Etsy Inc 8-K, filed May 6, 2020
Etsy Inc (ETSY)
8-K
2020-05-06
For: 2020-05-06
View Original
Added on
April 09, 2026
About this 8-K
Etsy Inc filed this 8-K on May 6, 2020.
Items reported
- Item 2.02: Financial results
- Item 8.01: Other events
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
FORM 8-K
_____________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 6, 2020
Etsy, Inc.
(Exact name of registrant as specified in its charter)
_____________________________________
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
(Address of principal executive offices, including zip code)
(718 ) 880-3660
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
_____________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. o
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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INFORMATION TO BE INCLUDED IN THE REPORT
Item 2.02. Results of Operations and Financial Condition.
On May 6, 2020, Etsy, Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended March 31, 2020. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K and is incorporated by reference.
Information in this Form 8-K shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise incorporated by reference into any filing pursuant to the Securities Act of 1933, as amended, or the Exchange Act except as otherwise expressly stated in such filing.
Item 8.01. Other Events
The Company is supplementing the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2019 with the following risk factors:
The COVID-19 pandemic is unprecedented and is impacting our GMS, key metrics, and results of operations in numerous ways that remain volatile and unpredictable.
The impact of the current COVID-19 pandemic is severe, widespread and evolving. The pandemic and related government and private sector responsive actions have already affected the broader economies and financial markets, triggering an economic downturn, which has and could continue to adversely affect demand for our products. It is impossible to predict the effect and ultimate impact of the COVID-19 pandemic, as the situation is rapidly evolving. The COVID-19 pandemic has disrupted the global supply chain and the preventative and protective measures currently in place, such as quarantines, closures and travel restrictions, may interfere with the ability of our sellers to deliver products to our buyers. If delivery services are delayed or shut down, our GMS and revenue could be negatively impacted.
As a result of the COVID-19 pandemic, our employees are working remotely and it is possible that this could have a negative impact on the execution of our business plans and operations. If a natural disaster, power outage, connectivity issue, or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. Further, if the current COVID-19 pandemic continues unabated, we may experience disruptions as our employees or third-party service providers’ employees become ill and are unable to perform their duties, and our operations, internet, or mobile networks, or the operations of one or more of our third-party service providers, is impacted. The increase in remote working may also result in consumer privacy, IT security and fraud concerns.
Our results of operations may be materially affected by adverse conditions in the capital markets and the economy generally, both in the United States and internationally. Uncertainty in the economy could adversely impact consumer purchases of discretionary items across all of our product categories, and demand for products available in our marketplaces may be reduced. We have also seen significant and rapid shifts in consumer purchasing behavior as this pandemic has evolved, particularly as it relates to what may be perceived as ‘essential’ vs ‘non-essential items.’ It is difficult to predict how our business might be impacted by changing consumer spending patterns. Factors that could affect consumers’ willingness to make discretionary purchases include, among others: general business conditions, levels of employment, interest rates, tax rates, the availability of consumer credit, consumer confidence in future economic conditions, and risks, or the public perception of risks, related to epidemics or pandemics like COVID-19. In the event of a prolonged economic downturn or acute recession, consumer spending habits could be adversely affected, and we could experience lower than expected GMS, revenue, net income and Adjusted EBITDA.
The uncertainty around the duration of business disruptions and the extent of the spread of the virus in the United States and to other areas of the world will likely continue to adversely impact the national or global economy and negatively impact consumer spending. The full extent of COVID-19’s impact on our operations, key metrics and financial performance depends on future developments that are uncertain and unpredictable, including the duration and spread of the pandemic, its impact on capital and financial markets and any new information that may emerge concerning the severity of the virus, its spread to other regions as well as the actions taken to contain it, among others. Any of these outcomes could have a material adverse impact on our business, financial condition, operating results and ability to execute and capitalize on our strategies.
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We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would cause our stock price to decline.
