Good morning, and welcome to the Fiverr Second Quarter Fiscal 2021 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Maya Tracey. Please go ahead..

Thank you, operator, and good morning, everyone. Thank you for joining us on Fiverr's earnings conference call for the second quarter ended June 30, 2021. Joining me on the call today are Micha Kaufman, Founder and CEO, and Ofer Katz, President and CFO.

Before we start, I would like to remind you that during this call we may make forward-looking statements and that these statements are based on our current expectations and assumptions as of today and Fiverr assumes no obligation to update or revise them.

A discussion of some of the important risk factors that could cause actual results to differ materially from any forward-looking statements can be found under the Risk Factors section in Fiverr's most recent Form 20-F and other filings with the SEC. During this call, we'll be referring to some non-GAAP financial measures.

A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures are provided in the earnings release we issued today and our shareholder letter, each of which is available on our website at investors.fiverr.com. And now, I will turn the call over to Micha..

Good morning, everyone, and thank you for joining us on the call today. With strong execution and continued growth momentum, we finished the second quarter with 60% year-over-year revenue growth, above the top end of our guidance.

When we consider the tough comp as we start to lap our previous Q2 growth rate of over 80%, this is an especially impressive result. Looking at the last 2 years, we have effectively doubled our active buyer base, tripled our revenue base, and achieved a nearly 30% positive swing in EBITDA margin.

We grew significantly faster than our competitors and rapidly expanded our market share in the freelancing economy. Fiverr is leading the changes in how the world works together and setting the industry standards with our disruptive and first-of-its-kind business model.

COVID has created some unprecedented growth spikes for our business in the past year. Like many of the companies which reported their Q2 in the past 2 weeks, we also see a new post-COVID effect. Most of the world has been confined to home for the past 18 months. When COVID restrictions were lifted in the U.S.

and Europe around the second half of May, people were in desperate need to get out of home and have some off-screen time. Coinciding with the summer and school holidays, people are taking vacations, which is a really healthy thing to do, and that translates to less time spent online.

To be prudent, we are adjusting guidance for the fiscal year 2021 based on these incremental trends over the past few weeks.

I would like to highlight that our fundamentals continue to be very strong, far stronger than pre-pandemic, but the reduced online activity translates into more modest new customer cohorts and less activity for those who are taking vacation.

All that said, none of this changes the underlying strength of our business, our long-term outlook, and the massive market opportunity that's ahead of us. Our cohorts continue to spend at much elevated levels compared to pre-pandemic. We continue to drive majority of our revenue from repeat buyers and majority of our new buyers from organic channels.

Spend per buyer continues to grow rapidly as we go up-market. Buyers continue to buy large ticket sized services through products such as Milestone and Subscriptions. We continue to be highly efficient in acquiring new buyers.

And lastly, our take rate grew nicely from 27.2% last quarter to 27.8% this quarter, serving as a testament to the massive value we generate for our buyers and sellers.

Against the backdrop of the increasing demand for skilled talent, the adoption of remote work and continued investments in digital channels, businesses are increasingly turning to Fiverr to access digital service providers.

Driven by accelerated pace of investment and innovation, Fiverr maintains its position as a powerhouse that enables more buyers and sellers to participate in the digital service economy and allows them to do more on Fiverr with greater convenience and efficiency. During this quarter, we made exciting progress towards our up-market strategy.

Fiverr Business was launched just 3 quarters ago, and even with limited exposure, already represents 5% of core marketplace business, growing faster than our overall marketplace. This product is still in its early cycle to become a mature solution for larger businesses.

Early data indicates that buyers significantly increase their spend with us after joining Fiverr Business. The white-glove services we provide reduces the friction in last-mile conversion, allowing our buyers to execute their project on Fiverr with peace of mind.

Combined with collaboration and project management tools, we see improvement in overall engagement and spend. We signed two important partnerships this quarter with Salesforce and Wix. The partnerships allow the customers of these companies to have a streamlined experience in accessing qualified talent on the Fiverr platform.

With dedicated training programs to prepare and qualify sellers with the desired skills, we will enable a one-click order experience for corporate buyers. At the same time ensuring a smooth onboarding experience and a high-quality service delivery.

While these partnerships currently focus on seller candidates from the disabled community, they serve as pilots for additional corporate partners and a broader seller audience. Another area that I'm super excited about is the seller services.

We are increasingly establishing our platform to be more than just a place to transact, but also an ecosystem that allows talents to grow their business. Following Fiverr Learn and Promoted Gigs, we launched Seller Plus in Q2 as the latest addition to this family of products.

Seller Plus is a subscription-based loyalty program that provides a suite of benefits to subscribers, including advanced analytics dashboard, the ability to send coupons, access to dedicated success manager, and so on. So now we have Fiverr Learn to help a seller improve their skills and deliver better services to our buyers.

