Good day and welcome to the Fiverr Second Quarter Fiscal 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jinjin Qian. Please go ahead.

Thank you, Operator, and good morning ladies and gentlemen. Thank you for joining us on Fiverr's earnings conference call for the second quarter ended June 30, 2020. Please note that this call is being webcast on the Investor Relations section of the company’s website. Full details of our results and additional management commentary are available in our shareholder letter which can be found on the Investor Relations section of our website at investors.fiverr.com. Joining me on the call today are Micha Kaufman, Founder and CEO; and Ofer Katz, CFO. Before we start, I would like to remind you that certain matters discussed today are forward-looking statements that are subject to risks and uncertainties relating to future events and/or the future financial performance of Fiverr. Actual results could differ materially from those anticipated in these forward-looking statements. Additional information that could cause actual results to differ from forward-looking statements can be found in Fiverr’s periodic public filings with the U.S. Securities and Exchange Commission, including those factors discussed under the “Risk Factors” section in Fiverr’s 20-F filed with the SEC. The forward-looking statements in this conference call are based on the current expectations as of today, and Fiverr assumes no obligation to update or revise them, whether as a result of new developments or otherwise. And now, I will turn the call over to Micha.

Good morning everyone and thanks for joining us on the call today. We hope that you are all keeping safe and healthy. The past few months have been one of the most productive and rewarding times in our company’s history. The strategies that we have put in place and our strong execution during the global pandemic is what has allowed us to achieve such an outstanding quarterly performance, with revenue growing 82% year over year to reach $47.1 million. This is the strongest quarterly growth we have had since 2012, and over $10 million or nearly 30% above the top end of our guidance. With this stronger than anticipated top-line growth, we also achieved EBITDA profitability two years ahead of our expectation at the IPO, and many quarters ahead of our expectations as communicated just a few months ago. While it is incredibly satisfying to see our business accelerate, it is equally rewarding to know that our success is a direct result of the success of our community. More and more businesses are transforming to digital-first using Fiverr, and more and more freelancers are provided with opportunities to generate income. It is an incredible privilege to be able to be there for our community in these challenging times. During the second quarter, inclusion and diversity were brought to the forefront of discussions worldwide. At Fiverr, age, gender, ethnicity, or disabilities do not play a role in determining your success. You are judged only on the quality of your work. We take special pride in being one of the most inclusive and diverse communities online. We live by these principals 365 days a year and we are proud of the positive social impact our business is making on the lives of so many. The outstanding Q2 results benefited from several strategies…

Thank you Micha and good morning everyone. The past few months have been very exciting for our business. In Q2, revenue grew 82% year over year to $47.1 million. The revenue growth is the strongest we have ever seen since 2012. We benefited from the global trends towards remote work and digital transformation, but more importantly, the strategies that we put in place and the strong execution of those strategies is what allowed us to capitalize on the tailwinds. During the quarter, active buyers achieved a record level of net adds, reaching a total of 2.8 million, driven by strong trends on both organic and paid channels, as Micha highlighted earlier. tROI for the quarter was slightly above 1.0x, an improvement from Q1. We were able to remain highly efficient in our use of marketing dollars and at the same time expanding our sales and marketing expenses by about $5 million from Q1. Spend per buyer was $184, an increase of 18% year over year, driven by both new and existing cohorts. As businesses accelerated their pace in investing in digital transformation, we have seen older cohorts grow their monthly GMV level on average by 10% since the beginning of the year. We expect their spend to remain at this elevated level going forward. On the other hand, we continue to expand the lifetime value of our new cohorts as we target buyers with bigger budgets and bigger businesses. Take rate for Q2 was 27%, improving 60 basis points year over year, driven by an increased revenue mix from value-added services such as Fiverr Learn, And.Co and ClearVoice. When compared sequentially with Q1, take rate was down modestly by 10 basis points. This is mainly due to the exceptional growth of our core marketplace compared to these value-added services. Note…

[Operator Instructions] And the first question will come from Doug Anmuth with JPMorgan. Please go ahead.

