Q4 2022 Squarespace Inc Earnings Call

Speaker 1: of gap to non- GAAP measures in today's press release and shareholder letter, which can be found in the investor relations section of our website.

Speaker 1: These measures should not be considered an isolation from, nor a substitute for, our GAAP reporting.

Speaker 1: We will make forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, which include, but are not limited to, statements related to our future financial performance.

Speaker 1: These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially. 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 day, March 2nd.

Speaker 1: 7, 2023. We undertake no obligation to update these statements as a result of new information or future events, except where required by law. Please also note that all comparisons are on a year-over-year basis, unless specifically noted otherwise.

Speaker 1: I will now turn the call over to Anthony.

Speaker 1: Good morning and thank you for joining us today. 2022 was an extraordinary year for Squarespace and I'm proud to announce very strong Q4 results alongside a positive outlook for 2023.

Speaker 2: During Q4, we achieved record bookings of 232 million, growing over 18% year-over-year in constant currency. This growth speaks to the enduring ways our products help our customers succeed online at a moment when digital presence is central to how entrepreneurs engage with their audiences.

Speaker 2: Commerce revenue grew to 3-year CAGR of 42%, bolstered by new commerce subscription growth as we continue to prioritize tools and features for entrepreneurs everywhere.

Speaker 2: The growth in our commerce revenue continues to outpace our presence revenue growth.

Speaker 2: Our Q4 unlevered free cash flow was more than triple the amount last year, resulting in an overall unlevered free cash flow margin of 19% for 2022.

Speaker 2: We plan on continuing our disciplined approach to balancing cash flow growth and revenue growth, and improving this margin in 2023 by continuing to improve operations, growing our product lines, and continuing to invest both domestically and internationally. Our outstanding results are a testament to the power of our products.

Speaker 2: They are influenced by our rapid pace of innovation as we deliver new technology and drive improvements across our entire platform throughout the year. In September , we introduce Squarespace Refresh, our annual recap of product releases.

Speaker 2: This year, we highlighted more than 100 improvements across the platform. These releases included Fluid Engine, a new design system for building pages on Squarespace, which represents one of the biggest changes that we've brought to our content management system in a decade. Fluid Engine drew measurable usability improvements for our customers and pro communities, and helpedadsont?keyes before reopening their apps.

Speaker 2: while also expanding the number of designs our customers are able to create.

Speaker 2: We've been consistently updating it since launching over the summer and can either receive positive feedback from our customers.

Speaker 2: We believe, with the improvements we've made to the platform in 2022, that we are both the easiest to use and most expressive content management system on the market. Last week, Fast Company named Squarespace as one of the world's most innovative companies in 2023 for our e-commerce improvements. Custom merchandise, our print-on-demand service, video hosting, and our expanding payment tools are all available on our website.

Speaker 2: and we're delighted by the recognition. Our growing set of products and corresponding investments in new go-to-market initiatives continue to strengthen the underlying drivers of our business. Our commerce capabilities, international expansion, enterprise initiatives, and our pro-user community circle remain key to our future growth. We made progress on advancing each throughout 2022.

Speaker 2: Our commerce revenue growth continues to be an important driver of our business.

Speaker 2: Commerce website subscriptions represent an increasing percentage of our total website subscription mix, and this mix shift to Commerce is one of the main factors why average revenue per unique subscription increased by 3% year over year to $209 in 2022.

Speaker 2: This continued remix to higher value services will continue to boost Squarespace's business in 2023 and beyond.

Speaker 2: TOC, our platform for managing hospitality and time-slotted businesses, also had a standout year. It processed record levels of GMV on its platform, and tens of millions of diners booked reservations through TOC in 2022. Matt Tucker, former president and CEO of Olo, joined at the end of the year to drive TOC's next stage of growth, and I'm excited about the progress he's already made in his short tenure.

Speaker 2: A QED scheduling, our product for customers managing calendar-based businesses, also had a fantastic year. We recently welcomed Dan Chandra, who brings over 15 years experience with time management software and payment solutions to our team to lead a QED to its next stage of growth and we're excited for what's to come.

Speaker 2: Acuity benefits greatly from the integration with and funnel from the Squarespace platform, and we look forward to continuing both these integration efforts as well as growing Acuity as a standalone brand. Many large customers may not use Squarespace as their website provider, and we want to make sure our product lines can grow independently of one another when we have that opportunity.

Speaker 2: International remains a greenfield opportunity for Squarespace. Last year we expanded language support with three new languages and added the ability to host multilingual websites on our platform. International customers represented about 30% of our total bookings.

Speaker 2: Throughout the year, we developed tailor-made marketing campaigns for key markets and we anticipate continuing to scale investment in these markets where we saw opportunities to grow.

