Good morning. My name is Liandra, and I will your conference operator today. At this time, I would like to welcome everyone to the Wayfair Q2 2018 Earnings Release and Conference Call. [Operator Instructions]. Joe Wilson, Associate Director of Strategic Finance and Investor Relations, you may begin your conference.

Good morning, and thank you for joining us. Today, we will review our second quarter 2018 results. With me are Niraj Shah, Co-Founder, Chief Executive Officer and Co-Chairman; Steve Conine, Co-Founder and Co-Chairman; Michael Fleisher, Chief Financial Officer; and Julia Donnelly, Head of Corporate Finance. We will all be available for Q&A, following today's prepared remarks. I would like to remind you that we will make forward-looking statements during this call regarding future events and financial performance, including guidance for the third quarter of 2018. We cannot guarantee that any forward-looking statements will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Our 10-K for 2017 and our subsequent SEC filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. Except as required by law, we undertake no obligation to publicly update or revise these statements, whether as a result of any new information, future events or otherwise. Also, please note that during this call, we will discuss certain non-GAAP financial measures as we review the company's performance. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. Please refer to the Investor Relations section of our website to obtain a copy of our earnings release, which contain descriptions of our non-GAAP financial measures and reconciliations of non-GAAP measures to the nearest comparable GAAP measures. This call is being recorded, and a webcast will be available for replay on our IR website. Now I would like to turn the call over to Niraj.

Thanks, Joe, and thank you all for joining us this morning. In Q2, Direct Retail net revenue grew by $538 million or 49% year-over-year, and total net revenue grew by 47% year-over-year. Our U.S. and international businesses both exhibited strong growth, with U.S. Direct Retail net revenue up $420 million or 43% versus Q2 last year and international Direct Retail revenue up $118 million or 94% versus Q2 last year. This quarter represented the largest year-over-year Direct Retail dollar growth in our company's history, which is particularly noteworthy given the tougher comparison in Q2 last year. We are excited to see -- to share that we are continuing to gain as consumers increasingly shop online and increasingly choose to make their home purchases with Wayfair. At the end of Q2, our LTM active customer count reached 12.8 million customers, and LTM revenue per active customer reached $440, another all-time high. We view these results as signals that the investments we have been making in our three key strategic areas, namely, one, our proprietary logistics network; two, our international business; and three, in headcount to build out our product category and service offerings, are continuing to yield results and put us in a strong position to keep capturing the $600 billion market opportunity we see ahead of us. Q2 this year was particularly strong as a result of our first-ever Way Day event in April. As I mentioned on the last earnings call, Way Day performed extremely well for us, resulting in the largest single revenue day in our history. The event resonated strongly with both new and repeat customers. And as the remainder of the quarter played out, we are pleased to see that there was no meaningful cannibalization of sales throughout the rest of the quarter. We're excited to…

Thanks, Niraj. On previous earning calls, we've spoken about centrality of technology in bringing our customers the best possible experience when shopping for the home from the home. Today, I want to tell you more about the critical role that customer service plays in that experience. The home category has specific challenges when shopping online in giving customers the confidence to buy, and the absence of being able to touch and feel a product is often problematic. At Wayfair, we leverage technology, Search with Photo, View in Room 3D and Day of Delivery Tracking, to make it as easy as possible for customers to shop our category online. We believe that alongside technology, our award-winning customer service team plays a key role in bringing customers the end-to-end support that differentiates us in the market. The ability to speak with a member of our customer service team, whether it's on the installation of a chandelier or the delivery of a bunk bed, can often be a key part of the customer's experience with us. We combined both technology and customer service to achieve this in a way that has been central to our success as a business. When Niraj and I started this business, we would answer customer calls, and new hires would do this when they joined the company. This has remained a core part of our DNA, with all the new hires joining Wayfair in Boston today still listening to real customer calls on their first day with the company. Technology is central to our business and to our competitive advantage, but staying as close as possible to the customer is the driver of our success and our culture. We have built a team of over 2,300 customer service and sales staff across 7 locations in the U.S. and…

