.9 million in the six months ended June 30, 2023, from $35.2 million as of December 31, 2022 to $37.1 million as of June 30, 2023. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate is $36.0 million as of June 30, 2023. Although the timing of the resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. The Company’s reasonable estimate of its gross unrecognized tax benefits, excluding interest and penalties, that could potentially be reduced during the next 12 months is $2.1 million.

The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense.

Note 4—Net Income Per Share

The following table presents the calculation of basic and diluted net income per share for the periods presented (in thousands, except share and per share amounts):

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2023		2022		2023		2022
Numerator:
Net income	$	61,915	$	73,123	$	136,452	$	159,232
Add back interest expense, net of tax attributable to assumed conversion of convertible senior notes	1,595		1,591		3,190		3,183
Net income attributable to common stockholders—diluted	$	63,510	$	74,714	$	139,642	$	162,415
Denominator:
Weighted-average common shares outstanding—basic	123,463,325		127,088,053		123,971,210		127,171,302
Dilutive effect of assumed conversion of options to purchase common stock	2,290,539		2,809,359		2,454,264		3,096,439
Dilutive effect of assumed conversion of restricted stock units	542,617		1,069,916		870,982		1,389,722
Dilutive effect of assumed conversion of convertible senior notes (1)	14,714,080		14,716,008		14,714,487		14,716,029
Weighted-average common shares outstanding—diluted	141,010,561		145,683,336		142,010,943		146,373,492
Net income per share attributable to common stockholders—basic	$	0.50	$	0.58	$	1.10	$	1.25
Net income per share attributable to common stockholders—diluted	$	0.45	$	0.51	$	0.98	$	1.11

(1)The $1.0 billion aggregate principal amount of 0.25% Convertible Senior Notes due 2028 (the “2021 Notes”), the $650.0 million aggregate principal amount of 0.125% Convertible Senior Notes due 2027 (the “2020 Notes”), and the $649.9 million aggregate principal amount of 0.125% Convertible Senior Notes due 2026 (the “2019 Notes” and together with the 2021 Notes and 2020 Notes, the “Notes”) were dilutive for the three months ended June 30, 2023. The Notes and the 0% Convertible Senior Notes due 2023 (the “2018 Notes”) were dilutive for the six months ended June 30, 2023 and the three and six months ended June 30, 2022. During the first quarter of 2023, upon maturity of the 2018 Notes, the Company paid in cash the remaining outstanding principal to the holders of the 2018 Notes. See “Note 8—Debt” for additional information. As a result, the 2018 Notes were not included in the calculation of net income per share for the three months ended June 30, 2023.

The following potential shares of common stock were excluded from the calculation of diluted net income per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented:

	Three Months Ended   June 30,		Six Months Ended   June 30,
	2023	2022	2023	2022
Stock options	187,173	199,204	189,856	198,646
Restricted stock units	6,175,920	5,636,055	5,085,116	4,002,273
Total anti-dilutive securities	6,363,093	5,835,259	5,274,972	4,200,919

15

Etsy, Inc.

Notes to Consolidated Financial Statements

Note 5—Asset Impairment Charges

Asset impairment charges consisted of the following as of the dates indicated (in thousands):

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2023		2022		2023		2022
Property and equipment, net	$	7,855	$	—	$	7,855	$	—
Intangible assets, net	60,236		—		60,236		—
Total asset impairment charges	$	68,091	$	—	$	68,091	$	—

During the three months ended June 30, 2023, the Company impaired property and equipment and finite-lived intangible assets of its Elo7 reporting unit in full. The asset impairment charges related to property and equipment primarily related to developed technology and the asset impairment charges related to intangible assets primarily related to trademark and customer relationships. See “Note 1—Basis of Presentation and Summary of Significant Accounting Policies” for more information.