Speaker 2: Our professional partner community circle also had a great year and we hosted our first per user day in 2022 for our circle members. Over a thousand members participated in the event with 150 joining us live in New York.

Speaker 2: We continue to invest in tools for this community as pro users have always been important to our growth. Currently, our Circle Community accounts for over 9% of new sites created on our platform. Releases like fluid engine and not just target consumers. Our Circle Community uses the same tool to produce a wide variety of sites for clients and we're delighted to hear their positive feedback.

Speaker 2: 2022 was a building year in Enterprise. We start from our team, advanced our sales, enablement assets, and released new product features to support Enterprise clients. We launched a shared template store, new dashboard features, which included additional functionality around permissioning and analytics, and improved features related to single sign-on used by many Enterprise customers.

Speaker 2: Progress towards Squarespace payments continues, and we're still on track to launch our service in the back half of 2023. As we continue to move more payment volume onto our platform, Squarespace payments represents an important piece of the customer experience we ultimately want to deliver. 2023 is set up to be a fantastic year for our company. At Squarespace, we see a future where everyone can be an entrepreneur.

Speaker 2: and we remain excited to continue to deliver exceptional products that help millions as they embark on that journey.

Speaker 2: I'll now turn it over to Nathan to go through the financials.

Speaker 3: Thank you, Anthony.

Speaker 3: Today we reported a strong fourth quarter, which culminated in a strong year for Squarespace. Both our full year 2022 and Q4 results exceeded our top line in unlevered free cash flow guidance as we close 2022 with revenues of $867 million, up 11% and 14% on a constant currency basis.

Speaker 3: with a 19% unlevered free cash flow margin.

Speaker 3: These achievements speak to Squarespace's solid financial profile. We are driving growth and generating positive cash flow, a combination that affords us the opportunity to deliver more to our customers in 2023 and continuing to deliver for investors. I can tell you, after working with the team these past five months, leaves me energized by the incredible opportunity ahead of us today.

Speaker 3: I'm confident in the vision we have guiding Squarespace, one which prioritizes innovation for the benefit of customers and empowers their entrepreneurial aspirations with the tools they need to stand out and succeed.

Speaker 3: Q-Port Bookings of 232 million grew by 15% as reported, and 18% in constant currency. A sequential increase from the 10% reported, and 14% constant currency booking growth in the third quarter of 2022.

Speaker 3: Full year 2022 bookings of 906 million increased 11% as reported and 15% in constant currency driven by growth in unique solutions and in our hospitality services through talk, as well as the successful implementation of price increases for both new and existing customers.

Speaker 3: We are delighted by the momentum we achieved in 2022 as bookings increased through the year.

Speaker 3: Revenue of 229 million exceeded the high end of our guidance of 219 to 224 million in the fourth quarter, which represents growth of 14% in constant currency.

Speaker 3: Since providing guidance in November , foreign currency fluctuations positively impacted our fourth quarter revenue by $1.6 million.

Speaker 3: Our Q4 results were driven by strong customer attention and acquisition, along with the continued success of legacy pricing initiatives, which will be initiated for existing customers at the end of Q3.

Speaker 3: We continue to see better than expected retention from our stable base of over 4.2 million subscriptions as we methodically roll out that price increase.

Speaker 3: Our product offering, more powerful than ever before, provides an essential service to our customers.

Speaker 3: International revenue was 244 million for the year, representing 2% growth and comprised 28% of total revenue.

Speaker 3: excluding the FX impact international revenue would have comprised 30% of total revenue and grown it 14% on a constant currency basis.

Speaker 3: From a product and partnership standpoint, we are making consistent progress in our efforts to drive new international customers. We are now supporting multilingual extensions in 100% of our target markets.

Speaker 3: We have localized payment mechanisms, and we have added other localization features to fine tune our platform's suitability to the needs of entrepreneurs globally.

Speaker 3: Though we are still in the early stages, as we look forward, international expansion will be a key growth driver for our business.

Speaker 3: still in the early stages as we look forward international expansion will be a key growth driver for our business. As Anthony said

Speaker 3: Commerce continues to be a driver and focus at Squarespace as we roll out more solutions to help our customers transact online and engage with their audiences, enabling the sale of merchandise, time-based services, and content.

Speaker 3: In Q4, commerce revenue was 72 million, growing 12% and 14% in constant currency.

Speaker 3: Commerce subscriptions, talk, and our scheduling product drove growth in the quarter. Our commerce revenue includes contributions from GMV-related revenue share resulting from the value of services, merchandise, and digital content. GMV was 1.6 billion in the quarter.

Speaker 3: down 11% due to lower transaction volume from our scheduling product and commerce website subscriptions.

Speaker 3: This result is consistent with the guidance we provided during the last quarter and in line with our expectations. Schedulings showed particular strength in Q4 2021, setting up Q4 2022 for a tough comparison. Despite the slowdown from scheduling in the quarter, we saw strength from talk.

