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Disclaimer

This presentation contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include but are not limited to: statements relating to our financial guidance for the third quarter 2024 and full year 2024 and underlying assumptions; our ability to drive consideration, retain relevancy, reignite GMS growth, and achieve our full potential; our ability to differentiate ourselves from other online marketplaces; the impact of our marketing strategies, including the shift towards paid social, on buyer retention, purchase frequency, consideration and GMS; the impact of highlighting quality and the best of Etsy; our expectations around the performance of our app and the launch of Etsy Insider; the impact of consumer discretionary product spending trends on GMS; our expectations around our new seller-focused brand campaign; and the impact of Gen AI & Advanced ML on our business.

Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as “aim,” “anticipate,” “believe,” “could,” “enable,” “estimate,” “expect,” “goal,” “intend,” “may,” “outlook,” “plan,” “potential,” “target,” “will,” or similar expressions and derivative forms and/or the negatives of those words

Forward-looking statements involve substantial risks and uncertainties that may cause actual results to differ materially from those that we expect. These risks and uncertainties include but are not limited to: (1) the level of demand for our services or products sold in our marketplaces; (2) the importance to our success of the trustworthiness of our marketplaces and our ability to attract and retain active and engaged communities of buyers and sellers; (3) the fluctuation of our quarterly operating results; (4) our failure to meet our publicly announced guidance or other expectations; (5) any real or perceived inaccuracies in our operational metrics; (6) if we or our third-party providers are unable to protect against technology vulnerabilities, service interruptions, security breaches, or other cyber-related events; (7) our dependence on continued and unimpeded access to third-party services, platforms, and infrastructure; (8) macroeconomic events that are outside of our control; (9) operational and compliance risks related to our payments systems; (10) our ability to recruit and retain employees; (11) our ability to compete effectively; (12) enforcement of our marketplace policies; (13) our ability to enhance our current offerings and develop new offerings to respond to the changing needs of sellers and buyers; (14) risks related to our environmental, social, and governance activities and disclosures; (15) our efforts to expand our operations outside of the United States; (16) acquisitions that may prove unsuccessful or divert management attention; (17) failure to deal effectively with fraud; (18) compliance with evolving regulations, including in the area of privacy and data protection; and (19) litigation and regulatory matters, including intellectual property claims. These and other risks and uncertainties are more fully described in our filings with the Securities and Exchange Commission, including in the section entitled “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, and subsequent reports that we file with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, we cannot guarantee future results, levels of activity, performance, achievements, or events and circumstances reflected in the forward-looking statements will occur. Forward-looking statements represent our beliefs and assumptions only as of the date hereof. We disclaim any obligation to update forward-looking statements.

This presentation is a high-level summary of our Q2 2024 financial results. For more information please refer to our press release dated July 31, 2024 and filings with the SEC. Please see the appendix for a reconciliation of the non-GAAP financial measures used in this presentation to their respective most directly comparable financial measures, where available, calculated in accordance with GAAP.

For information about how we define active buyers, new buyers, reactivated buyers, repeat buyers and habitual buyers, see our most recent Annual Report on Form 10-K.

Press Release Details

Etsy, Inc. Reports Third Quarter 2019 Financial Results

October 30, 2019
Reports Consolidated Year-Over-Year GMS Growth of 30.1%; Revenue Growth of 31.6%; Raises Full-Year Guidance for GMS and Revenue Growth to reflect the acquisition of Reverb

BROOKLYN, N.Y., Oct. 30, 2019 /PRNewswire/ -- Etsy, Inc. (NASDAQ: ETSY), which operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world, today announced financial results for its third quarter ended September 30, 2019.