Thanks, Steve, and good morning, everyone. I will now provide some highlights of the key financial information for the quarter with more detailed information available in our earnings release and in our investor presentation on our IR site. In Q2, our Direct Retail business increased 49% year-over-year to $1,641,000,000, representing year-over-year dollar growth of approximately $540 million. Our total net revenue increased 47% year-over-year to $1,655,000,000. We're delighted with the dollar growth in revenue that we are seeing. As Niraj mentioned earlier, Way Day added further strength to our future results, and we're excited to develop this event further for customers and suppliers next year. Our KPIs, which we report on a consolidated global basis, showcased the extremely strong response we're seeing from our customers with many KPIs reaching all-time highs. In addition to our active customer base growing by 34% year-over-year in Q2, purchase frequency, as measured by LTM orders per active customer, grew for the seventh consecutive quarter to a new high of 1.82. And orders from repeat customers grew by over 60% in Q2 year-over-year. Turning now to our U.S. business. Direct Retail net revenue increased to $1,397,000,000 in Q2, up 43% year-over-year, representing year-over-year dollar growth in the quarter of approximately $420 million. Direct Retail net revenue from our international businesses in Canada, the U.K. and Germany collectively increased to $244 million, up $118 million versus Q2 last year. Our offer is resonating with customers in international markets, and we're very pleased with the market share we're taking as a result of our long-term investments outside the U.S. I'll share the remaining financials on a non-GAAP basis, excluding the impact of equity-based compensation and related taxes, which totaled $32 million in Q2 2018. For a reconciliation of GAAP to non-GAAP reporting, please refer to our earnings…

Thanks, Michael. Steve and I are very excited about the growth of our business this year and the position that we have put ourselves in to take advantage of the opportunity we see ahead of us, both in the U.S. and internationally. We are extremely proud of our growing team of almost 10,000 people and the initiatives they are driving to bring customers a terrific experience when shopping for the home online. Dollars in the home category are continuing to move online, and we believe we can keep taking an outsized share by delivering the best customer experience with vast selection, inspiring visual merchandising, fast and convenient delivery and world-class customer service. With that, I'll now ask the operator to open up the line, so we can answer a few of your questions.

[Operator Instructions]. And your first question comes from the line of Peter Keith with Piper Jaffray.

I wanted just to ask a bigger-picture question around free cash flow. I know that you guys have historically guided the business that you want to achieve positive free cash flow on an annualized basis, that clearly, you've made very successful logistics investments, but you're looking at, probably, your third year in a row of negative free cash flow. Just thinking forward, as you're building out China, do you feel like you're now sort of passed that CapEx ramp such that if free cash flow -- positive free cash flow will begin to flow? Or do you feel like logistics are still building and getting their returns, and so it will push that free cash flow target out further?

Pete, it is Michael. Let me start, and maybe Niraj may want to add. I think that you've seen the -- the CapEx growth, it's sort of accelerated for a while. I think now we're sort of at that sort of running sort of solidly 3 percentage of revenue. And I think we guided again this quarter to sort of run at that. There's clearly a set of ongoing CapEx investments we're making as we continue to sort of expand and build out the logistics network. But remember, we went through this period where we like have this intent sort of build it first instead, right, so to get the first thing built. That went from 0, no CapEx, to sort of building it. I think we're through that phase. Now we're adding on to it. And obviously, the scale of the business is growing dramatically during that time frame. So the CapEx dollars, even though they've grown some, versus the sort of overall scale of the business and what the business can generate are quite different. I do think we're still on a path over time to free cash flow breakeven and then positive. That's still the goal. But as you can see in this quarter and our guide for next quarter and the things we're trying to invest in, we're going to always balance that with making the right long-term investments for the business. I don't know if Niraj wants to comment on China and some of the other rollout.

I guess, the thing I would comment on, China, what we would do in China is not going to be particularly CapEx-intensive. The operations that are more CapEx-intensive tend to be ones that have more automated sortation, things like that. Those tend to be integrated in with the transportation, whereas in China, what you -- you have warehousing, but they're effectively building full containers, you're doing [indiscernible] truckload, and that's more manual. What I would say is -- the other thing to think about, I wouldn't think about free cash flow as being entirely a function of kind of CapEx side of fulfillment. Also, just keep in mind, when you think about rate of growth, you think of a 20% variable contribution margin, you think of a flow-through into EBITDA, we believe we can grow at a significant rate on an ongoing basis. And so you -- if you give it $1 growth, you see that continuing to build. And while in this recent period, we've ramped headcount -- Michael made some comments also about headcount, how it's going to moderate to the hiring as we get to the end of this year. And so what you'll see is you'll see leverage on that line, and you have a flow through EBITDA, that will also create cash flow as you roll forward.

Okay, very good. And just maybe to close it out, on the logistics, could you just give us a quick update on some of the metrics in terms of like how many millions of square feet you now have with CastleGate? And with WDN, I think you said 25 facilities. Can you remind us on where you're targeted by year-end?

