All right. We are going to get started. Good morning, everyone. Thank you all for joining us today. I am Maria Ripps, Internet Analyst here at Canaccord Genuity, and it is my pleasure to introduce Lanny Baker, Etsy's CFO. Lanny, thank you so much for joining us today. Well, thank you. It is great to be here. It is good to be in Boston, and we really appreciate being included in your conference first thing in the morning. It is a super slot. Thanks for everybody showing up today, and we really appreciate your coverage. Perfect. Awesome. Thank you so much. Yeah. You have been at Etsy for about a year and a half now, maybe. Can we start by reflecting on the company's progress during this time, and what are you most excited about? I guess, how would you compare this to what you expected when you took on the CFO role? Yeah. Well, it's been a great privilege to be at this company. It is a really exciting business. I'll tell you one of the big changes. When I joined, we had two other businesses that we have since sold. We've done about $1.5 billion in asset sales that have allowed us to raise capital to buy back stock. The real fruit of that has been allowing us to very much focus all of our attention on the Etsy marketplace, which has so much potential. I'm really excited about that. I joined a company that had a couple of different assets, and now we're very focused. We have a new CEO in Kruti Patel Goyal, who has been with Etsy for 16 years. She was there in various service and product roles before going over to one of the businesses that we just sold in the U.K. called Depop, which is a clothing resale business. She took that business from sort of growing a little bit to growing really fast. In fact, by the time we sold it had gotten bigger for three successive years, and it was growing at over 100% a year. She did some magical work there. The work that she did there really was focused on the customer. She's come into Etsy and led the company through a really deep diagnostic of how are we doing with buyers and sellers, and this is what I'm most excited about. We've sort of realized that what Etsy stands for in the minds of both sellers and definitely buyers is kind of three key things. There is a creativity, there is a level of craftsmanship, and there is a human connection at Etsy that you just don't see anywhere else in e-commerce. I think those characteristics in a day and age where people talk about what's going on with AI and the sort of technology exhaustion that we all feel, those things that separate Etsy really are at a human level. They really resonate. The whole company is very focused on how do we make those characteristics legible across everything that we're doing. As we're doing that, it's been very exciting, Maria, to see that a focus on those three things is not only improving some of the customer metrics, but it's just starting to influence the financial performance of the business in a favorable way. What I'm really excited about is this company is very focused in a really big market. I guess, relative to my expectations coming in, gosh, I thought we would have those other assets, and we got a great price for them. I was certainly surprised by the bid that we got for the Depop business. Right. When opportunity knocks, you got to answer the door, and we're really happy to have the focus we have on Etsy now. Great. You've made some really good returns there between you announced the transaction and you actually completed the transaction, which was great. Yeah. You also recently announced the changes to your sort of organization at the time when business has actually seen increasing momentum. Can you maybe talk through the rationale behind the restructuring, why now is the right time, and how it positions Etsy for the next sort of phase of growth? Sure. For anybody who isn't aware, when we reported our earnings results last week, which were, I think, pretty good, we could talk about those, too. We also announced a reorganization in the company, and it meant that we are going to what we have separated with about 220 employees. Most of those people are in our product and engineering organization. It's our largest organization, so it's kind of natural that that's where the biggest place of change has been. Really, the rationale for that was not at all about cost performance. Our revenues are accelerating, and our margins are moving upward, and our free cash flow is great, and our balance sheet looks better and better. So this was not motivated by any kind of financial or business or secular urgency. It really was a reflection of the fact that a year ago, when Kruti came in, we established a new strategy that was going to very much focus on the customer experience, and really paying a lot of attention to how buyers and sellers were interacting with Etsy. We are now about a year into that, and we are seeing some really promising results from it, both work that we have done on marketing to show up where customers are and bring them into Etsy in bigger volumes, work that we have done in the product to make it more personal and relevant, work that we have done on loyalty and retention. All these things are starting to really work. We have growing conviction in this strategy, and that led us to say, "Okay, well, do we have the right organization to really pursue this strategy over the next three to five years?" The answer was no. There were still portions of our organization that were oriented more toward where we had been previously, which was, in comparison, I would say a little bit more focused on conversion through the Etsy commerce funnel. We have got conversion to a very finely honed and very high-performing level, where we are shifting now a little bit more to acquisition and activation and engagement and retention of customers. When we look at that, there are certain skills that we just did not have as deep as we wanted to have them. What we have done is we have pulled down some of the resources dedicated to where we were so that we can increase the skills where we need to go and increase the investment where we need to go. Probably the biggest place, while we have reduced the headcount by 220 people, I would guess that a year from now, we will be back up by 100 people or something. Maybe even a little bit more than that. A lot of that hiring will be in machine learning and sort of the cutting edge of technology because the place where we think we have the most room to invest internally at Etsy is in improving our ability to understand our customers, understand our inventory, and do a better job of matching the two. Machine learning will be a big area of investment for us going forward. Really, I would say read the reorganization as an endorsement of the strategy working and the company being proactive to say, Well, there is more we can do with this strategy. It has got more legs, and with a little bit more investment reorientation of our team, we are going to be able to go further. Yeah. Related to that, your margins are already pretty strong. How are you thinking about restructuring and then investments back in the business? How should investors think about long-term profile of the business? Yeah. I'm a recovering research analyst. I spent a lot of time fiddling around with DCFs and valuation models and all those kind of things. One thing I see about the Etsy business is that I think the value for shareholders of an incremental unit of growth in this company, which really hasn't grown the top line very much in the last three or four years, versus an incremental unit of profitability, and we've got 30% EBITDA margins, and 80%, 90% of that turns into free cash flow. There's a lot more value to be created from creating incremental growth versus incremental profitability. This reorganization is not about trying to cut costs and drive that down to the bottom line. It's really about to free up room to invest in areas that will accelerate our top line. We're really strong believers that the best way to grow the free cash flow of the business and the shareholder value is through long-term, sustainable, strong revenue growth rather than margin. Our approach is to, this is not coming from an effort to try to drive profitability. It's really, we think it will be fuel for revenue growth down the road with the investments that we'll make, not only in people, but there's also some R&D that we'll do. We've got a little bit more room to experiment around the edges with things that we've wanted to try and sort of see how they play out in terms of, is that something we should really put more investment dollars behind? Great. Let's talk about your strategic priorities, which are discovery, matching, loyalty, and human connection. How are those initiatives working together to improve marketplace performance, and where are you seeing the strongest evidence that those initiatives are working and translating into healthier buyer behavior and GMS growth? Sure. Those four priorities really came from the diagnostic that we did a year and a half ago, where we spent a lot of time looking at customer feedback, customer behavior, both buyers and sellers. What we realized was Etsy wasn't showing up where people were starting their shopping missions. We were very deep in search, but we were not super present in social media. That was the discovery. We need to do a better job being present where they're discovering where they're going to shop. Like, "I found Etsy." When they came onto Etsy, we wanted to make sure that we were doing a good job of matching them and not just showing them 52 items that resemble the one they bought last week, but starting to understand those customers. With that, we thought we could move into loyalty where they would feel, "Hey, I'm going to come back to Etsy." The final piece is really this element of differentiation around, "I bought from a human being. God, that's amazing. I know the story of this mill in upstate New York that created whatever I bought, and it's part of the story that I have on my wall or in the gift that I'm giving." That's really essential to Etsy. Those are the four priorities, elevating that differentiation, building better loyalty, matching, and discovery. How are we doing, was your question. We're pretty excited about it. It's easier to move the needle, I think, on discovery because you move your ad dollars from where they were to a new place. Beyond that, we've changed the landing pages, we've changed the creative, and we're really excited. We've got accelerating growth in gross additions of new customers and reactivated customers. That's accelerated for a couple of quarters in a row. That looks really healthy. As people are coming in, the next question is, are we matching them with inventory that they're interested in? One of the things we look at there, this kind of a non-financial metric, is how many times do they repeat in the next 14 days coming back to Etsy? How many times do they buy again within the next 30 days? Those two indicators of engagement, of relevance, are starting to inflect and looking really encouraging to us. We're certainly bringing more people in. We're seeing them engage with us a little bit more deeply. We have work to do on the loyalty side. For the first time in, I think, three years, last quarter, our habitual buyers, those are people who buy six times a year, and our repeat buyers, those are people who buy two times a year, those two really important cohorts of our most valuable customers started to grow sequentially for the first time in three years. That's indicative of the loyalty. We're seeing people come in and start new missions. We look at that a lot. If you come in looking for one category or one item or one occasion, can we spur something with you came to buy a housewarming gift and you're looking at all these wonderful things, and then you shift to buying something for your own home. Those mission migrations are really important. We watch that really carefully. We're starting to make some progress there. We're encouraged about it. We have a long way to go. As I said at the top, we really like the strategy. We think it makes a difference. It's working for our customers and starting to work for the financials of the business. Yeah. Very good. Perhaps you could touch on the role the mobile app is playing, and it seems like it continues to outperform sort of the overall marketplace? It does. Our mobile app, I guess there are a couple things about the mobile app. We have about 47% of our gross merchandise sales is coming from the mobile app. That is lower than a lot of the people that we would benchmark against. I think a number in the high 50s to 60% is kind of where you would see it. It does not really matter from a profitability perspective where the GMS comes in, on the mobile app or on the desktop or on the mobile web. But it does matter for the LTVs because the mobile app experience is so much better. It is so much more personalized. It is all logged-in usage. Our mobile app really has been the sandbox of innovation for us. All the ideas that we have had around relevance and targeting and personalization, we have pushed to the mobile app first. Last quarter, total GMS grew by 7% or 8%, and the mobile app GMS grew by 12% or 13%. It has been accelerating and widening that margin. What we are seeing, we have changed up the home screen, and we are seeing people with the content that we are showing on the home screen is much more dynamic. We now have 65 million buyer profiles, and in the last 12 months, we have had a total of just under 90 million buyers, so something like two-thirds of our buyers we have profiled. We have got about three times as much data in each one of those profiles today as we did a couple years ago. Those profiles, as people come into the mobile app, we light them up right away, and we know what they have looked for in the past. We know what people like them have looked for in the past, and we are giving them a much more personalized home screen, and we are seeing much better engagement with that home screen. The mobile app is this, it is a showcase in many ways for all the things we are trying to do around personalization and relevance and loyalty and activation, and we are really encouraged by it. It just kind of keeps getting better and better. Great. In your earnings call last week, you talked about marketplace being healthier today than a year ago. As you think about some of the building blocks of GMS, active buyers, frequency, AOV, what gives you the most confidence in the sustainability of this growth? Yeah. Coming into this year, we're seeing some things turn, but we're pretty nervous. As we've moved through the year, I'd say our conviction about the sustainability of some of the progress we're making has really risen. Our business model is pretty simple. It's how many buyers come in, how frequently do they come back, and what do they spend each time they have an order. So we look at buyers' frequency and average order value. This year, we've started to see an inflection after three years or so of decline in buyer count. We've now got three quarters in a row of sequentially improving buyer count. We're still down a little bit year-to-year. Actually, on buyers, we've now gotten to the place where we're pretty much even year-to-year. But I think over the last few quarters, we've started to grow that, and we have confidence that the stuff we're doing on discovery and on personalization will help us continue to grow the buyer number. Frequency is a really hard metric to drive. There are so many different dynamics that are at play within frequency. If you do super well bringing in brand-new customers, that's probably, in the short run, going to dilute your frequency. There are all these different factors going on, but we're starting to see, for the first time, some improvement sequentially in frequency. That's really encouraging. That is probably the single biggest lever in the model long term. That's why we're focused on loyalty and differentiation, because getting people to think of Etsy more often, come back more often, understand its relevance across more occasions, is really central to our business. So we're starting to see some progress there. On average order value, we've had a kind of a surge in average order value over the last year. The inflation environment and then tariffs and then the expiration of the de minimis exemption last year, all those things have led sellers to adjust their listing prices on Etsy upward. Along with that, our average order value has floated up a little bit. I would say at the start of this year, anything that you saw in average order value on Etsy, which is growing kind of mid-single digits, anything you saw was really external factors. As we've moved into the third quarter and the second half of this year, more of the growth in average order value is coming from things that we are doing. The most important, and we're not doing that to drive average order value. We really trust our sellers to set the right prices. But what we've realized is we're not always showing the most relevant results to people. If we show really high quality, really high relevance results, often those are some of the best, most finely crafted, most differentiated items on Etsy, and they carry a little bit higher selling price. So, there are a couple points of GMS growth that we're delivering right now that are coming from things that we are doing internally to better manage the quality of what we're showing to customers, and that quality is being rewarded with customers saying, "Yes, that's exactly what I want." So that all feels pretty good. Great. So you made a number of changes to your marketing approach over the past year. Can you maybe talk about how the marketing mix has evolved, what has structurally improved from efficiency standpoint, and how those changes are helping you to reach the buyers you are targeting, especially younger buyers? Yeah. The marketing mix is it's like a project that is never done. You're always sort of refining it and changing it, altering it. And what we realized kind of a year and a half ago is that we were over-invested relative to where we thought we should be in search and in linear TV. I'm embarrassed to tell you how many times Etsy's ads showed up on Murder, She Wrote, which is not the demographic that we are after. And we were really not playing a strong enough social game. So what we did was we really tried to move a lot more of our overall allocation into social media. And it was pretty easy to move from linear TV to YouTube and to OTT and get to a much younger demographic. And what we're seeing right now is our reach and our traffic in Gen Z and millennials is up like 5x from where it was a year ago because of changes we've made in that marketing. On the search side, it's always been a great strength of ours. We have a really close relationship with Google, and we work really closely with them on how to optimize that channel. We have had some really nice wins this year as we've gotten better on determining what's the most relevant item to show in response to a search. It's helped our click-through rates, it's helped our conversion rates. And what that allows, then our return on ad spending goes up, and if the return on ad spending goes up, we put more money into that channel. We've had a great year in search, which even though that's not necessarily where we We're very strong there, but we keep getting stronger. That's been wonderful. Then on the social media side, it's like we had a lot of work to do to figure out how do we interact with this channel. It's not search traffic, so it's not coming in as keywords. It's much more topical. It's much more opportunistic. We've had to change some of the landing experiences, some of where we bid and where we buy. But we're doing really well where that channel continues to grow for us. The returns that we're generating in the social channel are now approaching the return on ad spending that we get in search, which is awesome. TikTok has been a huge win for us. I just want to say one other thing, that we have this secret weapon, which is the CFO, is my favorite part of the mix, which is, the owned and operated media channels. Right. Our push notifications and our email, we don't pay anybody else to deliver those messages, and it's a one-on-one direct relationship from Etsy to the customer. That channel is such a huge beneficiary of everything we're doing on profiling our customers and delivering more relevant marketing and messages. The owned and operated channels are growing really, really well. Last quarter, we had really good operating leverage on the marketing line. Even the percentage of GMS that came from our marketing channels was at a peak, but the percentage of revenue that was being spent on marketing was lower than it's been for a couple of years, which really attests to everything I just said, like optimizing the portfolio, getting the mix of channels right, and then getting the ads that you're delivering to really perform. More to come. Like I said, it's always changing. There's always room to optimize it. You move everything over here, then you move it over there. But we've made a lot of progress. Great. I get those push notifications all the time. Well, hopefully, they are not just telling you to buy the thing you bought last week. Moving on to your outlook. You raised your full year guidance quite a bit as we moved throughout the year. That said, you are expecting some moderation in the second half of this year in terms of GMS growth. How much of this sort of reflects tougher comparison and sort of moderating external tailwinds versus anything that you are doing and seeing internally? Yeah. You are right. When we started the year, as I said earlier, we were encouraged by the growth, but we were pretty cautious about it. As we moved through the year, we have become much more confident. Our full-year view, since the start of the year, has come up a lot, and it came up a bit in the last quarter. We kind of thought we would grow low single digits 90 days ago, and now we think we will grow mid-single digits on GMS for this year. We feel great about that. I think that our numbers do contemplate a little bit of a slower year-to-year growth rate in the second half of the year. That really does not reflect any fundamental slowdown or loss of momentum. It is really a couple external factors. Number one, in the first half of this year, we got a nice currency tailwind that is worth a point or so on GMS growth, maybe a little bit more than that. That will be a zero to maybe a slight headwind in the second half of this year. Secondly, our year-to-year comparisons get a lot more difficult. I said that we started to see some growth about a year ago from the change in strategy, so in the first half of this year, we are lapping the no-growth period, and now we are starting to lap where things were getting a little bit better. So there is about, I don't know, six, seven points of more difficult comparisons in the second half of this year than there was in the first half of this year. Finally, the growth that we have seen in average order value, the externally driven sources, there have been some new tariff news, but not as much of a tariff shock, not as much of a trade shock as there was a year ago. So we think that the prices that have gone up because of those sort of geopolitical dynamics will stay where they have, but the rate of increase on those external sources is slowing down. Fortunately, we are starting to contribute a little bit more to it. So, I would say to you, at the end of the day, we don't expect a slowdown in buyers and in frequency and all the other non-financial metrics. We think those continue to get better. But for the short term, for a couple of quarters, the comparisons will look a little bit more tricky. Got it. So capital allocation has been another area of focus, especially after you sold Depop. How are you thinking about balancing investment in the business with returning capital to shareholders, and how should investors think about the pace of buybacks going forward? We will spend $400 million + on product this year, and we will spend similar kind of numbers on the marketing side. When we look at the Etsy business, we don't see huge incremental investments that we should be making urgently in the Etsy business. It is really about focus. It is about narrowing what we are really paying attention to, the customer experience, and focusing on those four priorities that we just talked about. Discovery and matching and retention and differentiation. So there isn't a big capital need in the business. It is a really capital light business. So our EBITDA margins are close to 30%, and 80% or 90% of that turns into free cash flow, and it leaves us with a lot of liquidity. So what we have done is, in the last few years, we have been buying back a lot of stock. I think over the last three years or so, we've bought back 25 million shares. Just last week, we got another $2 billion authorization to buy back stock on top of a $500 million that we had left on the prior authorization. We are armed for bear to keep investing in the Etsy business, investing through the P&L as we have been, and then investing excess capital back into leveraging investor returns with that additional capital. We've got a convertible bond coming due in 60 days. We pre-refinanced that a year ago, so our intention is just to repay that when it comes due. We'll carry, I think, gross leverage somewhere like 3 x the EBITDA, but we'll keep a lot of cash on hand to service the next year and a half of redemptions. Anything that's above that, our intention right now is to keep buying back stock. If we come on something that seems like it'd be a great investment to supercharge the Etsy business, we could consider it, but there's nothing on the drawing board right now that says we have a big M&A strategy. It's really about focusing on the performance of the Etsy business. We just think there's so much potential. There really isn't any other e-commerce player that has this lane that we have of differentiation around the human connection behind the sale, around the creativity, and the craftsmanship with the items. It's just a really different product category than you're seeing elsewhere, and we just want to keep investing in that and then plowing back what profit we have into accelerating the equity returns for people. Great. Well, we'll leave it there. Clearly a lot of momentum in the business. Thank you so much for coming, Lanny. Thank you. Appreciate it. Thank you all for joining.