Q1 2023 Squarespace Inc Earnings Call
Good morning, My name is Emily and I'll be your conference operator today at this time I would like to welcome everyone to square spaces first quarter of 2023 earnings Conference call.
All lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star followed by two.
I will now turn the call over to your hostess glass space clad Perry.
Please go ahead.
And thank you for joining square spaces first quarter 2023 earnings conference call I'm Clare Parry head of Investor Relations and with me today are Anthony costs, Elena square spaces, founder and CEO and Nathan good CFO . After their prepared remarks, we will open the call to your questions.
Earlier today.
We posted a press release and shareholder letter to the Investor Relations section of our website.
On today's call, we'll be referencing 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 and shareholder letter, which can be found in the Investor Relations section of our website.
These measures should not be considered in isolation from or substitute for our GAAP reporting.
We'll 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, our strategies and our ability to integrate new technology into our core platform.
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 may 9th 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.
I will now turn the call over to Anthony.
Thank you Greg Good morning, everyone and thank you for joining us today.
Last month, we celebrated a major milestone our 20th anniversary.
Across the past two decades the scores based platform has been used by millions to build beautiful brands and businesses online. This.
This quarter, we delivered exceptionally strong performance with over 14% topline growth and Unlevered free cash flow margin exceeding 28% of revenue.
The powerful combination of growth and profitability underscores square space, a solid business model. The majority of our business remains subscription base with over 92% of revenue coming from recurring revenue streams from our $4 3 million unique subscriptions.
Q1, 2023 had the most trial starts in our core product and scores basis history, surpassing any pandemic quarter.
In March we saw strong customer acquisition, which continued into April . This continued strength gives us the ability to raise our full year guidance today.
This is core website business outperformed our expectations in the first quarter of 2023 with outperformance driven by both new customer additions and higher adoption of our premium plans.
Last year, we delivered over 100, new features and updates to our customers across our product lines, which included the release of fluid engine a transformation of our primary page the other experience.
We believe fluid engine is the simplest domestic expressive way to publish to the web and our focus on democratizing access to great design remains a key competitive advantage.
Adoption of our higher value plans, along with our ability to responsibly increased pricing is beginning to be reflected in our revenue driving average revenue per unit subscription higher to $213 each.
Average revenue per unique subscription grew faster than unique subscriptions this quarter and we expect that dynamic to continue as higher intent to sell customers join our platform and adopt additional products.
Our investments in international markets over the past year are showing early signs of success as well with positive growth across all target market. Many of our international markets are seeing both CAC improvements in growth rates that exceed our growth rates domestically.
Our Congress products also saw double digit growth across the board while notable outlier within the quarter with increased adoption of our E mail campaigns products, which benefited from macro changes in the competitive environment.
Free products are increasingly becoming more restrictive and pay only which further drives customers to consider alternatives to incumbent players.
Our portfolio of products for entrepreneurs has never been stronger and we continue to invest in our brands that are adjacent to our core scores based brand acuity for scheduling talk for hospitality and Timeslot, it businesses and unfold and bioscience for social media creators.
To remain relevant in an ever changing technological landscape, it's essential to have tools to continuously integrate and adapt to evolving customer needs square spaces evolves from being a publishing platform to becoming a holistic commerce forward content management system.
Our products allow entrepreneurs to transact in a variety of ways as they monetize physical goods services and content.
Square has always offered hundreds of curated templates for customers to choose from when they were building a site.
In the first quarter of 2023, we introduced scores based blueprint a new onboarding experience that lets users custom build a starting point without having to select from our template store.
We've seen record levels of demand in Q1 as customers on board with square space Blueprint and adopt the myriad of updates on our core platform, which is both easier to use and more expressive than ever.
The mainstream and accessibility of artificial intelligence large language models.
We are paying close attention to and efforts are underway to build this functionality into our core platform and.
In our shareholder letter we discussed in depth, how this technology fits in a square spaces core onboarding and editing experiences, including the newly launched <unk> blueprint.
This technology helps us solve one of the core reasons customers find themselves in a difficult spot while onboarding. They do not have their content ready.
The availability of AI models augments, our tools perfectly helping customers with setup in writing while also preserving the power of it scores based provides an editing tool hosting platform commerce platform and more yeah.
Yesterday, our circle community received a beta release of new Techs generation features powered by open AI and our production environment. These enhancements will be made available to all customers in the coming weeks.
Course based payments remains on track to launch in the back half of 2023, our engineering and product teams are building towards an integrated solution to deepen our relationship with customers and provide a seamless experience at every step within our platform. Finally, we recently published our first environmental social and governance report, we're proud to showcase how our mission and ways.
Operating our business support our ESG goals. The report can be found at the ESG section of our Investor Relations website, and we invite you to read about our positioning and progress.
We continue to year with immense gratitude to our customers and remain focused on delivering innovative products to enable entrepreneurs everywhere.