In the event there are adverse changes in the Company’s projected cash flows, changes in key assumptions, including but not limited to an increase in the discount rate, lower revenue growth, lower margin, and a lower terminal growth rate, the Company may be required to record additional non-cash impairment charges to its goodwill and other long-lived assets, including finite-lived intangible assets of reporting units other than Elo7. Such non-cash charges could have a material adverse effect on the Company’s consolidated statement of operations and balance sheet in the reporting period of the charge. The impairment assessments are most sensitive to broader market conditions, including the discount rate and market multiples, and to the Company’s estimated future cash flows.

Note 6—Fair Value Measurements

The Company has characterized its investments based on the priority of the inputs used to value the investments, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1), and lowest priority to unobservable inputs (Level 3). If the inputs used to measure the investments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the investment. Investments recorded in the accompanying Consolidated Balance Sheets are categorized based on the inputs to valuation techniques as follows:

Level 1 These are investments where values are based on unadjusted quoted prices for identical assets in an active market that the Company has the ability to access.

Level 2 These are investments where values are based on quoted market prices in markets that are not active or model derived valuations in which all significant inputs are observable in active markets.

Level 3 These are financial instruments where values are derived from techniques in which one or more significant inputs are unobservable. The Company did not have any Level 3 instruments as of December 31, 2022.

Short- and long-term investments and certain cash equivalents consist of investments in debt securities that are available-for-sale.

In the year ended December 31, 2022, the Company authorized the creation of an Impact Investment Fund through which the Company expects to deploy approximately $30 million to further the Company’s Impact strategy and goals. In the six months ended June 30, 2023, the Company invested a portion of the Impact Investment Fund in three investments which are classified as long-term investments on its Consolidated Balance Sheet. The investment in a loan receivable is measured on an amortized cost basis and the investments in third-party managed funds are measured on the net assets value (“NAV”) basis. The Company uses NAV or its equivalent to measure the value of certain investments in alternative investment funds, debt funds, equity funds, and private equity funds, which may be redeemable in the near term or restricted from redemption in the near term, as a practical expedient. NAV is primarily determined based on the information provided by external fund administrators for which the most recent financial information is typically received on a lag within the quarter following the Company’s balance sheet date.

16

Etsy, Inc.

Notes to Consolidated Financial Statements

The following table sets forth the cost, gross unrealized losses, gross unrealized gains, and fair value of the Company’s investments as of the dates indicated (in thousands):

	Cost		Gross Unrealized Holding Loss		Gross Unrealized Holding Gain		Fair Value		Cash and Cash Equivalents		Short-term Investments		Long-term Investments
June 30, 2023
Level 1
Money market funds	$	252,409	$	—	$	—	$	252,409	$	252,332	$	77	$	—
U.S. Government securities	100,005		(694)		—		99,311		—		60,446		38,865
	352,414		(694)		—		351,720		252,332		60,523		38,865
Level 2
U.S. agency securities	28,000		(80)		—		27,920		—		24,873		3,047
Certificate of deposit	20,462		(31)		—		20,431		5,556		14,875		—
Commercial paper	78,523		(72)		—		78,451		8,129		70,322		—
Corporate bonds	81,719		(984)		6		80,741		—		64,670		16,071
	208,704		(1,167)		6		207,543		13,685		174,740		19,118
Level 3
Loans receivable - held for investment	3,000		—		—		3,000		—		—		3,000
	3,000		—		—		3,000		—		—		3,000
NAV
Third-party managed funds	13,000		—		—		13,000		—		—		13,000
	13,000		—		—		13,000		—		—		13,000
	$	577,118	$	(1,861)	$	6	$	575,263	$	266,017	$	235,263	$	73,983
December 31, 2022
Level 1
Money market funds (1)	$	462,866	$	—	$	—	$	462,866	$	374,314	$	76	$	—
U.S. Government securities	64,968		(424)		4		64,548		2,995		61,553		—
	527,834		(424)		4		527,414		377,309		61,629		—
Level 2
U.S. agency securities	10,053		(1)		3		10,055		—		10,055		—
Certificate of deposit	40,915		(184)		7		40,738		5,471		35,267		—
Commercial paper	57,777		(101)		18		57,694		4,454		53,240		—
Corporate bonds	122,294		(1,729)		6		120,571		1,212		90,222		29,137
	231,039		(2,015)		34		229,058		11,137		188,784		29,137
	$	758,873	$	(2,439)	$	38	$	756,472	$	388,446	$	250,413	$	29,137

(1)$88.5 million of money market funds were classified as funds receivable and seller accounts as of December 31, 2022.