From time to time, we release earnings guidance in our quarterly and annual earnings conference calls, quarterly and annual earnings releases, or otherwise, regarding our future performance that represents our management’s estimates as of the date of release. For example, we historically provide annual guidance, but we withdrew our 2020 annual guidance on April 2, 2020 given the economic uncertainty caused by the COVID-19 pandemic. On May 6, 2020, we provided guidance for the second quarter of 2020. This guidance includes forward-looking statements based on projections prepared by our management. Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies on our business, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. One of those key assumptions relates to the impact of the COVID-19 pandemic and the associated economic uncertainty on our business, which is inherently difficult to predict, particularly in the long term. We intend to state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are changed but are not intended to imply that actual results could not fall outside of the suggested ranges. The principal reason that we release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors. Furthermore, analysts and investors may develop and publish their own projections of our business, which may form a consensus about our future performance. Our actual business results may vary significantly from such guidance or that consensus due to a number of factors, many of which are outside of our control, including due to the global economic uncertainty and financial market conditions caused by the COVID-19 pandemic, and which could adversely affect our business and future operating results. There are no comparable recent events that provide insights as to the probable effect of the COVID-19 pandemic, and, as a result, the ultimate impact of the COVID-19 outbreak is highly uncertain and subject to change. We are relying on the reports and models of economic and medical experts in making assumptions relating to the duration of this crisis and predictions as to timing and pace of any future economic recovery. If these models are incorrect or incomplete, or if we fail to accurately predict the full impact that the COVID-19 pandemic will have on all aspects of our business, the guidance and other forward-looking statements we provide may also be incorrect or incomplete. Furthermore, if we make downward revisions of our previously announced guidance, or if our publicly announced guidance of future operating results fails to meet expectations of securities analysts, investors or other interested parties, the price of our common stock would decline.
Given the uncertainty surrounding the impact of COVID-19, we may choose to discontinue providing guidance, or provide more limited guidance, as we have for the second quarter of 2020. Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date of release. Actual results may vary from our guidance and the variations may be material. In light of the foregoing, investors are urged not to rely upon our guidance in making an investment decision regarding our common stock.
Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2019 could result in the actual operating results being different from our guidance, and the differences may be adverse and material.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. | Description |
104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ETSY, INC.
By: /s/ Rachel Glaser
Rachel Glaser
Chief Financial Officer
Dated: May 6, 2020
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Etsy, Inc. Reports First Quarter 2020 Financial Results
Reports Consolidated Year-Over-Year GMS Growth of 32.2%; Revenue Growth of 34.7%
Brooklyn, NY - May 6, 2020 - Etsy, Inc. (NASDAQ: ETSY), which operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world, today announced financial results for its first quarter ended March 31, 2020.
“Etsy has demonstrated tremendous resiliency in the wake of a global crisis,” said Josh Silverman, Etsy, Inc. Chief Executive Officer. “The COVID-19 pandemic has been a test of our team, our marketplaces, our brand, and the underlying strength of our business. While there was no playbook for this situation, we moved with agility, focus, and purpose to support the Etsy global community and live up to our mission. We are proud that our sellers have yet again displayed their ability to rapidly adapt to changing consumer demands, pivoting product offerings with speed and innovation. It’s also encouraging to see that during this very difficult time, more and more customers are turning to Etsy to meet their daily needs. I’m particularly gratified that our employees have risen to the challenge, moving with urgency to adjust and serve our stakeholders when they need us most. This period, while incredibly challenging, has been a testament to the agility and strength of Etsy's marketplaces.”
