Good day, and welcome to the 1stdibs.com Inc. Q3 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Kevin LaBuz, Head of Investor Relations and Corporate Development. You may begin.

Good morning and welcome to 1stdibs earnings call for the quarter ended September 30th, 2022. I'm Kevin LaBuz, Head of Investor Relations and Corporate Development. Joining me today are CEO, David Rosenblatt; and CFO, Tom Etergino. David will provide an update on our business, including our strategy and growth opportunities and Tom will review our third quarter financial results and fourth quarter outlook. This call will be available via webcast under Investor Relations website at investors.1stdibs.com. Before we begin, please keep in mind that our remarks include forward-looking statements including, but not limited to, statements regarding guidance and future financial performance, market demand, growth prospects, business plans, strategic initiatives, evaluation of alternatives, business and economic trend dynamics, including e-commerce growth rates and our potential responses to them, international opportunities, and competitive conditions. Our actual results may differ materially from those expressed or implied in these forward-looking statements as a result of risks and uncertainties including those described in our SEC filings. Any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them, except to the extent required by law. Additionally, during the call, we'll present GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which you can find on our Investor Relations website, along with a replay of this call. Lastly, please note that all growth comparisons are on a year-over-year basis, unless otherwise noted. I'll now turn the call over to our CEO, David Rosenblatt. David?