Thank you to all of our customers and employees, who have been part of this journey with us over the past two decades, we remain an incredibly modern company and are delivering better products and more functionality than we have in any previous year of our existence. We look forward to serving you in for the decades to come and now I will turn the call over to Nathan.
Thank you Anthony and good morning, everyone.
The first quarter demonstrated the strength of our business as we delivered robust growth during the quarter and beat our financial guidance across all key metrics revenue and Unlevered free cash flow in Q1, 2023 exceeded the high end of our guidance.
This was driven by strong performance of our core business, which was bolstered by healthy demand from new customers and stable retention of our largest customer cohorts receiving price increases.
We believe our strong customer retention rate relative to the increased subscription prices speaks to the enduring value of our product as we continue to invest and deliver more value to our customers.
Anthony mentioned last year was transformative for our platform with the release of more than 100, new features and updates, including a new page editor fluid engine.
Our platform today includes best in class tools, which makes it easier for entrepreneurs to run and grow their businesses.
Products across our offering campaigns member areas and acuity scheduling are seeing growth as more customers integrate them into their work streams.
Q1, 2023 bookings of $266 million grew by 16% as reported and 17% in constant currency. This acceleration was driven by growth in unique subscriptions and the continued success of our price increases which launched in Q3 2022.
In August 2022, we announced a price increase for our legacy customers, which we began rolling out in September .
This was the first increase to legacy customers in our history.
Now as we conclude our second full quarter of realizing these updated prices in our base customer cohorts demonstrates strong cash retention and lower customer churn than our projections.
Our largest cohorts of legacy customers renew in the first quarter and renewal rates were in line with historic levels.
The increased mix of higher value plans, how do you positive impact on our bookings during the quarter. It is important to note that bookings is a forward looking indicator as the majority of our subscription customers adopt annual plans.
First quarter total revenue was $237 million and grew 14% and 15% on a constant currency basis.
This exceeded the high end of our guidance range of $232 million to $234 million and accelerated for the second consecutive quarter.
Our strong results were driven by robust customer retention through the pricing increases and new website acquisition.
When compared to the first quarter of 2020 to foreign currency fluctuations acted as a slight headwind to our top line growth by approximately $2 8 million or 130 basis points as rates remained relatively low.
We saw a favorable website plan mix to higher value plans in the quarter, which shows more customers shifting to business and commerce plan.
March 2023, with a particular strong months in the quarter as new website acquisition surpassed our expectations.
We believe our marketing efforts are effectively targeting high intent customers.
<unk> continues to deliver in a central service to entrepreneurs looking to bring a business online.
International revenue was $67 million in Q1, 2023, representing 10% growth and comprise 28% of total revenue exclude.
Excluding the FX impact international revenue would have comprised 29% of total revenue and growing at 15%.
Our platform continues to evolve toward an international audience as we localize key product features and focused our go to market efforts in key geographies worldwide through partnerships.
We have been targeting design minded entrepreneurs internationally with expanded engagement through our circle professional community.
New web site acquisition from international markets grew more than total website acquisition.
We believe international markets remain an important growth opportunity and we are still in the early innings of what we believe will be an exciting channel for new customer growth, our product localization and targeted marketing efforts position us to succeed internationally.
As Anthony mentioned <unk> grew 4% to $213 in the quarter <unk> is calculated from our total revenue during the preceding 12 month period divided by the average of the total number of unique subscriptions at the beginning and end of the period.
This metric includes revenue from all subscription types ranging from unfold at the low end to talk our highest priced subscription.
Seeing this metric increase over time demonstrates our ability to sell more products and higher value subscriptions to our customers. We continue to innovate and deliver additional functionality and tools to help entrepreneurs grow their business growing <unk> reflects our ability to raise prices alongside the value we.
Provide as well as increased mix to our higher value plans.
Our continuous innovation strengthens our platform's functionality better serving our entrepreneurs as they build their brands and transact with customers. Our strong Q1 results were broad based across the majority of our product offerings.
With higher value website subscriptions growing year over year Commerce revenue was $73 million growing 14% and 15% in constant currency as.
As Anthony mentioned, our commerce products saw year over year growth with notable strength in commerce websites acuity scheduling and talk.
GMB process across our platforms declined two 6% year over year to $1 5 billion. Despite double digit GNP growth from talk our acuity scheduling contributions were soft in the first two months of the year. We saw this trend stabilize in March in addition, outsized performance from acuity schedule.
Q1, 2022 created a difficult comparison for the product but.
But we are encouraged by the progress that the team has made to the product to drive more transactions on platform and refresh user experience on mobile.
Acuity scheduling attach rates were higher in the quarter than we expected and we are delighted to see sustained interest from service sellers with our tools.
Additionally, we believe improvements that we're making to our member areas product will offer additional value to service based commerce as we continue to improve the product.