"During the third quarter we launched several transformative initiatives to serve as the building blocks for long-term, sustainable growth," said Josh Silverman, Etsy, Inc. Chief Executive Officer. "The core Etsy marketplace continued to perform well, with third quarter GMS and revenue growth of approximately 22% and 28% respectively. Through innovative solutions such as Etsy Ads and our new free shipping initiative, we are continuing to improve the core marketplace for buyers, while enhancing value for sellers and helping them grow. We are just beginning to see the impact of these initiatives, which we believe further our competitive advantages and will have a more meaningful contribution to our results in 2020 and beyond."

Third Quarter 2019 Financial Summary

(in thousands except percentages; unaudited)


The financial results of Reverb have been included in our consolidated financial results ("Consolidated") from August 15, 2019 (the date of acquisition). The unaudited key operating and financial metrics we use are:



Three Months Ended
 September 30,


% Growth
(Decline)
Y/Y


Nine Months Ended
 September 30,


% Growth
Y/Y


2019


2018



2019


2018


GMS (1)

$

1,200,371



$

922,513



30.1

%


$

3,319,228



$

2,685,273



23.6

%

Revenue (2)

$

197,947



$

150,366



31.6

%


$

548,381



$

403,665



35.9

%

Marketplace revenue

$

140,966



$

110,927



27.1

%


$

401,499



$

290,200



38.4

%

Services revenue

$

56,319



$

38,194



47.5

%


$

144,386



$

110,306



30.9

%

Net income

$

14,801



$

19,894



(25.6)

%


$

64,603



$

36,240



78.3

%

Adjusted EBITDA

$

42,076



$

34,035



23.6

%


$

131,644



$

88,151



49.3

%













Active sellers (3)

2,592



2,043



26.9

%


2,592



2,043



26.9

%

Active buyers (3)

44,807



37,134



20.7

%


44,807



37,134



20.7

%

Percent mobile GMS

59

%


56

%


300

bps


59

%


55

%


400

bps

Percent international GMS (1)

36

%


35

%


100

bps


38

%


35

%


300

bps



(1)

GMS for the three and nine months ended September 30, 2019 includes Reverb's GMS of $76.9 million. Consolidated percent international
GMS, includes Reverb's percent international GMS of 17% for both the three and nine months ended September 30, 2019, and is determined
based on the Reverb GMS of $76.9 million. GMS for the core Etsy marketplace on a standalone basis for the three and nine months ended
September 30, 2019 was $1.1 billion and $3.2 billion, respectively.

(2)

Revenue for the three and nine months ended September 30, 2019, includes Reverb's revenue of $6.0 million. Revenue for the core Etsy marketplace on a standalone basis for the three and nine months ended September 30, 2019 was $191.9 million and $542.4 million, respectively.

(3)

Active sellers and active buyers include Reverb's active sellers and active buyers of 155 thousand and 594 thousand, respectively, as of September 30, 2019. Reverb active sellers and active buyers are sellers and buyers who have incurred at least one charge or made at least one purchase, respectively, from Reverb in the last 12 months. Active sellers and active buyers for the core Etsy marketplace on a standalone basis were approximately 2.4 million and 44.2 million, respectively.

For information about how we define our metrics, see our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.

"During the third quarter of 2019 we delivered solid top and bottom line results and generated another $47 million of operating cash flow," said Rachel Glaser, Etsy, Inc. Chief Financial Officer. "Investments in our core business, significant new initiatives and the acquisition of Reverb are helping establish a great foundation for continued profitable growth."


Third Quarter 2019 Highlights

The following operational highlights include results related to the Etsy.com marketplace and do not include Reverb results:

  • In July, we began providing Etsy.com sellers with tools and support that enable them to offer free shipping on orders of $35 or more to U.S. buyers. In September, we launched a campaign to notify our buyers of the new program, highlighting shops that are offering free shipping on their orders. As of the end of the third quarter, 62% of items on the Etsy marketplace offered free shipping to U.S. buyers and 74% of U.S. listing views were eligible to ship for free.
  • We migrated Etsy sellers who previously used Promoted Listings and/or Google Shopping to Etsy Ads in the third quarter. We continue to optimize between channels targeting a return on their ad spend and to-date, we have seen negligible budget churn from sellers.
  • As a result of migrating our search efforts to Google Cloud, we made a foundational upgrade to our ranking algorithms, which will enable Etsy to provide more relevant search results to buyers on Etsy.com. In addition, we continued to improve our mobile app, began highlighting items that are similar to items buyers have made a favorite in the past, launched variation photos, and integrated several shipping solutions, all geared to helping improve the overall shopping experience. We also launched a regional sales feature, which allows for sellers to set a country-specific sale, with a focus on their domestic listings.
  • During the third quarter, we launched a new national television campaign for Etsy, which features holiday gifting experiences and will be tested, with a localized version, in the United Kingdom as well during the holiday season. Leveraging our learnings from prior campaigns, we will optimize for reach, frequency and return as we head into the busiest shopping period of the year.
  • In the third quarter, active buyers and active sellers increased 19.1% and 19.3% year-over-year, respectively. We acquired approximately 4.2 million new buyers in the third quarter.
  • For the Etsy marketplace, GMS from paid channels was approximately 14% of overall GMS in the third quarter, contracting approximately 250 basis points compared to the third quarter of 2018, and about 40 basis points compared to last quarter as we resumed our television campaign which drives more organic traffic.
  • As we continue to shift our marketing spend up-funnel to drive frequency, organic GMS as a percentage of overall GMS for the Etsy marketplace has expanded from 80% in the fourth quarter of 2018 to 86% in the third quarter.
  • Etsy's GMS per active buyer on a trailing 12-month basis grew for the sixth consecutive quarter and on a 2-year basis increased nearly 4%, evidence of our continued progress improving frequency.
  • International GMS grew approximately 31% year over year and was 38% of total GMS. U.S. domestic GMS growth accelerated for the second consecutive quarter to nearly 17%. U.S. buyer GMS, a metric that includes a U.S. buyer who made a purchase from an international seller, grew 21% in the third quarter, reflecting the positive impact our U.S. marketing campaigns have on U.S. buyer demand.
  • On August 15, 2019, we completed the acquisition of Reverb, a privately held marketplace for new, used and vintage music gear for approximately $271.4 million in cash, net of cash acquired. From the acquisition date through the end of the third quarter, Reverb generated $76.9 million in GMS. Percent international GMS was approximately 17%. These operational metrics drove $6.0 million in revenue resulting in a take rate of 7.8%. At the end of the third quarter, Reverb active buyers and active sellers totaled 594 thousand and 155 thousand, respectively.

Third Quarter 2019 Consolidated Financial Results

  • Total revenue was $197.9 million for the third quarter of 2019, which included $6.0 million related to the results of Reverb, up 31.6% year-over-year, driven by growth in both Marketplace and Services revenue.
  • Gross profit for the third quarter of 2019 was $129.0 million, up 24.7% year-over-year, and gross margin was 65.2%, down 360 basis points compared with 68.8% in the third quarter of 2018. The contraction in gross margin was primarily driven by fees related to Etsy Payments, amortization related to our recent acquisition of Reverb, and our consolidated ad platform, Etsy Ads, which we believe is a tailwind to revenue growth and GMS.
  • Total operating expenses were $114.8 million in the third quarter of 2019, up 35.5% year-over-year, and represented 58% of revenue. The increase in operating expenses were driven primarily by marketing expense, specifically the investment in our TV campaign. Marketing expense as a percentage of revenue was 25.3% compared to 26.3% in the third quarter of 2018, a contraction year-over-year and sequentially as we gained leverage driving efficiencies in our marketing spend.
  • Net income for the third quarter of 2019 was $14.8 million, with diluted earnings per share of $0.12.
  • Non-GAAP Adjusted EBITDA for the third quarter of 2019 was $42.1 million and grew 23.6% year-over-year. Non-GAAP Adjusted EBITDA margin (i.e., Adjusted EBITDA divided by revenue) was 21.3% in the third quarter of 2019, down 130 basis points year-over-year. Adjusted EBITDA performance was driven primarily by year-over-year revenue growth and cost efficiencies in our operating expenses.
  • Cash, cash equivalents, short- and long-term investments were $856.7 million as of September 30, 2019. Under the stock repurchase program approved in November 2018, Etsy repurchased an aggregate of approximately $2.8 million, or 50,721 shares of its common stock in the third quarter of 2019.
  • During the third quarter, Etsy completed a convertible debt offering issuing $650.0 million aggregate principal amount of 0.125% Convertible Senior Notes due 2026 (the "2019 Notes") in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The initial conversion price of the 2019 Notes represented a premium of approximately 47.5% over the price of Etsy's common stock as of September 18, 2019 (the date the offering closed). In addition, Etsy initiated a concurrent share repurchase of approximately $124.5 million, or nearly 2.1 million shares, and entered into capped call transactions at 150% premium over the price of Etsy's stock as of September 18, 2019. The capped call transactions are generally expected to reduce potential dilution. The net proceeds of these transactions were approximately $438.7 million after deducting the initial purchaser discount, offering expenses, share repurchase and capped call transaction costs.