Thanks, Kevin. Good morning and thank you for joining us today. Despite a challenging environment for e-commerce and home goods in general, we delivered GMV revenue and adjusted EBITDA margins above the high end of our guidance. Strength in jewelry and high-value orders bolstered GMV, while adjusted EBITDA margins benefitted from cost cuts. Additionally, we continued making progress on our strategic initiatives, auctions, international expansion, and supply growth. We are focused on improving efficiency and aim to emerge from this challenging period with more growth drivers and a leaner cost structure. For the past two quarters, we have aligned expenses to lower demand by drastically curtailing hiring, increasing performance marketing efficiency targets, and reducing headcount by approximately 15%. As a result, adjusted EBITDA margins improved sequentially despite quarter-over-quarter declines in revenue. Third quarter operating trends were broadly consistent with those of the second quarter. Traffic growth was healthy, organic traffic mix improved four percentage points due to continued strength in SEO combined with higher efficiency targets on performance marketing. Supply acquisition remained brisk and seller churn stayed at historical lows. Once again, returning buyer conversion increased, but this was offset by softness in new buyer conversion. Our strategic initiatives are gaining traction. Auctions represented 6% of total orders in the quarter, up from 4% in the second quarter. Traffic growth to our localized French and German sites accelerated sharply, and we added new sellers at three times last year's rate. One new dynamic this quarter was a change in the composition of GMV growth. Through the end of the second quarter, we had seen average order value grow for the prior seven quarters. However, AOV declined in the third quarter. At the same time, order growth rates improved month-over-month throughout the quarter. Encouragingly, this trend has continued into October. We believe AOV declines are driven by two factors; first, the growth of auctions, which has a lower AOV than fixed price purchases; second, an increasing percentage of overall orders under $1,000. We believe this reflects shifting consumer behavior in favor of lower-priced items amid macroeconomic uncertainty. We don't see declining AOV as a negative. Our goal is to grow GMV and active buyers. Lower AOV expands the market. This was one of the strategic rationales for launching auctions. Luxury exists at a variety of price points from under $100 to over $100,000. Our objective is serving buyers across the luxury spectrum while maintaining our strict vetting standards and world-class supply. While the near-term environment is challenging, our trusted brand and world-class supply give us confidence in the future. Over the past two decades, 1stdibs has become synonymous with high-quality one-of-a-kind items. You won't see a line item for trust on our income statement or balance sheet, but it underpins everything we do. This trust allows us to transact in categories and price points rare in e-commerce. For example, in spite of overall AOV declines, we saw a record number of orders over $100,000, driven by jewelry. A number of these were engagement rings, indicating the level of trust we have with consumers for their most important locations. We are committed to reaccelerating GMV growth and enhancing shareholder value and are reviewing multiple paths to help us achieve these objectives, including our ongoing review of various strategic options for the business with our financial advisers at Allen & Company. Turning to operations, we remain focused on the drivers of our business, improving conversion, realizing efficiencies, expanding supply, growing auctions, and expanding internationally. Improving new buyer conversion is our largest lever to reaccelerating GMV growth. Today, subdued home goods demand, economic uncertainty, a traffic mix shift from returning buyers to new buyers and a device mix shift from desktop and app to mobile web are conversion headwinds. Everything we do is focused on overcoming these, including our strategic initiatives and day-to-day product and marketing enhancements. Conversion is a game of incremental gains that compound over time. We're testing, learning, and iterating. During the third quarter, for example, we added more product recommendations to low inventory pages, improving conversion for those pages. We also built and tested a new model based on item listing attributes to enhance search and browse rankings. Lastly, we implemented Klarna as a payment option in the US. So far, approximately two-thirds of Klarna checkouts have come from first-time buyers. Improving efficiency is another priority. For example, this quarter, we completed a number of initiatives to improve operational productivity. Through product enhancements and operational improvements, we reduced overall client service inbound volume by over 20%, while maintaining high customer satisfaction. Going forward, we will continue focusing on projects to improve efficiency. Our supply team made efficiency gains as well, working cross-functionally with product management; we launched a new self-service