First Quarter 2020 Financial Summary
(in thousands, except percentages; unaudited)
The unaudited non-GAAP financial measures and key operating and financial metrics we use are:
Three Months Ended March 31, | % Growth (Decline) Y/Y | |||||||||
2020 | 2019 | |||||||||
GMS (1) | $ | 1,353,291 | $ | 1,024,028 | 32.2 | % | ||||
Revenue | $ | 228,055 | $ | 169,339 | 34.7 | % | ||||
Marketplace revenue | $ | 155,921 | $ | 127,168 | 22.6 | % | ||||
Services revenue | $ | 72,134 | $ | 42,171 | 71.1 | % | ||||
Net income | $ | 12,522 | $ | 31,579 | (60.3 | )% | ||||
Adjusted EBITDA (Non-GAAP) | $ | 55,056 | $ | 49,867 | 10.4 | % | ||||
Active sellers | 2,814 | 2,227 | 26.4 | % | ||||||
Active buyers | 47,748 | 41,029 | 16.4 | % | ||||||
Percent mobile GMS | 58 | % | 58 | % | — | bps | ||||
Percent international GMS | 36 | % | 38 | % | (200 | )bps | ||||
(1) | GMS for the three months ended March 31, 2020 includes Reverb’s GMS of $168.3 million. Etsy.com GMS for the three months ended March 31, 2020 was $1.2 billion. |
For information about how we define our metrics, see our Annual Report on Form 10-K for the year ended December 31, 2019.
“We continue to be disciplined in our spending, optimizing for efficiencies in our cost base as well as in capital spending. Our marketplace model allows Etsy to respond to changing conditions more rapidly than traditional retail models, resulting in solid profitability for the first quarter of 2020,” said Rachel Glaser, Etsy, Inc. Chief Financial Officer. “Because we don’t have significant fixed costs in our structure such as inventory, retail stores, and fulfillment infrastructure, we have been able to stay focused and prioritize investments that will continue to drive top-line growth.”
First Quarter 2020 Highlights
The impacts of COVID-19 on the global economy and on our business continue to evolve. As we outlined on our April 2, 2020 Business Update call, Etsy’s performance in the first quarter was strong for the months of January and February, and as the crisis intensified, the effects of COVID-19 began to impact demand and the Company’s growth. Beginning in early March, consolidated growth began to decelerate until it reached negative year-over-year growth in the third week, and recovered to positive year-over-year growth at the end of the month. We responded quickly across our organization to guard the health and safety of our team, support our global seller community, mitigate risk, and maximize our financial performance.
Highlights of our business initiatives, including those related to COVID-19, are outlined below:
• | Etsy assembled a COVID-19 task force in January, and moved to a fully remote workforce for both Etsy and Reverb by early March. Despite this shift in working environment, we were able to maintain high experiment velocity and minimal business disruption. |
• | In living up to our mission to “Keep Commerce Human,” we introduced several initiatives during the first quarter to support our seller community during this challenging time. These included waiving fees for our new Offsite Ads service, extending our free trial into May; a one-month grace period to give sellers extra time to pay their bills; a seller guide to managing an Etsy shop during COVID-19; and 24/7 member support to address any questions with their businesses, delivery times, and shipping issues. |
• | We adjusted our marketing strategies and spend for the Etsy marketplace during the first quarter to respond quickly to the changing macro dynamics. Performance marketing spend adjusts naturally with demand, and we pivoted brand and above-the-line spend, as well as messaging, to focus on “finding joy in the everyday” and supporting small and independent businesses. This included the launch of our #StandWithSmall campaign across all of our owned and paid channels in the beginning of April. |
• | Both Etsy and Reverb have a highly variable cost structure with minimal capital expenditure requirements and costs that are highly variable with revenue. That said, we looked for ways to tighten spending in light of the changing macro situation. For example, during the quarter we limited hiring to only focus on roles critical to growth. Overall, actions we took during the first quarter to reduce spending represented annualized savings of approximately $2 to $3 million. |
• | To capitalize on our unique and defensible Right to Win, we continued to invest in product development, making material improvements to the customer experience during the first quarter. These include: |