Yes. The square footage number hasn't changed in this quarter because we didn't open any [indiscernible] and we continue to add the smaller footprint DAs. So I think the last number -- I'm just trying to find -- the last number I gave was an 8 million square feet in total or something like that, and that number is still good.

In terms of the delivery agents, the DAs, the 25 number, we're continuing to expand markets. Ballpark, think of it as 1 to 2 a month as average. We mentioned this quarter we had 2 that rolled out this quarter, so it's not exactly 1 to 2 every month. But we continue to roll those out. Remember, those are fairly small buildings. And we've done most of the major markets. We're kind of on the secondary market. But when we do get to roll them out, it's a significant benefit because of the jump in Net Promoter Score, and we have the density to the -- when you look at the unit cost of the delivery. We have the density to make that work, so we're going to continue to grow with that.

Your next question comes from the line of John Blackledge with Cowen.

A couple of questions on the guide and then a question on the logistics. So on the guide, the modestly negative U.S. EBITDA in 3Q being driven by higher headcount, Michael, could you just discuss the accelerated headcount growth? What areas again? And then the international revenue guide, I think I heard plus 50% to plus 60%. Is the decel from kind of 2Q, 1Q levels? Just kind of any color there, Way Day impacts kind of skewing the growth rate for international in 3Q. And then for Niraj, on the discussion on inbound supply chain investments, how long will it take to ramp this program? And are you aware of any competitors that's kind of taking this approach?

Great. I'll start. On the guide and the headcount growth, as we talked about -- and you can refer back to last quarter's call because we kind of went in-depth there and decided to not do it again this time, but we are really hiring across areas of the business. Obviously, there's sort of key critical areas like engineering where we've had really good growth in that team, and we'll continue to do that. And the thing I'd point out is that we had a -- we really have been able to sort of find the type of talent, and we built the recruiting team to sort of find the type of talent we want in a faster way than, I think, we anticipated at the very beginning of the year. And so though it's accelerated, and I'm using those words, it's -- what we're really doing is we've been able to do what we were trying to do over 4 quarters in, really, 3 quarters. And so we'll continue to hire a substantial number of people in Q4, but it will be a lower number than it was in Q1, Q2 and now Q3. And I think, in part, that's because people, across the spectrum of the folks we're looking for, right, great operations people, great merchandise people, great marketing folks, great engineering folks, the talent that we have been able to add to the team, when you start to look at the profiles and backgrounds of these folks, has been stellar. The other side of it is we've built out a substantial campus recruiting program, and the quality of people we're getting out of top-notch MBA programs in places like that has also exceeded our expectation. And so it's across all areas of the business. And as we…

And this is Niraj. Just to add, so on international, I think, yes, if you look, we were kind of a $90 million range, sort of popped up here with the Way Day in Canada, but we're going to see continued solid growth there, we believe. In terms of the inbound supply chain services, I think what we're seeing is competitors, in general, have not invested into logistics in the same way that we believe one frankly should and would benefit from. Obviously, Amazon is a notable retailer who has invested in logistics, but if you hold them aside, you really don't see that out there, and we think it's one major source of benefit, particularly when you think about the goods we sell because they're relatively bulk, to me, they tend to be low dollar value per cubic foot. We have a subset of goods that are prone to damage. These attributes make logistics even more valuable, particularly in a world where a 2-day goes to next day, goes the same day. So we think we have an advantage there, and we think as -- if you think about the platform, there's a lot of benefit we can offer to not just our customers but our suppliers by providing these services. So that's what -- that's why we continue to be aggressive in building it now.

Your next question comes from the line of Oliver Wintermantel with MoffettNathanson.

I had a question regarding tariffs and the impact on Wayfair. If you maybe could remind us what your imports are from China. And out of these imports, what are direct imports? And how much is the indirect imports?