onboarding experience for sellers, allowing us to onboard higher volumes of sellers without adding headcount. Our goal is to aggregate the world's most beautiful items regardless of where they're located, while maintaining high curatorial standards. Supply growth is a strategic priority because it drives traffic, makes search more robust, and increases our ability to make a match between buyers and sellers. Our new seller pricing test continues to drive supply acquisition at triple our 2021 monthly average. We signed over 650 new sellers in the quarter, ending September with over 6,700 seller accounts, up over 40%. Because we're a marketplace of one-of-a-kind items, breadth matters. Adding supply improves marketplace liquidity and ultimately grows demand. We are seeing this play out. For example, one of our new dealers, a specialist in fine minerals, made their first sale, a high-value order to a collector in September. The payer has subsequently connected on additional orders, an example of how adding supply drives GMV. Looking ahead, we're focused on inventory life cycle management, which is targeted at helping sellers succeed on the marketplace by providing guidance on pricing and choice of purchase format. We continued seeing great traction in auctions with bidders, orders, GMV, and supply all growing double-digits sequentially. Auctions accounted for 6% of orders against 3% of supply. We had 41,000 unique auction listings, up from 25,000 in the second quarter. Since launch, art and jewelry have been the top-performing verticals, accounting for approximately 70% of orders, highlighting the value of operating across multiple verticals. Auctions AOV remains below $1,000. We believe this more accessible price point helps engage and activate new buyers. Over 50% of bidders in the third quarter had never purchased from 1stdibs before. Additionally, about 30% of first-time bidders registered and placed their first bid on the same day. Even if they don't win the auction, bidders provide their contact information, payment details, and signal what they're interested in. This is valuable first-party data for our product and marketing teams. Since launch, we've enhanced the auctions product experience through weekly updates. During the third quarter, we improved discovery with new on-site touch points and increased the visibility of existing auction modules. We also broadened the reach of our behavioral emails and launched push notifications to drive urgency and bidding activity. Our next step is focusing on driving demand and optimizing pricing. In the fourth quarter, we're beginning work to refine pricing recommendations and provide sellers more guidance around what categories and listings perform best. Turning to International, this was our first full quarter operating localized sites in Germany and France. Our initial focus is driving traffic to those sites and performance here has been encouraging. Traffic from German and French IP addresses grew over 375% year-over-year, albeit off a low base, driven by two factors. First, we started testing local language performance marketing in French and German. Second, we're starting to see SEO benefits from our pages being indexed in local languages. SEO traffic grew approximately 200% year-over-year in both markets. The vast majority of these sessions came from users who haven't purchased from 1stdibs before. Given our consideration cycle is about 100 days, it will take time to convert this traffic into orders. Our international product team incorporated on-the-fly machine translation into the messaging center, allowing buyers and sellers to communicate in the language they are most comfortable with. They are also working to grow our email file in France and Germany, which will help to drive organic traffic and repeat purchases. We also launched customer support on WhatsApp. It takes years to build a successful international business, but we are happy with our progress so far. Despite a difficult environment for e-commerce, our platform displayed its unique value this quarter. The success with high-value orders is a testament to the trust we built with buyers and sellers and the strength of the 1stdibs brand. Buyers come to us for our unique world-class supply and they trust us for their most meaningful purchases. We believe that subdued e-commerce demand is a temporary dynamic. In the two decades before COVID, e-commerce penetration increased predictably. When demand rebounds as we believe it will, we will have a leaner cost structure and more growth drivers, including auctions, localized marketplaces, and increased supply. As we manage through this challenging period, our aim is to deepen our competitive position and become more efficient. We are already seeing progress here with adjusted EBITDA margins improving sequentially despite lower revenue. Additionally, we are encouraged that despite lower AOV, year-over-year order growth rates improved throughout the quarter and into October. Unlike the current demand environment, our trusted brand and world-class supply are durable assets, giving us confidence in the future. I'll turn it over now to Tom to review our third quarter financial results and fourth quarter outlook.