2019 Financial Guidance

Etsy has updated its 2019 financial guidance to incorporate the impact of Reverb's business for the period from August 15-December 31, 2019.



2019 Guidance


2019 Revised Guidance



August 1, 2019


October 30, 2019

GMS Year-Over-Year Growth


20-22%


25-26%



~$4.7B - $4.8B


~$4.9B - $5.0B

Revenue Year-Over-Year Growth


32-34%


34-35%



~$797M - $809M


~$809M - $815M

Adjusted EBITDA Margin*


22-24%


22-23%



~$177M - $193M


~$179M - $187M


*      Assumes the midpoint of our revenue guidance.

We expect Reverb will contribute approximately 5-6% to GMS growth and 2-3% to revenue growth, and will contract Adjusted EBITDA margins as we align Reverb with Etsy's benefit programs and capitalization guidelines for internal development.

For a summary of the key items that we expect to impact our guidance, please read our Q3 investor presentation that is available on Etsy's investor relations website, investors.etsy.com.

Etsy is not able, at this time, to provide GAAP targets for net income margin for 2019 because of the unreasonable effort of estimating certain items that are excluded from non-GAAP Adjusted EBITDA margin, including, for example, provision or benefit for income taxes and foreign exchange gain or loss, the effect of which may be significant.

Webcast and Conference Call Information

Etsy will host a webcast to discuss these results at 5:00 p.m. ET today. To access the live webcast and accompanying slide deck, please visit the Etsy Investor Relations website, investors.etsy.com, and go to the Investor Events section. To join the call by phone, please dial 1-855-852-1946 (toll free) or 1-720-634-2903 (toll) and use the passcode 5082619. A replay will be available through the same link following the conference call, or by dialing (toll free) 1-855-859-2056 or 1-404-537-3406 (toll) with the passcode 5082619 starting at 8:00 p.m. ET tonight through November 12, 2019.

About Etsy

Etsy, Inc. operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world. Our primary marketplace, Etsy.com, is the global destination for unique and creative goods. Buyers come to Etsy to be inspired and delighted by items that are crafted and curated by creative entrepreneurs. For sellers, we offer a range of tools and services that address key business needs. In addition, Etsy, Inc. owns Reverb, a leading global online marketplace dedicated to buying and selling new, used, and vintage musical instruments.

Etsy's mission is to keep commerce human, and we're committed to using the power of business to strengthen communities and empower people. Our company was founded in 2005 and is headquartered in Brooklyn, New York.

Etsy has used, and intends to continue using, its Investor Relations website and the Etsy News Blog (blog.etsy.com/news) to disclose material non-public information and to comply with its disclosure obligations under Regulation FD. Accordingly, you should monitor our investor relations website and the Etsy News Blog in addition to following our press releases, SEC filings and public conference calls and webcasts.