Sure. Yes, so I think the thing to keep in mind is tariffs are going to affect us a lot less than they will virtually every other retailer. And the reason is if you think of us as a platform, we effectively desire to sell every item from every supplier in the market. And so we have goods on our platforms that are manufactured in Asia. We have goods on our platform manufactured in the United States. Certain industries are all in Asia. Certain industries are all in the United States. Certain industries are -- different suppliers source different ways. So we have all of those goods. I think our actual mix -- I don't know the exact number. Obviously, a significant amount come out of Asia, which is China but also Vietnam and Indonesia. And what you find is that if you look at kind of the global amounts by category and you break it out, our sales, and we've actually looked at this, not terribly different than that. The reason we get hurt less than other retailers, other retailers made concerted decisions. So if they source specific outdoor furniture, and they decided to source it from one supplier in China versus one supplier in Indonesia, and then there's a tariff, well, if they were sourcing from China, they then will bear the cost of the tariff. Whereas we're sourcing from both those folks, and we're not buying any inventory. It's the supplier's inventory. So if some suppliers get advantage relative to other suppliers, frankly, they'll do better or worse to take advantage on our platform because the consumer will decide where they want to shop in terms of whose item they want to buy. And so we saw this with Brexit. When things happen or there's an abrupt shocks, it does create demand kind of changes. But because of the nature of our platform, 2 different things happened. One is basically we are not that affected. Suppliers then tend to rebalance what they do over time. The second is -- I actually think these things have less of an impact, but ultimately, it affects the whole market, and so the -- it's basically just an inflationary sort of driver to the consumer, which then gets absorbed. But frankly, we tend to feel the right things out there.

Got it. That's helpful. And just one follow-up to Way Day. If my math is correct, the repeat order is up 62% in the quarter, and the new customer is up, 30 points. So the repeat order is up quite a lot, but the new customer growth -- order growth is phased relatively flat. So is it fair to assume that Way Day was more -- did you see more repeat customers -- of your repeat customers come back in by Way Day? Or is that not the case?

Yes. I wouldn't want to look at it like that way. We found Way Day to be very successful for both. I mean, if you look at our share of orders that are repeat, it ticked up from a year ago at 61%, you get to 62%; a quarter ago, 64%, now we're 66% of orders are repeats. So repeat has been an ever-growing flywheel. A quarter ago, repeat was up just over 50% year-over-year. This quarter, it was up 60%. New customers in the last quarter were -- was up by 25%. This quarter, it's up 33%. So we set good momentum on both fronts. Way Day we saw specifically good momentum on both fronts. And repeat continues to take share as a portion of the total simply because once we get a customer, the experience is very delightful to the degree that they start shipping more and more of their spending to us. But we're continuing to get more and more new customers at a strong pace. And these are our active customer count now up to 12.8 million kind of bulk -- back of that. So both numbers are actually quite strong, if you look at the trends now.

Your next question comes from the line of Seth Basham with Wedbush Securities.

Mike, my question is around your logistics investments. You talked about higher Net Promoter Scores from your Wayfair Delivery Network. Have those Net Promoter Scores been translating into higher repeat order rates and higher revenues?

Thanks, Seth. The short answer is we think so. The long answer is it's net -- you need a long period of time to try to measure that. It's very hard to isolate that because there are so many other things we continue to improve on in that same period. When we've done look-backs and what we've found is that Net Promoter Score is correlated to lifetime value and repeat growth. So we use Net Promoter Score as sort of a near-time measure of that, and we use kind of 3- and 7-, 14-day repeat rate as indicators of long-term rate, and we do look-backs to make sure that they stay very correlated. I can't specifically tell you for the large parcel home delivery operation, it's increasing Net Promoter Score, what it is specifically driven, but you can't isolate that separately with enough data. But I would believe the answer is yes.

Fair enough. And secondly, as it relates to logistics, from a gross margin standpoint, when would you expect less pressure from the logistics investments? And from the operating margin standpoint, when should we see less of a burden of the unutilized rent? If you're not opening new CastleGate warehouses and sales keep rising, I would expect that burden to come down, but you've signaled that's remaining in the $5 million to $8 million range.

Yes. So what we said for a while now is that we're -- there's a little bit of a drag from the addition of the logistics network, and that's showing up in COGS, and you'll see that when the Q comes out and the details. And that, like last quarter, continued this quarter. And that will, over the course of the coming quarters -- and we haven't sort of put a pin in sort of exactly when, but I think over the course of the coming quarters, you'll start to see some of the benefits of that flow through. In other words, you'll start to see some of the efficiency gains in the COGS line and particularly, in the shipping part of the COGS line as we kind of operate a lot of that network at more peak or full efficiency. On the unutilized rent piece, we are continuing at CastleGate network building. So Toronto was the most recent one, and then there's others that are sort of going to flow in over the next several quarters. And so -- and when that happens, you effectively sort of rebalance the whole network of those CastleGate facilities. But I think as we continue to grow, the growth of CastleGate capacity will be tied to sort of the growth of the business. But we will, for some period of time, have an ongoing unutilized rent piece as we're never going to let the network right now get to a place where you're operating it at 100% able to flow all of that rent through COGS because you got to be anticipating a far rate of growth. You got to be anticipatory, and make sure that you've got enough facility space ready as the business grows and as you hit peak demands like holiday.

