Good day, and thank you for standing by. Welcome to the Fiverr Q1 Fiscal 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jinjin Qian.

Thank you, operator, and good morning, everyone. Thank you for joining us on Fiverr's earnings conference call for the first quarter that ended March 31, 2024. Joining me on the call today are Micha Kaufman, Founder and CEO; and Ofer Katz, President and CFO. Before we start, I would like to remind you that during this call, we may make forward-looking statements and that these statements are based on our current expectations and assumptions as of today and Fiverr assumes no obligation to update or revise them. A discussion of some of the important risk factors that could cause actual results to differ materially from any forward-looking statements can be found under the Risk Factors section in Fiverr's most recent Form 20-F and other filings with the SEC. During this call, we'll be referring to some key performance metrics and non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin. Further explanation and a reconciliation of each of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today and our shareholder letter, each of which is available on our website at investors.fiverr.com. And now, I will turn the call over to Micha.

Thank you, Jinjin. Good morning, everyone, and thank you for joining us. We kicked off 2024 with a strong set of results. Both revenue and adjusted EBITDA for Q1 exceeded expectations, driven by strong execution across the marketplace and Fiverr Business Solutions. We continue to evolve our platform to accommodate not only small businesses fulfilling small tasks, but also larger wallet customers purchasing more complex and larger ticket-sized services. The strategy is working particularly well amid the current macro environment, as we remain efficient and disciplined with our top-of-funnel investments, while leaning into product and innovation to drive wallet share expansion. AI continued to have a net positive impact on our business, as complex services continue to grow faster and represent a bigger portion of our business. Demand for AI-related services remained strong, as evidenced by 95% year-over-year growth in GMV from AI service categories. Chatbot development was especially popular this quarter as businesses look for ways to lean into GenAI technology to better engage with customers. For example, we have seen a hospitality company building a conversational tool for customers to manage bookings or an online learning platform creating a personalized learning menu and tutoring sessions for children. With an over 10,000 and growing AI expert pool, Fiverr has become the destination for businesses to get help implementing GenAI and take their business to the next level. We have also seen very promising signals on Fiverr Neo, the AI matching assistant that we launched last year. Neo enables our buyers to have a more natural purchasing path by creating a conversational experience that leverages the catalog data and search algo. Answers and steps are provided based on buyers' questions and the stage of the search. As a result, we saw that nearly 1/3 of the buyers who received seller…

Thank you, Micha, and good morning, everyone. We are off to a great start in 2024. Revenue for Q1 was $93.5 million, up 6.3% year-over-year at the top end of our guidance, and adjusted EBITDA was $16 million above our guidance range and representing an adjusted EBITDA margin of 17.1%. The strong performance speaks to the strategy we laid out at the beginning of the year and the consistency in our execution amid a volatile macro environment. We are confident in executing the remainder of this year successfully, while making strategic, long-term investments, as Micha outlined. We continue to improve the underlying fundamentals across our business. GMV on the platform grew 2% year-over-year, an acceleration from 1% last quarter, as our efforts to grow complex services and push upmarket paid off. Complex services continue to grow at a healthy double-digit rate and now represent over 1/3 of our marketplace. We continue to see AI as a net positive impact for us, driving significant growth in new categories such as chatbot development and generating more demand in complex service categories where human skills are essential to provide authentic and high-quality output. Active buyers for Q1 was 4 million and spend per buyer was $284 as we continue to double down on our upmarket efforts to attract high-value quality buyers. While overall active buyer growth was muted, high-value buyers who spend over $500 annually continued to show robust growth, up 4% year-over-year. Not only are we seeing more SMBs with deeper wallets come to Fiverr, we are also increasingly becoming a destination for mid-to-large-sized companies to fulfill digital services. Overall spend per buyer grew 8% year-over-year, the highest growth we've ever had in over a year. We are very encouraged with our progress on expanding customer wallet share, especially given its compounding…

[Operator Instructions] We will now take the first question coming from the line of Ron Josey from Citi.