Speaker 3: Talk had its highest quarter ever for GMV, as more businesses choose Talk to help manage time-based reservations and events.

Speaker 3: We believe we have a significant opportunity to provide further value for service-based businesses selling through digital channels as we prioritize investments in talk and scheduling products in 2023.

Speaker 3: We are encouraged by the continuing trends we are seeing within our website subscriptions, with a greater proportion of customers using our higher valued plans compared to prior years.

Speaker 3: We believe this demonstrates a greater intent to sell as these offerings include fully integrated e-commerce options and other features that enable digital sales. I believe ARPU is a useful metric in evaluating our ability to sell higher high value plans, add-on subscriptions, and hospitality services.

Speaker 3: At the end of 2022, ARPUs was $209, representing an increase of 3% from $203 in 2021.

Speaker 3: Growth in R-Boost is due to an increased mix of higher tiered plans across our website subscriptions.

Speaker 3: planned pricing increases, and the continued growth of our commerce offerings and attached products, as well as the addition and subsequent growth of TALK, which began impacting revenue in Q2 2021 following its acquisition.

Speaker 3: Our model benefits from our ability to sell more to customers and also from new customers joining our platform.

Speaker 3: Unique subscriptions surpassed 4.2 million at the end of 2022, growing 3%. We have noted softness impacting overall unique subscription growth throughout the year from unfold. Our product that helps customers manage their social media presence.

Speaker 3: Unfold subscriptions are substantially lower in dollar value than other subscriptions we offer. Unfold's application has been impacted by increased competition in the App Store and the greater evolution of trends on social media. Despite this slowdown, we are excited about Unfold's biosite product.

Speaker 3: Biosites are mobile first one-page websites. With a biocite, customers can create a simple web presence, except payments, connect across social platforms, and grow their audiences with one URL.

Speaker 3: Full year adjusted EVA-DA grew to 147 million, representing a 17 percent margin, 106 basis points of improvement compared to the previous year, and 18 percent growth driven by our operational discipline.

Speaker 3: As a result of our annual impairment analysis, we incurred a $225 million non-cash goodwill impairment charge, primarily due to market values deteriorating subsequent to our acquisition of TOC in March of 2021. The impairment charge impacted our operating expenses for the quarter and year.

Speaker 3: Moving beyond top line metrics, we delivered non-GAP gross margin of 84% down approximately 130 basis points a year over year as we prioritized faster and more scalable deployments through cloud first delivery.

Speaker 3: Gross margins are also impacted by TOC's hospitality business on account of its payments business.

Speaker 3: In 2022, we delivered a non-GAP operating margin of 17%.

Speaker 3: which represents expansion of approximately 430 basis points compared to the previous year and excludes the impairment charge we incurred in Q4.

Speaker 3: We improved non-GAAP operating efficiency as we reduced marketing and sales expenses throughout the year, in part by focusing our investments in areas that drive subscriptions and continuously adjust for demand. We drove efficiencies in our marketing and sales spend throughout the year and delivered over 600 basis points of year-over-year improvement on a non-GAAP basis in 2022.

Speaker 3: where non-GAP marketing cells represented approximately 35% of revenue. Additionally, we reduced GNA expenses by 75 basis points to 11.5% of revenue on a non-GAP basis. We realized this operating leverage while still investing in our future growth as we increased our R&D spend to 21%

Speaker 3: of revenue on a non-gat basis, up 125 basis points over 2021, and in line with the outlook we provided last year. Throughout the year, we took a disciplined approach to our expenses, with intent to drive improvements from our 2021 expense allocation in line with where we saw opportunity for future growth.

Speaker 3: Turning now to the balance sheet and cash flow statement. We finished 2022 with cash and cash equivalent of $197 million, and investments of $32 million.

Speaker 3: Our total debt was 514 million, of which 41 million is current. Our cash flow from operating activities grew 33% to 164 million.

Speaker 3: In Q4, we generated strong, unlevered free cash flow of 41.5 million for the trailing three months or 18% of total revenue, a growth rate of 217% to surpass the high end of our guidance.

Speaker 3: The outperformance was due to higher bookings driven by strong customer retention associated with legacy pricing increases and favorable FX rates, combined with operational efficiencies.

Speaker 3: We continued our share repurchase program, authorized by our Board of Directors in May, which underscores the confidence leadership has in our business and Squarespace's opportunity for future growth. As of December 31, 2022, we returned over $120 million of cash to shareholders under the current authorization.

Speaker 3: This represents purchases of approximately 5.5 million shares at an average price per share of $21.28 on the open market.

Speaker 3: At year end, approximately 80 million remained available for repurchase.