◦ | Improving search and discovery by continuing to iterate on our ranking algorithms and delivering more relevant recommendations when buyers are further along in the purchase funnel. |
◦ | Launching several improvements aimed at building buyer awareness of free shipping and continuing to make progress providing Etsy sellers with the tools and support that enable them to offer free shipping to U.S. buyers for items over $35. During the first quarter we implemented a “quick to ship” badge to alert buyers of items that are ready to ship within four days, which led to an improvement in conversion rate. |
◦ | Continuing to remove friction from the purchase path, including for example, by collapsing item details on the listing page, which enabled buyers to checkout much faster. |
GMS highlights for the first quarter of 2020 include:
• | Etsy marketplace’s GMS per active buyer on a trailing 12-month basis grew for the eighth consecutive quarter, to 4% year-over-year; and on a 2-year stacked basis, increased 6%, flat compared to last quarter. These statistics represent further evidence of our continued progress improving frequency. |
• | Active buyers grew 16.4% year-over-year in the first quarter, and active sellers grew 26.4% year-over-year. |
• | GMS from paid channels was 16% of overall GMS in the first quarter of 2020, expanding 50 basis points compared to the first quarter of 2019. |
We are laying the foundation for success at Reverb, including the hiring of David Mandelbrot as Chief Executive Officer and establishing a product experimentation process that enables the team to iterate much faster. During the first quarter, we added seller reviews to the product page, positively impacting conversion rate. While Reverb experienced intra-quarter demand volatility similar to Etsy, the marketplace also saw increased demand from new and existing buyers at a time when retail stores are closed or have delayed shipping times.
First Quarter 2020 Consolidated Financial Results
• | Total revenue was $228.1 million for the first quarter of 2020, up 34.7% year-over-year, driven by growth in both Marketplace and Services revenue. |
• | Gross profit for the first quarter of 2020 was $145.6 million, up 24.8% year-over-year, and gross margin was 63.9%, down 500 basis points compared with 68.9% in the first quarter of 2019. The contraction in gross margin was primarily driven by amortization related to our recent acquisition of Reverb which is non-cash, and our consolidated ad platform, Etsy Ads, which drives revenue growth but carries an equal offset in cost of revenue. |
• | Total operating expenses were $120.3 million in the first quarter of 2020, up 41.4% year-over-year, and represented 52.7% of revenue. The increase in operating expenses was driven primarily by employee-related expenses, including stock-based compensation. |
• | Net income for the first quarter of 2020 was $12.5 million, with diluted earnings per share of $0.10. Net income was primarily impacted by foreign exchange losses of $9.3 million or $0.08 loss per share. Foreign exchange rate fluctuations on our results of operations are primarily related to intercompany balances between our U.S. and foreign entities and other non-functional currency cash balances as we decided to hold more foreign currencies than usual due to current macroeconomic trends to ensure the timeliness of paying our sellers in their currency. The ongoing settlement of intercompany balances will reduce future foreign exchange volatility on our results of operations. |
• | Non-GAAP Adjusted EBITDA for the first quarter of 2020 was $55.1 million and grew 10.4% year-over-year. Non-GAAP Adjusted EBITDA margin (i.e., non-GAAP Adjusted EBITDA divided by revenue) was 24.1% in the first quarter of 2020, down 530 basis points year-over-year. Adjusted EBITDA performance was driven primarily by year-over-year revenue growth. |
• | Cash, cash equivalents, short- and long-term investments were $898.1 million as of March 31, 2020. In January 2020, Etsy repurchased an aggregate of approximately $25.0 million, or 543,106 shares of its common stock. However, in light of the macroeconomic situation related to COVID-19, our Board of Directors has decided to temporarily pause share repurchases. |
Financial Guidance and Outlook
In light of the impact of COVID-19, on April 2, 2020 Etsy withdrew its 2020 financial guidance, which was established based upon an assumption of stable macro conditions throughout the year. The Company has temporarily moved to providing quarterly guidance.