Thanks, David. With strength in jewelry and high-value orders, we delivered GMV, revenue, and adjusted EBITDA margins above the high end of our guidance range. Despite lower revenue, adjusted EBITDA margins improved sequentially as a result of our cost reductions. GMV was $99.2 million, down 9%. Similar to the first half of the year, traffic growth remained strong, while conversion softened, particularly for new buyers. This was partially offset by modest increases in returning buyer conversion. Both trade and consumer GMV declined. Consistent with recent quarters, trade growth was relatively stronger. We are encouraged that trade orders were flat while AOV declined. Turning to vertical performance. All verticals declined with the exception of jewelry, which grew mid-teens. Jewelry, our second-largest vertical behind vintage antique furniture has grown every quarter since mid-2018. Strength in jewelry was helped by a record number of high-value orders, highlighting the benefit of spanning multiple verticals. Consistent with recent quarters, vintage and antique furniture accounted for less than 50% of GMV. Nearly 60% of our first-time orders can categories, jewelry, new and custom furniture, art and fashion. Over the past seven quarters, average order value grew. In the third quarter, it declined 3%, driven by a mix shift to auctions as well as an overall higher percentage of orders under $1,000. Additionally, our median order value, which is insulated from quarter-over-quarter fluctuations in high-value orders, has declined on a monthly sequential basis since June. While average order value and median order value declined, order growth rates improved month-over-month throughout the quarter, a trend that continued into October. Despite economic uncertainty, order volume is resilient. Luxury on 1stdibs is available at a variety of price points and vertical. During the quarter, median order value was approximately $1,250 and over 40% of orders were under $1,000. We ended the quarter with approximately 68,000 active buyers, down 5% year-over-year and 2% quarter-over-quarter. We expect this metric to be choppy near-term as we manage through a period of softer demand. On the supply side of the marketplace, we closed the quarter with over 6,700 seller accounts, up over 40%. Turning to operations, improving efficiency is a priority. During the second quarter, we began taking steps to align our costs to current demand. This work accelerated in the third quarter. In late September, we made the difficult decision to reduce our headcount by approximately 10%. Related severance charges amounted to approximately $600,000. Starting in the fourth quarter, we expect this headcount reduction to generate approximately $1.5 million of savings on a quarterly basis or roughly $6 million annually. Between our September reduction and limiting backfills for attrition, headcount is down 15% from the second quarter peak to the end of October. Cost savings initiatives are ongoing. To date, we reduced headcount, limited hiring to critical roles, drastically reduced the number of open positions, lowered performance marketing spend by increasing efficiency targets, and started rationalizing non-headcount costs. At the end of the second quarter, we also streamlined our business and strengthened our balance sheet by selling Design Manager for $14.8 million. We continue to look for other cost savings opportunities, including actively marketing our New York office, where rent expense is approximately $4 million per year. While there is more work to be done, the impact of cost reductions are showing up on the P&L. Relative to the second quarter, adjusted EBITDA margin improved by roughly one percentage point despite sequential declines in revenue. Total operating expenses declined approximately 6% quarter-over-quarter. If you exclude one-time severance charges, operating expenses declined 8% sequentially. Compared to last year, GMV declined approximately $10 million and revenue declined by $2.8 million. Despite this, adjusted EBITDA was approximately $100,000 lower year-over-year as we modeled back expenses. This reflects expense reductions in the second and third quarters, but does not include the impact of our late September headcount reduction, which will start to be reflected in the fourth quarter. We expect to enjoy the leverage of our leaner cost structure while demand rebounds. Turning to the P&L, net revenue was $22.7 million, down 11%. Transaction revenue, which is tied directly to GMV, was approximately 70% of revenue with subscriptions making up the bulk of the remainder. Financial results for this quarter exclude Design Manager. Pro forma for the sale of Design Manager, revenue was down approximately 9% year-over-year and 4% quarter-over-quarter. Gross profit was $15.5 million, down 14%. Gross margins were 68%, down from 71% a year ago. Gross margins declined as payroll and benefits, hosting and co-location costs and stock-based compensation increased as a percentage of revenue. Similar to the second quarter, higher hosting and colocation costs were a result of stronger traffic growth without offsetting GMV. Sales and marketing expenses were $11.1 million, down 14%, driven by lower performance marketing spend, partially offset by one-time severance payments related to our September restructuring. Similar to the second quarter, we pulled back on performance marketing and increased our efficiency thresholds due to softening conversion, an example of recalibrating expenses to match demand. Sales and marketing as a percentage of revenue was 49%, down from 50% a year ago. Technology development expenses were $6.4 million, up 33%, driven by higher stock-based compensation and higher salary and benefits, including one-time severance payments related to our September restructuring. As a percentage of revenue, technology development was 28%, up from 19%. General and administrative expenses were $6.7 million, up 11%, driven by higher stock-based compensation and payroll and benefits. We realized over $200,000 in savings on D&O insurance as we continue to aggressively negotiate contracts as they renew. As a percentage of revenue, general and administrative expenses were 30%, up from 24%. Lastly, provision for transaction losses were $1.2 million, 5% of revenue, flat year-over-year. Adjusted EBITDA was a loss of $5.5 million compared to a loss of $5.4 million last year. Adjusted EBITDA margin was a loss of 24% versus a loss of 21% last year. This year-over-year change was driven by lower revenue and higher technology development spending. Moving to the balance sheet. We ended the quarter with a strong cash and cash equivalents position of $158 million. Turning to the fourth quarter outlook. We've seen muted quarter-to-date seasonality. Our guidance assumes this trend continues for the remainder of the quarter. We forecast fourth quarter GMV of $96 million to $103 million, down 19% to 13%. Net revenue of $22.2 million to $23.3 million, down 18% to 13% and adjusted EBITDA margin loss of 24% to 20%. GMV guidance reflects a number of conversion factors, including shifting consumer behavior, ongoing economic uncertainty, conversion headwinds, particularly for new buyers, and limited visibility. Declining AOV and that GMV contribution from strategic initiatives will offset broader softness. Turning to adjusted EBITDA margins, guidance reflects savings from our third quarter headcount reduction and ongoing expense management. However, some of the savings from our September headcount reduction will be partially offset by seasonal expenses in marketing and operations. As always, our goal is to grow GMV and drive operating leverage with the ultimate aim of growing free cash flow per share. We are becoming more efficient by identifying and realizing incremental cost savings and reallocating existing resources to projects showing the highest potential. This work isn't finished. We're already starting to see tangible results, with adjusted EBITDA margins improving sequentially despite lower GMV and revenue. We will continue to diligently manage expenses and expect to benefit from a leaner cost structure when demand rebounds. Thank you for your time. I'll now turn the call over to the operator to take your questions.

Thank you. Our first question comes from Mark Mahaney with Evercore ISI. Your line is open.

Okay. If I could ask a couple of questions, please. First, how broad do you think the appeal of auctions is to both buyers and sellers on the platform? So, if it's gone from 4% to 6% now of transactions, is there a natural level where you think it could go to? Are there certain categories or price points that wouldn't make sense that are off limits for auctions from either a buy or seller perspective? So, just how big do you think auctions could be?

It's David. I believe the appeal of auctions is quite extensive. There are comparable companies in the market worth between $600 million and $800 million, and we think our products and consumer experience are superior. For sellers, this offers a critical solution, especially in today's economy, by efficiently liquidating inventory and generating cash, while ensuring that products reach qualified buyers. On the demand side, we notice that we have a low sell-through rate, with over $14 billion in product listed on our marketplace. Our research indicates that the primary reason for the low sell-through is often perceived high prices, with many buyers unaware of their ability to negotiate. This is reflected in the conversion rates where returning buyers outpace new buyers who are still getting accustomed to the platform. Our auction feature has already shown its potential by achieving a sell-through rate that is double that of the marketplace, and new buyers are converting at higher rates compared to traditional listings. Half of those registered to bid are new users. This approach is proving effective, but we still have work to do in helping our sellers adjust their pricing to be more auction-friendly and in educating them about what sells best. So far, jewelry and art have been our top-performing categories. We are still early in this process, focusing on learning and increasing buyer awareness. Looking at our fundamentals, particularly the sell-through rates and market comparisons, it indicates there is significant opportunity ahead of us.

Could you provide a follow-up on the international markets? This was the first full quarter for France and Germany. Did you disclose how significant those regions were in terms of GMV, GLV, or revenue? What is implied in the guidance for Q4? Also, how long do you think it will take for these international markets to become significant to the overall business? Thank you.

This was the first full quarter for our localized version in France along with our French and German experiences. After ensuring product stability, our initial focus was on developing our SEO capability. We were pleased to see that organic traffic increased by 200% year-over-year, indicating a good start. The next steps involve building the infrastructure, creating email lists for marketing, and investing in paid efforts. Currently, this is not a significant part of our GMV. Tom, would you like to discuss how you see this evolving over the next several years?

Yes, I think the timeline for international growth is a bit longer. As we move into 2023, we won't provide guidance on that at this moment. However, we expect it to begin to increase. We probably won't break out the details until at least the first half of next year as it becomes more substantial. We're aware that it takes time to build traffic. We have observed excellent traffic growth in the first full quarter since we launched it, but monetization will occur at a slower pace.

Okay. Thank you, David. Thank you, Tom.

Our next question comes from Trevor Young with Barclays. Your line is open.

Great. Thanks. Two, if I may. First, just given the current business mix and contemplating the ongoing cost savings, I think you mentioned because of the reduction of $4.5 million Q-on-Q improvement, also potentially subleasing the New York office space. I guess at a high level, is there a certain level of GMV or revenues that we should be thinking about, at which point you've reached that EBITDA breakeven. Not looking for a specific quarter, 2023 guide or anything like that, BUT just trying to assess how much lift we need to have from, call it, the 4Q guide to get to some sort of breakeven point?

Thank you for the question. You are correct. Over the last two quarters, we have made significant cost reductions in the business. In August, we decided to reduce our involvement with NFTs. In September, we made the tough choice to cut our headcount by about 10%. We have significantly decreased the number of open positions we are hiring for, and we have reduced performance marketing expenditures by setting higher efficiency targets. Additionally, we have begun to streamline our non-headcount expenses. As a result, our financial performance is starting to show improvement. By the end of October, our headcount was down 15% compared to the peak in the second quarter. Operating expenses fell by approximately 6% from the previous quarter, despite a decrease in revenue, and adjusted EBITDA margins improved sequentially. We anticipate that our headcount reductions from September will lead to a decrease in quarterly operating expenses of around $1.5 million or $6 million annually. We are also reallocating resources to projects with the greatest potential. For instance, we shifted engineering resources from NFTs to auctions and projects aimed at boosting conversion and engagement. Moving forward, we are dedicated to identifying and implementing further efficiencies while carefully managing our expenses. I want to emphasize that increasing GMV growth is essential for us to reach breakeven. As previously mentioned in earlier calls, we operate with an asset-light business model that has high operating leverage, though this leverage works both ways. Therefore, as GMV and revenue decline, there is an impact on EBITDA. However, when GMV growth returns, we will be well-positioned to leverage the model, allowing a significant portion of new revenue to go directly to the bottom line. While we are not providing specific guidance on dates for breakeven, we are committed to achieving greater efficiencies and aligning our costs with GMV and revenue.

That's really helpful, Tom. It sounds like part of that is the need to see some GMV recovery to reach breakeven. For the second question, regarding onboarding more sellers, how do you balance the lower touch approach with your historically higher touch vetting process, which buyers may see as a stronger endorsement of these sellers' credibility and their likelihood of not selling inauthentic goods? How do you find that balance?