Speaker 3: The shares we purchased in 2022 had an anti-dilutive impact and more than offset our stock-based compensation grants, net afforeitures and explorations.

Speaker 3: Turning to our guidance for Q1 and full year 2023. In Q1 2023, we are targeting total revenue in the range of $232 to $234 million. This represents 12% growth at the midpoint. We expect unlevered free cash flow during Q1 to be in the range of $63.

Speaker 3: to 65 million which implies an unlevered free cash flow margin of 27% at the midpoint of the range.

Speaker 3: For the full year, we expect total revenue to be in the range of $955 to $970 million, representing growth of 11% at the midpoint of the range.

Speaker 3: Unleivered free cash flow is expected to grow throughout the year to the range of 183 to 198 million and implies an unlevered free cash flow margin of 20% at the midpoint of the range. This outlook is constructed from our stable recurring revenue model, 92% of revenue coming from subscription revenue.

Speaker 3: and our continued commitment to operate our business with a focus on balancing, profitability, and investment. In constructing our guidance, we assumed continued positive impacts from our legacy price increases and a customer demand trajectory which continues at a similar rate. We also assumed FX rates as of the end of February .

Speaker 3: We look to sustain possible growth for our business and expect to maintain a 2023 non-GAP gross margin similar to the strong margin we delivered in 22. We expect to see continued improvements in our marketing sales expense throughout the year. We balance this efficiency with increased R&D expense as a percentage of revenue as we invest for growth. We are always keeping an eye on the bottom line to rationalize spend and ensure our

Speaker 3: and more customers in the future.

Speaker 3: Our results demonstrate our customers commitment to our platform and our ability to deliver both top line growth and bottom line margin expansion. We are inspired by the opportunities available to us today and see those opportunities expanding over the years ahead as we optimize our platform and launch additional services for our customers.

Speaker 3: Our singular focus on our customers is driven by the talented people who work at Squarespace.

Speaker 4: I will now open the call for any questions. Thank you. As a reminder, if you'd like to ask a question, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you may press star 2. Please ensure you're unmuted locally when asking your question.

Speaker 4: Our first question for today comes from Trevor Young of Barclays. Trevor, your line is now open, please go ahead.

Speaker 5: Great, thanks. First for Anthony, we're hearing a lot about AI across internet and software and even some of the web tools players are looking at it for chat bots to complement kind of self-serve customer support and the like as well as you know maybe generative AI for making product descriptions to go on websites.

Speaker 5: Can you talk a little bit about your ambitions with AI? Is it something that you're looking at? Is it an opportunity? Is that something you want to lean in on some investments there? And then for Nathan, on the revenue guide, implying a bit of a deceleration later in the year, is there something that you're seeing that informs why you think growth maybe slows from here versus the 1Q guide, or is that just some conservatism given the macro uncertainty? Nathan, is that something that you think impacts how Yogis see markets moving forward? I… I will cover that question too.

Speaker 2: Hey Trevor, thanks for the question. We're no stranger to AI and have been following developments related to it for probably...

Speaker 2: eight or nine years now. Eight or nine years ago we had smaller competitors that tried to really differentiate by making essentially like a Squarespace clone, but starting with AI. And I think what we've sort of found through that process is that AI is best used to augment tools like Squarespace and help with.

Speaker 2: In our case, a lot of the initial setup, not necessarily do the entire thing and pretend that tools like Squarespace don't exist. For instance, ChatGPT doesn't replace Microsoft Word. You still need the tool, even if they are going to pre-populate it with a really nice starting point in terms of initial content.

Speaker 2: So as we move along, we've seen startups, I'm referencing 8 years ago now, two other competitors integrating it to their setup process. And that's really what we're focused right now to take things like Dolly, Chad, GPT, and help people with what we call the content not ready problem. When you start a course based website, the biggest reason why people don't sign up is content not ready. Every time you're presented with a blank text box or you're presented with a blank image filessey.com, there you might find the link.

Speaker 2: If we can give you an AI solution for that, that is something we will absolutely do and we're currently working on it. You mentioned actually a customer service chatbot implementation as well. We actually have had an AI assisted chatbot for...

Speaker 2: Don't quote me on the exact amount of time now. I think over two or three years, helping with customer support. And that's been really successful for us too, in improving the efficiency and customer operations. So yeah, it's definitely not something new to us. And I think tools like odds are going to be in a fantastic position to capitalize on what's available in AI. Because again, you're going to need a platform to run the business to edit the site.

Speaker 3: And as that rolls out, then you see the effect of the timing of that. Our biggest renewal period for pricing is in Q1, which we saw. We just came through January and February . And I'm continuing to see the strong customer retention that we had.

Speaker 3: seen in the end of tailed 22 that causes a lidar guidance. And so, is that timing wrap that's just the essence of the price increase?

Speaker 4: That's really helpful. Thank you both. Thank you. Our next question comes from a can long of Oppenheimer. Can your line of sound open? Please go ahead.

Speaker 6: Great, fantastic. Anthony, I wanted to touch on talk. You guys talked to RecordGMB and that was definitely a business that surged during the pandemic and you guys were able to pivot to where it still remains successful. Just wondering if you can maybe just kind of talk through some of those pivots and kind of what's been driving the outperformance here.

Speaker 6: We also touched on the next stage of growth or talk with love of sense for kind of how you envision that product evolving in 23.

Speaker 2: Sure, yeah, as you mentioned, you know, TOC was in an interesting position over the pandemic in the sense that, you know, they had to kind of rapidly shift to talk to go and, you know, that let them kind of, you know, help people remain in business and generate revenue during the pandemic period. And over the past year, what you've really seen is us to shift back to sort of a, you

Speaker 2: Business is normal sort of scenario. You know, we greatly expanded talk sales team in 2022. We have a new leader there, Matt Tucker, who just basically got started in December , January . He was the president of Olo for about a decade and saw them through their IPO. So we're really excited to kind of be back in a business is normal, kind of grow.

Speaker 2: happy with the performance and looking forward to 2023. We're also going to try and, you know, probably closer to later, 2023, start to activate on some of those.

Speaker 2: Cross-outs that I think are going to be possible with Squarespace as we abstract some of our toolset and make them available to top customers. So I'll stuff I'm excited about.

Speaker 6: Got it. Fantastic. Thanks for the color. And then Nathan just to follow up on just the solid R2 performance here. Any way to help us kind of dissect what the impact from the mixes in terms of moving up to commerce versus the pricing impact.

Speaker 6: from that you guys initiated in 2-3.

Speaker 3: Yes, thanks for the question. And yes, we are seeing continued increase in our arpood as from the pricing increase as you mentioned, customers going to higher value plan. As we look forward in 23, you know, I think that the pricing increase will have a...

Speaker 3: higher impact as we roll that out at the end of 2022. So I would expect that to have a more concrete impact in 23 versus 22. And we're increasing to higher tier plans, we're also increasing the mix to commerce.

Speaker 3: as we increase the attach rates of our existing products of the scheduling products and other things that will also help to increase our RPO.

Speaker 4: Thank you. Our next question comes from Andrew Boone of JPM Securities. Andrew, your line is now open. Please go ahead.

Speaker 5: Thanks so much for taking my questions and good morning. I wanted to ask about two things. You talked about the slowdown in e-commerce as well as the opportunity within services. Can you just double click on what you're seeing in services and where you guys are pushing?

Speaker 5: And then, Nathan, I think you mentioned more SNM sales marketing discipline as we think about 2023. Can you just expand on that? Thanks so much.

Speaker 2: Sure. So our GPV, the amount of payments flowing through the platform is mixed between physical commerce, which we all saw surge during the pandemic and has waned a bit. We've been talking about that dynamic and multiple companies have been talking about that dynamic for the past couple quarters. We've got services based commerce. So those are, you know, moment director and of it. So we're, we're talking about the

Speaker 2: People selling services, the appointment base stuff that's flowing through acuity. And then there's the hospitality and booking fee area of things which is flowing through talk. Our focus has been more on the services appointment base and advance in booking fee.

Speaker 2: area versus just focusing on physical commerce. We have almost 10 year investment in physical commerce. And so I think when you're referring to sort of softness in an overall GMV number, it's mostly from the physical side. Oh, and also I'd like to say.

Speaker 2: During 23, we've got a lot of changes coming out that will be our product changes to benefit service-based sellers. So those will start to roll out during the year and then of course later in the year, hope to have merchants onboarding the score-based payments for the first time.

Speaker 2: which is just, you know, we're doing, I mean obviously there's a financial impact there to it, so it's positive, but there's really also a customer experience impact that is very positive. So we hope that all those changes will continue to bolster our presence in that space.

Speaker 3: Good morning Andrew. On your question on the marketing ER I might step back a little bit first and say

Speaker 3: We are taking a very maniacal approach as we think about driving to profitability and investing in growth and marketing is certainly a key lever there. In 2002, we were constantly assessing the return on our market dollars to make sure that we were making conscious decisions of where we were investing.

Speaker 3: in the latter half of the year we did pull back and continue to see strong return from our courts on Q3 and Q4 we saw that acceleration in our core business. As we looked to 2023 I would expect that same discipline and similar ratios on the EER for marketing and sales but we will keep an eye on

Speaker 3: make sure that we are most efficient in getting the highest return for where we're spending.

Speaker 4: Great, thank you so much. Thank you. Our next question comes from at your gal Arunyan from Siti. Your line is now open. Please go ahead.

