Q3 2022 Squarespace Inc Earnings Call
In October .
They will share some opening remarks, and then we will open the call to your questions.
Earlier today, we issued a press release and posted a shareholder letter in the Investor Relations section of our web site with.
With additional information related to our Q3 results.
On today's call, we will be referring to both GAAP and non-GAAP financial results and operating metrics.
You can find additional information on how we calculate these metrics, including a reconciliation of GAAP to non-GAAP measures in today's press release, which can be found in the Investor Relations section of our website.
These measures should not be considered in isolation from or superior to our GAAP results.
We will make forward looking statements pursuant to the safe Harbor provisions of the private Securities and Litigation Reform Act of 1095, which include but are not limited to statements related to our future financial performance.
These forward looking statements are subject to risks and uncertainties that could cause our actual results to differ materially. These.
These risks are further defined in our most recent filings with the Securities and Exchange Commission.
Any forward looking statements that we make on this call are based on assumptions as of this date November eight 2022.
We undertake no obligation to update these statements as a result of new information or future events, except where required by law.
Now I'll turn the call over to Anthony.
Good morning, everyone.
Please join me in welcoming Nathan good into our team as our new CFO I'm thrilled he's with us and pleased to have them on this call Nathan brings over two decades of financial leadership and technology sector. Most recently as CFO of Amazon's Alexa business and.
And our first weeks of working together on finding gets enthusiasm for our business invigorating and believe its positive influence will spread across the organization as he settles into his new role welcome Nathan.
Anthony I will say I'm thrilled to be working with you and excited about the tremendous opportunity ahead for square space.
I believe together with the amazing square face.
We can further optimize our portfolio of brands for entrepreneurs and accelerated growth I'm inspired by division that drives our business forward to help entrepreneurs with creative ideas standout and succeed.
I believe our mission, enabling millions to build a brand and transact with their customers with an impactful and beautiful online presence creates an amazing opportunity for our business now I'll hand, the call back to Anthony for some opening remarks, then I'll take us through our third quarter financial results.
Thank you Nathan.
Our third quarter results highlight the strength and durability of our business revenue came in at the high end of our guidance range growing 8% annually as reported and 13% in constant in constant currency driven by strong customer retention growth in higher value commerce subscriptions and talk.
Our revenue is extremely durable with 92% coming from SaaS seats across our $4 2 million unique subscriptions.
Unlevered free cash flow in the quarter of $42 1 million exceeded the high end of our guidance range by $3 4 million, mainly due to the timing of payments.
We're especially pleased to see bookings accelerate to 10% year over year as reported and 14% in constant currency up from 6% year over year growth. We achieved in Q2 bookings strength was fueled by new website subscriptions legacy price increases and talk.
This strength gives us this growth gives us further confidence in our continued success.
This fall we were pleased to announce <unk> refreshed our annual campaign that showcases over 100, new product innovations and features to be introduced throughout the year are constantly evolving platform has grown exceptionally in a myriad of ways from improvements in our selling tools to enhancements in the kinds of sites our customers can create on our platform.
We also hosted our first circle day for our community of professionals to build on square space. This live event in New York was exclusively for members of our community.
No matter, how simple we make our platform to use there are many out there who would prefer professional help from setting up their site to consulting on copy photography and our marketing.
<unk> is uniquely positioned in the world due to our emphasis on incredible design, we are fantastic starting point for these professionals when they built sites or clients.
Further as we continue to enhance our platform and innovations like fluid engine, our new page design system, we launched in a few months ago, we eliminate the need for these professionals to learn custom code or move to more complex platforms that are harder to maintain.
This quarter, we also began introducing modest increases to our pricing for our existing base of subscribers and saw minimal impact to customer attention and response far below what we originally had modeled we continue to benefit from the new pricing introduced in the third quarter over the coming quarters as annual subscriptions come up for renewal with approximately 70% of our.
Our entire customer base on annual subscriptions.
As we have noted previously we've never raised prices on existing customers. Accordingly, many of our existing customers who received a new pricing this quarter remained well below our current market rates for new customers.
To unpack some of the drivers of growth in this quarter.
Unique subscriptions for websites grew in line with our expectations throughout the quarters, we acquired new customers and retain existing ones. However, our unfold business saw softness impacting overall subscription growth leading to the number being roughly flat from a macro perspective.
Unfolds subscriptions at substantially lower in dollar value than other subscriptions. We offer we continue to innovate and unfold by rapidly launching new features including pilot sites, which are easy to create websites social profiles that are being adopted rapidly.