Investor Relations Contact:

Deb Wasser, Vice President, Investor Relations
ir@etsy.com

Gabriel Ratcliff, Sr. Manager, Investor Relations
ir@etsy.com

Media Relations Contact:

Kelly Clausen, Director, Corporate Communications
press@etsy.com

Cautionary Statement Regarding Forward-Looking Statements

This press release contains or references forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements relating to our financial guidance and key drivers thereof, the impact of our acquisition of Reverb, and the impact of our strategy, marketing and product initiatives on our business and operating results going forward. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "will," or similar expressions and the negatives of those words.

Forward-looking statements involve substantial risks and uncertainties that may cause actual results to differ materially from those that we expect. These risks and uncertainties include: (1) the fluctuation of our quarterly operating results; (2) our ability to implement our business strategy; (3) our ability to attract and retain an active and engaged community of sellers and buyers; (4) our history of operating losses; (5) macroeconomic events that are outside of our control; (6) our ability to recruit and retain employees; (7) the importance to our success of the trustworthiness of our marketplace and the connections within our community; (8) our ability to enhance our current offerings and develop new offerings to respond to the changing needs of sellers and buyers; (9) the effectiveness of our marketing efforts; (10) the effectiveness of our mobile solutions for sellers and buyers; (11) our ability to expand our business in our core geographic markets; (12) regulation in the area of privacy and protection of user data; (13) our dependence on third-party payment providers; (14) acquisitions that may prove unsuccessful or divert management attention, including our acquisition of Reverb; and (15) the potential misuse or disclosure of sensitive information about members of our community and the potential for cyber-attacks. These risks and uncertainties are more fully described in our filings with the Securities and Exchange Commission, including in the section entitled "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, and subsequent reports that we file with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, we cannot guarantee future results, levels of activity, performance, achievements, or events and circumstances reflected in the forward-looking statements will occur.

Forward-looking statements represent our beliefs and assumptions only as of the date of this press release. We disclaim any obligation to update forward-looking statements.


Etsy, Inc.

Condensed Consolidated Balance Sheets

(in thousands; unaudited)



As of
September 30, 
 2019


As of
December 31, 
 2018

ASSETS




Current assets:




Cash and cash equivalents

$

671,769



$

366,985


Short-term investments

180,170



257,302


Accounts receivable, net

12,494



12,244


Prepaid and other current assets

43,934



22,686


Funds receivable and seller accounts

37,473



21,072


Total current assets

945,840



680,289


Restricted cash

5,341



5,341


Property and equipment, net

153,262



120,179


Goodwill

138,474



37,482


Intangible assets, net

202,102



34,589


Deferred tax assets

22,380



23,464


Long-term investments

4,765




Other assets

27,034



507


Total assets

$

1,499,198



$

901,851


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

23,416



$

26,545


Accrued expenses

70,325



49,158


Finance lease obligations—current

8,770



3,884


Funds payable and amounts due to sellers

37,473



21,072


Deferred revenue

7,434



7,478


Other current liabilities

7,289



3,925


Total current liabilities

154,707



112,062


Finance lease obligations—net of current portion

55,576



2,095


Deferred tax liabilities

83,130



30,455


Facility financing obligation



59,991


Long-term debt, net

776,127



276,486


Other liabilities

40,396



19,864


Total liabilities

1,109,936



500,953


Total stockholders' equity

389,262



400,898


Total liabilities and stockholders' equity

$

1,499,198



$

901,851


 

 

Etsy, Inc.

Condensed Consolidated Statements of Operations

(in thousands except share and per share amounts; unaudited)



Three Months Ended
 September 30,


Nine Months Ended
 September 30,


2019


2018


2019


2018

Revenue

$

197,947



$

150,366



$

548,381



$

403,665


Cost of revenue

68,949



46,947



180,212



133,651


Gross profit

128,998



103,419



368,169



270,014


Operating expenses:








Marketing

50,098



39,516



131,536



94,651


Product development

32,465



24,418



86,177



68,707


General and administrative

32,203



20,748



86,733



61,359


Total operating expenses

114,766



84,682



304,446



224,717


Income from operations

14,232



18,737



63,723



45,297


Other expense, net

(4,143)



(4,141)



(5,828)



(13,095)


Income before income taxes

10,089



14,596



57,895



32,202


Benefit for income taxes

4,712



5,298



6,708



4,038


Net income

$

14,801



$

19,894



$

64,603



$

36,240


Net income per share attributable to common stockholders:








Basic

$

0.12



$

0.17



$

0.54



$

0.30


Diluted

$

0.12



$

0.15



$

0.51



$

0.29


Weighted-average common shares outstanding:








Basic

120,351,095



119,870,711



120,090,291



120,469,066


Diluted

126,243,168



129,086,137



126,471,364



126,497,281


 

 

Etsy, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands; unaudited)



Nine Months Ended
 September 30,


2019


2018

Cash flows from operating activities




Net income

$

64,603



$

36,240


Adjustments to reconcile net income to net cash provided by operating activities:




Stock-based compensation expense

31,056



23,987


Depreciation and amortization expense

32,760



19,116


Bad debt expense

7,464



3,617


Foreign exchange loss

25



2,717


Other non-cash losses, net

9,836



6,914


Deferred income taxes

(6,708)



(4,038)


Changes in operating assets and liabilities

(10,697)



8,323


Net cash provided by operating activities

128,339



96,876


Cash flows from investing activities




Acquisition of businesses, net of cash acquired

(271,353)




Cash paid for asset acquisition and intangible assets

(1,898)



(35,323)


Purchases of property and equipment

(5,889)



(442)


Development of internal-use software

(6,242)



(13,674)


Purchases of marketable securities

(318,221)



(359,182)


Sales of marketable securities

395,348



164,443


Net cash used in investing activities

(208,255)



(244,178)


Cash flows from financing activities




Payment of tax obligations on vested equity awards

(23,605)



(17,136)


Repurchase of stock

(154,790)



(89,661)


Proceeds from exercise of stock options

8,934



15,573


Proceeds from issuance of convertible senior notes

650,000



345,000


Payment of debt issuance costs

(11,142)



(9,962)


Purchase of capped call

(76,180)



(34,224)


Payments on finance lease obligations

(8,177)



(4,748)


Payments on facility financing obligation



(7,817)


Other financing, net

3,148



3,977


Net cash provided by financing activities

388,188



201,002


Effect of exchange rate changes on cash

(3,488)



(6,415)


Net increase in cash, cash equivalents, and restricted cash

304,784



47,285


Cash, cash equivalents, and restricted cash at beginning of period

372,326



320,783


Cash, cash equivalents, and restricted cash at end of period

$

677,110



$

368,068



Currency-Neutral GMS Growth

We calculate currency-neutral GMS growth by translating current period GMS for goods sold that were listed in non-U.S. dollar currencies into U.S. dollars using prior year foreign currency exchange rates.

As reported and currency-neutral GMS growth for the periods presented below is as follows:


Quarter-to-Date Period Ended


Year-to-Date Period Ended


As Reported


Currency-
Neutral


FX Impact


As Reported


Currency-
Neutral


FX Impact

September 30, 2019

30.1

%


31.1

%


(1.0)

%


23.6

%


26.1

%


(2.5)

%

June 30, 2019

21.4

%


22.8

%


(1.4)

%


20.2

%


21.7

%


(1.5)

%

March 31, 2019

18.9

%


20.6

%


(1.7)

%


18.9

%


20.6

%


(1.7)

%

December 31, 2018

22.3

%


23.1

%


(0.8)

%


20.8

%


20.4

%


0.4

%

September 30, 2018

20.4

%


20.8

%


(0.4)

%


20.2

%


19.2

%


1.0

%


Non-GAAP Financial Measures

Adjusted EBITDA

In this press release, we provide Adjusted EBITDA, a non-GAAP financial measure that represents our net income adjusted to exclude: interest and other non-operating expense, net; benefit for income taxes; depreciation and amortization; stock-based compensation expense; foreign exchange loss; acquisition-related expenses; non-ordinary course disputes; and restructuring and other exit expense (income). Below is a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure.