Speaker 6: Thank you. Morning, guys. I just, as you follow up on the comment you just made on the products that are launching this year that will benefit the service sellers. He talked about a really strong product pipeline in 2002, weren't one of the best you've ever had.

Speaker 6: Maybe just expand a little bit on what's to come next, maybe broadly, but specifically just following up on that service seller comment too.

Speaker 2: Sure. So we were named one of the fast companies, the most innovative companies in retail and e-commerce in 2022, or so 420-23, which you talked about in the release. And that really highlights.

Speaker 2: The attention we get for a number of the things that we announce during Squarespace refresh. So a lot of improvements to the existing platform. When you look forward into 2023, without giving kind of too much away, there is improvements to the appointment system within Acuity. We're reinvesting not as a standalone brand.

Speaker 2: We've got giant investments in classes and courses and a lot of updates coming there. We're looking at project-based sellers. So, you know, somebody has a Squarespace site with a contact form, maybe they're a wedding photographer and they get an inbound lead. How do we help them with that inbound lead coming in from, you know, product proposal to initial charge to finally sending the invoice?

Speaker 2: to them to collect payments, so lots happening there. And then finally, Squarespace payments, which we're making great progress on and expect to have towards the end of the year, which will further improve that whole end-to-end experience for people selling services on the platform. Thanks, and you guys also talked about the enterprise and kind of one of the pillars of the world.

Speaker 7: from where it is right now. Thank you for being with us today.

Speaker 2: So enterprise is still small for us. It doesn't represent a large portion of our bookings at all. And we really think about it in three kind of areas because we have three product lines right now where quote unquote, maybe a fourth where quote unquote enterprise applies to.

Speaker 2: You got enterprise within Squarespace, I talked about on previous calls, mostly volume sellers, or people needing single sign on or multi-account management. And we actually had a lot of releases last year in those areas, which I think kind of puts us on better footing to achieve progress there.

Speaker 2: You've got enterprise within the Q&A. We've under invested in that up till this point, but it remains a big opportunity, very natural upsell there if you got a very large business. Probably in some ways conceptually equal to or greater than the square space side of things

Speaker 2: A lot of the larger customers using Acuity don't use Squarespace's at their website because they don't have a website built on a DIY platform, which is totally fine with us, and why we're investing in Acuity as a standalone brand. Then you've got Talk and the Hospitality Experience, which is really all enterprise right now. There's no DIY sales and the opportunity is actually kind of...

Speaker 2: of course, to continue that because that customer base needs it, but then also move to a DIY model starting hopefully with events. So yeah, that's kind of an overview of the landscape, but right now this is not a large percentage of our revenue. So, yeah, that's kind of an overview of the landscape.

Speaker 4: Thank you. Our next question comes from Matt Fowell from William Blair. Matt, your line is now open. Please go ahead. Hey, great, thanks. I wanted to ask on the transaction volume in the quarter you called out.

Speaker 3: The impact in 2021, so comparing quarter over quarter, is an anomaly, if you will. Scheduling it overall, if you look at 2022, it had a very good year. We did see strong growth. But what I was calling out there is just the comparison year over year, and because of what happened in 2021.

Speaker 2: I'd like to just add that I think we see the volume opportunity there as just a – the volume is just a giant opportunity for us. I mean most of Squarespace's revenue is still coming from SaaS and subscriptions. So when we see fluctuations in the platform volume, we're still sort of getting used to this.

Speaker 2: scale and honestly it can be so many multiple, so many multiples larger that it sort of doesn't, I don't think it's not that concerning to us when it's slightly down slightly up just considering the the the new seasonality that we're getting used to with it.

Speaker 2: And honestly, it can be so many multiples larger that it's not that concerning to us when it's slightly down, slightly up, just considering the new seasonality that we're getting used to with it.

Speaker 4: Got it. And then unfold any update to your thinking on strategy there how you plan to move forward with that business. For sure, I think that the strategy there.

Speaker 4: And then unfold any update to your thinking on strategy there, how you plan to move forward with that business? For sure. I think that the strategy there can be summarized in

Speaker 2: Basically, we're focusing on biocytes. Unfold is a great product. It's been in market for a number of years now. A lot of competition in that space. Nothing really new to my dialogue there. But what's been really exciting, and you don't see it in any of the numbers,

Speaker 2: the subscription numbers we have because these are not necessarily paid subscriptions yet, but there's been over hundreds of thousands of biocytes that have been created. We recently launched the ability to create a biocytes from the web in addition to being able to create one in the unfold app. We see just a huge amount of opportunity there for monetization. I mean, considering our numbers.

Speaker 2: and literally hundreds of thousands of sites created and spreading virally with very, very little marketing spend just due to the nature of the product. I'm really excited about future monetization opportunities there and that tells us very nicely what things we're doing in the future on Squarespace payments, upsell to the main upsell to perhaps a larger website. Everything we're doing.