Regarding Etsy’s second quarter performance, Mr. Silverman commented, “After a volatile March, Etsy experienced a dramatic shift in demand during the month of April as global buyers turned to Etsy for cloth face masks given updated guidelines to slow the spread of COVID-19. Our team mobilized quickly to address the surge in face mask demand, which included creation of on-site banners and automated filters, scaling inventory with a call to action for sellers, retraining our search algorithms, and managing delivery expectations. We also experienced broad-based demand across the marketplace leading to over 100% growth for the Etsy marketplace in April. As consumer mindshare shifted in our direction, we again adjusted our marketing messaging and strategy, creating onsite experiences to engage new buyers, and launched a new TV and digital video campaign with an ‘Always Open’ theme. Our strong performance is thanks to a combination of macro dynamics and Etsy’s agility to pivot to meet market demands.”
Etsy extended our seller support initiatives in April, including providing listing credits for mask sellers as well as listing and ad credits to some of our hardest hit sellers in categories like weddings and party supplies. We donated thousands of face masks to hospitals and have supported many of our small, contracted vendors by keeping them employed despite our own office closures. The combination of one time investments to support our sellers and communities totaled approximately $11-13 million, the majority of which will be incurred in the second quarter of 2020.
Reverb also reported a strong April, with increased demand from new and existing buyers, as the marketplace leveraged its ability to serve as a primary online channel for sellers and buyers at a time when retail stores are closed or have delayed shipping times. As a result, Etsy’s consolidated GMS for April was approximately $860 million, up over 130% from the prior year.
It is quite challenging for us to forecast, even in the near term, given the extreme shifts in demand we have seen over the past eight weeks. Our second quarter guidance is based upon our best view today that the recent surge in demand is likely to ease, but GMS strength in April will support strong top-line growth for the quarter. We will also continue to carefully manage our spending, while at the same time investing in key initiatives to deliver sustainable long-term growth.
Q2 2020 Guidance | ||
May 6, 2020 | ||
GMS Year-Over-Year Growth | 80-100% | |
~$2.0B - $2.2B | ||
Revenue Year-Over-Year Growth | 70-90% | |
~$310M - $340M | ||
Adjusted EBITDA Margin* | 23-27% | |
~$75M - $90M | ||
*Assumes the midpoint of our revenue guidance.
Webcast and Conference Call Information
Etsy will host a video webcast conference call to discuss these results at 5:00 p.m. Eastern Time today, which will be live-streamed via the Company’s Investor Relations website (investors.etsy.com) under the events section. Those interested in submitting questions during the earnings call can do so by using the Q&A chat window, which will be available during the webcast. A copy of the earnings call presentation will also be posted to our website.
A replay of the video webcast will be available through the same link following the conference call starting at 8:00 p.m. Eastern Time this evening, for at least three months thereafter.
About Etsy
Etsy, Inc. operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world. Our primary marketplace, Etsy.com, is the global destination for unique and creative goods. Buyers come to Etsy to be inspired and delighted by items that are crafted and curated by creative entrepreneurs. For sellers, we offer a range of tools and services that address key business needs. In addition, Etsy, Inc. owns Reverb, a leading global online marketplace dedicated to buying and selling new, used, and vintage musical instruments.
Etsy's mission is to “Keep Commerce Human,” and we're committed to using the power of business to strengthen communities and empower people. Our company was founded in 2005 and is headquartered in Brooklyn, New York.
Etsy has used, and intends to continue using, its Investor Relations website and the Etsy News Blog (blog.etsy.com/news) to disclose material non-public information and to comply with its disclosure obligations under Regulation FD. Accordingly, you should monitor our investor relations website and the Etsy News Blog in addition to following our press releases, SEC filings, and public conference calls and webcasts.
Investor Relations Contact:
Deb Wasser, Vice President, Investor Relations
ir@etsy.com
Gabriel Ratcliff, Director, Investor Relations
ir@etsy.com
Media Relations Contact:
Sarah Marx, Senior Manager, Corporate Communications
press@etsy.com
Cautionary Statement Regarding Forward-Looking Statements
This press release contains or references forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements relating to our financial guidance for the second quarter of 2020 and key drivers thereof; the impact of our investments on topline growth; the uncertain impacts that the COVID-19 pandemic may have on our business, strategy, operating results, key metrics, financial condition, profitability, and cash flows and changes in overall level of consumer spending and volatility in the global economy; and the impact of ongoing settlement of intercompany balances on future foreign exchange rate volatility. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “will,” or similar expressions and the negatives of those words.