Micha, I was really fascinated you're interested in all the commentary around AI. And so I wanted to hear just a little bit more about the approach that Fiverr is taking now that you have 10,000, I think expert networks on the platform, the commentary on chatbot community and things along those lines. So any insights or more details on the type of projects that you're seeing come in with AI would be really helpful here. And with that, maybe as the mix shift goes upstream and as we talk about Fiverr business and more complex projects, just remind us more about the trajectory on spend per buyer going forward. That was a very strong number here and I wanted to get your thoughts on how that might progress throughout the year.

Ron, thanks for the question. So with regards to the AI and the development there, we're definitely seeing a tailwind in those categories and these belong more in the complex section of categories. Those include categories that allow businesses to integrate AI into their product. I think we called out the fact that there is an increase in AI avatars in chatbots, professional chatbots for customers. And we're seeing very high demand across those areas, which is the reason why it was important for us to have sufficient talent on the supply side and very professional one. As said, since a lot of it has to do with software development, these are obviously more complex types of projects that are associated with higher prices and more complex needs. And all of that contributes not only to growth as a category itself, but also the growth in spend per buyer. And we're definitely seeing this continuing, which is why, as I've said, it was important for us to have a robust supply side on the marketplace. And we'll continue to update as we see those services evolve. But it's not just those services on the catalog, but also the fact that we're using AI extensively in the product itself to make the experiences of the customers and the sellers much, much better.

Ron, this is Ofer. On the second part of the question on the spend per buyer growth. So we've seen tremendous growth this quarter of 8% year-over-year. This is a clear indication for the efforts we are making on going upmarket, whether throughout the marketing channel focused on high-value buyers or product initiatives under the Business Solutions platform. Those are, I'd say, it's a clear majority of those efforts. And we think there is a room for us to further expand the spend. Over time as we keep investing in going upmarket and complex services, just as Micha mentioned a minute ago, it will not necessarily grow at the same pace, but we do think there is a room to grow. And as we maintain the focus on this strategy of going upmarket, we believe the spend per buyer will grow accordingly.

We will now take the next question from the line of Douglas Anmuth from JPMorgan.

Micha, I wanted to dig into 2 topics from the letter, trust on the platform and then also the potential with agencies. So in terms of trust, can you just talk about what high-value buyers are telling you that they need to spend more and then what some of those key initiatives are? And then on agencies, if you could just talk more about the potential there, some of the progress you've seen in digital marketing and tech and then what other verticals might be attractive to target going forward?

Thanks for the question, Doug. Yes. So we've mentioned trust as one of the main drivers when we think about the ability to fulfill more complex projects. And as you think about it, the higher the spend is, the higher the trust that needs to be between the customers and the platform and the service providers, which is also one of the reasons why we're investing in agencies. So these 2 questions are connected from our end. And this is why we've seen agencies as a proxy for creating trust and quality, which is why we started to have more exposure to agencies on the platform in specific categories for many reasons, mostly being competitive reasons. We didn't list the categories in which we're going to continue rolling this out, but the plan is to continue rolling this out across many categories. And the signs that we're seeing so far are very promising. We're seeing great conversion. We're seeing much more complex services. And we're seeing that the overall spend that our buyers are doing with us when they work with agencies is multiple times what they do on average. So for all of these reasons, it's important for us to continue investing in it. And again, this is all about decision-making, which is also the reason why we were making the technology behind the matching algorithms much more sophisticated, so we can actually provide the matching with the types of talent that instill trust in the customers, and again, depending on the complexity of the project.

We will now take the next question from the line of Andrew Boone from JMP Securities.