One other comment quickly on gross margin, too. Just keep in mind, the movements you see in gross margin, I wouldn't directly correlate those to being driven by logistics. Some -- at a high level, some puts and takes in gross margin when you follow it from quarter-to-quarter. For example, a positive thing that happened to gross margin would due to shipping savings, but a negative thing could be when we're ramping a new logistics facility could be a drag. But then the category mix is a drag. So we have a lot of new categories ramping nicely, which start at lower gross margin. The international mix where international is growing faster is a drag because international does not run at the same gross margin as the U.S. yet, and that's typically a function of scale. But then the buying power, as we get bigger, that's the benefit to gross margin. We get better and better wholesale pricing. And then private label, which has grown very nicely for us, is a benefit. And so when you net all those in and you see gross margin sort of not moved that much, stay in that 23% or 24% range, you're actually seeing a lot of positive things there that are helping us absorb effect that international and category mix, which are both huge future drivers of benefits for us. They're not actually providing a negative drag because of the benefits we're getting elsewhere. So you got to kind of net them all in, and obviously, the unutilized new logistics facilities and other investment area, that's getting absorbed also. So made a lot of positive things in there, too.

Your next question comes from the line of Akshay Bhatia with Bank of America Merrill Lynch.

One thing that is becoming more prevalent in the e-commerce space is advertising within the marketplace. So wanted to ask you what Wayfair is doing on the advertising front? Maybe what opportunity you see there? And what tailwind do you think this could be the margins longer term?

Yes. We think advertising is an area of very high potential benefit. To be fair, on one hand, we think we're very excited about it. When we talk about hiring people for [indiscernible] and the investments we're making on headcount, this is a great example of an area that, over the last couple of quarters, we've really stepped that up with a great team that I'm very excited about. A lot of the early work they're doing, but then, to be fair, it's early work. So in terms of when its real impact on the P&L, it's still a little ways out. For us, we think advertising is going to be a little more nuance on what some other folks can do where they're just kind of plaster it on the top, because that doesn't affect the customer experience negatively because, for example, if you're selling batteries, whether you let Duracell or Energizer dominate the page, it doesn't matter as long you have both on Page 1 and Page 2. We need to be thoughtful in terms of making sure that we use the diversity of product, the right styles for the consumer to continue to engage them. But then there's things we can do, for example, to let suppliers help launch their new products and get the momentum more quickly and help fund that. So we're actually very excited about some advertising products that we have underway. But in terms of the P&L impact, I'd both say I'm excited about how big it can be, but I'd also say that, that's a ways out.

Got it. And maybe as a follow-up, can you talk about what you're doing differently on the marketing side that can you still drive leverage while adding nearly 1 million customers? Anything to call out there? Or is it really just the repeat rate growing?

I think the key thing to keep in mind what we do on our paid advertising, and this is a very unique thing for us when you compare us to other folks, is we built all our advertising technology in-house. And so when you think about building your own ad tech, being able to then take your first part of data and really, nuance clickstream data, your own algorithms are at home to your categories and your customer kind of life cycle and then take those and integrate them into the advertising products, I'd say, that's a huge benefit. We then kind of further fuel that. Pinterest, Facebook, Google have all publicly named us as a partner with whom they codevelop ad units who's their early alpha and beta partner and things. Google mentioned us PLAs and trusted stores. Facebook mentioned us on their earnings call about a year ago. And so what we found is that by being an innovator and understanding every bit of the nuances on how these platforms work on the new products and then building our own ad tech for integration, for bidding and for your own algorithms, you can always sort of further progress what you can do. And obviously, the trends -- we have trends on data that we use. So there's no reason why -- if you think about -- when we think about 12.8 million customers, that's less than 10% of the potential customers. We think that about 70 million households in the United States, 70 million households in Europe and Canada, 140 million, 12.8 million is still not that many. So there's a lot of new customers to get. And then, obviously, the share of wallet, it's a huge opportunity. But to your point, repeat is, obviously, a big opportunity, too. So I think building our own ad tech has been a huge advantage, but there's also a lot more customers to get, so that's why we keep adding.

Your next question comes from the line of Michael Graham with Canaccord.