Commerce subscription growth continues to outpace presence as entrepreneurs and creators in greater numbers turned to our simple to use but powerful integrated platform of services for sellers.
<unk> is also helping drive growth in our Commerce segment in Q3, 2020 presence revenue grew at 6% year over year as reported and 12% in constant currency Commerce revenue grew 13% year over year as reported and 16% in constant currency.
Our mix of commerce subscriptions as well as the addition, and subsequent growth is top contributed to <unk> climbing to $206 growing 4% annually.
International expansion remains a core growth driver as we localize our offerings I am.
I'm excited about some of our new international brand ambassadors and Geo specific campaigns tailored to appear to appeal to international audiences.
Within talk which helps hospitality in time slotted businesses thrive, we launched the topline shop. This makes it possible for a winery partners to sell directly to consumers, while continuing to manage the tasting reservations on its all in one platform.
Further we are making progress with square space payments and have recently hired a new vice president who brings over a decade of experience in payments to our team. We believe payments will be an important driver of our business moving forward.
I'll hand, it over to Nathan to speak to the financials before taking your questions.
Thank you Anthony.
Let me begin by highlighting some of the bright spots in the third quarter revenue of $218 million was at the top end of our guidance range as Anthony said, our growth was underpinned by strong customer retention as we introduced new pricing with existing customers.
Increases in higher value commerce, subscriptions, which continued to outpace growth and presence subscriptions and growth in our <unk> business.
As Anthony pointed out these signs gives us further confidence in our business and its future success. In addition to our top line performance, our efficient and scalable model delivered 42 million and Unlevered free cash flow.
Giving us a 19, 3% unlevered free cash flow margin and demonstrating our ability to generate growth and drive profits.
Total <unk> of $1 4 billion grew three 3% year over year as discretionary spending dwindled due to macroeconomic environment. We are in.
Recall, our board of directors authorized a 200 dollar million share repurchase program in the second quarter of this year.
As of September 30, we have repurchased and retired $3 99 million shares, including 243 million shares during the third quarter offsetting dilution related to stock based compensation.
Approximately $114 4 million remained available under this program at the end of the third quarter.
I do want to clarify our mix of international revenue as reported which represented 28% of our total revenue and declined 15% year over year, whereas U S revenue as reported was 72% of revenue and grew 21% year over year.
This is a reflection of prior year revenue Reclassifications and current year FX headwinds as we noted previously in the third quarter of 2021, we reclassified $9 2 million up first and second quarter 2021 revenue out of the U S and international we're taking.
Into account this reclassification.
And the $9 $3 million of currency headwinds versus rates in effect in the third quarter of 2021, our mix of U S and international revenue would have been 69% and 31%, respectively, which is consistent with levels in the first two quarters of this year.
When considering the impact of these two adjustments both U S and international grew 13% year over year.
We are executing against our expectations for non-GAAP expenses full.
<unk> full year 2022, our non-GAAP operating margin is expected to increase approximately 300 basis points from 2021 levels as we reduced G&A and marketing and sales expenses as a percent of revenue while at the same time, increasing our investment in R&D relative to 2021.
This balanced approach fuels, our future growth, while also delivering strong unlevered free cash flow.
Let me turn to guidance before opening up for Q&A.
For the fourth quarter of 2022, we expect revenue to be in the range of $219 million to $224 million, representing a year over year growth rate range of 6% to 8% versus Q4 of 2021.
We anticipate unlevered free cash flow in the range of $24 6 million to $29 6 million.
Our unlevered free cash flow guidance comprises ranges of cash flow from operating activities of 24.0 million.
To $28 9 million.
Capital expenditures of $4 6 million to $5 5 million and cash paid for interest expenses net of associated tax benefits between $5 $1 million and $6 2 million.
For the full year 2022, we expect revenue to be in the range of $857 million.
Two $862 million.
Representing a year over year growth rate range of 9% to 10%.
We anticipate unlevered free cash flow in the range of $148 6 million to $153 6 million.
Our 2022, Unlevered free cash flow guidance assumes cash flow from operating activities in the range of $149 2 million to $154 2 million.
Capital expenditures.
Up $12 9 million to $13 9 million and cash paid for interest expenses net of associated tax benefit between $12 4 million and $13 4 million.
We are reducing our revenue outlook for full year 2022 by $2 5 million or.