17

Etsy, Inc.

Notes to Consolidated Financial Statements

The table below shows the gross unrealized loss and fair value of the following investments in available-for-sale debt securities that are classified by the length of time that the securities have been in a continuous unrealized loss position as of the dates indicated (in thousands):

	Gross Unrealized Holding Loss		Fair Value
June 30, 2023
Less than 12 months in a continuous unrealized loss position
Corporate bonds	$	(258)	$	44,893
U.S. Government securities	(621)		91,291
	$	(879)	$	136,184
12 months or longer in a continuous unrealized loss position
Corporate bonds	$	(726)	$	28,091
U.S. Government securities	(73)		8,020
	$	(799)	$	36,111
December 31, 2022
Less than 12 months in a continuous unrealized loss position
Corporate bonds	$	(281)	$	70,469
U.S. Government securities	(265)		51,075
	$	(546)	$	121,544
12 months or longer in a continuous unrealized loss position
Corporate bonds	$	(1,448)	$	50,102
U.S. Government securities	(159)		7,442
	$	(1,607)	$	57,544

The remaining available-for-sale debt securities in an unrealized loss position have been in a continuous unrealized loss position for less than 12 months.

The Company evaluates fair value for each individual security in the investment portfolio. When assessing the risk of credit loss of its available-for-sale debt securities, the Company considers factors such as the extent to which the fair value is less than the amortized cost basis, the credit rating, including whether there has been any changes to the rating of the security by a rating agency, available information relevant to the collectability of the security, and management’s intended holding period and time horizon for selling the security.

Outside of the Company’s Impact Investment Fund, the Company typically invests in short- and long-term instruments, including fixed-income funds and U.S. Government securities aligned with the Company’s investment strategy. In accordance with the Company’s investment policy, all investments, other than investments made through its Impact Investment Fund, have maturities no longer than 37 months, with the average maturity of these investments maintained at 12 months or less.

18

Etsy, Inc.

Notes to Consolidated Financial Statements

Disclosure of Fair Values

The Company’s financial instruments that are not remeasured at fair value in the Consolidated Balance Sheets include the Notes. See “Note 8—Debt” for additional information. The Company estimates the fair value of the Notes through inputs that are observable in the market, classified as Level 2 as described above. The following table presents the carrying value and estimated fair value of the Notes as of the dates indicated (in thousands):

	As of June 30, 2023				As of December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
2021 Notes	$	990,579	$	772,800	$	989,629	$	863,300
2020 Notes	645,028		545,415		644,431		646,230
2019 Notes	646,077		772,521		645,536		998,361
2018 Notes	—		—		44		145
	$	2,281,684	$	2,090,736	$	2,279,640	$	2,508,036

The carrying value of other financial instruments, including accounts receivable, funds receivable and seller accounts, accounts payable, and funds payable and amounts due to sellers approximate fair value due to the immediate or short-term maturity associated with these instruments.

Note 7—Accrued Expenses

Accrued expenses consisted of the following as of the dates indicated (in thousands):

	As of June 30, 2023		As of December 31, 2022
Pass-through marketplace tax collection obligation	$	83,452	$	129,591
Vendor accruals	81,593		127,791
Employee compensation-related liabilities	53,939		63,718
Taxes payable	12,689		10,134
Total accrued expenses	$	231,673	$	331,234

19

Etsy, Inc.