A couple of questions, firstly, just hoping to talk more about the strategy to go up-market on the Fiverr business. Just curious more kind of the target size of businesses that you're focused on and some of the key investments that might be required there and then if you could just talk about how the agencies bid and the importance there on the distribution side And then just second maybe to Ofer. You talked about leaning in on higher LTV buyers, hope if you could you give us some more color just around - recent active buyer behavior versus existing cohorts and how you expect that to play out going forward? Thanks.

So thanks for the question. The first one in terms of going up market. So it is important to understand that as you look at the diversity of our customers, we have customers ranging from software ones and micro businesses up to small, medium, and large businesses. Now as you go higher into the larger businesses or medium-size businesses, oftentimes these businesses interact is having multiple accounts, sometimes is complete teams that interact on the platform, and what we realized was that in order to maximize the potential of their usage, we need to accommodate by building a more advanced product that will allow them to have team accounts that will have some benefits of being able to share their trusted sellers between themselves as a team and work on projects together. And obviously things like having account permissions and having a paid source with permissions of purchasing, these are all functionalities that we wanted to add into the product and these are the types of features that we're now releasing in beta, and will officially release later into the quarter, in September. So essentially, these are the types of functions and we think that it's important to facilitate the natural movement up market that we have been seeing in for many quarters. Now, the part of the or the agencies are playing here is, and again when you look at the diversity of our supply, not all of our sellers are individuals, some of them are boutique shops or studios or agencies and we would like to ensure that agencies can operate on the platform in a very efficient manner and again these are often times multiple accounts that are operating and need to work on a specific project. And so we decided to invest in that because this allows us to tackle more complex types of projects and also deal with load of work that that oftentimes is easier for an agency to deal with. So around that we have acquired a small boutique agency and we are going to use the learnings from that agency and incorporate them into the types of features that we would like to bake into the agency accounts on the platform.

Leaning into performance marketing and higher lifetime value, what we have experienced during Q2 is a windows of opportunity for us to double down on performance marketing, investing approximately partially in dollar about Q1, while keeping even improving the TOI which end up to be more than 1X return on investment for the quarter. Now this is driven by syndicate of factor. I think I will start by saying that the organic factor as being that is chunks over the quarter, it happen soon after the outbreak of the COVID at the end of the last quarter and continue all the way to July. So that by having continuance [indiscernible] we will able to increase investment while keeping a very efficient cost structure that's one part. The second is that existing total, we're able to increase the spend on the marketplace during the quarter comparing the previous period. So that's what we've seen is that not only that recent cohorts enjoy a high lifetime value, and that existing cohort old cohorts and previous, increase their investment and spend on the marketplace on an average of 10%. So that's we are focused on lifetime value and high lifetime value for long period. We've been able to increase lifetime value by focus on business volume and by product initiatives, and I think that this quarter is not an exception on the contrary, I think that the fact that possible [indiscernible] experienced triple-digit growth enable us to increase the overall expense per buyer, all the way to $184, 18% growth even - and this is coming despite the fact of record breaking number of up to new buyers. And bear in mind that when we see record breaking number of new buyers that are active in the marketplace for considerably short period of three months, while the spend per buyer has been calculated on close month period, so that's kind of indication for the trend we see a lifetime value and listing to new cohort.

And the next question will come from Ron Josey with JMP Securities. Please go ahead.

I had two really quickly, just on categories, pretty amazing quarter across buyers and the strength across some of the categories you talked about e-commerce tripling and gaming, up 9X. Can you talk about the supply side, particularly from a freelancer perspective as brand improves, but also as demand goes up and what you're doing to just - if you need to amp up the supply side on freelancers. And then second question just on promoted listings. I know the plan is always been relatively slow rollout of the product, you're now in 15 categories two ad slots, can you just talk a little bit more about the rollout plans here what you've learned since the April launch and maybe what percentage of the freelancers actually qualify to actually have promoted gigs. And lastly Ofer that's included in guidance now, or we're still in the testing phase. Thanks, guys, great quarter.