3% at the midpoint as we take a more conservative outlook related to the GMB transacting on our platform in the fourth quarter historically during the fourth quarter, we processed higher levels of <unk> relative to other periods. During the year. This year with increased uncertainty around consumer spending we're taking our expectations for <unk> in the fourth.
Quarter down slightly.
We are also factoring in additional $1 $1 million and currency headwinds since we offered full year guidance in July .
Turning to Unlevered free cash flow, reducing full year 2022 guidance by $10 million at the midpoint to a range of $149 million to $156 million.
Representing a 17, 5% margin at the midpoint to account for our lowered revenue expectations.
And primarily the uncertainty and timing of tax receivables.
In summary.
I believe the fundamentals of our business remains strong we have a long operating history of profitable growth a strong gross profit margin and a loyal customer base.
Our refreshed platform delivers an exceptional experience for entrepreneurs that we will continue to fuel future growth.
Look forward to meeting our investors and analysts in the coming weeks and cannot be more excited to be a part of a square space team and for the opportunity we have in front of us.
Given my short tenure Anthony will be fielding your questions today, and I look forward to speaking with you on our fourth quarter call now we would like to open the line to your questions.
Thank you if you would like to ask a question today. Please press star followed by one on your telephone keypad. If you withdraw your question. Please press star followed by team.
To ask a question. Please ensure youll stay in as a neutral lately.
And our first question Jay Gucci Trevor Young of Barclays. Please go ahead. Your line is open.
Great. Thanks, two if I may 1st one Nathan.
Free cash flow came in just over $3 million ahead in the quarter, but as you mentioned lowering full year by about $10 million at the midpoint I think you mentioned something about tax receivables, but I think also in prior years.
Stronger cash flow on some.
Timing events that reverse in <unk>, maybe that's the tax that you're referring to but also <unk> had some AD spend prepay ahead of <unk>. So is that the dynamic thats going on here that basically a little bit of a reversal of the <unk> trend just any color on that would be appreciated.
Thank you Tyler for your question the tax receivables are relating to two things one from 2018 as you can see in the Q.
On a research and development tax credit that we receive or haven't received filed for an attack overpayment from tax year 2020 that was paid in 2021 that.
That represents.
Far majority of that $10 million that we are pushed to 2023.
If you look at the operating margin.
And the cash flow margin that is improving the 300 basis points of this as I said in my remarks year over year.
Yes, I'll just add to that would be helpful.
Yes, it's the payments the timing of moving some things around it is not reflective of like a.
Fundamental difference in how the company is generating free cash flow.
Got it.
What I'm trying to get out.
And Anthony I of course, Roger comment a bit on taking price, which I think started earlier in the year, you mentioned rolling out the price increases to existing subs and not having an impact on churn. Initially can you just remind us how much of a discount versus list price existing subs are because I think you've mentioned.
Still a significant discount so thats, maybe as like a multiyear initiative to kind of get closer to parity.
Yeah. Good thanks for highlighting that it is a month it will be a multiyear initiatives. So basically we went in on a plan by plan level and tried to find like we didn't want anyone's price increase because it could have been unlike square things from like 10 years ago to be like 25% or something like that so.
A lot of like I guess, the biggest like we.
We wanted to take people up by.
Let's call it around 10% to 15% around 10% on average and so there.
There's not just one kind of difference that people saw but you are correct in assuming that we have.
More room to move.
In subsequent years as we kind of slowly bring us bring everyone up to what we would call like list price. In addition in international markets, depending on how our new price Tesco will have even more kind of.
A room to move as we establish a new intra price point right, which is a prerequisite for doing all of this.
The other part of what you were talking about and this is just I mean again, just like the first time, you're doing something like that so it's like.
Yes, there is no precedent.
The churn ended up coming in.
Far below what we modeled.
It was great and again, we don't know how much of that is just a pull forward, which would be ideal Brexit, we're going to leave anyway.
So I'm really pleased with the rollout of this and.
With.
The reaction, we're seeing and it just kind of underscores to me how important the product is to the people who are using it and.
The fact that they get a lot of value out of this otherwise we wouldn't be able to do.
And I think look.
The interim prices still remains very very competitive in my view so.
So I don't think we have done anything at all egregious here and I think the platform is just so much better than it was years ago. So I think.
This has been a highlight for us.
Over the quarter.
Okay.
That's really helpful. Just to dovetail on that can you update us on where we stand with the bundling efforts as part of that bring maybe some older subs that were kind of all the car into new bundles that essentially higher price point.
So we're still doing a lot of the engineering work for that part of the idea behind the bundling efforts are to give.
More like.
Basically supercharged the power and the features and functionality that are in the base level plans and so I think that just will speak to us maybe being able to get to a higher <unk> price point and also mid bundled price point later on.
I think we will start to see some of that stuff enter into a test phase more in Q1.
But yes still still remain excited about that.
Great. Thanks Anthony.
Thank you and the next question guys Hey, Joe.
Mike.
I just wanted to add one thing there because we saw our bookings reacceleration this quarter, which were very pleased to see some of that is the price increase but a lot of that is also just new website subscribers, which again is getting masked by the offset in the negative.
The negative story related to the unfolds subscribers. So I just want to point that out.
Thank you and the next question guys, Hey, Josh Beck of Keybank. Josh. Please go ahead. Your line is open.
Thank you so much for taking the question I wanted to go back to your comments there.
Churn certainly you had better something into the model you obviously have.
So many months of experience.
Do you feel like you have a pretty good handle on that.
Churn at least related to pricing is going to play out in the future quarters or is that one where you may be waiting a little bit more data through.
The end of the year to really be able to make the call like okay. We have a very good kind of handle on the sensitivity around pricing there.
I think we have enough data to say, we have a good handle around it I think when we're talking about.
Hundreds of thousands of data points, the one area, where we won't know until it happens is the full impact of what it will mean for annual renewals.
But.
I would think that if you didn't like the new price you were planning on leaving you would've just set your site to cancel and not renew as soon as you saw this.
But no I think again, it's a positive story for us.
We rolled it out in a controlled way and I think.
I don't anticipate more surprises related to this.
Okay.
That's great to hear obviously.
It's got a break in breaking new ground in some ways with your model.
I also wanted to ask just a follow up on gmg.
<unk>, obviously the growth slowed we've heard this.
Team from many commerce oriented companies this quarter I'm kind of curious you mentioned discretionary that's obviously been.
A topic that's come up many times, but if you kind of double click.
On <unk> and what the drivers are there any verticals that really stood out or maybe some that were resilient just kind of curious on on what some of those drivers were and how we should kind of believe that forward into future periods.
Yes, so again no surprises there we've seen softness.
In the U S e-commerce.
The past couple of months in the last quarter and all of that so it shouldnt be too much of a surprise I think that the interesting thing about <unk> is that.
It's really multi dimensional so it's not just physical commerce services based commerce, it's appointments.
Bookings.
Bookings in reservations would talk so I think Tom showed a bit of resilience, whereas physical and services based commerce was a little bit.
And.
But again, that's kind of going to be the difference between what youre going to see in square spaces CMV as we move forward, which will maybe.
Cause it to look a little bit different than if you just compare it to like.
What Amazon Shopify.
Super helpful. Thank you Anthony.
Thanks.
Thank you and the next question goes to Ken Wong of Oppenheimer. Ken. Please go ahead. Your line is open.
Great Fantastic.
Anthony you mentioned weakness in unfold that was something we saw last quarter as well any color on whether or not that stabilize worsened would love an update on how that piece of the business.
Yes, so I remain really.
Enthusiastic about unfold and I'll kind of break down what I'm what I'm.
But we're looking at in there a little bit so unfold as a very low priced subscription one of our lowest aside from domains, but theres a high volume of them and what is and it is also by the way a very global business much more than the rest of square space. So I think a couple of quarters ago. When you were talking about.
The situation in Europe things like that actually impact unfold in a disproportionate way as well as events in Asia, and South America, So what's happening in unfolded.
It's a place where there is two factors.
That really kind of battery. If you will one is competition the app store and two is just the evolution of trends on social media. So what people are doing on social media and how it looks in <unk> Instagram. How these stories three years ago arent the same as two years ago or five years ago, or even last year, especially with.
The usage trends changing alongside the pandemic.
That being said, we still have a huge belief that people are starting out on social media and their presence managed it in there and the real bright spot actually within unfolded. The introduction of bio sites, which were not fully monetizing yet. So there is like if you are looking at whats called like the Lincoln Bio space, There's a couple of different competitors.
Sure.
It is the notion that you've all seen and I'm sure on Instagram you can click on somebody's bio and you can see that little site, it's kind of a train station routing links out we have hundreds of thousands of sites created and the pace of them being deployed is accelerating so I think we're going to have a lot of opportunities within that product as well as the proud.
Stories products to create.
Create a really positive story here.
Again like it is just so great to see something accelerate and organically spread.
We deployed from within.
Unfold in addition to it being a new homegrown brand that we're launching.
<unk>.
We developed and launched in house so.
More to come there.
But I am really happy with that foothold, we've got and how that story has played out.
Got it fantastic and then maybe following up on <unk> question on bundling I noticed you guys put out this refresh campaign should we think of that as the first kind of education process to get the customers aware where are we in terms of the direct sales out for your partner efforts to kind of get the bundling.
Up enrolling and then it sounds like the product piece is still TBD, but on.
On the go to market side are we OE kind of getting to the point, where you guys are ready to activate that once the product side is this squared away.
Okay.
Theres more than enough, we can put into the bundles I mean they.
Part of the situation square spaces found itself in over the years is that we actually do so many things with classes of course is our E mail campaigns and these things are launched on the platform, but theyre behind separate subscription. So we have plenty to do.
The bundling work is not dependent upon like us needing to.
Create new features for the bundles.
It's the re architecture of how those things are access is really.
It's just a heavy lift I mean, it's just it's just a lot in the platform.
So refresh.
That's kind of the rebrand that's a new brand for us again.
Branding, what's essentially is going to be our annual product event, which is a combination of feature launches in a round up of whats been going on.
We actually launched a ton of stuff during the year and I think some of it gets lost because it's not all at the level of a press release and so refresh gives us an opportunity to say hey, let's take a look this products improved in like 100 different ways over the past year, let's re look at fluid edge and let's look at the work we're doing with.
Various personalities and brands that are on the platform now that thing was funding part of refreshes.
After putting fluid engine out, which I have talked to.
Previous con, we'd love to talk to about more it's really unlocked the ability for us and a no code fashion to do.
Really kind of forward thinking sites that our customers can then not admire but manipulate and that's something that would work for them and so as part of refresh we launched icons, which lets us showcase sort of like we've always had this dream for like.
Our fallen a spring season of templates. If you will just to further the fashion analogy and we can finally do that and then do it in a way where.
The templates that we put out there we collaborated with bjork on one of the first ones here are usable by customers.
Not just us completely avantgarde thing they can take it with fluid engine in our section based design system actually make it work for our portfolio or for a consulting site or something like that so that has been a longtime coming from me and I'm happy we've got it there but yes.
So that gives some color on refreshing the intersection with bundling.
Great. Thanks for the detail.
Thanks, Ed.
Thank you and the next question goes to Chris Zhang of Credit Suisse. Chris. Please go ahead. Your line is open.
Yes.
Hi, good morning, Thanks for taking my question.
I had a question on the unique subscriptions I know a lot of the pulse and very helpful color has been provided.
Around the continued impacts from household and at the same time the growth in subscribers. So given the moving parts here can you.
Maybe unpack the growth of unique subscriptions in the President's versus commerce segments, and how they compare to the overall growth I think that any directional comments on that.
Sequential or year on year growth of two segments would be I appreciate it and I had a follow up if I may.
Sure I think why you see a positive bookings and revenue story here is that we continue to grow our higher subscription the higher value subscriptions.
At a pace above lower value subscriptions, and we continue to get more rare.
Revenue out of the subscriptions that we have again underscoring in that number that.
It is masking the fact that the web the new website revenue number was.
<unk>.
Strong.
To be more specific about it commerce hub is growing at 7% versus presence subs growing at 4%.
Just to kind of help you think about that look I think that.
Yes.
As we continue to evolve the system and provide more and more sophisticated tools and become more and more a part of the infrastructure that entrepreneurs, who used to grow their businesses. It's just naturally going to trend towards those higher value subscriptions, because we're getting just more.
It's just more business oriented in nature and the more kinds of businesses that we serve time side of the business is hospitality services based businesses classes and courses.
It's just going to keep trending there and then once we overlay that with.
Improvements to payments, we'll be unlocking that stream to again, 92% of our revenue right now is coming from.
SaaS and recurring.
Fees in the business, which is again, great from a resiliency standpoint, especially considering our cash retention and churn properties, but just a lot more to it.
To do there.
Okay.
Alright, thanks ethylene for the great detail.
Really appreciate it.
Second some customers.
Payments can you maybe give us some update on the progress and the timing of your in house payments offering.
Yes, I wish I had more of an update the big update I do have is that we welcomed a new vice president Dan Schlanger, who is joining us for today's debt.
Who will be really focusing on this and also our acuity business, which I can talk about.
Later, but.
Yes, we've just been.
Making updates to the team and going back and forth to try and make this a reality.
Far down the road with that it's just it's a heavy undertaking and it's a new muscle for the company. So it takes a minute.
Alright, yes, that's great to hear the update on the leadership.
I'll jump back to the queue.
Thank you and the next question guys Cmos <unk> of William Blair. Please go ahead. Your line is open.
Hey, great. Thanks for taking my questions wanted to first ask on the macro and dig into the sub commentary a little bit more are you seeing any impact from the macro in terms of the top of funnel activity or conversion or even on the churn side of things.
Now all of that remains strong, especially if youre looking at the website business in particular, which is going to be one of the main drivers of bookings and revenue.
Okay.
Got it and then if we are heading into a weaker macro next year. How do you all think about managing your expenses and are there certain areas, where you might pull back on if we were to see demand weaken a bit.
Yes, I mean, that's kind of been the whole story of the year right. So.
Scores base, one of the things I'm very proud of what our company is that we've always been.
I think very.
Very cautious with cash as company operated to cash flow breakeven for 15 years before flipping over to profitability a number of years before going public.
<unk>.
To put in perspective like earlier in this year when we saw things changing internally, we massively changed our plans regarding head count and hiring.
And continue to keep our eye on that as we move forward into the year.
We're looking further into our.
Our marketing spend making sure that ratio remains under control and and managed as we continue to grow and you see that those you see those actions and those results for us kind of almost every quarter. So.
It's not like a square space is going to be making some sort of left turn.
Yeah.
Okay.
Have a.
We have a diversity of businesses right. So it's not just square space websites or unfold bioscience talk or scheduling. We've got all these different business lines in all these different ways that we're helping entrepreneurs and so it'll be interesting to see as we move forward into.
<unk>.
What is an uncertain uncertain macroeconomic time.
Which of these have headwinds in which have talent is something we saw during the pandemic our websites business had massive tailwind and other businesses like appointment suffered certain.
Certain headwinds on any given quarter same way same with top.
Yes, two things one just to underscore the 92% of the business is SaaS.
SaaS revenue so even if there are further fluctuations that are affecting <unk> and those that aspect of the business that is not like square spaces. Current main driver for growth that remains a big opportunity for us, but I don't think it should worry too much about that the second thing and this will be interesting because no two.
Recession are created equal and the last time square space existed in a time like this was 2008 and what ended up happening back then and again it was such so different numbers different recession et cetera, we were actually counter cyclical to that recession because.
People get laid off or help us with jobs or have to evolve.
They they evolve they adapt they don't just sit there and give up and go home and stay at it I won't put my portfolio on line I won't try and side of the business I'll just give up it's not what we tend to see so I hope that we're well positioned to help people adapt in this timeframe and frankly for some of them to come out.
With new businesses of their own and.
Not that we want to be in a situation but.
It could push certain people to have a positive change.
So we'll see.
But we remain a critical infrastructure component in People's lives and.
Yes, I think we're hopefully we're well positioned.
I would just layer on this Matt this is Nathan.
That.
My few weeks here I do think the company has a very strong discipline here that we manage the expenses to our top line and make the adjustments necessary.
And you can see that in our operating profit improvement year over year, and our healthy cash flow margin.
Perfect very helpful. Thank you.
Okay.
Thank you and the next question Daiichi Gabriela Borges Goldman Sachs. Gabriele. Please go ahead. Your line is open.
Good morning. Thank you Anthony is Ian Nathan think about medium term planning assumptions with love if you could share a little bit of color on what do you think the normalized growth rate of this business and more specifically on 2023 do you think 2023 can accelerate based on the visibility that you have today.
Thank you.
Well one of the highlights thank you well one of the highlights of.
This call today is talking about the bookings acceleration to.
10% year over year, and 14% on a constant currency basis, So I think that thats.
Really encouraging while still preserving.
Margins that that we like we're not we're not burning cash to just falsely inflate that number we would never do that we've always operated with a balance.
So I think there that along with pricing along with.
Bundling along with payments.
There are many many many levers this business has to accelerate accelerate our growth rate I'm going to highlight two additional ones.
One of the ways, we're thinking about the business right now is not just square states to brand and everything falling under that one brand, but really thinking about having a building on our portfolio of brands you see that with <unk>, but one of the areas, where I don't think that we've.