Added to that we have Promoted Gigs to bring our sellers more traffic and exposure, and now Seller Plus equips our sellers with data and tools to convert better, retain their clients better, and become more sophisticated participants of our marketplace altogether. Initial feedback from our seller community has been extremely positive.

We plan to further expand benefits in the program and to make it a no-brainer for any quality and motivated Fiverr sellers. We are also making continued progress in expanding Promoted Gigs. During the quarter, we reached an important milestone by achieving quarterly ad revenue in Promoted Gigs of $1 million.

While this is still small compared to our overall revenue, the potential is significant. In the coming quarter, we will continue to grow the coverage of Promoted Gigs on the marketplace and continue to explore and innovate new ad products.

In conclusion, I am super proud of our team for their relentless focus and ability to navigate through the post-pandemic hyper-seasonality and continue to execute at the highest levels. With that, I will turn the call over to Ofer who will share a few Q2 highlights as well as some color for the rest of this year.

Ofer?.

Thank you, Micha, and good morning everyone. Our Q2 results show continued strong growth across all of our metrics, as we continue to expand our market share and drive the transformation of how the world works together.

Revenue for Q2 was $75.3 million, up 60% year-over-year, driven by 43% growth on active buyers, 23% growth on spend per buyer, and 80 basis points expansion on take rate. We continue to move up-market, with high value buyers now representing over 61% of core marketplace revenue, up from over 55% a year ago.

As Micha mentioned, we saw some near-term fluctuations on our marketplace that are consistent with the broader post-COVID trends. As COVID restrictions were largely lifted in the U.S.

and Europe, where the majority of Fiverr's revenue is coming from, people are taking time off, visiting families, and having a break from work after the extended period of lockdown.

The seasonality in the second half of this year was expected when we provided guidance in May; however, we didn't have the visibility to the unprecedented nature of post pandemic hyper-seasonality. Based on the incremental trends we saw since the second half of May, we are adjusting our full year guidance.

For full year 2021, we now expect revenue to be in the range of $280 million to $288 million, representing year-over-year growth rate of 48% to 52%.

At the low end, we expect the hyper-seasonality to continue for the remainder of the year, and on the high end, we expect the pent-up demand for personal travel to ease in Q4 as summer is coming to an end.

Full year adjusted EBITDA is expected to be in the range of $12 million to $14 million, representing an adjusted EBITDA margin of 4.6% at midpoint. We have ramped up our hiring based on the tremendous growth of 2020 and expected growth going forward.

We continue to believe that these investments are critical for us to drive long-term growth initiatives, and the reduction in leverage is short-term by nature. For Q3, we expect revenue to be $68 million $72 million and EBITDA to be $2.5 million to $3.5 million. In light of recent post-COVID trends, we expect Q3 revenue to be slightly down from Q2.

All that said, we are well positioned to stay resilient through this period of volatility and uncertainty. One, we operate a horizontal marketplace and our revenue is well diversified across over 500 categories.

When stay-at-home orders were in place, categories related to e-commerce and gaming performed really well, such as drop shipping and graphics for streamers. Now as the world re-opens and demand for hiring and travel surges, we are seeing strength in categories such as resume-writing and Airbnb listing.

Second, majority of our revenue came from existing cohorts and those buyers continue to stay engaged on our marketplace for a very long time. In Q2, while spend from repeat buyers modestly came down from peak levels, they remain massively elevated compared to pre-COVID levels.

Third, our highly sophisticated SEO/SEM engine continues to be a key competitive advantage. The continuous channel diversification and automation around marketing technology allowed us to stay disciplined in Q2. tROI for the quarter was 1x and we continued to return our performance marketing investments in roughly 3 months.

We expect that when post-COVID seasonality winds down, the fact that we don't have a salesforce and a long sales cycle will allow us to quickly pick up the growth trends. In summary, we had an amazing Q2 and the fundamentals of the business are stronger than ever. We as management are committed to stay transparent and forthcoming.

We remain heads down focused on continued execution and innovation to empower our community of buyers and sellers, and to drive long-term sustainable growth of our business. With that, we'll now turn the call over to the operator for questions.

Operator?.

[Operator Instructions]. And the first question will be from Brad Erickson with RBC..

So a couple of questions. I guess, first, you mentioned the change in buyer behavior in the past few months here. Just curious to learn a little bit more there. I guess, when you think about things like traffic and conversion and any of the inputs that drive your funnel of demand.

I mean, I guess, did you see all of those things sort of generally slow down at the same commensurate rate versus revenue? And I guess also wondering if you've seen freelancers making themselves sort of less available in light of the labor shortages? And do you think that also had any effect on the slowdown you're seeing? And then I have a follow-up..

