Good day, ladies and gentlemen, and thank you for your patience. You've joined the Q3 2017, Etsy Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer-session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference may be recorded. I'd now like to turn the call over to your host, Vice President of Investor Relations, Ms. Jennifer Beugelmans. Ma'am you may begin.

Thank you, Haseeb [ph]. Good afternoon and welcome to Etsy's third quarter earnings conference call. Joining me today are Josh Silverman, CEO; and Rachel Glaser, CFO. Before we get started, just a reminder that our remarks today include forward-looking statements relating to our financial performance and results of operations, our outlook, our business strategy and mission, market size, cost savings initiatives, guidance, mission, product roadmap and potential future growth. Our actual results may differ materially. Forward-looking statements involve risks and uncertainties which are described in our press release today and in our 10-Q filed with the SEC on August 7, 2017, and subsequent reports that we file with the SEC. Any forward-looking statements that we make on this call are based on our beliefs and our assumptions today, and we don't have any obligation to update them. Also during the call, we'll present both 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. A link to the replay of this call will also be available there, and if you prefer to access the replay via phone, you can find that information in the press release as well. Finally, for your reference we have posted two presentations to our IR website today. We have a short deck that highlights our third quarter progress and which we will be referencing on our call today, and an updated more robust deck that shares additional details about our story. With that, I'll turn the call over to Josh. Josh?

Thanks, Jennifer, and good afternoon everyone. I want to update you on our progress against the strategy and operating plan we outlined last quarter and give you some highlights of our priorities heading into the holiday season. I'll also talk about our mission statement and perhaps most importantly, I'll give you proof points of how we are driving operational excellence and focused execution across our organization to deliver growth. On our second quarter call in August, I described that why we believe Etsy is uniquely positioned to own special. I told you we believe we have a $155 billion market opportunity and I laid out the four key initiatives that we believe we need to get right in order to win. We also laid out near-term guidance for GMS, revenue and adjusted EBITDA the goal post by which to measure our progress. First, we committed to stabilizing GMS growth and this quarter as shown on Slide 3, we delivered 13.2% GMS growth, a 140-basis point acceleration compared to Q2. We enhanced the buying and selling experience, and reversed the GMS deceleration of the past few years. We also committed to growing revenue significant faster than GMS. Our results in Q3 were solid here as well. Revenue grew 21.5% year-over-year and accelerated compared with the 19.1% growth, we reported in Q2. I also shared my belief that a key to unlocking success is to focus and do fewer things better. We took actions in Q2 to streamline our organization and ensure clarity of accountability and reduce bureaucracy. These changes have had an immediate and powerful impact on our velocity. We are moving faster and with far more focus and efficiency. They’ve also helped us to materially improve our bottom line. As a result, in Q3, we delivered adjusted EBITDA margins of…

Thank you, Josh, and hello, everyone. Q3 was a quarter of many financial accomplishments and I’m very pleased to spend a few minutes on this call walking you through our results. At a high-level, we have a leaner organization focused on a smaller portfolio of the most important initiatives. We're also fostering a culture of fiscal discipline that is centered on ROI. With this solid foundation in place, we were able to accelerate both GMS and revenue growth and deliver our highest ever adjusted EBITDA margin as a public company. So, let me tell you how our disciplined approach drove our third quarter results and give you some insight into the remainder of the year. My remarks today will cover three areas. First, I will update you on our key operating metrics for the third quarter. Second, I’ll review the financial results that we covered in our earnings release. Finally, I will provide an update on our 2017 financial outlook. Unless I say so, all numbers presented are rounded for ease of reference and the comparisons I will be referring to are on year-over-year basis. So, let's start with key operating metrics with GMS first. During the third quarter of 2017, Etsy generated $766 million in GMS, up 13.2%. GMS and pay channels which was roughly 13% continued to grow faster than overall GMS. At the end of the third quarter, Etsy had 32 million active buyers, up 17% and over 1.9 million active sellers, up 11%. Growth in both active buyers and active sellers demonstrate that our vibrant two-sided marketplace continued to grow at a healthy rate. Roughly 67% of our visits came to us from a mobile web or app device this quarter. This was up 200 basis points year-over-year and continued to outpace the rate of growth…

[Operator Instructions]. Our first question comes from the line of Mark Kelley of Citi. Your question please.