Notes to Consolidated Financial Statements

Note 8—Debt

The following table presents the outstanding principal amount and carrying value of the Notes as of the dates indicated (in thousands):

	As of June 30, 2023
	2021 Notes		2020 Notes		2019 Notes		2018 Notes		Total
Principal	$	1,000,000	$	650,000	$	649,887	$	—	$	2,299,887
Unamortized debt issuance costs	9,421		4,972		3,810		—		18,203
Net carrying value	$	990,579	$	645,028	$	646,077	$	—	$	2,281,684

	As of December 31, 2022
	2021 Notes		2020 Notes		2019 Notes		2018 Notes		Total
Principal	$	1,000,000	$	650,000	$	649,932	$	44	$	2,299,976
Unamortized debt issuance costs	10,371		5,569		4,396		—		20,336
Net carrying value	$	989,629	$	644,431	$	645,536	$	44	$	2,279,640

Terms of the Notes

The Notes will mature at their maturity date unless earlier converted or repurchased. The terms of the Notes are summarized below:

Convertible Notes	Maturity Date	Contractual Convertibility Date (1)	Initial Conversion Rate per $1,000 Principal	Initial Conversion Price		Annual Effective Interest Rate
2021 Notes	June 15, 2028	February 15, 2028	4.0518	$	246.80	0.4	%
2020 Notes	September 1, 2027	May 1, 2027	5.0007	199.97		0.3	%
2019 Notes	October 1, 2026	June 1, 2026	11.4040	87.69		0.3	%
2018 Notes	March 1, 2023	November 1, 2022	27.5691	36.27		—	%

(1)During any calendar quarter preceding the respective convertibility date of each series of Notes, in which the closing price of the Company’s common stock exceeds 130% of the applicable conversion price of the Notes on at least 20 of the last 30 consecutive trading days of the quarter, holders may, in the immediate quarter following, convert all or a portion of their Notes. Based on the daily closing prices of the Company’s stock during the quarter ended June 30, 2023, holders of the 2021 Notes, 2020 Notes, and 2019 Notes are not eligible to convert their 2021 Notes, 2020 Notes, and remaining 2019 Notes, respectively, during the third quarter of 2023.

During the first quarter of 2023, upon maturity of the 2018 Notes, the Company paid in cash the remaining outstanding principal of $44 thousand to the holders of the 2018 Notes.

Based on the terms of each series of Notes, when a conversion notice is received, the Company has the option to pay or deliver cash, shares of the Company’s common stock, or a combination thereof. Accordingly, the Company cannot be required to settle the Notes in cash and, therefore, the Notes are classified as long-term debt as of June 30, 2023.

The Company may redeem all or any portion of the 2021 Notes, at the Company’s option, subject to partial redemption limitations, on or after June 20, 2025, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2021 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

The Notes are general unsecured obligations of the Company. The Notes rank senior in right of payment to all of the Company’s future indebtedness that is expressly subordinated in right of payment to the Notes; rank equal in right of payment with all of the Company’s liabilities that are not so subordinated; are effectively junior to any of the Company’s secured indebtedness; and are structurally junior to all indebtedness and liabilities (including trade payables) of the Company’s subsidiaries.

20

Etsy, Inc.

Notes to Consolidated Financial Statements

Interest Expense

Interest expense, which consists of coupon interest and amortization of debt issuance costs, related to each of the Notes for the periods presented below was as follows (in thousands):

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2023		2022		2023		2022
2021 Notes	$	1,100	$	1,100	$	2,200	$	2,200
2020 Notes	502		502		1,003		1,003
2019 Notes	496		496		992		992
Total interest expense	$	2,098	$	2,098	$	4,195	$	4,195

Fair Value of Notes

The estimated fair value of each of the Notes was determined through inputs that are observable in the market, and are classified as Level 2. See “Note 6—Fair Value Measurements” for more information regarding the fair value of the Notes.