Brad, good morning, thanks for the question. So what we're seeing is this. The existing fundamentals and cohorts are very strong.

When we look at our older cohorts, those of 2018 and back, spend levels are 15% higher in 2020, and they expand further into Q1 2021 through May, and they came down slightly after then, still massively above pre-pandemic levels. And if we look at 2019 and 2020 cohorts, 10% to 20% better than typical cohorts in its first 2 years.

These are B cohorts and quality looks strong so far. When we look at 2021, it's -- we expect smaller cohort size in H2. The efficiency and the quality has remained, but the quantity is slightly smaller. Now what we're seeing is mostly in the top of the funnel of the traffic. Now it should be said, seasonality was expected.

It was factored when we provided guidance last quarter. But what we are seeing is what we call hyper-seasonality. That is as a result of the long lockdown, online fatigue, summertime, school holidays, people just need time out-of-home now more than ever.

So when we look at the guidance that we provide, we assume that the hyper-seasonality will continue throughout the rest of the year. And this is just given the unprecedented nature of COVID. We don't know how long this is going to lap. Hence guiding the way we have is the prudent thing to do.

But we know that this is an unusual level of seasonality, and it would end at some point. So to your specific question, we are seeing it mostly on the top of the funnel. The existing activity remains very high. Yes. More people -- and you've asked about on both sides of the market, people are indicating that they're taking more time off.

The answer is absolutely yes. We have a way to measure within our studies, our research team, time that people mark as out of the office. And this is now increasing. Now again, we know it's temporary. People have been locked for almost 18 months. They spent tremendous amount online. They just need to go out.

It's going to, and I don't know if it's going to end at the end of the summer or if it's going to last throughout the entire second half of the year. Our assumption, to be prudent, is that this is going to last throughout the second half of the year. I think that this is the right thing to guide it..

And I guess, yes, generally squares with the Q4 guidance.

I guess second question I'd have is, what have you seen in parts of the world that had gone back into lockdown? And I guess, just have any of those geographies maybe seeing a smaller amount of reversion since the business turned a couple of months ago?.

So this is really interesting. I think this is the unprecedented nature of this pandemic. And we're seeing this. I mean, you look at Israel. Israel was ahead of the curve in everything.

In the beginning, maybe not, but then high degree of cases, then the highest degree of vaccination, and we were one of the first to relapse or dismiss all the restrictions of lockdown.

Now we've seen the Delta variant coming in, we're starting to give the third vaccination and there's talks about lockdown during September, which is the holiday time in Israel. So we're definitely not done with this. We shouldn't even call it post-pandemic. The pandemic is not over. So one interesting case is what happened in July in Australia.

So 2 factors for Australia. One is the fact that there is full lockdown since July. The second thing is its winter. And what we're seeing there is we're seeing amazing activity. It is if there wasn't any change from the height of the pandemic.

So definitely, when you have very broad, either lifting of restrictions, definitely coinciding with summer because summer is a time when people can actually go out. If it were to be in the winter, we may have seen slightly different behavior.

But right now, Australia is a good case to look at what happens when there's lockdown and there's winter, activity there is very, very high..

And the next question will be from Ron Josey with JMP Securities..

Maybe, Micha, another question just on the hyper-seasonality.

Can you talk about maybe the size and scale of the projects that you're seeing on the platform from, call it, mid-may to current? Wondering if maybe you're still seeing the number of projects that's smaller in scope as folks take more time off, which makes sense? And then as a follow-up to that, maybe just talk about the freelancer base.

So are you still seeing more freelancers joining from a supply perspective? And while we're talking supply, might as well talk to demand side, any -- we understood the vacations and whatnot, but just talk a little bit more about where you're seeing like new active buyers and things along those lines..

So no, the number of projects, the smaller projects in scope is not something that we see. As I said, what we're seeing is mostly top of funnel. Now if you look at the different sizes of customers, on the other hand, you see that the larger types of customers are less affected by this hyper-seasonality. And again, this is common sense.

If you think about it, if it's a larger organization, and one of the team members is going on vacation, it's fine because the rest are actually working. So they're less volatile.

If you think about freelancers on the one hand or if you look at SMBs, they don't need to get permission from anyone to go on vacation, just close off and they can disappear for 3 or a month, if they want to. So what we're seeing -- and this is one of the reasons why we spoke about Fiverr business as an example and high-value buyers.

Both are increasing very, very nicely. So you're seeing high-value buyers getting to the level of 61%, right? And you see Fiverr business, even though it's a super young product being -- scaling up very rapidly, which we're very happy with.