We have included Adjusted EBITDA in this press release because it is a key measure used by our management and Board of Directors to evaluate our operating performance and trends, allocate internal resources, prepare and approve our annual budget, develop short- and long-term operating plans, determine incentive compensation, and assess the health of our business. As our Adjusted EBITDA increases, we are able to invest more in our platform.

We believe that Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business as it removes the impact of certain non-cash items and certain variable charges.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

  • Adjusted EBITDA does not reflect other non-operating expenses, net of other non-operating income, including net interest expense;
  • Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
  • Adjusted EBITDA does not consider the impact of stock-based compensation expense;
  • Adjusted EBITDA does not consider the impact of foreign exchange loss;
  • Adjusted EBITDA does not reflect acquisition-related expenses;
  • Adjusted EBITDA does not consider the impact of non-ordinary course disputes;
  • Adjusted EBITDA does not consider the impact of restructuring and other exit expense (income); and
  • other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net income and our other GAAP results.

Reconciliation of Net Income to Adjusted EBITDA

(Unaudited)



Three Months Ended
 September 30,


Nine Months Ended
 September 30,


2019


2018


2019


2018










(in thousands)

Net income

$

14,801



$

19,894



$

64,603



$

36,240


Excluding:








Interest and other non-operating expense, net (1)

2,194



3,768



4,749



10,122


Benefit for income taxes

(4,712)



(5,298)



(6,708)



(4,038)


Depreciation and amortization (1)

12,808



6,439



32,760



19,116


Stock-based compensation expense (2)

12,137



8,916



31,056



23,987


Foreign exchange loss (3)

1,949



373



1,079



2,973


Acquisition-related expenses (4)

1,735





2,941




Non-ordinary course disputes

1,164





1,164




Restructuring and other exit income



(57)





(249)


Adjusted EBITDA

$

42,076



$

34,035



$

131,644



$

88,151






(1)  Included in interest and depreciation expense amounts above, are interest and depreciation expense related to our
       headquarters lease. As part of the adoption of ASU 2016-02—Leases in the first quarter of 2019, we now account for
       our headquarters as a financing lease. Previously, we accounted for our headquarters under build-to-suit accounting
       requirements. In the three and nine months ended September 30, 2019 and 2018, those amounts are as follows:






Three Months Ended
 September 30,


Nine Months Ended
 September 30,


2019


2018


2019


2018










(in thousands)

Interest expense

$

660



$

2,249



$

2,033



$

6,748


Depreciation

2,197



819



6,592



2,457






(2)  Total stock-based compensation expense included in the Consolidated Statements of Operations is as follows:






Three Months Ended
 September 30,


Nine Months Ended
 September 30,


2019


2018


2019


2018










(in thousands)

Cost of revenue

$

1,574



$

894



$

4,129



$

2,367


Marketing

1,196



642



2,550



1,819


Product development

5,752



4,697



14,566



11,361


General and administrative

3,615



2,683



9,811



8,440


Total stock-based compensation expense

$

12,137



$

8,916



$

31,056



$

23,987



(3)   Foreign exchange loss is primarily driven by the U.S. Dollar to Euro exchange rate fluctuations on our intercompany and
       other non-functional currency balances.


(4)   Acquisition-related expenses are expenses related to our acquisition of Reverb.

 

Cision View original content:http://www.prnewswire.com/news-releases/etsy-inc-reports-third-quarter-2019-financial-results-300948582.html

SOURCE Etsy, Inc.