Pushed enough and we've changed our structure internally to be able to do this.
Things like the acuity brand, yes appointments will appear as part of the <unk> platform because there's a large number of people that wanted to sky.
Schedule appointments as part of that subscription, but there is a huge number of people that want to do that that arent using us for their website and so I think one of the ways that we can really.
<unk> continued to grow a bigger invest in those brands I mean thats what scorsese is so good at doing I mean, we're adding internal agency of the year last year, we can apply that skill set to all of these other brands that we've either acquired or launched so that we can win in more categories, such as web sites and that is frankly, a really big difference from <unk>.
A lot of our competitive set and what were kind of the path we're pursuing right now.
Anthony do you think if you think about the next three to five years.
You can see that the strategy that you have with pricing order of magnitude how much do you think pricing can contribute to the growth algorithm.
Well a lot I mean again another positive highlight from this quarter that we were able to have a.
Part of the pilot throughout the entire year is that we were able to really successfully increased.
The price for new customers, which gives us the leverage to increase for existing customers and we started to push that up a little bit I think there is huge potential there and but its not all I want to rely on what I really am interested to see what happens with bundling see what happens with pricing within acuity pricing within talk I mean, we've just scratched the surface.
Is what we're able to do across the product portfolio. There and then in addition, bundling is one side of it because we are introducing new features onto like a kind of a base level of subscription but.
In areas like talk in acuity, we have a real opportunity to grow with customers and have much much much higher LTV as we pursue those lines of business. So.
<unk>.
I see.
Theres just a lot of directions, we can move it and we're moving and Brian I mean, you saw the past quarter.
Thanks for the color.
Hmm.
Thank you and the next question guys two Logan reach of RBC capital markets. Logan. Please go ahead. Your line is open.
Hey, good morning, Thanks for taking the question.
Just on the sequential sub growth you guys were flat.
Proximately slots this quarter obviously.
A lot of that was related to the unfold being soft, but what needs to happen for you guys to return back to your sub growth.
Yes.
I personally find that number challenging to look at from a number of reasons I mean, we were reporting it and I think what we're trying to show is that versus the <unk>.
And that positive dynamic within that subscriber set but if you're just looking at the wrong number.
Hard because talk has.
<unk> of subs that generate tens of millions of dollars.
And unfold has hundreds of thousands of subs that generates like.
Single digit to low double like.
Somewhere in that range millions of revenue. So my focus is not necessarily I need to see for to go to four three to $4 four although that would be great. It should go to a one.
But.
It's what's happening in that in that number thats, so important and so focusing on the acuity of the high value subs and again, one highlight of the quarter.
Want to make sure we're emphasizing it.
Let's say subscription growth was strong within that number which is a core driver of the business and why we are a positive bookings.
Story and so.
Yeah, I mean, I guess I guess to answer the question a nuanced way I'd almost have to take it like subtype by subtype right like you'd have to talk about talk and what that means for our sales force and how that's related to those.
Growing in unfolds.
Driver of that is organic growth and the App store, it's virally spreading like there's so much underlying that number so I hope, it's not too misleading.
Got it yes, no totally makes sense, so I really appreciate the color.
Yes.
Yes, no problem.
Thank you and the next question guys two city Pentagon of mid to high of Citi. Please go ahead. Your line is open.
Thanks for taking my question.
Anthony.
Last year, you talked about enterprise team.
Which you started a couple of years back, but just wondering if you could give an update on that and what kind of traction you're seeing on the enterprise customer our largest customer.
Yes, thanks for the question.
It's actually seen some improvements over the past couple of quarters, but it's such a small part of the business right now that we kind of don't share too many updates on it. It is definitely still a focus and if you think about square space.
Again being a bit of a portfolio of brands. The unlock that that gives you inside the enterprise space is really big because if we've got scheduling as a separate product as a separate brand with acuity a lot of the enterprise interest that we had there was really natural came in through that angle. It wasn't because somebody made a website on square space and added scheduling and suddenly there some giant.
Customer opportunity for us So I think as we clarify that point, we're going to be able to give kind of a.
I look at it as the government segment by segment breakdown of how.
How were doing in enterprise again.
Talk for instance is.
Enterprise right word, but maybe more mid market sales.
<unk> driven or already has that muscle and grows that way. It's just we're trying to grow that in.
Acuity and square space more broadly, but still.
Still getting footing, there, but not a significant driver of revenue in the business yet.
Great and net.
John you talked about.