Great, thanks very much. First in terms of Labor Day sale. Some of the tools and initiatives you talked about for this upcoming holiday season, pretty incremental to last year. So, I am just curious were all stores invited to participate or was that just a flashing around with a small set of sellers? And second question is, you talked about a little bit more attrition than you were expecting in your active producing folks. Are there any other areas, or are there any areas rather that are more impacted than others? Thanks.

So first, I am not aware that we’ve run a sale in the past. So, I am not sure what you mean by incremental to last year. This is a new capability that we launched in August that allows sellers to actually put items on sale and then they show up on the site as being on sale so there will be an old price and a strikethrough showing the new price which we have seen in other places and experienced for ourselves drives incremental traffic. It also gives people a reason to come to the site. And when you think about engaging our existing base of buyers, we have talked a lot about getting them to come more often. It gives people a reason to come back and re-experience what they loved about the last time they bought. So, we feel really good about what happened over Labor Day it’s something new and we think that doing it again over Christmas is something that’s going to be really helpful for our sellers and our buyers on the site.

And then your second question about the headcount and attrition. I think there’s no one particular area where the attrition has been impacting us. Of course, it matters more in product and engineering and so we have got pipeline sales and we’ve got additional recruiters on board and we are actively addressing it.

Thank you. Our next question comes from Sam Kemp of Piper Jaffray. Your line is open.

Great. Thanks for taking my question. First on, talking about the revolutionary product improvement save plan in 2018, first, can you talk little more specifically about the direction of the products that you’re thinking about? Are you thinking more towards like a Pinterest style experience or more like an Instagram style experience. And then from the operating margin, on EBITDA margin perspective, can you talk about any impacts on P&L. And then separately, Rachel, can you call off this specific impact of FX on the Q3 results and how that deferred from the guidance that you’ve given previously? Thanks.

Yeah, let me start first with revolutionary and evolutionary. We have a long list of insights that have come from our buyers and sellers about ways that we can improve the product experience. And we're acting with urgency to get those into market and they're showing results. And we talk about hitting singles and some doubles, rather these things, there are things that we can execute relatively quickly that will make incremental improvements and we're seeing the results of that. We really keep doing that, and what I like about that is that it provides a steady cadence of improvements that we can count on as a team. So, we're not swinging for the fences every time we get up for bet, and again, we should be swinging for the fences every now and then. So, we're in the process of looking at 2018 and coming up with a portfolio of bet including some more swing for the fences. So, one thing I talked about is discovery, and the key insight there is that there is a whole lot of buyers who show up on Etsy, not with a particular purchase occasion in mind, but just because they have a half an hour, and they want to have fun and they want to be inspired. And frankly I think we could meet that occasion better with the amount of really amazing inventory for sale on Etsy, I think there's a bunch of ways we can come up with really exciting curated experiences. So, if you want to think about things that Spotify does example, our Pinterest does or others, it’s that kind of challenge we've given the team of how we would face like that. Think about it, but my expectation is, there our teams going to come up with novel innovative ways that that’s a point of sort of revolutionary message to give the team the flexibility to think more broadly and boldly about the way to tackle it. But I think some important for us to think about those, we have a portfolio, I think about this as a portfolio of bets with some more near end, more certain things we're doing and then some more far out things that can have a bigger impact with the certainty and we're going to make sure we manage our investments in that way.

And then, the second part of that question, I think was about the EBITDA impact. So, of course, we may expect revolutionary investments that have an impact on GMS maybe over a longer period of time than some of the signals that we're hitting right now. We do capitalize a little bit of our web development, it’s depending on the [indiscernible] certain investment thresholds that I would say that’s not material. So, I wouldn't necessarily expect revolutionary -- a significant bigger EBITDA impact than any of the other, product engineering investments that we make. On your question on FX, only about 10% of our GMS is coming from non -- is non-US dollar GMS. So, it’s not material, maybe last year, there would have been a little bit post Brexit, potentially a little bit of a tailwind this quarter from the UK imports impact on GMS. So, we don’t think its material. If you’re talking about our GAAP P&L, we did talk about on FX gain from our inter-company loans. So that did drive some of our positive net income, but we also had real positive net income in addition to that FX gains.

Thank you. Our next question comes from Jim [indiscernible] of RBC Capital Markets. Your line is open

Just two questions from me, maybe the first on the incremental savings that you're going to see year-over-year from the restructuring, can you -- are you willing to discuss any investments you're making sort of outside of the investments relative to the incremental savings and then maybe if you could characterize how much you'll be spending on [cause] in '18, it'd be great? Thanks.

I'm not sure I caught both the questions, so we had about $35 million in annualized savings from a restructuring that we did in Q2, and that was about $20 million of impact in 2017 so, we haven't moved out of those numbers, we're also talking about a little bit on incremental upside in Q3, which actually some of us are looking for the downside from unwanted attrition and we mentioned that because we don't want you to model that going forward we are planning to fill our pipeline [back to] most of those well. So, $35 million annualized savings is the number that we continue to recite. And then the cloud numbers we haven't communicated externally that's potentially something we'll talk about in the next quarter, at least put some color to it what that investment might look like, but that's not something that we talked about so far and just the idea that we're moving to cloud and then of course that's going to hit the P&L on a GAAP basis, that would be net neutral to our GAAP P&L.

And then maybe one more on the holiday sales ramp up how soon the sellers -- I guess how soon in advance were sellers made aware about the new sale and when does it really start to ramp?

So, holiday sale, you're right at the outset, we got out several weeks in advance, given the sellers warning and ask them to sign up and think about putting things on sell, that gives them time to prepare for it, so by the time we got and communicate to sellers, we already have millions of items on sale and -- time to communicate to buyers, sorry, we already have millions of items on sale that can bring buyers some experience that’s robust. So, we learned a lot and Labor Day and we plan to apply that as we look forward into cycle week and beyond.

Thank you. Our next question comes from Thomas Forte of D. A. Davidson. Your line is open.

I wanted to take this opportunity to ask you for your current thoughts on the competitive landscape including Amazon's handmade efforts?

So first when I talked about last earnings call, we think that Etsy is really uniquely positioned to own special, to be the place to go when you're looking for the things you're not going to find everywhere else, and what we think is so exciting about the acquisition is the places you've got for all your everyday items that in day and day out to buy the products you need for your batteries or socks or whatever you need, is not the place you'd think to go when you wanted to feel special, almost by definition if you are there every day to buy the commodities it doesn't feel necessarily special. So, we think we're uniquely positioned from a brand, but if you also look at the traditional leverage of retail, there's three leverage, right, it's price, selection and convenience, and if you think about how mass retailers have gained leverage on price, let's start with price, typically what they do is they buy in large quantities and then pass along the savings to buyers, well if you're talking about unique items they are not mass produced, so buying the large quantities is not a strategy that actually works to create price advantage, the second lever we talked about is selection, Etsy has over 45 million items from 1.9 million sellers. There is no one in the market that even with an order of magnitude of that the type of product that we offer. So, we think we have got a really unmatched advantage in selection. And the third lever is convenience, and for retailers that have built wonderful convenience offerings based around logistics and warehousing that requires products that can be made in advance and stored in a warehouse. For our products which are often made to order and again unique, warehousing is not a strategy that actually is very effective. So, the traditional advantages that other people have had in the past may transfer less well in two our space. But beyond all of that again I think brands means something. I think buyers come to experiences to find a curated set of selection and to have a shopping experience that they think is different or relevant for them. And so, the mission that we talked about keeping commerce human, I think at times on peoples watch, not every time, but many important times they want to have a shopping experience that feels special and that feels more human. And I think there is no one better positioned than us to attack that.