Just on the customer growth, you added nearly 1 million customers. Any high-level thoughts on the split between domestic and international? Like are you still seeing really robust U.S. customer growth? And then you had made a comment in the past about margins in a country can be the lowest when you really start to lean in on the brand advertising spend. Can you just refresh us on where you are in that cycle in terms of leverage or deleverage from ad spend in some of your different countries?

Yes. So we're seeing really good customer growth in the U.S. and international, so we're very excited about that. In terms of where we are in the international market, we've said that Canada is the farthest along, and there, we have really nice awareness, not quite the U.S. level but quite high. U.K. is ramping very nicely. And then in Germany, we're in the early days there. So we just -- for example, television advertising, we only watched that in the last month or 2. So each country is in a different stage of the evolution. Germany is, I'd say, at the beginning of really starting to grow the customer base. U.K. has a nice customer base, still in a rapidly growing stage, but it's far and off along. You have a growing repeat base, albeit not that far along. And then Canada is farther along. But all are still very much in that ramp phase, which is why when you look at the kind of aggregate P&L impact and you see the losses, that's because it doesn't -- in aggregate, they still don't have enough of a repeat base to get that amortization, but it's ramping, as I said, very nicely.

Your final question comes from the line of Brian Nagel with Oppenheimer.

So a couple just near-term modeling questions, if I may. First off, with [indiscernible], we talked a bit about gross margins already, but during the quarter, we saw somewhat of a bounce back than we saw on the prior quarter, obviously, still looking to your longer-term targets. But given what you were saying, I guess, in response to a question before, is it fair to assume that we should see the gross margin rate continue to tick a bit higher through the second half of this year? And then my second question, obviously, a lot of conversation around hiring and the plans to maybe pull back on that a bit in the fourth quarter. Can you -- can we -- can you help us understand better -- like I understand you don't give fourth quarter guide or [indiscernible] fourth quarter guidance. Can you help bake that other delta within the P&L could that be? And looking beyond '18, like how long do you think this maybe a more subdued rate of hiring, how long should that persist?

Sure. Let me kind of quickly answer both questions, and then Michael can provide more color. On gross margin, here's the way I think about it. What I -- let me tell you, there's a lot of puts and takes. And so in any given quarter in the near term, international grows really fast. Well, that's a drag. Some of the new categories we're investing in and seeing great results, that's a drag. But then, as you mentioned, there's a lot of positive things for gross margin, too. So I wouldn't necessarily say in the second half, you should see it grow. I wouldn't say in the second half, you should it drop. That 23%, 24% is a range when you net in all these puts and takes. If you take a longer-term view, you say, a number of years out, what I expect the gross margin could rise nicely between now and the number of years, I'd say, yes, because fundamentally, the long-term trends -- the positives of the long-term trends are very significant. And in fact, the things that are drags become less a drag, and they actually be kind of erode being a drag over that time frame. So the long-term view on gross margin is significantly positive, but in the near term, you do have a lot of movement there. And then on hiring, I'll let Michael get into specifics. I just want to clarify. So we're going to continue to be hiring. It's just the recent rate has jumped up significantly, and we've built incredible recruiting capacity, so taking advantage of that, and that, right now, also includes some are hires, business school recruiting all this kind of coming onboard. We don't want to not take advantage of that, so we're taking advantage of that. That said, we're going to drop the net increase rate down, but it's still going to be a net increase continued growth. But from a financial model standpoint, you actually will start seeing sequentially nice leverage once we absorbed sort of the [indiscernible] takes a little while to roll through them. Michael can be more specific.

Yes. I mean, the only thing I'd add to that is I want to be clear that we're not saying we're not going to still hire a lot of folks in Q4, we are, just not at the pace we've been hiring in Q1, Q2, Q3. So I think you will continue to see sequential increases in the OpEx spend x expense tied to that hiring. I just think that's going to start to ameliorate over the coming quarters. Remember, though, that like the folks you hired in Q2 show up in Q3 comp and Q4 comp, right, it continues to sort of build. And then the only other thing I always note for folks is to remember that in Q1, you sort of reset on all of your tax -- the tax payroll, payroll taxes, and therefore, that tends to sort of an impact our OpEx spending as well there. But as I said on the -- in the talk back and as we sort of give a little more color on, we will bring that rate down. I think that will be a more sustained long-term rate. We are going to continue to add great people. The business is growing, obviously, at an incredible pace, and -- but at the same time, you'll start to see leverage over the course of '19 in that line as we don't keep hiring at this accelerated pace.

Thanks, everyone, for being on the call with us today.

Thanks, guys.

This concludes today's conference call. You may now disconnect.