Capped Call Transactions

The Company used a portion of the net proceeds from each of the Note offerings to enter into separate privately negotiated capped call instruments (the 2018, 2019, 2020, and 2021 capped call instruments collectively referred to as the “Capped Call Transactions”) with certain financial institutions, initial purchasers, and/or their respective affiliates. The Capped Call Transactions are expected generally to reduce the potential dilution and/or offset the cash payments the Company is required to make in excess of the principal amount of the Notes upon conversion of the Notes in the event that the market price per share of the Company’s common stock is greater than the strike price of the Capped Call Transactions with such reduction and/or offset subject to a cap. Collectively, the Capped Call Transactions cover, initially, the number of shares of the Company’s common stock underlying the respective Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Notes.

The initial terms of the Company’s outstanding Capped Call Transactions are presented below:

Capped Call Transactions	Maturity Date	Initial Cap Price per Share		Cap Price Premium
2021 Capped Call Transactions	June 15, 2028	$	340.42	100	%
2020 Capped Call Transactions	September 1, 2027	327.83		150	%
2019 Capped Call Transactions	October 1, 2026	148.63		150	%

The 2018 capped call transactions matured on March 1, 2023, and, in accordance with the settlement terms, the Company received 1,194,006 shares of the Company’s common stock from the counterparties to the capped call instruments. These shares were retired upon receipt.

21

Etsy, Inc.

Notes to Consolidated Financial Statements

2023 Credit Agreement

On March 24, 2023, the Company entered into a $400.0 million senior secured revolving credit facility pursuant to an Amended and Restated Credit Agreement (the “2023 Credit Agreement”) among the Company, as borrower, certain subsidiaries of the Company as guarantors, the lenders, and JPMorgan Chase Bank N.A., as administrative Agent. The 2023 Credit Agreement will mature in March 2028 and includes a letter of credit sublimit of $60.0 million and a swingline loan sublimit of $20.0 million.

The 2023 Credit Agreement amends and restates in its entirety the Credit Agreement dated as of February 25, 2019 between the Company, as borrower, the lenders party thereto from time to time, and Citibank N.A., as administrative Agent.

Borrowings under the 2023 Credit Agreement (other than swingline loans) bear interest, at the Company’s option, at (i) a base rate equal to the highest of (a) the prime rate, (b) the federal funds rate plus 0.50%, and (c) an adjusted Term SOFR rate for a one-month interest period plus 1.00%, in each case plus a margin ranging from 0.50% to 1.25% or (ii) an adjusted Term SOFR rate plus a margin ranging from 1.50% to 2.25%. Swingline loans under the 2023 Credit Agreement bear interest at the same base rate (plus the margin applicable to borrowings bearing interest at the base rate). These margins are determined based on the senior secured net leverage ratio (defined as secured funded debt, net of unrestricted cash up to $100.0 million, to EBITDA (as defined in the 2023 Credit Agreement)) for the preceding four fiscal quarter periods. The Company is also obligated to pay other customary fees for a credit facility of this size and type, including an unused commitment fee, ranging from 0.20% to 0.35% depending on the Company’s senior secured net leverage ratio, and fees associated with letters of credit. The 2023 Credit Agreement also permits the Company, in certain circumstances, to request an increase in the facility by an amount of up to $200.0 million at the same maturity, pricing and other terms and to request an extension of the maturity date for the facility. In connection with the 2023 Credit Agreement, the Company also paid the lenders certain upfront fees.

While the Company had no outstanding borrowings under the 2023 Credit Agreement as of June 30, 2023, one of the lenders has issued a $5.3 million standby letter of credit in favor of the landlord of the Company’s corporate headquarters, which can be drawn down from amounts available under the 2023 Credit Agreement. As of June 30, 2023, the Company was in compliance with all financial covenants.

Note 9—Commitments and Contingencies

Purchase Obligations

The Company’s purchase obligations are primarily related to cloud computing. During the six months ended June 30, 2023, there were no material changes outside the ordinary course of business to the Company’s non-cancelable purchase obligations disclosed in the Company’s Annual Report.