So for the first question in terms of supply, so we are seeing elevated levels of supply coming in and obviously, we are investing a lot in making sure that supply enjoys access to our demand. In terms of categories indeed anything related to taking businesses online websites, e-commerce development, website development, social media marketing, content creation and so forth, I've seen tremendous growth. Actually, the largest was programming, that grew triple-digit, but that said all of our verticals without exception grew between very high double digits to triple digits. So we've seen that growth across the board. In terms of promoted gigs, it is scaling as planned, we did say that. I mean, I think just a few months ago, we were just launching it in 5 categories. It's now up in 15 we've extended the areas in which we put promoted gigs in. We've increased the number of slots and we've opened it up to more sellers. But we are doing it gradually and we've explained that the reason for doing that is very important as you launch such a product that both the relevancy of those promoted gigs and the quality of those gigs are going to be very high. And indeed, seeing that these numbers actually follow these guidelines for the first five categories we started increasing that across other categories. We're not giving the exact we're not providing the exact percentage of sellers that can qualify to it. But the guidelines for which services are exposed or can qualify are outlined in our website and we're going to be happy to share that with you after the call. But essentially, we are extending it, it's not just the amount of categories in the amount of sellers. It's the placements within the website. It is adding opening an add engine in an e-commerce website is very complex. And it's a task that we need to do carefully, but we are expanding as planned and we will continue providing more color on that in the upcoming calls, it is going as planned and it is being expanded as we speak.

And the next question is from Brad Erickson with Needham & Company. Please go ahead.

Just a couple so on the - market initiatives I guess a couple of questions there. One know that, beta is just rolling out or it sounds like the beta just rolling out based on your commentary. But just curious what you kind of expect to find and definitely curious if there's any sort of view that you can sort of aggregate demand with that product versus the some of the parts or is that too ambitious? And second, is it fair to assume that the up-market initiatives and sort of a halo effect that you can drive here cannot serve as an additional organic customer acquisition tool that might be a tailwind for you here as you roll it out later this call any thoughts there?.Thanks.

Thanks for the questions. So as we think about these larger types of customers. Obviously, this allows us to cater to customers that have a much larger wallet. And we want to make sure that we gain a larger wallet share. And so, by opening up these features that allows these businesses to actually invite [indiscernible] to use the platform in a way that integrate with their workflows is extremely important in making sure that we optimize for this experience. And so we definitely think that this would allow us to capture more of these business activity as they work with freelancers and naturally even more now when the awareness is elevated to the opportunity of working with freelancers and definitely working with them online to the efficiency of overall market base. Now as a reminder Fiverr does not have a sales force. And we don't intend to put one in place anytime soon. So as we think about onboarding more of these types of customers. What we're doing right now is optimizing the funnels the onboarding funnels that would allow us to use our existing marketing methods that are combination of brand marketing and performance marketing to onboard these types of customers into the platform very efficiently without having a sales cycle involved. So, we're very excited about that because we think that this has tremendous opportunity, not to say that we are anywhere near consuming the small side business opportunity worldwide. We feel that we're just starting and what we're seeing with the growth that we've been able to demonstrate this quarter, is that the road ahead or the opportunity ahead to capture more of that market is huge. But we think that as we do that, it's important that we also tackle that slightly larger types of businesses and make sure that we build the right products for them to efficiently interact with our marketplace.

[Operator Instructions] The next question will come from Jason Helfstein with Oppenheimer. Please go ahead.

I'll ask about take rates trailing problem take rates were down quarter-to-quarter. Just maybe expand upon that how you’re thinking about that was there any impacts kind of one-time impacts that could have brought that down sequentially. And how you [indiscernible] and forward. And then a second follow-up gross margin has improved to 84% is this rate sustainable or more one-time in nature. Thanks.

Good morning, Jason. Thanks for the question. So you're right to point take rate, if you look quarter-after-quarter have been going down for from 27 to 0.127. So it's a very, very small decrease and we've actually explained that in our letter to shareholders. The reason why it is decreasing as a reminder, the way take rate is being built is we have the core business. The transactional business that represent 25% out of 27% and the rest are added value products and services. The reality is that the core business has grown slightly faster, slightly higher than the added value services. So if our core business has grown by 80% plus the added value services have grown in the high 70s percent so if you combine that together you lose that 0.1% and we've explained that type of fluctuation, especially in months. When there is such - in quarters where there is such a tremendous growth in the core business might happen. If you think how to model this going forward, we don't expect this to go down. The same trends that you've seen throughout the quarters as the company has gone public, is going to remain in the same trend. We don't expect it to go down.