Speaker 2: of unfold subscribers or anything like that. So it's a great deployment, it's a great product, solid revenue stream for us and I've really, really great deployment mechanism for biocytes.

Speaker 2: or anything like that. So it's a great deployment, it's a great product, solid revenue stream for us, and a really, really great deployment mechanism for biocytes. Got it. Thank you, appreciate it.

Speaker 4: Thank you. Our next question comes from Gabriella Borges from Goldman Sachs. Gabriella, your line is now open, please go ahead. Good morning, congrats from the quarter. And today I would like to ask, are you seeing any macro impact on the business? The KPIs across the broader studies on improving quota and number of companies.

Speaker 2: that we're kind of always getting as around.

Speaker 2: You know, if the economy goes into more of a decline or there's a recession, you know, what happens to Squarespace? And we've run some internal analysis and also, you know, lived through a past recession anyway, so much smaller at the time. But it would seem like that, uh...

Speaker 2: We still have some correlation to small business formation. That is not as strong as it was pre-pandemic for whatever reason, maybe to do the diversity of services or remove towards the creator economy. So we think we're well positioned there. I think if you look at even the results from the price increase.

Speaker 2: I really think it shows the power of the product and the importance of the product even in times of uncertainty. Churn was much lower than we expected. It was definitely pull forward in churn as opposed to a lot of net new. We think it's well positioned. I think...

Speaker 2: I'm less able to comment on things like what was brought up in the prior question around GMV and macro flows related to e-commerce cyclicality or what's happening with our service based sellers which are sort of just getting started. But for the core business, I think it's well positioned in a downturn.

Speaker 3: I don't think we'd be able to show a lot of what we showed in Q4 and continuing to Q1 if that wasn't true, hopefully. Yeah, Gabriela, I might just add to that, our core business is seeing strength. As I said, Q3 and Q4 were starting to see the acceleration. So even in this environment, we are performing well as Anthony said, our pricing increase, we saw strong customer retention.

Speaker 8: We've talked about the impact from the pricing increase and how that flows through the year. You also talked about expecting customers among to remain at similar levels. So if we tireless that together, if you're able to continue to do whether bookings growth in the mid-teens, high-teens range, are there any other reasons why you wouldn't be able to show that kind of number, call it 15 to 18% for the four year, understanding that it's currently in the year.

Speaker 3: I do think if I step back though, if we look at the growth of this business, the core area of the business is continuing to see strong growth. The top business had a very strong Q4 which flows into our 23 guidance. Scheduling performed well. So I do feel good that as I look forward beyond 23 even.

Speaker 3: as we increase the attach rate of our existing services and grow these various other services with GMV being such a small part of our business today and launching payments at the end of this year. Beyond 23, I think I feel very good about strong growth for our revenue.

Speaker 3: trade of our existing services and grow these various other services with GMV being such a small part of our business today and launching payments at the end of this year. Beyond 23, I think I feel very good about strong growth for our revenue. Thank you for the call.

Speaker 4: Thank you. Our next question comes from a city panagrahi from Muzuhau. Your line is now open. Please go ahead.

Speaker 9: Thank you. Thanks for taking my question and great cast flow generation and Congress and to me and Nathan. So I wanted to ask you on the cast flow like 300 BIPs, Expans and How Sustainable is that. And also I was thinking about what are you thinking about capital allocation from here.

Speaker 9: and if buyback should be thought about as a consistent part of your capital allocation framework.

Speaker 2: So with regards to the margins and sustainability, it's incredibly sustainable and it's my goal to continue to improve free cash from margin and to well into the mid and upper 20s over the next couple of years.

Speaker 2: So, that's absolutely a goal of the company.

Speaker 2: Yeah, I mean, look, we reevaluate our stance on where to allocate capital, really, I mean, every single month. And so I think that there will always be some room for an authorized buyback program, whether or not we're executing on that, it's going to depend on other opportunities we see in the market. So, you know, as we move into this year, depending on what we see from an M&A front, we

Speaker 9: description that's only grew 4k 4000 and you talked about the weakness and unfold so I think it will be helpful to unpack you know what was your growth you know increase and maybe help us like what you know where the church was and how much of that unfold maybe it will be helpful and how should we think about.

Speaker 2: this unique subscription growth in 2023. So, as you know, not all unique subscriptions in that number created equal, we've got talk subscriptions in there that have tens of thousands of dollars in LTV. You've got unfold subscriptions in there, which are more like a domain name to us, like 100%.

Speaker 2: we're really focusing on biocytes a bit more there. But look, I mean, overall, the churn properties of the business are stable to, you know, they remain really, really positive. Again, the pricing increase, it's first time we've ever affected something like this. And we were in a very pleasantly surprised with what we saw from a churn standpoint.