So again, top of funnel, that's what we're seeing, slightly less activity, people spending slightly less time in front of the screen, and that is what's pushing it. It's not changing the mix. This is what we call the fundamentals. The fundamentals are extremely strong, they're strong as ever..

I would just add, Ron, if you look at the spends of buyer, which is another good implication for the amount of money our buyers are spending in the marketplace. It's actually grown by 23%.

So that by all means, what Micha said, is go across all categories and countries, it's the top of the funnel that has been reduced, but the fundamental in terms of activity and behavior is the same and getting better as we go up-market..

Yes. You had a question about the freelance base. So we're seeing a very steady stream of new freelancers coming in. However, again, when you look at the freelancing side, they also have been locked down for a long time, and they also need some time off.

And do remember that we're still within the stimulus package, and this is going to last until, if I'm not mistaken, September 6. So I think that people have also lack of very high motivation to necessarily go back or start their career. We're always seeing a very high stream of freelancers coming in.

Nothing has changed in this idea of people wanting more freedom of how they create their career. And remote work is also not changing. That concept is not reversing itself. The idea that we're born during the pandemic will just accelerate. But we just need to get out of the hyper-seasonality.

And again, as I said, it's really impossible, nobody has a crystal ball to understand how this is exactly going to play out. This is why we're being cautious..

The next question will be from Doug Anmuth with JPMorgan..

I think you explained all of that fairly well. Just wanted to follow-up on one point there. Just curious on the top of the funnel. We've seen some other companies that have had some impacts from Google SEO changes.

Just curious, in particular, if there's anything there that you're seeing? And then maybe just secondly on Fiverr business, up to 5% of core marketplace revenue. It sounds like you're doing a lot of things there to remove friction, obviously, you can get onboarding, right.

Just curious what other functionality and tools you're kind of thinking about there for Fiverr businesses you look to further enhance that product?.

I think you're right to point that, generally speaking, we've been listening to a lot of the earnings calls in the past two weeks. And I think in general, companies are talking about reduction in traffic.

I think most of them are actually because of the hyper-seasonality, maybe some are because of SEO, we haven't seen any change in organic or SEO impact. We've been preparing very, very well and in advance for those changes, and these changes haven't impacted us at all..

And Doug, if you go to the tROI chart, I think well demonstrated the resilience of the performance marketing environment, where we kept the 3 months tROI, despite the fact of lower traffic and a slightly higher cost of acquisition. We kept the lifetime value to CAC as high and consistent to prior cohorts.

And I think that bear in mind lastly that we are increasing the investment in terms of marketing comparing previous calls. So all of those factors are well demonstrated in the tROI and the long-term lifetime value to CAC, which hasn't been changed with the reference to the Google SEO..

Then on the Fiverr business, yes, we're removing friction. I think that the more we have audience and buyers using the system, we get more and more normal data, based upon we are building the next step.

I think that we mentioned under prepared remarks and the shareholders' letter that we reached the first milestone of a 5% of the overall marketplace revenue from Fiverr business, which is, for us, is a great achievement given the early days of the product.

When we look forward, we see more customer, CSM involved, curated supply, that give additional value. Those are comments that we get from these thousands of buyers who are using the systems. And we're also looking to what is called FMS, which is a freelancer management system.

We plan to offer in the long-term the ability of businesses to manage a different class of freelancers so that the roadmap for the long-term is pretty happy. We are just at the early days, I think, 3 quarters since we launched the product, we already have, as I said, thousands of buyers.

It's the new buyers and buyers of the marketplace that are transforming themselves into the systems because of the value they see, the loyalty is higher, the spends of buyer is higher. So we are pretty excited about this project in the long term..

[Operator Instructions]. The next question comes from Jason Helfstein with Oppenheimer..

This is Patrick Josephs on for Jason. You just spoke about Fiverr business helping the business diversify away from the slower SMB demand. Just curious to hear how your subscription products are helping diversify as well.

And when do you see subscription products big enough to be material to growth?.

So on subscription, they were launched in February of this year, currently operating in 152 categories, which is up from 25 categories in Q1. What we can -- some data that we can share on this is that 52% of transactions are buyer working with sellers for the first time, which is really great.

It indicates that the market space has created a level of convenience and trust necessary for people to start engaging subscriptions without even working for the first time together. And 20% -- about 20% of the subscriptions are for 6 months. So we're now working on expanding this to the entire marketplace.

And this is obviously the larger the customer, the larger their projects and their commitment ability, the more they use it. So this is definitely one of the products that we're super happy with and super relevant for Fiverr business customers..

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Micha Kaufman for any closing remarks..

Thank you, everyone, for participating in the call today. I wish all of you a good rest of the day, and we'll talk to all of you in the next quarter. Thank you..

And thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines..