1stdibs.com Inc Aktie

Good morning, everyone. Thank you for joining us, and welcome to the 1stdibs Q1 2026 Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Kevin LaBuz, Head of Investor Relations and Corporate Development. Kevin, please go ahead.

I'm Kevin LaBuz, Head of Investor Relations and Corporate Development. Joining me today are Chief Executive Officer, David Rosenblatt, and Chief Financial Officer, Tom Etergino. David will provide an update on our business, including our strategy and growth opportunities. and Tom will review our first quarter financial results and second quarter outlook. This call will be available via webcast on our Investor Relations website at 1stdibs.com. Before we begin, please keep in mind that our remarks include forward-looking statements, including, but not limited to, statements regarding guidance and future financial performance, market demand, growth prospects, business plans, strategic initiatives, business and economic trends and competitive position. .

Our actual results may differ materially from those expressed or implied in these forward-looking statements as a result of risks and uncertainties, including those described in our SEC filings. Any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them, except to the extent required by law. Additionally, during the call, we will present GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, which you can find on our Investor Relations website, along with the replay of this call.

Lastly, please note that all growth comparisons are made on a year-over-year basis, unless otherwise noted. I will now turn the call over to our CEO, David Rosenblatt. David?

Thanks, Kevin. Good morning, everyone. A quarter ago, we shared our expectations for our performance in 2026. Disciplined execution, durable profitability, and steady road map progress. The first quarter delivered on all 3. Our top line results reflect the deliberate sales and marketing reductions we enacted late last year in our bottom line results reflect the structural cost work we have been executing since 2022.

We are on track across revenue, costs and product development and our 2026 financial framework remains unchanged. The demand environment remains challenging. The U.S. housing market continues to hover near a 30-year low, weighing on consumer appetite for luxury home goods. While the near-term backdrop is soft, the long-term opportunity is significant. For example, there are approximately 5 million U.S. households worth at least $5 million. and our active buyer base of approximately 58,300 represents a fraction of that addressable market.

Our goal, however, is to generate growth irrespective of the timing of a market recovery. once conditions normalize, we will be in a strong position to accelerate growth. Turning to the financials. Our performance reflects both market conditions and the decisions we made last year to optimize our cost structure. GMV and revenue were $89.7 million and $22.4 million, down 5% and 1%, respectively, which is a result not only of market conditions, but also of our decision to reduce performance marketing spending by nearly 50% in the fourth quarter of 2025.

Adjusted EBITDA of $600,000 above the midpoint of guidance is proof that our financial model is now capable of generating adjusted EBITDA profitability even in a challenging external environment. We have fundamentally reengineered our business, lowering expenses and head count since late 2022 to ensure future revenue recovery flows disproportionately to the bottom line.

With that context, let me walk you through the quarter's performance. Funnel trends remained consistent. Traffic declines driven primarily by our pullback in performance marketing and substantial sales and marketing head count reductions were partially offset by our tenth consecutive quarter of conversion growth and higher average order values.

This conversion growth is the direct result of sustained product investment, and it gives us confidence that our road map is working. Underpinning these results is a deliberate shift in how we are allocating resources. While total operating expenses declined 11%, technology development spending grew 10%, a reflection of our conviction that product and engineering is our highest ROI investment.

The returns are compounding. AI-assisted development now accounts for over 50% of our new code, up from approximately 30% last quarter, enabling our team to ship faster than ever. Our 2026 road map is where those resources are being deployed, organized around 4 pillars: discovery, pricing, shipping and service. It is designed to remove friction, modernize the botform, and drive our anticipated return to GMV growth by the fourth quarter.

Before walking through our road map progress, it is worth stepping back to explain how we think about product development. Our road map is not organized around market conditions or macro assumptions. It is organized around solving specific customer problems. The barriers that prevent a design enthusiasts from finding the perfect item trusting its price, receiving it seamlessly and getting help when they need it, exists regardless of where the housing market is or what consumer sentiment looks like. Solving them makes 1stdibs a better marketplace in any environment. At the heart of our road map is the transformation in how buyers find and engage with our marketplace. Our goal is to make 1stdibs a daily destination for design enthusiasts by meeting the buyer where she is and by removing the barriers to discovery.

Today, finding the right item still requires too much expertise; the right terminology, the right category knowledge and the right search keyword string. Our discovery road map is designed to change that. In the first quarter was a period of foundational progress in that regard. We began by investing in content and community. In February, we launched 1stdibs tastemakers, our brand ambassador program built around authentic voices from within and around our community.

Early results are promising, with measurable increases in reach and engagement on Instagram. We also debuted Objects of Desire, a podcast hosted by our editorial Director, Anthony Barsele Find and interior designer, Nasozawa, which explores the emotional and cultural stories behind the objects people love. These initiatives are designed to build the daily engagement and brand affinity that drives organic traffic and by our acquisition over time.

Once buyers arrive in our environment, we are making it easier for them to navigate our catalog. Using AI, we significantly enrich the metadata underpinning our inventory, giving our search engine more signal to work with. The results were immediate. Our search success rate improved by nearly 4%, and the number of Knoll results decreased by over 25% and meaning more buyers are finding items to engage with on every visit.

We also redesigned our search bar experience, resulting in a higher search activity. These improvements are the foundation for what comes next. Over the course of 2026, we are building toward AI-powered Symantec and natural language search. The ability for a buyer to describe what they want in plain language and receive tailored results in return. A buyer shouldn't need to know the difference between a Chesterfield and a Knoll sofa to find the perfect piece. They should be able to tell us what they want in the manner they naturally think about it and trust that first dibs will understand. We are building that capability progressively throughout the year. And in the second quarter, we plan to launch Visual Search, allowing buyers to upload an image and find similar items in our catalog. On personalization, the first quarter marks an important shift. We moved our homepage from an editorial first to a recommendation first experience.

For recognized users, the platform now services personalized items based on their behavior and preferences from the moment they arrive, a step toward making 1stdibs a daily habit. We also deepened our work on favorites, driving an increase in the percentage of users who favored it an item sequentially, building the behavioral data that will help power personalization over time.

Our progress in discovery highlights our belief that AI is a catalyst for our marketplace. While our moat remains firmly built on high trust relationships and a physical catalog of one-of-a-kind items, AI is the tool that makes those items discoverable to a broader audience. Discovery brings buyers to the listing. Pricing gives them the confidence to buy it. Buyer Trust is the foundation of every transaction on 1stdibs. Our pricing road map is designed to reinforce that trust by ensuring that every listing is priced transparently, competitively and consistently. In the first quarter, we made progress on price parity, our initiative to ensure that items on 1stdibs are priced consistently across sales channels.

By expanding to 2 additional resale platforms, and by deepening our reach on existing ones, we increased the price parity coverage for listings by 44%. Early data suggests that items priced at parity with other sites convert at higher rates than those that are not, validating our thesis that pricing transparency directly drives buyer trust and confidence.

In the second quarter, we will invest in the offer and product detail page experience to help buyers and sellers reach agreement faster, reducing friction at 1 of the most critical moments in the transaction. We will also more prominently surface our price match guarantee and the pricing of comparable historical transactions, giving buyers greater confidence and context at the point of purchase.

Together, these initiatives are building a pricing environment where buyers can act with conviction. Once the buyer trust the price, the next question is simple. What will it cost to get it delivered? Our vision for shipping is straightforward; reduce costs, increase transparency and eliminate the uncertainty that causes buyers to abandon the purchase.

Cost competitiveness and transparency at checkout are conversion drivers, and we made progress on both. During the quarter, we integrated USPS into our shipping infrastructure, giving buyers access to a broader range of carrier options at meaningfully lower parcel rates, approximately 30% to 50% cheaper for packages under 20 pounds. In the second quarter, we plan to launch an ML-powered quoting tool that will deliver more competitive real-time pricing on our largest items. Categories where shipping costs have traditionally been opaque and expensive. Also on deck for the second quarter is a significant upgrade to our shipment tracking capabilities.

Today, approximately 25% of orders lack real-time tracking, a source of buyer uncertainty that we are committed to eliminating. By expanding our tracking infrastructure from 10 to over 70 supported carriers, we will increase tracking coverage, ensuring that buyers can follow their purchase from seller to doorstep. Together, these initiatives are the building blocks of our multiyear vision, a shipping program that is cost competitive, fully transparent and anchored by all-in pricing, so that every buyer knows the total cost of their purchase before they commit.

Competitive pricing and seamless shipping earn a transaction. Exceptional service earns a relationship. Elevating the level of service we provide to both buyers and sellers is the fourth pillar of our road map. On the seller side, we are rolling out improved listing tools that leverage AI to make it easier and faster to bring inventory to market. These tools reduce friction from generating optimized item titles to streamlining the image upload process, ultimately building toward a more robust AI-assisted listing experience.

Early adoption has been encouraging, and we expect these tools to deepen seller engagement and improve listing quality over time. We are also building an AI-powered client service chatbot for buyers and sellers set to launch in the second quarter. Our expectation is that this will allow us to provide faster, more responsive service at scale. The cumulative impact of these road map investments is reflected in a simple data point, for the second consecutive year, our annual seller sentiment survey confirmed that 1stdibs is the primary sales channel for our sellers, surpassing their own showrooms.

What was a meaningful shift last year is now a confirmed trend. Our sellers are not simply listing on 1stdibs, they are depending on us. That is a powerful foundation as we continue to invest in tools and technology designed to deepen that relationship and drive their success. A quarter ago, we laid out our 2026 financial framework. Positive full year adjusted EBITDA, positive free cash flow, a third consecutive year of revenue growth and a return to GMV growth by the fourth quarter.

One quarter in, we are on track against all four. Our conviction in the durability of our marketplace has never been stronger. Curation, scarcity and human expertise or the foundation of 1stdibs and in an era of AI-generated content. These qualities are becoming more valuable, not less. Thank you for your continued support.

I'll now turn it over to Tom to review our first quarter financial results and second quarter outlook.

Thanks, David. Good morning, everyone. First quarter results were in line with our expectations across the board. For the second consecutive quarter, we generated positive adjusted EBITDA, validating the structural changes we made to our cost base and confirming that our 2026 plan is developing as anticipated. Let me walk you through the numbers. GMV was $89.7 million, down 5%, above the midpoint of guidance. The underlying dynamics played out largely as we expected. Traffic declined across paid and organic channels, a direct and expected consequence of the sales and marketing reductions we enacted in late 2025 as well as the soft demand environment. .

Order volume declined 12% as a result. However, our product investments continue to partially offset these headwinds with conversion growing for the tenth consecutive quarter. Average order value reached approximately $2,750, up 7% and median order value reached approximately $1,400, up 12%, both reflecting a continued mix shift towards higher value transactions especially from trade. Together, these factors led to GMV down 5%, consistent with the fourth quarter.

We ended the quarter with approximately 75% of traffic from organic sources, a continued reflection of the enduring strength of the 1stdibs brand. Trade was a bright spot, growing year-over-year driven by meaningful AOV expansion while consumer GMV declined. On a vertical basis, Vintage and antique furniture grew year-over-year, while all other categories declined. We ended the quarter with approximately 58,300 active buyers, down 10%, reflecting the deliberate reduction in sales and marketing spend enacted in late 2025.

Unique seller count grew modestly on a sequential basis, and we expect to return to growth for the full year as the impact of our 2024 and 2025 pricing actions continues to normalize. Listings grew 2% to nearly $1.9 million. Health of our supply base is further supported by our annual seller sentiment survey, which confirmed for the second consecutive year that 1stdibs is the primary sales channel for our sellers, underscoring the platform's growing importance to their businesses.

Turning to the income statement. Net revenue was $22.4 million, down 1%. Transaction revenue, which is tied directly to GMV was approximately 74% of total revenue, with subscriptions making up most of the remainder. Take rates increased approximately 120 basis points, reflecting our 2025 pricing actions, sponsored listings growth and a favorable prior year comparison due to high-value transactions.

Gross profit was $16.7 million, up 2%. Gross profit margins were approximately 74%, up 2 percentage points year-over-year and at the high end of our target range, driven by a decrease in hosting and software costs as a percentage of revenue.

Turning to operating expenses. Total OpEx declined 11%. The direct continuation of the multiyear cost reset we began in 2022. Within that, the story is one of deliberate reallocation. Sales and marketing expenses were $6.3 million, down 31%. This reduction was a result of the strategic realignment implemented in 2025, which fundamentally reset our marketing organization and rationalized our performance marketing spend.

We made a decision to prioritize unit economics over volume, and these numbers reflect that decision. Sales and margin as a percentage of revenue was 28%, down from 40% a year ago. Technology development expenses were $6.2 million, up 10%, reflecting the impact of our annual merit cycle in March and higher headcount-related costs as we rebalanced our talent towards high-impact product and engineering roles.

As a percentage of revenue, technology development was 28%, up from 25% a year ago. We are systematically reallocating resources away from sales and marketing and towards product and engineering. Within our flat head count framework, we are onboarding the final planned roles in support of our 2026 road map and expect this count rebalancing to conclude by the end of the second quarter, leaving us with a leaner team with more concentrated on platform innovation.

General and administrative expenses were $6.8 million, down 2%. As a percentage of revenue, general and administrative expenses were 30% versus 31% a year ago. Lastly, provision for transaction losses were approximately $700,000, 3% of revenue, down from 4% a year ago and at the midpoint of our historical range of 2% to 4%. As I mentioned previously, total operating expenses were $20 million, down 11%. Total operating expenses also reflect approximately $500,000 in severance charges, predominantly in sales and marketing as we refined our organizational structure to most effectively support our 2026 priorities.

Our commitment to expense discipline remains unchanged. Adjusted EBITDA was approximately $600,000, representing a margin of approximately 2.5%. The last 2 quarters have been adjusted EBITDA positive, both delivering against a challenging demand backdrop. This is the direct result of this cost structure we rebuilt starting in 2022, and it underpins our confidence in positive full year adjusted EBITDA. The first quarter was an encouraging start against our full year free cash flow commitment. We generate $800,000, a positive early indicator that our 2026 target is within reach. we also generated $1.1 million of cash flow from operations.

Cash, cash equivalents and short-term investments ended the quarter at $85.3 million, down $9.8 million sequentially, primarily reflecting $9.1 million in share repurchases. During the quarter, we repurchased approximately 1.7 million shares, leaving approximately $1 million of remaining authorization at quarter end. Since inception, we have repurchased approximately 9 million shares for approximately $44.4 million.

Turning to the outlook. Our guidance reflects quarter-to-date results and our forecast for the remainder of the period. We forecast second quarter GMV between $86 million and $91 million or down 4% to up 1%. The net revenue of $21.6 million to $22.6 million or down 2% to up 2% and adjusted EBITDA margin between negative 2% and positive 2%.

Our GMV guidance reflects a deliberate strategic trade-off, the intentional impact of our sales and marketing reductions as we prioritize a structurally higher margin profile over short-term volume, quality-driven performance, while traffic remains a headwind, we expect continued growth in conversion and AOV and sequential improvement in our year-over-year growth rate helped by progress on our product road map.

Our revenue guidance reflects the continued growth in sponsored listings as well as a modest contribution from our first sponsored event, an initiative we are beginning to test in the second quarter as part of our advertising program. Our adjusted EBITDA margin guidance reflects structural efficiency, realized gains from operating expenses following our September realignment. Strategic reinvestment, a sequential increase in personnel expenses driven by the annual merit increases effective in March and targeted hiring in product and engineering as part of our strategic realignment and gross margin expansion.

We continue to expect gross margins of 72% to 74%. While we are not providing full year guidance at this time, we are confirming our 2026 financial framework. We expect to deliver a third consecutive year of revenue growth, reflecting the resilience of our marketplace. We anticipate a return to positive year-over-year GMV growth by the fourth quarter, driven by the compounding impact of our product road map. We expect gross margins of 72% to 74%, up from 71% to 73% in 2025. We expect revenue take rates of 25% to 26%, up from 24% to 25% in 2025. We remain focused on high-quality, efficient growth with a full year 2026 outlook of positive adjusted EBITDA and positive free cash flow. Underpinning this plan is the assumption that macroeconomic conditions, particularly those impacting the housing market and consumer discretionary spending remains stable.

Our 2026 financial framework is unchanged, and the first quarter gives us confidence that we are on the right path. Gross margins came in at the high end of our target range. Adjusted EBITDA was positive for the second consecutive quarter, we generated free cash flow and our product road map is advancing on schedule. Our plan is working. We appreciate your continued support and look forward to updating you on our progress in the coming quarters. Thank you. I will now turn the call over to the operator to take your questions.

[Operator Instructions]

Your first question comes from the line of Bobby Brooks with Northland Capital Markets. Please go ahead.

First wanted to ask. Last quarter, we discussed a handful of kind of internal levers you could pull, really reignite growth. And I think it would be helpful for investors to hear that discussion as well. So can you talk about those levers and maybe those levers are being pulled today? And if not, maybe the time line of that being pulled?

Sure, of course. So I think you're referring to our product road map. Our road map is organized around 4 of the highest potential areas that we believe we have in the business. and those are discovery, pricing, shipping and service covering the full purchase funnel.

And in Q1, we made progress in each of them. So just calling out a couple of the big ones. I would say the highest impact wins in the quarter were around discovery, shipping and service and maybe just a couple of quick examples. So in search, we implemented AI-driven metadata improvements, which drove a 4% higher search success rate and importantly, reduced Knoll search results by more than 25%. And reducing Knoll search results is especially important in the long tail marketplace like ours. And we're going to keep on charging on search because we do view it as potentially 1 of our highest leverage areas.

So we've got a visual search release lined up for Q2. And then after that, our first natural language search release targeted for Q3. Another example would be shipping, which obviously is a big source of friction, particularly given that furniture is the majority of our GMV. In the quarter, we integrated USPS into our shipping infrastructure which had the impact of reducing personal rates on packages under 20 pounds by 30% to 50%. So we feel like in each of the 4 tracks, we're in a good place, and we're making progress, but we also feel like it's early in that regard and that there's a lot more opportunity ahead of us than there is behind us.

And as with all product road maps, we also expect the impact of these improvements to compound over time.

That's super helpful. And then as I think gears some more -- or stay sticking with the AI surge, think that's interesting -- maybe could explain like what is the 4% search success rate line improvement -- what does that look like when someone is using the website and then like the 25% in Knoll search rate down, that just likely mean if some search, you fought like there's 25% less of the time some the searches for something nothing comes back.

Could you just help...

Yes. I mean you can imagine starting with an alert rate. I mean you can imagine the impact on a buyer of having -- searching for something and getting 0 results, right? -- that manifests itself in at worst a bounce, right? So you leave the experience and invest a much more, a much higher friction discovery process. And then the opposite is true as well, right? I mean when you find what you're looking for, you're that much more likely to proceed to the next step in the funnel.

So again, we've got 1.9 million items. Almost all of them are one of a kind, which means that we drive a disproportionate amount of activity around search, and so that's why I say it's a super high leverage kind of entry point and part of the discovery experience. I think probably a little more so in our business than in a less long-tail oriented marketplace or retail experience.

That's super helpful.

Your next question comes from the line of Ralph Schackart with William Blair. Please go ahead.

First question, just on GMV growth that you noted that you returned by the fourth quarter. Can you just remind us, do you need a change in the macro conditions? Or can you deliver that growth in the current market environment? And David, you've listed a lot of great product improvements and some new innovations and mentioned obviously that they build on each other. Any way you could isolate maybe a couple that you think are having the biggest near-term impact? And then maybe on a longer-term basis, some of those products that you are really excited about that could drive longer and more sustained growth?

Sure. Ralph. So in terms of GMV growth, we do -- first of all, we do remain confident in a return to growth by Q4, and we do not think that, that is dependent on a market recovery. So 2 reasons, really. One is, in Q4, we'll begin lapping a full quarter's worth of the over 40% reduction in sales and marketing spend that we initiated in late -- so until then, obviously, that remains a headwind on GMV growth. Although that said, we're already seeing a trajectory shift, I think.

And then second is we do have strong conviction in our product road map, product road maps for us, as is the case with almost all consumer Internet companies compound over time. And as I mentioned in my answer to Bobby's question, we're seeing early success there, and we do expect that to compound over time. And again, just to come back to the point I just made, I think it is worth pointing out that at the midpoint of Q2 guidance, we do expect GMV growth rates to improve sequentially from the negative 5% in Q1 to negative 2%, again, at the midpoint in Q2.

And from there, we do see a clear and straightforward path to a return to year-over-year growth by Q4 this year. In terms of the product road map, I mean, we do -- we think pretty hard about where we allocate our capital and our scarce human resources. And those 4 areas that I highlighted; discovery, price, service and shipping, we do think are the highest impact areas. And all of them are important. I mean, again, I think as we look at other -- the experience of other marketplaces, certainly in the case of one of the kind marketplaces search is extraordinarily important. If you don't find what you're looking to buy, then there's no reason to come back, and you're certainly less likely for a visit to consummate in an order.

Logistics, again, I don't think we're reinventing the wheel here. Logistics is extraordinarily important on the other side of the funnel. And we were super pleased that we were able to reduce costs by as much as we were for parcel. And we've got a lot ahead of us in terms of logistics. Tracking is something where we're not at table stakes yet in terms of meeting baseline consumer expectations, I think, for e-commerce experiences.

We will be there. We're going to use ML quite heavily to increase our pre-q coverage on freight. So there are lots of levers within shipping, lots of levers within search. I mentioned semantic search and natural language search, which is on the come.

Pricing is an area we've talked about in the past. In Q1, we were able to expand our price parity coverage by 44% and we have some other improvements planned for the consumer experience there. And then lastly, service, we feel like there's an opportunity to substantially increase both our service levels and the efficiency with which we deliver those.

So again, I would just close by saying we're super happy with our progress in Q1, but we have an ambitious slate in front of us. and much more to come than we've already achieved, which is part of the reason why I'm very optimistic about Q4.

We have reached the end of the Q&A session.

Ladies and gentlemen, thank you for joining us, and welcome to the 1stdibs Q4 2025 Earnings Call. [Operator Instructions] I will now hand the call over to Kevin LaBuz, Head of Investor Relations and Corporate Development. Kevin, please go ahead.

Good morning, and welcome to the 1stDibs earnings call for the quarter and year-ended December 31, 2025. I'm Kevin LaBuz, Head of Investor Relations and Corporate Development. Joining me today are Chief Executive Officer, David Rosenblatt; and Chief Financial Officer, Tom Etergino. David will provide an update on our business, including our strategy and growth opportunities, and Tom will review our fourth quarter financial results and first quarter outlook.

This call will be available via webcast on our Investor Relations website at investors.1stdibs.com. Before we begin, please keep in mind that our remarks include forward-looking statements, including, but not limited to, statements regarding guidance and future financial performance, market demand, growth prospects, business plans, strategic initiatives, business and economic trends and competitive position. Our actual results may differ materially from those expressed or implied in these forward-looking statements as a result of risks and uncertainties, including those described in our SEC filings.

Any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them, except to the extent required by law. Additionally, during the call, we will present GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, which you can find at our Investor Relations website, along with a replay of this call.

Lastly, please note that all growth comparisons are made on a year-over-year basis, unless otherwise noted. I will now turn the call over to our CEO, David Rosenblatt. David?

Thanks, Kevin. Good morning, everyone. 2025 was the year of accountability and focused execution. The hard work and operational rigor we applied across the organization throughout the year culminated in a landmark results. We exited 2025 as an adjusted EBITDA-positive company. Looking ahead, our 2026 financial plan focuses on capitalizing on these gains, while delivering sustained adjusted EBITDA profitability.

In 2026, we expect to deliver a third consecutive year of positive year-over-year revenue growth alongside positive adjusted EBITDA and free cash flow. While we are not providing full year GMV guidance, we anticipate a return to year-over-year GMV growth by the fourth quarter, driven by the compounding impact of our product road map.

Our confidence in this trajectory is rooted in the defensibility of the 1stDibs model. Even in an era of AI-driven content and commerce, we believe the high trust, high complexity world of one-of-a-kind luxury thrives on curation, scarcity and the human expertise of our dealers. By leveraging AI to enhance discovery while maintaining the strength of our vetted seller network, the trust of our buyers and our complex transactional infrastructure, we see AI not as a competitor, but as a catalyst that will help unlock the full potential of our unique catalog.

In the fourth quarter, GMV was $90.2 million at the low end of our guidance range. However, adjusted EBITDA finished above the high end of our range. This performance marks a major inflection point, our first quarter of adjusted EBITDA profitability as a public company. It is important to be clear, in the second half of 2025, we made a conscious trade-off to moderate near-term GMV growth in exchange for a significantly improved adjusted EBITDA profile. This shift in the positive adjusted EBITDA is definitive proof that we do what we say. Reaching this milestone is the direct result of 3 specific commitments we made to you at the start of the year. First, organizational discipline. We exceeded our goal to hold headcount flat, while rebalancing our talent base toward product and engineering.

Second, operating leverage. In our initial 2025 outlook, we targeted generating leverage at mid-single-digit revenue growth. Despite a housing market at a 30-year low, our expense management allowed us to exceed our own leverage targets, proving that our asset-light model is now capable of delivering positive adjusted EBITDA even in a low-growth environment.

Third, product velocity. By leaning into AI-assisted development, which now accounts for approximately 30% of our new code, we delivered our ninth consecutive quarter of conversion growth. With a profitable foundation now in place, we are turning our energy towards driving growth in 2026, while maintaining our rigorous expense discipline.

Having continued to expand our market share in 2025, we entered 2026 from a position of strength. Our road map is designed to remove friction and modernize the platform across 4 pillars: discovery, pricing, shipping and service.

First, discovery. Our 2026 road map centers on transforming 1stDibs into a daily habit for design enthusiasts through a reimagined buyer experience. This plan includes deploying AI-powered semantic and image search to fundamentally change how buyers interact with our catalog. While many potential buyers have a deep appreciation for design, they often lack a collector specialized nomenclature. We are bridging this gap. Instead of needing an exact match, for example, Hermès Birkin 25 Bubblegum Pink Silver hardware, a buyer can use natural language such as asking for a Valentine's Day gift for my wife. While that query traditionally would have yielded limited results, our new AI-driven engine will understand the intent behind the request and surface rich curated matches across categories, from jewelry to fine art.

We are effectively removing the expert requirement from our search bar, making 1stDibs more intuitive for a broader audience.

We are also initiating a major evolution of our personalization engine, centered on a reimagined homepage and feeds that deliver curated recommendations across key buyer touch points. By synthesizing brand maker and price propensity data, we are creating a bespoke experience that anticipates intent, surfacing the right inventory at the right moment of inspiration whether on our platform or through personalized e-mails. To amplify this work, we are launching 1stDibs Tastemakers, our first-ever ambassador program and influencer network. This initiative anchors our transition toward a community-first content strategy. By partnering with a scaled network of authentic voices, from prominent collectors and designers to our own sellers, we are creating the emotional connections that drive daily engagement and fuel discovery. This program allows us to move at the speed of the Zeitgeist.

We have already seen the potential of this approach in early testing. This was the blueprint for our real-time response to Taylor Swift's engagement. Within hours, we mapped a global interest in her vintage watch and unique old mine diamond ring to similar pieces in our inventory. By matching what the world is talking about with our one-of-a-kind supply, we are making 1stDibs more accessible and culturally resonant.

Additionally, we are significantly expanding our sponsored listings program, which serves as a high margin lever for driving revenue growth. We believe there is headroom to scale coverage and increase ad density while maintaining our premium aesthetic. By providing sellers with more sophisticated tools to reach buyers, we are creating a more dynamic ecosystem while driving revenue growth that is independent of GMV fluctuations. In addition to expanding sponsored listings, we are exploring nascent advertising opportunities with external brand partners, both online and offline.

Second is pricing. We are focusing our efforts on helping buyers and sellers reach a shared understanding of value. Our goal is to foster faster consensus by providing both sides of the transaction with the data required for confident decision-making. Central to this effort is a fundamental investment in our negotiations and offer flows, our highest intent signal. We see significant opportunity to optimize the make offer experience, which is often the primary path to purchase for our highest value items. Our 2026 road map focuses on demystifying the negotiation process through better product marketing and more intuitive UI, ensuring that both parties can reach a deal with less friction. By streamlining these interactions, we are increasing marketplace liquidity and creating a more accessible and dynamic platform.

Complementing this work is an initiative centered on price contextualization. Because our catalog is defined by rare one-of-a-kind items, buyers often lack a clear benchmark for value. To address this, we are introducing historical price comps and market data directly into the buyer journey. By making this information more visible, we are providing the transparency required to validate an item's value. Underpinning these initiatives is our expanded enforcement of price parity. In the fourth quarter, we made strides in increasing the volume of listings, covered by our parity solutions, ensuring that our buyers find the most competitive prices on 1stDibs. Looking ahead, we will incorporate AI to further automate and expand this coverage across our catalog. By leveraging technology to scale these protections and promoting our price match guarantee, we are ensuring that 1stDibs remains the definitive destination for value in luxury design.

Third is shipping. We recognize that our current shipping program is too complex and costly, lacking the modern features such as flexibility, precise tracking and reliable on-time delivery that our buyers expect. A primary source of friction is the lack of clarity around roles and responsibilities between 1stDibs, our sellers and our buyers. This ambiguity can add hidden cost to the transaction. To solve this, we are revamping our shipping experience to provide a clear, standardized framework for every participant in the value chain. We expect this move will allow us to streamline operations and lower shipping prices for buyers. This newfound efficiency will enable our move toward all-in pricing. By presenting a single transparent, fully landed cost earlier in the funnel, we will remove the primary hurdle to conversion. We are also leveraging our historical data to develop dynamic shipping rates, providing instant and more competitive quotes globally. This is about eliminating sticker shock and elevating our shipping experience to match the premium nature of our inventory.

Fourth is service. In 2026, we are evolving our service model through technology. Our plan involves integrating AI support to resolve routine inquiries instantly. By offloading these high-volume basic tasks, we can reallocate our client services team to prioritize more nuanced, high-value resolutions and increase our service levels. This shift ensures that our human expertise is focused where it adds the most value, supporting our most loyal buyers and driving repeat purchases.

We are also working to introduce an AI item upload assistant for our sellers. This tool will streamline the listing process and ensure that the most exceptional inventory hits our marketplace faster and with higher quality metadata, allowing us to scale our operations through technology rather than headcount.

In summary, the story of 1stDibs right now is one of focused transformation. Reaching positive adjusted EBITDA this quarter was the culmination of a multiyear journey that began in 2022. We have spent 4 years reengineering our cost structure and refining our marketplace, and we have emerged with a financial foundation that allows us to focus entirely on driving GMV and revenue growth.

As we look toward 2026, we are often asked about the risk of AI disintermediation. We believe that our position is uniquely protected. Our moat is built on a high-trust relationship and a physical collection of one-of-a-kind items, elements that cannot be replicated by an algorithm. We are leaning into AI to help our buyers discover the extraordinary rather than replacing the essential human expertise of our dealers.

With a compelling road map in place, we are positioned for a GMV growth inflection point by the fourth quarter of 2026. We entered this next chapter as a more efficient, more resilient and more ambitious company than at any time in our history. To discuss how this discipline is reflected in our fourth quarter performance and our expectations for the year ahead, I'll turn the call over to Tom.

Thanks, David. Good morning, everyone. Our fourth quarter results marked a landmark inflection point for 1stDibs, our first quarter of positive adjusted EBITDA as a public company. This achievement validates the strategic realignment we executed in September and proves that our asset-light marketplace is capable of delivering adjusted EBITDA profitability even in a constrained environment.

Our multiyear transformation is clear. We began reengineering our cost structure in 2022, accelerated that focus through 2023 and demonstrated early operating leverage in 2024. Today, we are exiting 2025 with fourth quarter adjusted EBITDA of $1.3 million and a 6% margin, a 1,300 basis point expansion over prior year. We have not only delivered on our commitment to reach adjusted EBITDA profitability, we have established a leaner, more resilient baseline for our future. This outcome is a direct result of the accountability David mentioned. Our 2025 plan centered on expanding operating leverage as we have executed against that goal.

We are exiting the year with a strong balance sheet and a business model optimized to generate positive adjusted EBITDA and free cash flow. To appreciate this inflection point, it is helpful to look at our P&L transformation since 2022. Over the last 4 years, we have reduced annual operating expenses by 18% or nearly $18 million, excluding onetime gains from the sale of Design Manager and lowered headcount by more than 30% from our peak. In a business with high operating leverage, the 7% revenue decline we experienced over this 4-year period would typically lead to margin compression. At 1stDibs, we have achieved a positive divergence.

Comparing 2022 to 2025, gross margins have climbed from 69% to 73% and adjusted EBITDA margins improved by approximately 1,900 basis points. Significantly expanding margins during a period of revenue contraction is a significant operational feat, and we entered 2026 with the most efficient financial profile in our history.

Turning to our fourth quarter funnel performance. GMV was $90.2 million, down 5%. While traffic headwinds increased across organic and paid channels, this was a direct result of our deliberate shift in marketing strategy. Starting in the third quarter, we have aggressively tightened ROI thresholds, intentionally pruning lower intent traffic to prioritize unit economics. This discipline resulted in order volumes declining 9%. However, this was partially offset by our ninth consecutive quarter of conversion rate growth and strong average order value expansion. The fact that GMV outperformed order volume by 400 basis points demonstrates that we are successfully capturing high-intent demand and higher value transactions, even with a significantly leaner marketing budget.

Specifically, on-platform AOV reached nearly $2,600, up 5%, while median order value rose 4% to approximately $1,250. This performance was fueled, first and foremost, by returning buyers spending more per order than they did a year ago, along with a higher overall mix of orders from these repeat customers. We ended the quarter with over 80% of traffic from organic sources, up 8 percentage points year-over-year. This organic strength is a critical competitive advantage, reflecting the enduring power of the 1stDibs brand.

We saw a balanced performance across our buyer segments this quarter as both trade and consumer GMV declined at similar rates. Vertical performance varied by category. Jewelry showed the most resilience with GMV down just 1%. Active buyers totaled approximately 60,700 at quarter end, down 5%.

Regarding supply, we ended the quarter with approximately 5,700 unique sellers, down 4% as our seller base continues to normalize following our fourth quarter pricing adjustments. Importantly, while seller count consolidated, we saw listings grow 3% to nearly $1.9 million.

Moving on to the income statement. Net revenue was $23 million, up 1%. Transaction revenue, which is tied directly to GMV, was approximately 73% of total revenue with subscriptions making up most of the remainder. Take rates increased approximately 140 basis points year-over-year driven by October's pricing increases and continued growth in sponsored listings.

Gross profit was $16.9 million, up 3%. Gross profit margins were approximately 74%, up 1 percentage point year-over-year.

Sales and marketing expenses were $5.9 million, down 44%. This significant decrease is a direct result of the strategic realignment implemented in 2025, which fundamentally reset our marketing organization and rationalized our performance marketing. Sales and marketing as a percentage of revenue was 26%, down from 46% a year ago.

Technology development expenses were $6 million, up 9%, reflecting higher headcount-related costs as we rebalance our talent towards high-impact product and engineering roles. Within our flat headcount framework, we are reallocating resources to expand our product and engineering capacity, a transition set to conclude in the second quarter. We view this as our highest ROI lever, enabling us to deliver on our 2026 road map and deliver long-term conversion gains while maintaining a disciplined cost base. As a percentage of revenue, technology development was 26%, up from 24% a year ago.

General and administrative expenses were $7 million, up 5% due primarily to a onetime sales tax-related item. As a percentage of revenue, general and administrative expenses were 30%, up from 29% a year ago.

Lastly, provision for transaction losses were approximately $400,000, 2% of revenue, down from 4% a year ago and at the low end of our historical 2% to 4% range.

Total operating expenses were $19.2 million, an 18% decrease. This significant reduction is the direct result of the strategic realignment we completed in September and our previous cost-saving measures. We promised to fundamentally lower our cost base, and this quarter's results prove that we have executed on at commitment. More importantly, this discipline has fundamentally improved our potential for operating leverage. We have lowered our breakeven threshold, allowing us to reach positive adjusted EBITDA despite the persistent macro headwinds in the luxury home category. Our ability to significantly reduce operating expenses while continuing to gain market share in 2025 demonstrates that we are not just running a leaner company, we're running a more productive one.

This quarter represents a pivotal inflection point in our financial trajectory. Adjusted EBITDA was $1.3 million, a significant turnaround from a $1.6 million loss in the prior year. This resulted in an adjusted EBITDA margin of 6%, representing an approximately 1,300 basis point expansion over last year. This is a direct outcome of the structural discipline we have embedded across the organization, allowing for any future top line recovery to flow disproportionately to the bottom line.

Moving on to the balance sheet. We ended the quarter with a strong cash, cash equivalents and short-term investments position of $95 million, up from $93.4 million sequentially. We maintain a robust cash position and our future focus is on free cash flow generation.

During the quarter, we repurchased approximately $1.6 million of shares with $10.4 million remaining under our current $12 million authorization as of December 31. Our continued execution of this program reflects our confidence in our long-term growth trajectory and our commitment to delivering value to our shareholders.

Turning to the outlook. Our guidance reflects quarter-to-date results and our forecast for the remainder of the period. We forecast first quarter GMV between $86.5 million to $91.5 million, representing a year-over-year decline of 9% to 3%. Net revenue of $22.1 million to $23.1 million or down 2% to up 2% and adjusted EBITDA margin between breakeven and positive 4%. Our GMV guidance is driven by 2 primary factors: a deliberate strategic trade-off, the intentional impact of our sales and marketing reductions as we prioritize a structurally higher margin profile over short-term volume.

Quality-driven performance. While traffic remains a headwind, we expect continued growth in conversion and AOV. Our revenue guidance reflects the continued growth in sponsored listings and benefits of the seller subscription price increase, which took effect on October 1.

Our adjusted EBITDA margin guidance reflects structural efficiency, realized gains from operating expenses following our September realignment.

Strategic reinvestment, a sequential increase in personnel expenses driven by the partial quarter impact of annual merit increases effective in March and targeted hiring in product and engineering as part of our strategic realignment.

Gross margin expansion. We expect gross margins of 72% to 74%, an increase from our recent 71% to 73% range. While we are not providing full year guidance at this time, our 2026 framework is centered on durable profitable growth. We expect to deliver a third consecutive year of revenue growth, reflecting the resilience of our marketplace. We anticipate a return to positive year-over-year GMV growth by the fourth quarter, driven by the compounding impact of our product road map. We expect gross margins of 72% to 74%, up from 71% to 73% in 2025. We expect revenue take rates of 25% to 26%, up from 24% to 25% in 2025. We remain focused on high-quality efficient growth with a full year 2026 outlook of positive adjusted EBITDA and positive free cash flow.

Underpinning this plan is the assumption that macroeconomic conditions, particularly those impacting the housing market and consumer discretionary spending remains stable. In closing, reaching this adjusted EBITDA inflection point is a landmark moment for 1stDibs. This result marks the culmination of a 4-year journey of rigorous expense management and strategic focus. We promised to reengineer our cost structure, remain disciplined on headcount and prioritize technical velocity, and we have delivered. We entered 2026 with a leaner, more resilient and more profitable foundation than at any time in our history.

We appreciate your continued support and look forward to updating you on our progress in the coming quarters. Thank you. I will now turn the call over to the operator to take your questions.

[Operator Instructions] Your first question comes from the line of Ralph Schackart with William Blair.

First question, just maybe kind of touching on your comments about accelerating growth through 2026. David, maybe you could just kind of walk through maybe the primary drivers as you see it to continue to turn the business around and to return back to growth and what continues to be a tough macro for you? And then I have a follow-up, please.

Sure. Ralph, so I think, first, from September '26 onward, we'll be lapping what were pretty substantial reductions, almost 50% in performance marketing spend. And then secondly, at the same time last September that we cut sales and marketing overall, we also increased our product and engineering investment, which obviously will result in a much bigger road map. So as you think about moving through 2026, what we expect is that the compounding nature of that product road map will provide a pretty clear path to year-over-year GMV growth by the fourth quarter. So it's really the combination of those 2 things, lapping our performance marketing cuts and then also receiving the benefit of higher product and engineering investment. I think it's also important to note that for the full year, we are committed to delivering our third -- what will be our third consecutive year of revenue growth alongside positive adjusted EBITDA and free cash flow as we did in the fourth quarter.

And the last thing I would say, you made a reference to the market. We do not believe that this is dependent on a broader market recovery. We feel like we have all the tools needed to accomplish this even without that.

Great. And just touching on AI. It has been a big focus, obviously, this earning season for investors. I think you talked about you see it not as a competitor, but as a catalyst to unlock catalog. Maybe if you could just kind of double-click on that a little bit, just in terms of why you don't potentially see disruption. Is it just because you handle a lot of complex tasks in between sort of the buyer and the seller and unique product categories, I guess, would be part of the reason there? But if you could just maybe touch on that a little bit more, I'd appreciate it.

Yes. I think -- I mean, I think in general, the way we see AI and relative to our performance is that we view ourselves as a beneficiary of AI really kind of from the top of the income statement to the bottom. In terms of disintermediation specifically, though, I think that's likely more of a threat for commodity products, but we're the exact opposite of that, right? We've got 2 million one-of-a-kind pieces of inventory. And particularly, when those items transact at the high price that we sell at, seller expertise and the integrity of the transaction itself are the primary components of value that we provide. So AI agents certainly can help with discovery. They can help buyers find products, but they can't substitute for the buyer trust, for the seller reputation and all of the relatively complex logistical and payment infrastructure that's required to transact at our price points and with our kind of inventory.

Your next question comes from the line of Bobby Brooks with Northland.

As you think of returning to kind of a sort of consistent growth profile, I know in the past, this will be your third year of revenue growth, but across both GMV and revenue and maybe at a little bit higher clip, call it, maybe high single digits. What are some of the most exciting initiatives that you're pursuing?

So as I think you may be aware, we -- first of all, we have proven an ability to execute on our product road map and to drive conversion, which is the most important GMV lever as a result. We brought in a new Head of Product and Marketing last August. And as part of that, we recut our '26 road map. So the '26 plan is a combination of both evolutionary advancements relative to '24 and '25 and also new projects. And I'm super excited about each of them. I mean just to call out, I guess, probably the 4 highest impact ones or ones we expect to be highest impact in a particular order. AI search is something that we're very optimistic about. Currently, searching on 1stDibs requires knowing the exact match of the products that one is interested in, which is a pretty significant barrier for broader consumer demand, especially given the long-tail nature of the products that we sell. So to address this in '26, we're going to be introducing semantic Search, which will make discovery much more intuitive and accessible to kind of the average person.

And the second area that I'm very excited about is shipping. So today, we have relatively unclear roles and distribution of responsibilities between sellers and 1stDibs. That leads to higher costs and also sometimes just in terms of kind of the operational workflow in terms of getting an order converted, some confusion on the part of the buyer. And so we're reengineering our entire shipping framework to standardize those roles and responsibilities, which should have the impact of reducing complexity and also cost to the buyer.

Pricing is number three. It's something we've talked about quite a bit in the past. We aren't today always the lowest cost sales channel for a given item. And the second problem is that, again, given the long-tail nature of what we sell, it can be challenging for consumers to compare prices and sort of evaluate and interpret them. So to address this, we -- as I think you're probably aware, we introduced a price-parity enforcement mechanism last year. To expand this in '26, we're going to be incorporating and LLM. So we -- it has not been AI-based to date, which will allow us to scale price parity across a much higher percentage of our inventory, which will eliminate the problem of individual items being listed at a higher price on 1stDibs and elsewhere.

And then second, we're going to surface comps data much more broadly to both sellers and buyers to give them context. And then the last -- the fourth and the last piece is I think we're a little late to the party in terms of developing a robust social strategy. And I think social has an especially important role to play for us, given our brand and just the visual nature of the products that we sell and so on. And so to address this, in '26, we're in the process of implementing our first-ever community-based approach, which really is just another way of saying we're launching an influencer network. And it's something we haven't done before, and we have high hopes for it.

That's super helpful detail. For a follow-up on the pricing parity, definitely can see how that -- definitely can see how helpful and beneficial that will be for the business. You mentioned incorporating the LLM to scale across a much higher percentage of inventory. Would be curious to hear how much of the inventory today listed has this price parity incorporated into it and how much are you looking -- what are you looking to scale that to in '26?

Data that we -- that's not data that we share primarily for competitive reasons, but it should roughly double the amount of product that's covered. It's actually, I think from a behavioral point of view though, more important to think about it in terms of number of sellers who are impacted rather than the percentage of items because once a seller sort of understands that we have the ability and the intent to enforce this price parity feature of our contracts with them, they're less likely, of course, to be in transgression of that.

And again, I think it's worth pointing out, I mean, this is in the interest of both the buyer and the seller and 1stDibs. Having a sort of clean, well-lit and regulated marketplace that's predictable and understandable to buyers is ultimately -- has the effect of increasing confidence in us and our sellers on the part of the buyer, which, of course, benefits them. So I do think it's important to note that we don't think of this as a -- I don't know, as a sort of system of punishment, but more as a part of the process of creating, as I said, is sort of clean, well-lit environment, which, of course, is to the benefit of all marketplace participants.

Got it. I appreciate it, David. And maybe one for Tom. It's been really impressive, the margin expansion you guys have driven in the past -- over the past few years, as you mentioned in the prepared remarks, despite some shrinking of the top line GMV. As we think of 1stDibs returning to that kind of steady growth rate on GMV level, is it fair to think margin expansion would accelerate in that scenario?

Yes, this is Tom. So yes, I believe that what you've seen with our P&L, as you kind of talked about, is that our gross margins have expanded from 73% to 74%. The contribution margin, in particular, has gone up from the 50% to 55% level to the 60% to 65% level. So yes, what I expect is that as you start to see revenue -- GMV and revenue expansion, you will see a large portion of that additional revenue going to the bottom line because of the increase in contribution margin that we've put into the model at this point.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to the 1stDibs Q3 2025 Earnings Call. [Operator Instructions] I will now hand the conference over to Kevin LaBuz, Head of Investor Relations and Corporate Development. Kevin, please go ahead.

Good morning, and welcome to 1stDibs earnings call for the quarter ended September 30, 2025. I'm Kevin LaBuz, Head of Investor Relations and Corporate Development. Joining me today are Chief Executive Officer, David Rosenblatt; and Chief Financial Officer, Tom Etergino.

David will provide an update on our business, including our strategy and growth opportunities, and Tom will review our third quarter financial results and fourth quarter outlook.

This call will be available via webcast on our Investor Relations website at investors.1stdibs.com. Before we begin, please keep in mind that our remarks include forward-looking statements, including, but not limited to, statements regarding guidance and future financial performance, market demand growth prospects, business plans, strategic initiatives, business and economic trends and competitive position.

Our actual results may differ materially from those expressed or implied in these forward-looking statements as a result of risks and uncertainties, including those described in our SEC filings. Any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them, except to the extent required by law.

Additionally, during the call, we will present GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, which you can find on our Investor Relations website, along with the replay of this call.

Lastly, please note that all growth comparisons are on a year-over-year basis, unless otherwise noted. I will now turn the call over to our CEO, David Rosenblatt. David?

Thanks, Kevin, and good morning, everyone. The third quarter was a breakthrough period for efficiency and execution, demonstrating our commitment to financial discipline. We delivered revenue and GMV at the high end of guidance and critically, disciplined expense management drove adjusted EBITDA margins to negative 1%, a 13 percentage point improvement year-over-year, well above the high end of guidance and our best as a public company.

We now expect to generate positive adjusted EBITDA in the fourth quarter and for the full year 2026. Reflecting this strong financial performance and our clear line of sight to free cash flow generation, our Board has authorized a new $12 million share repurchase program. Generating free cash flow creates an opportunity to return capital, particularly if we continue to trade at a discount to our assessment of intrinsic value.

We are also proving that this efficiency doesn't come at the expense of market leadership. We continue to grow and gain market share even in a tough environment. This combination of operational execution and financial rigor is the story of the quarter.

The core of our third quarter effort was to build a more efficient growth engine. We achieved this by realizing a net head count reduction, new performance marketing efficiencies and other cost savings totaling $7 million annually, while growing our product development capacity.

We believe that our growth potential is unlocked by investing in product and engineering. Historically, we disrupted this market via technology, and we are committed to maintaining that principle. In September, we executed a targeted reduction in overall headcount, not only to save cost, but to reallocate capital, shifting head count away from sales and marketing roles and into technology development.

The net effect is a strategic shift in our workforce composition. While overall head count is lower, we are actively increasing our product and engineering team. Our conviction is simple. The most scalable and highest ROI way to meet the core needs of our buyers and sellers is through technology. This strategic realignment was anchored by the arrival of Bradford Shellhammer in August as our new Chief Product Officer and Chief Marketing Officer. This isn't just an efficiency play. It's a growth strategy.

We are now primed to modernize our marketing channels, shifting investment towards high engagement formats like social video and personalized communications. Driving growth via content and community. This marketing reorganization in combination with increasing our product development capacity significantly enhances our operational agility and allows us to deliver richer, more consistent value at every customer interaction.

The focus in the third quarter was on architecture and foundation. We began a deep review of our highest leverage opportunities in 4 core business drivers: fueling new buyer growth retaining and engaging existing buyers, improving monetization and ensuring seller success. We are currently developing our 2026 product road map and are excited to share more details during our fourth quarter earnings call.

Turning to the third quarter. funnel performance demonstrated clear evidence that our product-led strategy continues to produce results. Our ongoing optimization efforts drove our eighth consecutive quarter of conversion growth, proving the compounding impact of our continuous product iteration. We also saw AOV strength during the quarter. While we observed a slowdown in traffic, the combination of conversion growth and rising average order value drove GMV acceleration.

That success in conversion was driven by specific product initiatives designed to increase buyer trust. Our most significant launch in the third quarter directly targeted a major point of buyer friction pricing. Competitive pricing is a key pillar of our product strategy. The objective here is to ensure that the marketplace offers fair and transparent item prices and shipping costs.

Over the past year, we have built the foundation for this through the full rollout of our machine learning-based pricing models across all verticals, which bring transparency to a historically opaque market and reinforce buyer trust. In the third quarter, we introduced the technology to enforce another component of the strategy, price parity.

With tools like Google Lens and browser extensions, making it easier than ever for buyers to comparison shop, price inconsistencies between platforms can undermine buyer trust and damage our brand reputation. Potentially creating an incentive for buyers to circumvent our platform.

To combat this, we launched the first phase of an automated enforcement mechanism that ensures that items listed in our marketplace are priced at or below their price on competing sites in accordance with our terms of service. So far, nearly 90% of identified violation have been remedied by sellers. This is a critical step in reinforcing trust as pilot data showed that items updated at parity saw conversion increases.

This initiative moves our policy from soft guidance to consistent automated enforcement, ensuring a more confident and frictionless experience for buyers and driving higher GMV for compliant sellers. Price parity proves that our team can solve complex problems to make sure that we can tackle even more ambitious initiatives faster, we are making significant advancements in integrating AI into our product development process.

We view AI as a powerful tool to drive both internal efficiency and customer value. This quarter, our focus was on maximizing employee productivity. Within engineering, we estimate that over 25% of all new code is being written by AI, accelerating our development process. By building AI into our workflows, we are ensuring that our new leaner cost structure maximizes output and product velocity.

Beyond engineering efficiency, we are actively incorporating an AI component into every major initiative in our road map. We also continue to make progress in our advertising program by leveraging our high-quality, high-intent audience. For our core sponsored listings, the third quarter focused on efficiency, expanding inventory and optimizing the ad load for better seller visibility.

More strategically, we successfully launched our first non-endemic advertiser in late-September. This validates the value of our audience, but the revenue opportunity is still nascent and will develop over time. Moving to the health of our supply. The third quarter underscored our commitment to high-quality, high-performing inventory. We ended the period with nearly 1.9 million total listings, marking continued growth, up 1%.

As anticipated, the number of unique sellers continues to stabilize following our 2024 pricing actions. We ended the quarter with approximately 5,800 unique sellers indicating that the major headwind from the essential seller program is now largely behind us. This disciplined strategic focus resulted in a healthier, more valuable marketplace with the churned cohort having a minimal impact on GMV and listings.

This strategic pruning allows us to reinforce our core value proposition. Our 2025 seller sentiment survey confirmed that 1stDibs is now the primary sales channel for our sellers, surpassing their own showrooms for the first time. This finding underscores the platform's growing relevance and reinforces our unique position as the premier essential destination for luxury design. Because we've successfully aggregated supply around the highest quality dealers, we expect to be in a strong competitive position, when the luxury market rebounds.

Given the significant product enhancements we have delivered to our dealers, we believe the platform now offers a dramatically higher ROI for our sellers. Our ability to deliver this high ROI is a direct result of sustained investments in marketplace technology. To ensure that we can continue to invest in the technology that powers their success, we executed a subscription pricing action on certain seller cohorts on October 1.

This marks our first broad-based increase for this segment, since 2019. This decision reinforces the status of the platform as an essential sales channel, underpins the platform's long-term sustainability and provides a tangible tailwind to our recurring revenue.

In closing, the third quarter was defined by focus and execution. We successfully executed a major strategic realignment, fundamentally redesigning our organization to prioritize high ROI technology investments and further reduce our cost structure.

The results, we delivered our best adjusted EBITDA margin as a public company, confirming that this realignment represents a major step forward on our path to profitability. Our commitment to reaching adjusted EBITDA positive is absolute and we have maintained this rigor, while successfully reallocating capital to technology that will serve as the engine for our future expansion.

We continue to gain market share and we now have the durable financial model needed to capitalize on the next phase of e-commerce growth. We've built the foundation. Now we're ready to accelerate. Thank you for your continued support.

I will now turn it over to Tom to review our third quarter financial results and fourth quarter outlook.

Thanks, David. Good morning, everyone. Our record third quarter margin performance validates the comprehensive effort to improve efficiency that we began in 2022 by protecting and growing our technology investments, we have structurally lowered our operating expenses, while enhancing our long-term growth trajectory, setting the stage for sustainable margin expansion in the years ahead.

Our commitment to efficiency is clear. Operating expenses were down 6% year-over-year and down 10% when excluding severance costs. This reduction is fundamentally changing the profitability curve of this business. Third quarter performance confirms we are making good progress on our path to profitability by structurally lowering our breakeven point.

I will now walk you through the details that support these outcomes. From a funnel perspective, third quarter results validate the effectiveness of our product road map. Our ongoing optimization efforts drove our eighth consecutive quarter of conversion growth, which accelerated during the period.

AOV also rebounded. While we observed a partial offset due to softening traffic growth, driven in part by a reduction in performance marketing spending, the combination of conversion growth and AOV rebound drove the GMV acceleration. GMV was up 5% in the third quarter versus down 2% in the second quarter.

On-platform average order value of nearly $2,700 and median order value of approximately $1,300 were both up 10%. This dynamic was driven by a slight mix shift towards higher-value orders. In addition, the year-ago period also included auction orders, which have below-average AOVs, creating an easier comparable base.

Returning to funnel trends. Traffic softened driven by lower paid traffic, where we tightened efficiency thresholds and reduce performance marketing spending. We ended the quarter with over 75% of traffic from organic sources, up 3 percentage points year-over-year. This organic strength is a key financial advantage, reflecting the power of our brand and a low dependence on performance marketing to drive traffic.

Both our core buyer segments, trade and consumer grew GMV. This broad-based growth confirms the platform's value proposition with the Trade segment driving slightly stronger growth year-over-year. Vertical performance highlights the diversification of our marketplace. Art, which accounts for a low teens percentage of total GMV was the fastest-growing vertical, up double digits.

We also saw strong GMV growth in jewelry and vintage and antique heat furniture. Active buyers totaled approximately 63,200 at quarter end, up 1%. Turning to supply. We ended the quarter with approximately 5,800 unique sellers, down 17%. As seller count continue to normalize following our 2024 pricing actions. We closed the quarter with nearly 1.9 million listings, up 1%.

This outcome shows that the elevated churn from our pricing optimizations were successfully isolated to low-impact sellers, resulting in de minimis financial impact in both GMV and listings. Our focus remains on the quality of our supply base.

Moving on to the income statement. Net revenue was $22 million, up 4%. Transaction revenue, which is tied directly to GMV was approximately 75% of total revenue with subscriptions making up most of the remainder. Take rates declined approximately 40 basis points year-over-year due primarily to a mix shift in order value. Gross profit was $16.3 million, up 9%. Gross profit margins were 74%, up 3 percentage points year-over-year.

Gross profit margins included a nonrecurring insurance recovery related to a prior shipping matter, which contributed approximately 1 percentage point to our reported margins. On an adjusted basis, gross profit margins were at the high end of our 71% to 73% guidance range.

Sales and marketing expenses were $8 million, down 13%. Excluding severance charges of approximately $800,000, sales and marketing expenses were down 22%. This outcome is a direct reflection of our continued expense discipline and the strategic realignment we executed in September. We realized savings from lower personnel costs and simultaneously tightened our performance marketing efficiency thresholds.

Sales and marketing as a percentage of revenue was 36%, down from 44% a year ago. Technology development expenses were $5.9 million, up 8%, driven by higher headcount-related costs due to our annual merit increases awarded in March and additional bonus awards in the quarter. As a percentage of revenue, technology development was 27%, up from 26% a year ago.

General and administrative expenses were $6.4 million, down to 7% due primarily to lower headcount-related costs. As a percentage of revenue, general administrative expenses were 29%, down from 32% a year ago. Lastly, provision for transaction losses were approximately $790,000, 4% of revenue, flat year-over-year.

Total operating expenses were $21 million, a 6% decrease, excluding severance cost of roughly $800,000, operating expenses were down 10%. The strategic realignment executed in September fundamentally changes our profitability equation. The estimated $7 million in annual savings structurally lowers the revenue level required for us to break even.

A reduction in performance marketing spend is the largest component of these savings achieved by raising our efficiency thresholds for new consumer acquisition. While this deliberate decision will reduce our paid traffic volume, it confirms our commitment to self-sufficiency. We are leveraging this reduction to create a more efficient cost structure that can achieve profitability with minimal reliance on top-line growth.

Adjusted EBITDA loss was approximately $240,000 compared to a loss of $3 million last year. Adjusted EBITDA margin was a loss of 1% compared to a loss of 14% a year ago. Moving on to the balance sheet. We ended the quarter with a strong cash, cash equivalents and short-term investments position of $93 million. We maintain a robust cash position, but our future focus is on free cash flow generation.

Following this quarter's success in cost reduction, we now have a clear line of sight to generating positive adjusted EBITDA and free cash flow. This confidence is why our Board has authorized a new $12 million share repurchase program. As we ramp free cash flow generation over time, our financial flexibility increases, allowing us to be opportunistic with capital deployment.

Given our belief that our shares are currently trading at a discount to their intrinsic value, this represents an excellent opportunity for shareholder value creation. Turning to the outlook. Our guidance reflects quarter-to-date results and our forecast for the remainder of the period. We forecast fourth quarter GMV of $90 million to $96 million, down 5% to up 2%.

Net revenue of $22.3 million to $23.5 million, down 2% to up 3%, and adjusted EBITDA margin of positive 2% to positive 5%. Our GMV guidance reflects continued conversion and AOV growth, a slowdown in traffic due in part to our higher efficiency thresholds in performance marketing. This trade-off is strategic we are accepting lower traffic and lower near-term order volume in exchange for significantly higher margins and better unit economics.

Our revenue guidance reflects the full quarter benefit of the seller subscription price increase, which took effect on October 1. Our adjusted EBITDA margin guidance reflects structural efficiency gains from the lower performance marketing and personnel costs following the September strategic realignment. Seasonally higher revenue and gross profit margins at the high end of our 71% to 73% range.

In addition, our fourth quarter expense base reflects a temporary tailwind of approximately $300,000 from the strategic realignment. The immediate savings from the reduction of sales and marketing roles creates a short-term benefit to margins that will moderate as we onboard the product and engineering roles over the next few quarters.

In summary, the third quarter was a pivotal period. We continue gaining market share, while structurally reducing the revenue needed to breakeven. The cost reductions we implemented led directly to our best adjusted EBITDA margins as a public company. This gives us high confidence in our outlook. We are tracking to achieve positive adjusted EBITDA and free cash flow in the fourth quarter and for the full year of 2026, assuming low single-digit revenue growth. A major financial milestone that proves we are successfully building a capital efficient and resilient business model.

We appreciate your continued support and look forward to updating you on our progress in the coming quarters. Thank you. I will now turn the call over to the operator to take your questions.

[Operator Instructions] Your first question comes from the line of Ralph Schackart with William Blair.

Maybe just kind of kick things off. Can you provide a bit more color on the rationale and the benefits you expect from your September strategic realignment. It sounds like you've made some fairly significant changes here, particularly in performance marketing, strategy. But if you sort of outlined the major benefits you expect beyond just the important sort of movement to positive EBITDA? And then I have a follow-up.

Ralph, sure. So this September realignment was really the most recent stage of a process that began 3 years ago in order for us to get to breakeven. And I think it's worth noting that in total, this process has reduced our GMV breakeven by almost $250 million.

Throughout the process, we've really been focused on all parts of our cost structure. Headcount, performance marketing, which you mentioned, as well as external vendor relationships. The goal for this 1 was really twofold. First, to achieve adjusted EBITDA profitability in the fourth quarter of this year and then also to maintain that profitability and also reach positive free cash flow for the full year '26.

And then second, importantly, to reallocate head count and non-headcount investment from sales and marketing to higher ROI engineering and product development. And so we're now at a point, where roughly 50% of our head count is in product engineering, which I think is a good place to be.

Great. And it sounds like you had a pricing increase, I think you said on October 1. Can you give us a sense of the order of magnitude there and how the platform has performed, since you push through the price increase?

What was the second part of the question?

Just on the price increase, what the reaction has been from -- as a result of pushing that through?

Yes. So I mean, in general, we try to make sure that our prices to sellers align with the value that we create. We've obviously made a lot of improvements and investments into the platform. Since 2019, yes, we really haven't meaningfully changed rates over that time.

And so this was a very targeted combined subscription increase and also in -- at certain price points, commission increase. The subscription part of it only impacted about 20% of our sellers and amounted to roughly a 10% increase on those 20%, and we saw no meaningful increase in churn. As a result, I think because of the sort of proportionality between value creation and the costs that we charge our sellers.

There are no further questions at this time. This concludes today's call. Thank you for attending, and you may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by. My name is Chris, and I will be your conference operator for today. At this time, I would like to welcome everyone to the 1stdibs Q2 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Head of Investor Relations and Corporate Development, Kevin LaBuz. You may begin.

Good morning, and welcome to 1stdibs earnings call for the quarter ended June 30, 2025. I'm Kevin LaBuz, Head of Investor Relations and Corporate Development. Joining me today are CEO, David Rosenblatt; and CFO, Tom Etergino. David will provide an update on our business, including our strategy and growth opportunities, and Tom will review our second quarter financial results and third quarter outlook. This call will be available via webcast on our Investor Relations website at investors.1stdibs.com. Before we begin, please keep in mind that our remarks include forward-looking statements, including, but not limited to, statements regarding guidance and future financial performance, market demand, growth prospects, business plans, strategic initiatives, business and economic trends, including e-commerce growth rates and our potential responses to them and competitive position.

Our actual results may differ materially from those expressed or implied in these forward-looking statements as a result of risks and uncertainties, including those described in our SEC filings. And any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them, except to the extent required by law. Additionally, during the call, we will present GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, which you can find on our Investor Relations website, along with the replay of this call. Lastly, please note that all growth comparisons are on a year-over-year basis, unless otherwise noted. I will now turn the call over to our CEO, David Rosenblatt. David?

Thanks, Kevin. Good morning, and thank you for joining us today. The second quarter demonstrated continued resilience amidst a dynamic market with GMV and revenue performing above the midpoint of guidance and adjusted EBITDA exceeding the high end. Our continued commitment to cost management resulted in a 4% year-over-year decline in operating expenses. This performance reflects a continued focus on what we can control and an ability to navigate a difficult external landscape for consumer discretionary. While GMV modestly declined, we continued to gain market share against a contracting luxury home goods market per syndicated credit card data. This performance is a testament to prioritizing core product initiatives and expense discipline. The team is committed to executing against a clear set of priorities to enhance the marketplace and reaccelerate growth. From a funnel perspective, we are pleased to report another quarter of conversion growth, a testament to our continuous optimization efforts.

Our focus on product enhancements has now driven conversion gains for 7 consecutive quarters. Encouragingly, we saw conversion trends improve in the second half of the quarter following a slowdown after the April 2 tariff announcements. During the second quarter, we made sustained progress across our product road map, which is designed to enhance both the buyer and seller experience and drive market share gains. Our 2025 road map is centered on accelerating organic traffic growth, ensuring competitive pricing for listings and shipping and optimizing our multistep conversion funnel. We continue to execute on our organic traffic growth strategy, which is a critical driver of efficient buyer acquisition, given that over 70% of traffic originates from organic sources. This approach centers on improvements to site performance and structure.

A key project involved a targeted effort to reduce the number of low-value pages across the platform, which improved the site's overall quality perception for search engines and enhanced crawl efficiency for the most relevant content. Furthermore, we deployed infrastructure improvements that bolstered indexation rates, ensuring that our unique listings are more readily discoverable. These efforts have boosted overall site reliability, creating a more robust and performant user experience. We are also actively tracking the emergence of AI and chatbots in the search ecosystem. While we are keenly aware of the potential shifts this technology could bring, to date, the impact on our organic search traffic has been low. This remains an area of ongoing surveillance, ensuring that we will be prepared for any potential future shifts. We also continue to optimize our account registration and e-mail opt-in experiences to expand our e-mail audience, which grew for the third consecutive quarter. Competitive pricing remained a significant focus area.

The objective here remains the same, ensuring that the marketplace offers competitive and transparent item prices and shipping costs. As we highlighted last quarter, machine learning-based pricing models are now live across all verticals. These proprietary models leverage our proprietary transactional database to bring transparency to what has historically been an opaque market, reinforcing buyer trust and confidence. The integration of the 1stdibs estimate directly into product display pages, which began in March, continues to provide buyers with valuable pricing context, fostering trust and confidence and ultimately leading to higher conversion. With the foundational work of rolling out these models complete, we have shifted our attention to enhancement and adoption of our ML pricing recommendations. Specifically, we are now refining recommendation accuracy, incorporating a wider array of data attributes into the models for enhanced precision including using AI tools to better utilize unstructured data and driving higher seller adoption.

Early data from these initiatives are promising. Specifically, we are seeing increased sell-through rates on items meeting our pricing recommendations compared to those that do not. We have also observed a reduction in price negotiations on items where pricing recommendations have been adopted. Alongside recommending the market clearing price, the second half of the year will see us prioritizing technology to strengthen seller adherence to our existing price parity policy. This will ensure that items on 1stdibs are priced consistently with other sales channels. Turning to funnel optimization. We maintained strong momentum in reducing friction and delivering a more compelling user experience. Our aim remains to make it easier for discerning shoppers to discover and purchase the unique items available on 1stdibs. Our multistep checkout process provides substantial headroom for ongoing optimization. A key project in the middle of the funnel was enhancing the product detail page, a critical touch point for buyer decision-making.

The price negotiation call to action was optimized by including clearer, more action-oriented language. This update successfully increased engagement on PDPs and importantly, lifted the percentage of users entering checkout. This refinement underscores a commitment to making the buyer-seller interaction more seamless and intuitive, especially given the highly considered nature of our listings, where negotiations are common. Building on momentum, from the first quarter, we made additional progress at checkout. We refined the user experience to provide an even smoother and more trustworthy transaction flow. In particular, highlighting key elements of the 1stdibs promise raised checkout completion rates, especially on mobile web. This directly reinforces buyer trust and confidence at the critical point of purchase. These targeted enhancements and many others are directly driving buyer trust and contributing to ongoing conversion growth.

We are also actively embedding artificial intelligence throughout our platform, driving efficiencies and elevating capabilities. Development and deployment of AI extends across every function from enhancing the ability to detect gray market order attempts, to streamlining our trade application, to building a client service chat agent, to enhancing item recommendations and user personalization. These diverse applications, all either in flight or in design, underscore a commitment to leveraging AI to grow revenues and drive efficiencies. Beyond core initiatives, we recently overhauled our sponsored listings pay-for-performance product. Additionally, we are beginning to explore non-endemic advertising opportunities. Though we are optimistic about the long-term potential here, no significant revenue impact is expected in the near term. We plan to share more details as these opportunities mature. Moving to supply. We continue to demonstrate our unique ability to aggregate the world's most beautiful items.

Consistent with prior periods, we saw steady listings growth, ending the quarter with nearly 1.9 million listings, up 3%. This sustained growth underscores 1stdibs' growing relevance to sellers and reinforces our position as the premier destination for luxury design. As we mentioned last quarter, we are becoming more important to our sellers. Our 2025 seller sentiment survey showed that 1stdibs is now the primary sales channel for our sellers, surpassing their own showrooms for the first time. This marks a meaningful shift from the past 4 years when showrooms ranked first. We ended the quarter with approximately 5,900 unique sellers, down 21% year-over-year, but flat sequentially. As we've noted in recent quarters, this outcome was expected and is directly attributable to subscription pricing optimizations, including the retirement of our central seller program and other pricing adjustments from late 2024. The impact of this elevated churn has been minimal.

In total, the churn cohort accounted for less than 50 basis points of GMV over the trailing 12 months and approximately 90 basis points of total listings. As we move forward, we expect continued listings growth throughout 2025. Before we conclude, I'm excited to share a significant addition to our leadership team. We are thrilled to welcome Bradford Shellhammer, who joined 1stdibs as Chief Marketing Officer and Chief Product Officer this week. Bradford brings a unique and highly relevant skill set with deep experience in scaling online marketplaces in both start-ups and large public companies. We are confident that his understanding of online marketplaces, combined with his deep passion for design, will be instrumental in shaping marketing strategies, driving customer engagement and steering product development.

In summary, our second quarter results reflect disciplined execution, prudent expense management and sustained progress against strategic objectives. We delivered strong results for adjusted EBITDA, met our GMV and revenue guidance and grew conversion for the seventh consecutive quarter, all while navigating a difficult landscape for both luxury design and discretionary consumer goods. The foundational platform work, including the full rollout of ML pricing models and comprehensive funnel optimizations is steadily enhancing the user experience and marketplace value. Our commitment to a leaner, more efficient operation remains unwavering, positioning us for sustainable growth when market conditions inevitably improve. Thank you for your continued support. I will now turn it over to Tom to review our second quarter financial results and third quarter outlook.

Thanks, David. Second quarter results demonstrated solid performance, meeting or exceeding guidance across all key metrics. Our financial outcomes reflect the strength of our underlying strategy, highlighted by our seventh consecutive quarter of conversion growth, continued market share gains and operating expenses falling 4%, underscoring our continued vigilance on cost and commitment to an efficient operating model. On a sequential basis, GMV growth rates decelerated due to softening traffic and moderating average order value growth, partially offset by continued conversion gains. While the quarter began with some softness in April around tariff announcements, we were encouraged to see conversion trends improve in the second half of the quarter. On platform, average order value of nearly $2,600 was flat year-over-year, while median order values of approximately $1,350 was up 10%. This dynamic was driven by a slight mix shift away from higher-value orders.

This suggests macroeconomic uncertainties may have prompted consumers to defer or trade down on significant high-value purchases. A defining characteristic of 1stdibs is the trust we have built with our community, enabling transactions at high average order values across multiple categories. This unique confidence allows us to deliver qualified buyers at prices ranging from under $100 to over $1 million. Returning to funnel trends, traffic growth softened driven by a slowdown in paid due in part to continued performance marketing optimizations. We ended the quarter with over 70% of traffic from organic sources. Conversion growth improved sequentially, partially offsetting softening traffic and AOV growth. Conversion rates have now increased year-over-year for 7 straight quarters. Additionally, both new and returning conversion increased. From a buyer perspective, trade GMV was flat while consumer GMV declined modestly. Jewelry, which accounted for approximately 20% of total GMV, increased high single digits, while all other verticals were flat or down.

The broader impact of the soft housing market continued to be felt across our home categories, specifically furniture and art. Active buyers totaled approximately 64,400 at the end of the quarter, up 5%. On the supply side of the marketplace, we experienced steady listings growth, closing the quarter with nearly 1.9 million listings, up 3%. We ended the quarter with approximately 5,900 unique sellers, down 21%, but flat sequentially. Seller churn remained elevated, consistent with our expectations following recent subscription pricing optimizations. Importantly, this had a de minimis impact on both GMV and overall listings. We expect to see listings growth throughout the year. Moving on to the income statement. Net revenue was $22.1 million, flat year-over-year. Transaction revenue, which is tied directly to GMV, was approximately 75% of total revenue, with subscriptions making up most of the remainder.

Take rates were up approximately 30 basis points year-over-year due primarily to a mix shift to lower value orders. Gross profit was $15.9 million, flat year-over-year. Gross profit margins were 72%, also flat year-over-year. Sales and marketing expenses were $8.1 million, down 12%, driven by performance marketing optimizations and lower headcount-related expenses due to a reduction in force in January. Sales and marketing as a percentage of revenue was 37%, down from 42% a year ago. Technology development expenses were $5.9 million, up 8%, driven by higher headcount-related costs due to our annual merit increases awarded in March. As a percentage of revenue, technology development was 27%, up from 24% a year ago. General and administrative expenses were $6.6 million, down 4% due to lower headcount-related costs. As a percentage of revenue, general and administrative expenses were 30%, down from 31% a year ago.

Lastly, provision for transaction losses were approximately $965,000, 4% of revenue, flat year-over-year. Total operating expenses were $21.6 million, a 4% reduction. This is a direct reflection of our diligent expense discipline and ongoing vigilance in maintaining an efficient operating model. Adjusted EBITDA loss was $1.8 million compared to a loss of $1.6 million last year. Adjusted EBITDA margin was a loss of 8% compared to a loss of 7% a year ago. We continue to prioritize driving operating leverage through efficient scaling. Given that the majority of our operating expenses are headcount related, our asset-light model allows us to increase revenue without a commensurate increase in hiring. In 2025, we expect to keep headcount approximately flat.

Moving on to the balance sheet. We ended the quarter with a strong cash, cash equivalents and short-term investments position of $94 million. Of the approximately $6.7 million sequential reduction, $3.2 million was due to annual prepayments of various services and $1.3 million was due to an increase in restricted cash held at a payment processor, which reversed itself in July. Turning to the outlook. Our guidance reflects quarter-to-date results and our forecast for the remainder of the period. We forecast third quarter GMV of $83 million to $89 million, down 2% to up 5%. Net revenue of $21 million to $22.1 million, down 1% to up 4% and adjusted EBITDA margin loss of 12% to 8%. Our GMV guidance reflects continued conversion growth and a modest rebound in average order value growth.

Our adjusted EBITDA margin guidance reflects the impact of seasonally low revenue, gross margins towards the lower end of our 71% to 73% range and continued benefits from paid marketing optimizations. To conclude, our second quarter performance reflects a commitment to disciplined execution and vigilant expense management. Despite a challenging demand backdrop, our ability to achieve guidance targets, coupled with a 4% year-over-year reduction in operating expenses underscores our dedication to efficiency. Our consistent conversion growth remains a bright spot, directly reflecting ongoing improvements across our platform. We appreciate your continued support and look forward to updating you on our progress in the coming quarters. Thank you. I will now turn the call over to the operator to take your questions.

And with that, our first question in queue is Ralph Schackart of William Blair.

This is [ Justin ] on for Ralph. Just one for you. On the macro uncertainty, you noted that the environment for luxury home goods remains challenging, but have you seen any changes in the overall environment since the beginning of the year, even if just on the margin?

Thanks for the question. We haven't really seen major changes in the macro environment. Both the U.S. housing market and the market for luxury home goods, which are our primary drivers, remain soft. Just as an example, the U.S. housing market just posted, I think, the slowest spring selling season in 13 years for Redfin. And to measure market share in luxury home goods, we mostly rely on syndicated credit card data. And that data shows that demand in that market also softened in Q2. On the other hand, while we're in a soft market, we do believe just comparing our GMV growth to that of the syndicated data that we've been gaining market share over the past 6 quarters. So we're not satisfied or happy with our current GMV growth rate. But on the other hand, we do believe that it represents a market share gain, and we believe that we can continue to do that based on the strength of our product road map and other opportunities in front of us.

All right. Next up, we have Austin Riddick of Evercore.

I think I heard over 70% of traffic originates from organic sources. And so I guess I just wanted to ask how vulnerable do you think that mix is to the growing share of AI-driven search results and chat interfaces? I know that's not exactly the most easy question to answer, but curious to hear your thoughts.

Good question. We think about that quite a bit. It's something that we track very actively. Obviously, AI and chatbots over time, we think are going to be a significant -- have a significant impact on our traffic. On the other hand, while we're aware of those potential shifts, we haven't actually seen any material impact to our organic search traffic and the kind of key terms or keywords that we rely on to drive the most traffic. yet. However, we're very focused on it. We're focused on AI and ML in general. This is one of many areas, and we'll report back as and if things change.

All right. With that, there are no further questions in queue. So this will conclude today's call. Ladies and gentlemen, thank you for joining us today. You may now disconnect your lines.