We haven’t changed any of our criteria at all. What we did change in the seller test is the range of pricing mechanisms we’re offering sellers. Previously, we had a one-size-fits-all model that included a very high or relatively high subscription fee, which was difficult for many sellers without prior experience with 1stdibs to accept. In response, we now offer a sliding scale of subscription options: higher subscriptions with lower commissions, and higher commissions with low to no subscription fees. This change has led to a tripling in the rate at which we're adding suppliers. What we’ve observed is that these suppliers are thriving and offer high-quality products. The next step is to develop the pricing test further to create incentives for them to actively post more, as that correlates with success on the marketplace.

Great. Thanks, David. Appreciate it.

Our next question comes from Ralph Schackart with William Blair. Your line is open.

Good morning. Thanks for taking the question. On marketing efficiency increases, I think you talked about getting better performance. Maybe if you could provide some color on some of the steps that you're taking there and maybe some of the more opportunities you might have here to gain more efficiencies.

Sure. This is Tom. We analyze every marketing channel where we invest our budget on a regular basis. We are removing the least efficient expenditures and focusing on areas where we can maximize our spending within predetermined limits. We are carefully managing our budgets and the channels through which we allocate our spending.

Great. Just in terms of softness in new buyers, which is obviously a large lever to getting you back to accelerating GMV. I know the macro is tough. But maybe if you could sort of isolate the top one or two priorities to sort of reverse this trend to the extent you can in a tough macro environment? Thank you.

Overall, as we assess the funnel, it remains healthy across most areas. Traffic growth is stronger than ever, and conversion rates for both trade and returning buyers have remained stable. Engagement is robust, evident from metrics like registrations and favoriting. The primary issue affecting our GMV has been the conversion of new buyers. This is influenced by several factors, including challenging macroeconomic conditions. Additionally, we've observed a notable shift in traffic towards our lowest converting channel, the mobile web. We are actively working to address this through various operational initiatives, such as introducing new payment methods, including Klarna, and increasing the number of items displayed on search results pages from Google SEO. Our main strategic initiatives, such as auctions and expanding international supply, are directed at improving conversion rates. There was an interesting trend we noticed this past quarter regarding the relationship between Average Order Value (AOV) and order volume. In the seven quarters prior to this one, we experienced consistent year-over-year increases in AOV, but that changed starting in July, as we have seen significant declines in AOV each month since then. We believe this decline is due, in part, to the macroeconomic environment and the fact that product categories with the highest order growth have typically been in the sub-$1,000 range. Furthermore, there has been an increasing proportion of orders coming from auctions, which generally feature lower price points. Despite this, we have seen improvements in year-over-year order growth each month, with October even showing positive growth compared to last year. While the current situation may negatively impact GMV, the resilience in order numbers is encouraging, suggesting our platform remains relevant and possibly gaining market share even amid a weak e-commerce sector, ultimately expanding our total addressable market. Importantly, this shift is not undermining our strength in the luxury segment, as we achieved a record number of orders over $100,000 in September.

Great. Thank you.

Our next question comes from Curtis Nagle with Bank of America. Your line is open.

Good morning. Thanks for taking the question. So, I just wanted to focus on the strength in jewelry. That was definitely out in the quarter. How much was that related to, I guess, a strong post-COVID wedding season? And should we expect some deceleration going into 4Q on basic seasonality, if that's the case?

Thank you for the question about jewelry. Just to remind everyone, jewelry is our second largest category and it performed very well this quarter. In fact, it has seen year-over-year growth in gross merchandise volume every quarter since the third quarter of 2018. The fundamentals align well with our strengths; it's our largest market, has a fragmented supply base, low shipping costs, relatively simple return processes, and benefits from strong consumer trust, which we consider one of our key competitive advantages. Several factors contributed to this performance, including the increase in high average order value sales that I mentioned earlier. We sold a significant number of high-price engagement rings, likely influenced by seasonal trends. However, the overall long-term trend in this category remains positive. I find it challenging to pinpoint that strength to any specific short-term factor—it's probably more reflective of broader industry trends that I've discussed previously.

Okay, fair enough. Just a follow-up on the fourth quarter guidance. Is that fully incorporating the recent announcements regarding headcount reductions? It seems like it probably is, but I'm not entirely sure. Which areas will we see the largest impact within operating expenses?