And then on the second part of the question on the gross margin, I think that 84% gross margin is a higher accrual for us and it is substantial about - yet to be said. We enjoy a very strong quarter and we are investing further in recruitment of team to support and to invest in future initiatives we don't expect the gross margin to stay at 84% in the long run. We did mention in the past that we feel very comfortable most of 80%. But we do expect the 84% at the time a little bit in the next 12 months or so.

Our next question will then come from Eric Sheridan with UBS. Please go ahead.

Again going back to Ron’s and just think out over maybe a longer-term horizon. How should we think about the possibility to scale and grow the marketing side of the platform, so that sellers are getting the distribution they want. You’re dealing increased unit economics from sellers as they work to promote themselves more and drive more conversion on the platform? What tools still need to be invested in against your longer-term goals for that part of the business? And is there sort of a long-term goal we should be thinking about either in terms of what you think you could grow that part of the business into or how much you could amplify margin contribution over the medium to long-term? Thanks so much guys.

Thank you. I think that what we've demonstrated in the past few quarters is that wherever we see an opportunity to scale up our marketing efforts. We are capturing that opportunity. And we do it in a very efficient manner while also improving the overall efficiency of marketing as a percentage of our revenue. But we have scaled up our marketing significantly, and we've done it in many ways from our working brand marketing to our work on the affiliation front, what we do with influencer marketing and social marketing to performance marketing on many channels. In side-by-side with that, we are providing our sellers with the ability to promote themselves within the platform and outside of the platform to ensure that they maximize the exposure that they receive. On top of that, what we are doing on the supply side is developing tools that allow sellers to get enough exposure to up the flywheel effect of supply and demand kick in, and these are areas where we invest a lot, we do that by providing the right algorithms for that, and by providing the right vertical structure of our catalog to ensure that our sellers have the right area, the right category in which they compete for our buyers demand.

And your last question will come from Nat Schindler with Bank of America. Please go ahead.

I'll be redundant and say, great quarter because that's pretty obvious, but can you talk a little bit about what you saw in the change in seller cohorts or if there has been any. Specifically, has there been a change in the dynamic whether not sellers are people with other jobs that happened to be working at home and doing excess time that they I don’t know it might have been commuting with gigs on fiber or they just more people because people are not able to work?

So we're definitely seeing a mixture of everything. I think that as lockdown actually change you see change in those trends as well. In the same goes with unemployment. I think that what we're seeing is a mixture of obviously the same types of cohorts that we used to get on the supply side, accompanied by people that either lost their jobs or just as you said, spending more time at home and thinking about what to do with their time or their career. The quality of the supply that we're seeing is definitely elevated. We started speaking about that in the previous earnings, and we mentioned that in those levels are keeping the same into Q2 and as far as we can see into the current quarter as well. So we are definitely seeing more qualified sellers that we believe freelancers - that we believe used to do most of their work offline by meeting clients in person and because of the limitations right now are getting more open to the options of doing things online. And I think they love it. They find it to be extremely efficient, they can do it from the comfort of ever they are, and they can do work on much higher scale because of the efficiency that the market base introduces. So we're definitely happy that the point that we always made about the fact that the majority freelancing is happening offline is starting to get a different trend – as change in trends. And we're very happy that were there to capture that opportunity.

And just going off on that point. Is – are some of these kind of more professional freelancers and agency groups that are using it. Are they pushing back at all? I mean the earlier example of maybe a graphic designer in Eastern Europe getting a customer in New York City, that person does not care what the take rate is, because that new business, but these professional agency types that are using the business now, are they have been any pushback on the 25%?

Yes. So, not as far as we can see right now and I think what is really interesting here is the fact that the more sophisticated they become, if you look at agencies. Agencies appreciate how hard it is to source client. They appreciate how hard it is to do the technicalities that have to do with the work that have nothing to do with the work itself, and because of that I think that by onboarding Fiverr they understand the benefits of just sitting there and waiting for us to bring them the customers, qualified customers that already paid, so they understand that. So we're not getting any push back

Great. Thank you. I didn't mean to be flippant about how great your quarter was, it really was great.

Thank you so much. We appreciate that.

Ladies and gentlemen, this concludes our question-and-answer session. And thus concludes today's call. Thank you for joining Fiverr second quarter fiscal 2020 earnings call. You may now disconnect your lines. Thank you.