I wanted to follow on with that last question. As we do think about going after more complex gigs on Fiverr, Micha, can you talk about how the product needs to evolve in terms of moving away from just simple kind of point-and-click gigs versus something that may be more complex? What do you guys need to do to really bring more liquidity for complicated gigs? And then would love to hear more about take rate on the platform. Again, we saw it step-up this quarter. How should we think about that going forward in the trajectory of take rates and sustainability there?

Andrew, thanks for the questions. So when we think about complex -- more complex services, this is actually what we've been doing with the types of solutions that we were building under the umbrella of the Fiverr Business Solutions. Meaning that in some cases, when the gig model can satisfy a need, then a pre-packaged model is sufficient. In some cases, a more bespoke type of treatment is needed in order to satisfy the need of a customer. And for that, we have multiple models. And again, I'm not -- I don't want to jump the gun as to what we're going to start introducing in our summer release. It's coming soon, but -- so I'm not going to get into details. But for example, solutions like product management where you can actually tackle more complex projects through the usage of a product manager that can orchestrate the entire project for you is one of the solutions. Actually, in some cases, agencies are able to provide these types of project solutions. And there is a number of additional ways for customers to satisfy their more complex needs, which we're going to get to in our next earnings once we have the summer release behind us. So unfortunately, with some of that information, we'll have to wait a little while. The second was take rate, maybe Ofer, you want to answer this.

Yes. In terms of take rate, this question have been asked since we went public about the sustainability of take rates. And we always said pretty much the same. We feel very confident with the take rate as it is now. It is based on 2 layers; one is transactionable, and the second part is value-added services. The reason for the expansion is additional services that we offer both on the seller side and buyer side. We mentioned at the shareholders' letter of the Promoted Gigs and Seller Plus contribution, 55% and 75%, and we believe there is a room for both products to grow beyond. And we also think that there are other products in the pipe that might contribute on top. So confidence is high. And we think that there is a room for us to extend take rate modestly over the next few quarters.

We will now take the next question from the line of Jason Helfstein from Oppenheimer.

Two questions. One, just on the spend per buyer. Is there a way to kind of say like how much of the improvement was due to improvement in SMB spend versus kind of moving upmarket to mix? And then second, I mean, you talked about how you are seeing clear momentum around AI categories and demand. I mean, can you maybe give the offsetting factors? Like, give us a sense of like where you're seeing kind of like headwinds or negative pressure from AI that may be cutting into certain categories that are just not as important? And are you able to kind of distill that from like other macro factors that could also be affecting those categories?

So on the spend per buyer, it is more driven by the investment that we're doing in going upmarkets, which shouldn't be a surprise. When we think about customer acquisition in general, we've been focusing on high-value buyers, those who are spending more with us. And that cohort continues to grow. Second thing is that we know that core behavior continues to improve in the sense that the customers that we acquire spend materially more in their first transaction with us and then in subsequent transactions. So all of that is what is mostly contributing to spend per buyer. We haven't seen any macro changes. Meaning, macro is not getting better. And by the way, again, I don't think it should be a surprise to anyone. If you think about the macro conditions, they haven't changed thus far. But definitely, the investment that we're doing in those better, higher quality cohorts is paying off and the spend per buyer is a good reflection of it. The second part of your question about the clear momentum that we're seeing with AI. So we mentioned in the previous earnings the fact that the negative impact that we're seeing from AI is mostly around the very simple types of services. Those are normally services that would sell for $10, $15, which is -- I mean, we are moving. I mean, the majority of contribution is coming from more complex services anyway. And as I said, we continue to see AI as a net positive. So it's contributing more than the offsetting factors of simple products. It happens across several categories in several verticals, but there's nothing specific to call out. Even if you look at the areas that you might think that AI would influence significantly like translation. But what you're seeing is actually the very simple services around transition are being affected, the more complex types of services are not. I mean, if you would publish a book and then want to translate it into a different language that you don't command, I would doubt that you would let AI translate it and go publish the outcome without actually verifying it. So these are...

You'd get a lot more interesting book that way.