Forward-looking statements involve substantial risks and uncertainties that may cause actual results to differ materially from those that we expect. These risks and uncertainties include: (1) COVID-19 pandemic is unprecedented and is impacting our GMS, other key metrics and results of operations in numerous ways that remain volatile and unpredictable; (2) the fluctuation of our quarterly operating results; (3) our failure to meet our publicly announced guidance or other expectations; (4) our ability to successfully execute on our business strategy or if our strategy proves to be ineffective; (5) our ability to attract and retain an active and engaged community of sellers and buyers; (6) our history of operating losses; (7) macroeconomic events that are outside of our control; (8) our ability to recruit and retain employees; (9) the importance to our success of the trustworthiness of our marketplaces and the connections within our community; (10) our ability to enhance our current offerings and develop new offerings to respond to the changing needs of sellers and buyers; (11) the effectiveness of our marketing efforts; (12) the effectiveness of our mobile solutions for sellers and buyers; (13) our ability to expand our business in our core geographic markets; (14) regulation in the area of privacy and protection of user data; (15) our dependence on third-party payment providers; (16) acquisitions that may prove unsuccessful or divert management attention, including our acquisition of Reverb; and (17) the potential misuse or disclosure of sensitive information about members of our community and the potential for cyber-attacks. These risks and uncertainties are more fully described in our filings with the Securities and Exchange Commission, including in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, the current report on Form 8-K filed today, and subsequent reports that we file with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, we cannot guarantee future results, levels of activity, performance, achievements, or events and circumstances reflected in the forward-looking statements will occur.
Forward-looking statements represent our beliefs and assumptions only as of the date of this press release. We disclaim any obligation to update forward-looking statements.
Etsy, Inc.
Condensed Consolidated Balance Sheets
(in thousands; unaudited)
As of March 31, 2020 | As of December 31, 2019 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 442,354 | $ | 443,293 | |||
Short-term investments | 361,640 | 373,959 | |||||
Accounts receivable, net | 11,712 | 15,386 | |||||
Prepaid and other current assets | 36,074 | 38,614 | |||||
Funds receivable and seller accounts | 55,172 | 49,786 | |||||
Total current assets | 906,952 | 921,038 | |||||
Restricted cash | 5,341 | 5,341 | |||||
Property and equipment, net | 134,519 | 144,864 | |||||
Goodwill | 138,305 | 138,731 | |||||
Intangible assets, net | 194,874 | 199,236 | |||||
Deferred tax assets | 15,232 | 14,257 | |||||
Long-term investments | 94,080 | 89,343 | |||||
Other assets | 28,339 | 29,542 | |||||
Total assets | $ | 1,517,642 | $ | 1,542,352 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 10,557 | $ | 26,324 | |||
Accrued expenses | 68,885 | 88,345 | |||||
Finance lease obligations—current | 8,000 | 8,275 | |||||
Funds payable and amounts due to sellers | 55,172 | 49,786 | |||||
Deferred revenue | 8,250 | 7,617 | |||||
Other current liabilities | 7,985 | 8,181 | |||||
Total current liabilities | 158,849 | 188,528 | |||||
Finance lease obligations—net of current portion | 51,458 | 53,611 | |||||
Deferred tax liabilities | 63,126 | 64,497 | |||||
Long-term debt, net | 794,129 | 785,126 | |||||
Other liabilities | 43,233 | 43,956 | |||||
Total liabilities | 1,110,795 | 1,135,718 | |||||
Total stockholders’ equity | 406,847 | 406,634 | |||||
Total liabilities and stockholders’ equity | $ | 1,517,642 | $ | 1,542,352 | |||
Etsy, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts; unaudited)
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Revenue | $ | 228,055 | $ | 169,339 | |||
Cost of revenue | 82,416 | 52,658 | |||||
Gross profit | 145,639 | 116,681 | |||||
Operating expenses: | |||||||
Marketing | 48,505 | 35,444 | |||||
Product development | 37,782 | 24,947 | |||||
General and administrative | 33,987 | 24,647 | |||||
Total operating expenses | 120,274 | 85,038 | |||||
Income from operations | 25,365 | 31,643 | |||||
Other expense, net | (15,672 | ) | (206 | ) | |||
Income before income taxes | 9,693 | 31,437 | |||||
Benefit for income taxes | 2,829 | 142 | |||||
Net income | $ | 12,522 | $ | 31,579 | |||
Net income per share attributable to common stockholders: | |||||||
Basic | $ | 0.11 | $ | 0.26 | |||
Diluted | $ | 0.10 | $ | 0.24 | |||
Weighted-average common shares outstanding: | |||||||
Basic | 118,138,186 | 119,679,149 | |||||
Diluted | 123,119,053 | 130,237,875 | |||||
Etsy, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands; unaudited)
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | 12,522 | $ | 31,579 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Stock-based compensation expense | 13,811 | 8,082 | |||||
Depreciation and amortization expense | 15,163 | 10,142 | |||||
Bad debt expense | 3,684 | 1,182 | |||||
Foreign exchange loss (gain) | 8,157 | (171 | ) | ||||
Non-cash interest expense | 8,570 | 3,376 | |||||
Deferred income taxes | (2,829 | ) | (142 | ) | |||
Other non-cash expense (income), net | 530 | (448 | ) | ||||
Changes in operating assets and liabilities | (29,944 | ) | (22,142 | ) | |||
Net cash provided by operating activities | 29,664 | 31,458 | |||||
Cash flows from investing activities | |||||||
Purchases of property and equipment | (567 | ) | (683 | ) | |||
Development of internal-use software | (1,261 | ) | (3,390 | ) | |||
Purchases of marketable securities | (101,501 | ) | (158,883 | ) | |||
Sales of marketable securities | 109,422 | 140,952 | |||||
Net cash provided by (used in) investing activities | 6,093 | (22,004 | ) | ||||
Cash flows from financing activities | |||||||
Payment of tax obligations on vested equity awards | (4,198 | ) | (5,672 | ) | |||
Repurchase of stock | (24,992 | ) | (27,492 | ) | |||
Proceeds from exercise of stock options | 4,896 | 5,930 | |||||
Payment of debt issuance costs | (14 | ) | (1,192 | ) | |||
Payments on finance lease obligations | (2,566 | ) | (2,745 | ) | |||
Other financing, net | (5,804 | ) | 1,864 | ||||
Net cash used in financing activities | (32,678 | ) | (29,307 | ) | |||
Effect of exchange rate changes on cash | (4,018 | ) | (1,458 | ) | |||
Net decrease in cash, cash equivalents, and restricted cash | (939 | ) | (21,311 | ) | |||
Cash, cash equivalents, and restricted cash at beginning of period | 448,634 | 372,326 | |||||
Cash, cash equivalents, and restricted cash at end of period | $ | 447,695 | $ | 351,015 | |||
Currency-Neutral GMS Growth
We calculate currency-neutral GMS growth by translating current period GMS for goods sold that were listed in non-U.S. dollar currencies into U.S. dollars using prior year foreign currency exchange rates.
As reported and currency-neutral GMS growth for the periods presented below is as follows:
Quarter-to-Date Period Ended | Year-to-Date Period Ended | ||||||||||||||||
As Reported | Currency-Neutral | FX Impact | As Reported | Currency-Neutral | FX Impact | ||||||||||||
March 31, 2020 | 32.2 | % | 32.6 | % | (0.4 | )% | 32.2 | % | 32.6 | % | (0.4 | )% | |||||
December 31, 2019 | 32.8 | % | 33.0 | % | (0.2 | )% | 26.5 | % | 27.5 | % | (1.0 | )% | |||||
September 30, 2019 | 30.1 | % | 31.1 | % | (1.0 | )% | 23.6 | % | 26.1 | % | (2.5 | )% | |||||
June 30, 2019 | 21.4 | % | 22.8 | % | (1.4 | )% | 20.2 | % | 21.7 | % | (1.5 | )% | |||||
March 31, 2019 | 18.9 | % | 20.6 | % | (1.7 | )% | 18.9 | % | 20.6 | % | (1.7 | )% | |||||
Non-GAAP Financial Measures
Adjusted EBITDA
In this press release, we provide Adjusted EBITDA, a non-GAAP financial measure that represents our net income adjusted to exclude: interest and other non-operating expense, net; benefit for income taxes; depreciation and amortization; stock-based compensation expense; foreign exchange loss (gain); and acquisition-related expenses. Below is a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure.
We have included Adjusted EBITDA because it is a key measure used by our management and Board of Directors to evaluate our operating performance and trends, allocate internal resources, prepare and approve our annual budget, develop short- and long-term operating plans, determine incentive compensation, and assess the health of our business. As our Adjusted EBITDA increases, we are able to invest more in our platform.
We believe that Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business as it removes the impact of certain non-cash items and certain variable charges.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
• | Adjusted EBITDA does not reflect other non-operating expenses, net of other non-operating income, including net interest expense; |
• | Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; |
• | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; |
• | Adjusted EBITDA does not consider the impact of stock-based compensation expense; |
• | Adjusted EBITDA does not consider the impact of foreign exchange loss (gain); |
• | Adjusted EBITDA does not reflect acquisition-related expenses; and |
• | other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure. |
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net income and our other GAAP results.
Reconciliation of Net Income to Adjusted EBITDA
(Unaudited)
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(in thousands) | |||||||
Net income | $ | 12,522 | $ | 31,579 | |||
Excluding: | |||||||
Interest and other non-operating expense, net (1) | 6,354 | 1,268 | |||||
Benefit for income taxes | (2,829 | ) | (142 | ) | |||
Depreciation and amortization (2) | 15,163 | 10,142 | |||||
Stock-based compensation expense (3) | 13,811 | 8,082 | |||||
Foreign exchange loss (gain) (4) | 9,318 | (1,062 | ) | ||||
Acquisition-related expenses (5) | 717 | — | |||||
Adjusted EBITDA | $ | 55,056 | $ | 49,867 | |||
(1) | Included in interest and other non-operating expense, net is non-cash interest expense, including amortization of debt issuance costs, related to our convertible debt offerings, which were entered into in March 2018 and September 2019. |
(2) | Included in depreciation and amortization expense, is depreciation expense related to our headquarters lease, which is accounted for as a finance lease. Additionally, the three months ended March 31, 2020 includes amortization expense related to acquired intangible assets and developed technology related to the acquisition of Reverb in the third quarter of 2019. |
(3) | Stock-based compensation expense included in the Consolidated Statements of Operations is as follows: |
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(in thousands) | |||||||
Cost of revenue | $ | 1,620 | $ | 1,099 | |||
Marketing | 1,224 | 631 | |||||
Product development | 6,801 | 3,520 | |||||
General and administrative | 4,166 | 2,832 | |||||
Stock-based compensation expense | $ | 13,811 | $ | 8,082 | |||
(4) | Foreign exchange loss (gain) is primarily driven by the change in U.S. Dollar, Euro, and Pound Sterling exchange rates on our intercompany and other non-functional currency cash balances as we decided to hold more foreign currencies than usual due to current macroeconomic trends to ensure our ability to pay our sellers. We have taken steps to reduce the volatility in foreign exchange gains or losses on intercompany balances. |
(5) | Acquisition-related expenses are expenses related to our acquisition of Reverb. |