Speaker 3: Yeah, I would just lay around there. We are seeing strong retention of our stable customer base, though we don't disclose beyond the breakdown of the 4.2. I can tell you that the core business did see acceleration in Q3 and Q4, which that does flow through to our 23 guidance. Our churn levels are lower than our 2020 levels. So we feel very good about that.

Speaker 3: where the core business is relative to our subscriber base.

Speaker 4: Great, thank you. Thank you. Our next question comes from Chris Zhang of Credit Suisse. Chris, your line is now open, please go ahead.

Speaker 6: Thanks for taking our question. We've highlighted higher bookings and less turns than anticipated from the lack of the price increase.

Speaker 6: We understand that you've tried to keep the increases less than 20% to not give customers a shock But at the same time there seem to be negative customers that are still paying well below the list price So my question is are you planning on continuing to raise their prices each and every year to renew?

Speaker 6: until you bring the prices to the list price or are you planning on a profit at some point? And if you could also give us a rough sense of the portion of the logistics descriptions that will be very helpful and I'll have a quick follow up. Yeah, it's actually a fantastic question. So our current pricing increase.

Speaker 2: prices for a decade, you know, we've got, we've got, you know, we have planned a little long time together, $8 a month. And so, yeah, we've raised these a little bit. It's given us some confidence to understand the dynamics of what happens when we do that. And yeah, I think there's no, you know, I don't know the exact frequency at which it's, you know, going to be

Speaker 3: reasonable to do those raises, but yeah, there's hundreds of thousands still below the list price in US dollars. So we want to get everyone a list over time, but I don't want to, you know, undo the, hit them to the 50% price increase or something crazy like that, which wouldn't make any sense. Yeah, Chris, we will take a longer term holistic approach to pricing as we think about it as a growth side of our business. In addition to the core business, we also have never raised price.

Speaker 6: Last quarter you mentioned there's eight from seven million packs refund that was not in the fourth quarter guide but pushed to 2023. We did not firm that was well that's really less than the fourth quarter or is that still in 2023 guide and whether that's in the first quarter, that's a case.

Speaker 3: Yes, thanks Chris. The tax and on-float is obviously up and down. Puts and takes that we have built into the 23 guidance. What I referenced in the November call, we do expect to receive in 2023. It was not received in 2004 of 2002.

Speaker 3: Yes, thanks Chris. The tax on the flow is obviously there's up and down. Puts and takes that we have built into the 23 guidance. What I referenced in the November call, we do expect to receive in 2023. It was not received in June 4 of 2022. Thank you very much.

Speaker 4: Thank you. Our next question comes from Deepak Mativenan from Wolf Research. Deepak, your line is now open. Please go ahead. Great. Thanks for taking the questions. A couple of ones from us. So first on the marketing front, are you seeing improved returns from the marketplace getting more efficient because a lot of the competitors...

Speaker 4: are also pulling back marketing spend currently. You know, is the customer acquisition cost coming down or is it kind of your more optimization that's driving good leverage currently? And then Anthony wanted to ask about long-term margins. You referred to kind of free cash flow margin reaching mid to high 20s. Is that sort of the right way to think about long-term targets? Can you provide your updated thoughts on how to think about that? That would be great. Thank you so much. Sure, with respect to marketing efficiency, we're certainly not trying to.

Speaker 2: to indicate that, you know, on a quarter to quarter basis, it's getting cheaper to acquire customers. But that being said, a lot of what you're seeing are shift is two things. One, a movement of brand spend to pre-pandemic levels, but also the benefit of having done that brand spend. So, you know, you've got more people typing in Squarespace than how to build a website. And so, you know, the continued strength there, you know, even though that was

Speaker 2: and how we've gone about just certain methods that we were pursuing in the company. We just wanted to change course on. And so, yeah, lots of changes under the hood. But...

Speaker 3: Yeah, I would say cheaper to a higher customers right now than before. But we do look at it by specific product line within the business and we do have strong attribution models that help us drive the right spend across each of those channels to make sure that we are the most efficient in getting the return that we want. And we do consistently shift dollars as we see the attribution model output.

Speaker 2: Yeah, that's a good point. We did launch a new attribution model in August . What we've been testing for a long time, but it really took effect in August , September of last year, which allows us to have a more nuanced look at our channels fans and rebalance between them.

Speaker 2: So with respect to the question around long-term margins and the mid to upper 20s, yeah, I mean I'm not giving a specific time frame for that, but you're going to hopefully see a very consistent pattern of us increasing that margin in every single quarter, but definitely every single year. I see no reason why we can't achieve.

Speaker 2: upper 20s free cash row over time. Great, thank you so much.

Speaker 10: Thank you. That will be the final question for today. This concludes today's call. Thank you so much for joining. You may now disconnect your lines.