[Operator Instructions] Our next question comes from a line of Darren Aftahi of Roth Capital Partners. Your line is open.

Two if I may. First on the free program for the sellers on ALM as they migrated, just can you quantify how big of a that on international GMS and then my second question is that you kind of ramp up the sales promotion within your installed base. Can you give us a sense to look like on one of the slide that $7 million COI for the Labor Day sale? I'm just curious how much more prevalent that will be across your installed base for the holiday season?

We don’t think the impact on the free listing had much of a material impact on international GMS. The reason we mentioned it was because this was normally the rate fee GMS relative to markets revenue growth are more in line and the difference this time was certainly portion of our GMS, certain portion of our listings were given away for free, so that you see that and the difference in revenue from GMS there.

[And our built-on ALS] just level up for a second and say we were running two marketplaces side by side brands. And what we did over the past two months was consolidate those to one marketplace. And with a two-sided marketplace like ours bigger is usually better, it feels more vibrancy overtime. So, in general we are very pleased with how that consolidation went, and we feel like we are seeing more success from the sellers and sellers coming over and then buyers having a better experience. So, we are optimistic about how that’s going to look going forward.

Darren, can you repeat your second question?

Yeah just the general impact I think on the line of slide it shows 7 million [indiscernible] items during Labor Day and I was sort of curious has that become more prevalent as you move in to the holiday season and I guess its roughly what 15% of items listed how you see that impacting your percentage of sellers having that type of a capability in the third quarter?

Yes, so we launched the new capability in August and the Labor Day sale was a way to kick it off. And definitely items on sale spiked, sellers took advantage of it. What you saw the sellers who put advantage of it really benefited and even the sellers who didn’t take advantage of it benefited. Now after the Labor Day sale, some of those people chose to keep their items on sale but not all of them, the number of sale items declined after the Labor Day sale. But as we head into the holiday season, we intend to again run another coordinated sale where we expect more of them to take advantage.

And one other point that the holiday -- what we are doing this holiday is different than what we did with Labor Day, we’ve now also given the ability for sellers to mark their item as free shipping whether they choose to bake that into the item price or not and then we can curate all items that have free shipping which is a very common promotional device particular for a very busy fourth quarter. So that’s a new feature for this selling season than it was in the third quarter.

Thank you. Our next question comes from Aaron Turner of Wedbush Securities. Your line is open.

Great, thanks for taking my question. Two if I may as well. So international GMS looks to be very strong. It looks like the offset though is domestic GMS so which looks decelerated again. Just making sure that I am seeing that correctly. And then if so any color on what you are seeing in that region when you think domestic GMS may reaccelerate? And then second question is on the core take rate. You have been doing the job now for about six months, in that time have you thought about the core take rate at all and if you have any pricing color in that core take rate? Thank you.

Let me start with the take rate. Our focus has really been first let’s make sure that we are really driving lot of value for sellers by improving the buyer and the seller experience. And we are very, very focused on doing that. We think we have shown some progress in this call and we continue to be optimistic about our ability to do that. We are also really pleased with the value-added services that we have offered to sellers and how the uptake on that and the incremental revenue margins coming from that are material. But we will continue to look overtime as we are adding value to the ecosystem what’s our fair share of that and our guide star in that always will be one of the things we are going to do there we’re going to make the marketplace stronger and as we do that our fair share. On the second part of your question domestic is GMS.

So, I think you are observing that right the domestic US was slightly decelerating this quarter versus overall GMS and I think that’s just potentially just a big number, so that’s tremendous growth in the US and its going a little slower and our international GMS is growing faster. It’s contributing more to our overall GMS.

But we are very optimistic. Again, we think we have a very large opportunity in the US as well as international. We are making progress and we feel good about the progress we have made and what the future in hold.

Thank you. And as there are no further questions in queue, that does conclude the Q&A portion of our call and the call for today. Thank you so much for your participation and have a wonderful day. You may disconnect your lines at this time.