I mean, yes. I mean, the outcome might be surprising with all the hallucinations that AI like...

But the point is like things like logo, for example, which again, going back to the very early history of the [ copyright, ] that was -- I think this is like a low ARPU type thing. Even in that as an area that you're still actually seeing people using this. And not -- like, it's not like logos have gotten to [ zero ]

Correct. Again, I mean, if you're a serious business that takes your design, your brand seriously, you would take an expert to actually work. And I'm sure many experts actually use AI tools in their process of work, but they don't rely on blindly letting AI run the work for them, but it is more of the modern tech that they use in order to amplify their creative process.

We will now take the next question from the line of Matt Farrell from Piper Sandler.

As you continue to prioritize the move upmarket, can you just remind us of the go-to-market strategy for the larger wallet clients? And as we progress along this move, how should we think about the need for a sales force as you move forward?

Matt, thanks for the question. So when -- we've talked about this in previous quarters as well. When you look at the top of funnel traffic that comes to Fiverr, it contains all the customers that we need to go upmarket. And in most cases, it's just identifying who those customers are and then making sure that we drive them to the best experience within the product. And in our case, it's the types of solutions that are offered by the Fiverr Business Solutions suite with Pro leading that suite. And to increase that, we have introduced a number of additional programs, the partnership program certified in enterprise, which allows us to really entertain all the range of different customers as we go upmarket. But as I've said, in most cases, I mean, the sales team here on the enterprise side is extremely small and we're able to continue adding a lot of big logos into our products. The majority is coming from the funnel that comes to Fiverr. And as we become better at identifying those customers and pairing them with the right solutions, the better the conversion and the engagement that we're getting with these customers.

And congrats on the share repurchase authorization. Just given that it's your first program and the strength of your balance sheet, how should we be thinking about the pace of buybacks as you kind of start to implement the program?

So in general, I think we've given color on this on our remarks. But again, this really reflects our confidence in Fiverr's long-term opportunity. And given the fact that we have a very strong balance sheet and free cash flow, we have the ability to invest into growth, while also returning some shareholder value. So we've put this plan in place so that we can execute it as fast as possible so for as long as the stock is cheap, right? And the speed really will depend on strategic decisions and market conditions. And we said that this would be our strategy moving forward. So as you said, this is the first time that we're doing it. But as long as these conditions are met, we're going to do it as fast as possible.

We will now take the next question from the line of Eric Sheridan from Goldman Sachs.

Just one, if I could. When you think about the international opportunity, how should we be thinking about going deeper in the markets you're already in versus continue and expand the geographic footprint in the years ahead? And how much of an element of the decision between either or both of those options are down to a better macro environment? And maybe a little bit more visibility into return on investment to sort of widen out that purview.

Eric, thanks for the questions. Yes. So as we noted, the focus that we have on the international is mostly around U.K. and Germany right now, and we're seeing that they're doing well. They're growing faster than the U.S. under these conditions. And I think that the key to that is, A, there is more of an untapped potential outside of the U.S. U.S. has a different level of maturation when you think about working with freelancers and agencies and Europe is picking up. Macro conditions are not entirely different, but they are different. And the strategy of optimizing the different marketing channels or customer engagement channels are something that we've been perfecting over the past few quarters. And I think that coupled with the fact that we've identified some cultural changes that require some product tweaking in order to optimize the experience in different locales has altogether proven itself to be working out well, which is the reason why it's growing faster. We'll continue doing that. The opportunity for growth is obviously very, very large. If you think about just Europe combined in terms of SMB size, the SMBs in Europe combined is 1.5x larger than the U.S., meaning that there is plenty of potential to continue growing there. And obviously, when macro improves, growth is going to be easier and cheaper.

We will now take the next question from the line of Bernie McTernan from Needham & Company.

This is Stefanos Crist calling in for Bernie. Just wanted to clarify, the complex services getting over to 1/3 of the marketplace, is that GMV or the number of jobs? And maybe what are you contemplating for that mix shift for your full year guidance?