In the fourth quarter, we expect to see limited seasonality savings, with around $1.5 million resulting from the reduction in force implemented at the end of September. This amount was not reflected in the Q3 results. However, some of these savings will be counterbalanced by seasonal expenses related to long lead-time marketing projects, such as our holiday catalog, as well as higher logistics costs typically seen during this period. Therefore, some of the savings will be offset in Q4 due to these factors.

Okay. Thank you.

Our next question comes from Nick Jones with JMP Securities. Your line is open.

Great. Thanks for taking our questions. I have two I guess. First, as we try to think about conversion stability, it sounds like traffic is growing nicely, kind of overall conversion is down. I guess that's attributable to newer buyers. I mean, what does that indicate on kind of the timing it takes to take these new buyers and convert them into repeat and when that kind of shows up in conversion stability or, I guess, when GMV kind of starts tracking with traffic growth? And then I have a follow-up.

We have observed some positive trends in conversion recently. The decline in our new buyer conversion rate has stabilized and even shown some improvement. We are fully committed to enhancing conversion through various strategies. While it might be too early to predict the timing, the goal is to maintain traffic growth while stabilizing conversion. Achieving this should lead to healthy order trends, which we have witnessed over the past few months, culminating in positive order growth in October. However, we are in a fluctuating environment with many factors affecting our business and the economy, so it’s premature to confidently identify when we will see a significant change.

Got it. And then a follow-up. You've done a good job kind of adding a lot of supply to the marketplace. That enhances SEO. How do you balance kind of driving SEO within maybe the Google ecosystem in broader search? And then how adding increased supply to the platform impact search and discovery within the 1stdibs platform? And does that kind of impact kind of users able to find what they're looking for, like if they come on for something they find out Google and then they need to get somewhere else or some they realize they want something else. Is that impacting the kind of on-site search and discovery?

Yes, that's a great question. The more items we have on the marketplace, the greater the challenge we face in improving the ways users find relevant inventory. However, we specialize in unique, one-of-a-kind products. The bigger issue isn't having an excessive number of items; it's often the opposite—we frequently don't have enough relevant options for specific search queries. For example, a key factor contributing to our drop in new buyer conversion rates is the rising share of traffic we receive from Google through SEO. A significant portion of these users lands on 1stdibs search result pages that contain either very few or no product listings. This leads to a high bounce rate and low conversion. Consequently, one of our main goals in increasing supply, along with making other product changes like implementing recommendations, is to boost the number of items displayed on these pages and thereby reduce the bounce rate. Although it might seem counterintuitive, we believe that in a marketplace of hard-to-find items, increasing supply can actually enhance conversion rates.

Makes sense. Thank you.

Our next question comes from Aaron Kessler with Raymond James. Your line is open.

Great. Thanks everyone. Can you share any insights from the strategic review regarding cost reduction initiatives? Also, in the last quarter, you mentioned several challenges for the business, including economic uncertainty, reduced consumer spending, a decline in out-of-home experiences, lower overall furniture spending, and a shift in traffic to mobile. Did these factors continue to impact Q3, or have you seen some improvement in any of these areas? Thank you.

Sure. Regarding the strategic review process, we announced last quarter that we have engaged Allen & Company as our advisers. We are collaborating with them to explore all possible ways to enhance shareholder value. Our motivation stems from the belief that our current valuation does not accurately reflect the brand's strength or the long-term potential of the business, and we are dedicated to increasing shareholder value. We aim to evaluate all possible alternatives, which may include sell-side transactions, buy-side transactions, or cash redeployment. Everything is under consideration. However, since many factors are beyond our control, we may conclude that the best course of action is to not pursue any transactions or changes. Until we have concrete information to share, there will be no announcements. Regarding the underlying drivers, the most significant negative change has been in average order value, which began to decline in July across our verticals, with the exception of jewelry. On the positive side, order growth has shown improvement, starting in July and continuing to rise each month, reaching its highest point in October for some time. Although this growth was overshadowed by declines in average order value, the long-term trend is promising. It contributes to our buyer base and offers potential lifetime value from these buyers, indicating the overall relevance of our platform. Additionally, the decline in new buyer conversion rates has stabilized; while I cannot predict future trends in this environment, that is what we observed. Lastly, returning buyer and trade buyer conversion rates have remained steady, with a slight positive shift this quarter.

Great. Thank you.

There are no further questions. Thank you for your participation in today's program. This does conclude the program. You may now disconnect. Everyone, have a great day.