Legal Proceedings

From time to time in the normal course of business, various other claims and litigation have been asserted or commenced against the Company. Due to uncertainties inherent in litigation and other claims, the Company can give no assurance that it will prevail in any such matters, which could subject the Company to significant liability for damages. Any claims or litigation could have an adverse effect on the Company’s results of operations, cash flows, or business and financial condition in the period the claims or litigation are resolved. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these matters will not have a material adverse effect on its business.

22

Etsy, Inc.

Notes to Consolidated Financial Statements

Note 10—Stockholders’ Deficit

Effective May 3, 2022, the Board of Directors approved a stock repurchase program that authorizes the Company to repurchase up to $600 million of its common stock (the “May 2022 Stock Repurchase Program”).

Effective June 14, 2023, the Board of Directors approved a new stock repurchase program that authorizes the Company to repurchase up to an additional $1 billion of its common stock (the “June 2023 Stock Repurchase Program”). There were no repurchases under the June 2023 Stock Repurchase Program in the second quarter of 2023.

These stock repurchase programs do not have a time limit and may be modified, suspended, or terminated at any time by the Board of Directors. The number of shares repurchased and the timing of repurchases will depend on a number of factors, including, but not limited to, stock price, trading volume, and general market conditions, along with the Company’s working capital requirements, general business conditions, and other factors.

Under the stock repurchase programs, the Company may purchase shares of its common stock through various means, including open market transactions, privately negotiated transactions, tender offers, or any combination thereof. In addition, open market repurchases of common stock could be made pursuant to trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit common stock to be repurchased at a time that the Company might otherwise be precluded from doing so under insider trading laws or self-imposed trading restrictions.

The following table summarizes the Company’s cumulative share repurchase activity under the programs noted above, excluding shares withheld to satisfy tax withholding obligations in connection with the vesting of employee restricted stock units (“RSUs”) and the 1,194,006 shares received from the 2018 capped call transactions noted below (in thousands, except share and per share amounts):

	Shares Repurchased	Average Price Paid per Share (1)		Value of Shares Repurchased (1)		Remaining Amount Authorized
Balance as of January 1, 2023						$	301,431
Repurchases of common stock for the three months ended:
March 31, 2023	1,205,151	$	122.96	$	148,199	(148,199)
June 30, 2023	411,421	94.44		38,863		(38,863)
New Authorization as of June 14, 2023	—	—		—		1,000,000
Balance as of June 30, 2023	1,616,572	$	115.70	$	187,062	$	1,114,369

(1) Average price paid per share excludes broker commissions and excise tax. Value of shares repurchased includes broker commissions.

The 2018 capped call transactions matured on March 1, 2023, and in accordance with the settlement terms, the Company received 1,194,006 shares of the Company’s common stock from the counterparties to the capped call instruments. These shares were retired upon receipt. See “Note 8—Debt” for additional information. This receipt and subsequent retirement of shares was separate from the stock repurchase plan approved by the Board of Directors in May 2022.

All repurchases were made using cash resources, and all repurchased shares of common stock have been retired.

23

Etsy, Inc.

Notes to Consolidated Financial Statements

Note 11—Stock-Based Compensation

During the three and six months ended June 30, 2023, the Company granted RSUs, including financial performance-based restricted stock units (“Financial PBRSUs”) and total shareholder return performance-based restricted stock units (“TSR PBRSUs”), under its 2015 Equity Incentive Plan (“2015 Plan”) and, pursuant to the evergreen increase provision of the 2015 Plan, 6,252,714 additional shares were added to the total number of shares available for issuance under the 2015 Plan effective as of January 2, 2023. At June 30, 2023, 56,644,564 shares were authorized under the 2015 Plan and 36,504,455 shares were available for future grant.

The following table summarizes the activity for the Company’s unvested RSUs, which includes Financial PBRSUs and TSR PBRSUs, during the six months ended June 30, 2023:

	Shares	Weighted-Average Grant Date Fair Value
Unvested at December 31, 2022	6,393,786