One John in about like profitability part of this business and one of the things you do you did mention some of the things that you like maybe hell.
US understand the strength and where do you think you can improve further.
And how do you think about the opportunity in terms of investing given that's such a large tam and this business is pretty much ties to.
It's pretty much ties to camp and then how you're investing how youre thinking about that.
Yes, thanks for the question so.
As you know.
Evaluated the square space opportunity I'll say one of the key factors was Anthony and.
Partnering with the CEO that could grow the business. He is very forward looking.
<unk> driven what we can do to the entrepreneurial world type of thinker and that was <unk>.
We are very attracted me like I want to partner with the right CEO that we can grow and drive our business to be <unk>.
Secondly, I would say like the foundation that we have at square space with the premium brand in the portfolio of brands that Anthony referred to I think Thats just the start of what we can deliver to the entrepreneurial world and thinking about the adjacent spaces that we can go in.
Three years and five years of how that looks to deliver even more holistic approach to our entrepreneurs that will drive monetization.
Both the entrepreneur and four square space.
Lastly, I did refer to as the I think the financial profile of square space. It's very healthy we have a very strong.
Cash flow margin. We also have very good operating margin that allows us to think about where we're going to drive growth and invest in growth, but also give strong returns to our shareholders and <unk>.
I think that that is laying the land of how we are going to grow this business to be <unk>.
Thank you, Matt and welcome I'm looking forward to working with you.
Thank you likewise.
Thank you and our final question today, guys to clot Jefferies Piper Sandler. Please go ahead. Your line is open.
Hello. Thank you for taking the question one thing that stood out to me in the shareholder letter was.
That.
Scheduling and talk account for half of the mix of Gmg I was wondering if you could talk about what is the payment attached to look like in the scheduling product today or broadly within time slotted businesses.
What would be your ambition to have more offline commerce functionality potentially at the point of sale, but even scheduling or software functionality offline.
So this is a huge focus for us, especially within the acuity business a huge huge amount of the transactions are happening.
Not at the point of booking but at the point of service rendering.
So it is a big focus of the team right now to think about that think about invoicing think about workflows invoicing was announced as part of refresh and it's just a big focus for us and further with innovations that are happening on the phones with tap to pay and all of that.
It means that if we want to enable.
Solutions within the mobile App to kind of complete that end to end payment that we're not reliant on hardware and things like that to help people facilitate that so very very excited there and again excited.
This portfolio based approach right not just physical commerce. It services based commerce. It's reservation event. It's taken all of these things that we can that we can push on and I think when you think about hey look it's going to be a portfolio of brands not just one you can see that.
It affords you kind of have a path to like okay, well, we'll talk is winning in.
As a reservation platform and a number of ways, how can we make sure that acuity doesn't fade into the darkness, but.
It becomes a prominent thing in People's minds, when they think of scheduling platforms.
No.
There's just so much opportunity there our analysis of what's happening around those platforms like just especially with like a.
With acuity.
Billions and billions in that ecosystem and because we have permission I think.
Because because we're like the front door and we have that like branded touch point I think people want us to participate there and they want us to be providing those solutions, so that our customer everything from booking an appointment to the invoice they see it looks consistent so that's kind of.
How we're oriented.
Yes.
Absolutely.
Certainly seems like there is a level of functionality specific to time, Florida businesses related to loyalty.
And services rather than products up follow up question.
It's really a lot of the commentary had been around during this call I've been around the new customer funnel all the subscription growth.
I think the last few quarters, we've got the characterization that you may have been pulling back on sales and marketing spend because of the ROI. In this environment do you think thats changing just the new customer funnel look today.
Is it in a place where you might consider increasing the sales and marketing investments.
I think we've been focusing on sort of right sizing it and.
I think when you think about these different businesses and how they need to grow with.
Trying to take a pretty nuanced approach to where we're adding and we're holding it flat.
You've seen us do that throughout the year as we try to keep that ratio kind of in a certain range.
So we're not thinking about really taking it up from that ratio right. Now I mean, we certainly would if there was something to lean into and more heavily but I think we keep focusing on really sustainable growth and so that's kind of been our model.
Alright, Thank you very much.
Alright. Thank you for joining today, we will be presenting at the RBC Conference in New York later this month and at the Barclays Conference in December . Thank you all and enjoy a Tuesday.
Okay.
Thank you. This now concludes today's call. Thank you very much for joining you may now disconnect your lines.
Okay.
Sure.