The short answer is it's GMV. And our expectation is that complex will continue to grow.

We will now take the next question from the line of Rohit Kulkarni from ROTH MKM.

A couple, if I could. One on AI, this 95% growth in AI GMV. It might be coming off of a small base, but do you see that trend line accelerate as I'm sure there are new types of use cases getting unlocked as well as new types of buyers coming in? And any more color on this AI-related GMV that -- where is it coming from? Where is the strength manifesting in right now, either small versus high-value buyers or repeat buyers getting more active versus net new buyers coming to the platform? So that's my first question on AI. And second, to the extend, you can comment on how you feel about the long-term profitability of the business. Clearly, with the share buyback, you have greater conviction and there's a high likelihood that you're closing in on high-teens EBITDA margin as the year exists. So perhaps talk about how high do you think this business' profitability can go? And there are marketplaces that -- of your similar characteristic that have demonstrated 30%, 35% margins over the future. So I would love to see how you're thinking now that last 18 months you've provided a very strong track record of kind of stabilizing, growing and then improving profitability?

Rohit, thanks for the question. Yes. So you're right, AI is still pretty new. So as a base it is growing off. It is obviously a new category, but we continue to add a lot of new AI categories constantly as the technology evolves. And overall, we're seeing lots of buyers coming to Fiverr as a destination for those services. So we are becoming synonymous with these types of services. And as we mentioned on the call, we're seeing over 10,000 AI experts on the supply side, it's continuing to grow. And we're seeing that demand coming both from new customers and repeat customers. Some customers are getting to us through these categories. And we see these categories of a higher ticket size. They are, by definition, more complex and require a bespoke development. And we're seeing our existing customers using that. So this is definitely a great influence both on the top-of-funnel for acquisition, but also for retention. As to long-term, so I think you've said it. We've been doing very consistent. We've been taking very consistent steps to improve EBITDA margin over the past few quarters. Nothing was a huge step function, but more a very thoughtful way of improving the margin as we continue to not neglect growth, which is very important. We set-up the 25% and the idea is to get there. Will there be an opportunity to increase that after we meet that number? Potentially yes. And we'll -- instead of throwing promises at this point, we want to make sure that we continue the consistent execution towards the long-term margin goal that we've set-up.

We will now take the last question from the line of Marvin Fong from BTIG.

Just one for me. I didn't want to actually talk about EBITDA a little closer here, just specific to this year. So a very strong performance in the first quarter above the top end of your guide. I think you reiterated the top end and raised the lower end of EBITDA guidance for the year, but just curious what was sort of the thought -- what's your view of EBITDA margins for the balance of the year? Was there -- being conservative is understandable in this environment, but is there any moving parts we should be aware of? Do you kind of plan to increase some OpEx items or anything along those lines? Just any additional color on how we should think about EBITDA for the rest of the year would be great.

Marvin, I think that given the macro continue to be challenged, we are very prudent in our guidance. We haven't changed anything on the baseline assumption from the beginning of the year other than being more confident in our ability to deliver. So during this kind of period, the way we manage the business is very careful, balancing between growth and keeping the healthiest of the business, and I think you can see the outcome. The plan for the remainder of the year is to continue to invest in product. As we expand into more complex projects and going upmarket, continue to invest in marketing as long as the market allows us to be very efficient, and you can see the tROI how it behaved quarter-over-quarter, and make sure we grow on a healthy pace and improving the EBITDA throughout the remainder of the year. But there's nothing -- there's no moving part that I think you guys are not aware of.

There are no further questions at this time. I would like to hand back over to the speakers for closing remarks.

Thank you, Sandra, for moderating this call, and thank you everyone for participating. We wish all of you a great day and look forward to see you very soon.

This concludes today's conference call. Thank you for participating. You may now disconnect.