We are still early in the stages of monetization with the majority of our revenue 92% being subscription based talk is also an area, where we continue to have high expectations and we have increased the size of the sales team to support its growth.
This quarter talk saw year over year strength and <unk> some of the highest month in its history talk also saw growth in uniques subscriptions and reservations unexplored talk.
We expect continued growth in these areas with the additional G. T M support and overall improvements that the team has made to its solution deployment and customer onboarding process.
We remain optimistic about the potential of our diverse product portfolio, we delivered a non-GAAP gross margin of 83%.
<unk> slightly by approximately 50 basis points year over year due to investments in customer operations and an increased share of talked hospitality business, which has a different margin profile on account of its payments business.
This decline is in line with our expectations as talk processes, increasing amounts of GMB on its platform, we improved non-GAAP operating efficiency and delivered a non-GAAP operating margin of 13%.
We reduced marketing and sales expenses by optimizing our channel mix to unlock opportunities to scale, our marketing efforts in key geographies.
Ultimately resulted in operating leverage for the business as a percentage of revenue non-GAAP marketing and sales expenses represented approximately 41% of revenue an improvement of more than 1000 basis points.
It represented 52% of revenue during the same period last year.
Brand spend decreased year over year, as we leaned into efficiently converting the large funnel we have built over the past several quarters. Additionally.
Additionally, we drove efficiency in G&A expenses by approximately 130 basis points as compared to the previous year.
As a percentage of revenue non-GAAP G&A expense represented 10% in the quarter.
non-GAAP R&D expense as a percentage of revenue represented 20%.
In the first three months of 2023, our adjusted EBITDA was $31 million growing at significant rates compared to the same period last year as we increase our revenue and reduced marketing and sales spend though the amount was partially offset by an increase in head count year over year square space has the advantage of generating.
<unk> amounts of cash our balance sheet has a healthy cash and cash equivalents position of $239 million. Our total debt was 504 million of which $41 million is correct.
Our cash flow from operating activities grew 36% to $64 million due to a momentum in bookings and a reduction in our marketing and sales spend.
In Q1, we generated robust unlevered free cash flow of $67 million for the trailing three months, 47% higher than Q1 2022.
Representing a margin of 28% and surpassing the high end of our guidance range of $63 million to $65 million.
As a reminder, historically Q1 is our strongest quarter of free cash flow generation.
A result of outsized customer cohorts renewal larger annual mix versus monthly subscription plans and the seasonality of our marketing spend.
We continued our share repurchase program during the quarter as of March 31, 2023, we returned approximately $146 million to shareholders under the current repurchase program. Since it was authorized by our board of directors in May 2020 to 25 million of which was purchased during the first quarter.
<unk> of 2023, which represents approximately one 3 million shares at an average weighted price per share of $22 and <unk> on the open market.
At quarter end, approximately $54 million remained available for repurchase.
Turning to our guidance for Q2 and the full year 2023.
In the second quarter of 2023, we are targeting total revenue in the range of $241 million to $245 million. This represents 14% growth at the midpoint we.
We expect Unlevered free cash flow during Q2 to be the range of $49 million to $53 million, which implies an unlevered free cash flow margin of 21% at the midpoint of the range.
For the full year, we are raising our revenue and Unlevered free cash flow guidance. We expect total revenue to be in the range of $969 million to $981 million representing growth of 12% at the midpoint of the range up from $955 million to $970 million.
Unlevered free cash flow is expected to grow throughout the year to the range of $192 million to $207 million and implies a margin of 20% at the midpoint of the range.
This is up from $183 million to $198 million.
Core website strength, we saw in March and continuing in April gives us confidence to raise our guidance for the full year.
This strength speaks to the resilience of our platform and essential service. It provides 10 million.
We continue our trajectory toward sustaining profitable growth and expect our 2023 non-GAAP gross margin to be similar to the margin we delivered in 2022.
Our marketing and sales efficiencies are slightly offset by higher R&D as a percentage of revenue as we prioritize key growth initiatives in 2023.
Additionally, we expect to see improvements in G&A. This year, we have started the year outperforming against our expectations.
We have a strong forecast diversified business model and a high level of recurring revenue with solid cash flow generation.
All of which contribute to our confidence in the outlook and underlying momentum in our business, we are well positioned to deliver on our guidance.
We believe our strategic investments align us perfectly to provide more value to our customers worldwide.
Our results are a testament to the amazing work by our employees to deliver for our customers. Thank you for the work you do each day to help entrepreneurs everywhere stand out and succeed.
Now we will open the line for your questions.
Thank you as a reminder, if you would like to ask a question today. Please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind I would like to be remains for Nicky. Please press star and then two.
When preparing to ask a question. Please ensure that your microphone Android device on me here lately.
Our first question today comes from Aegon Iranian with Citigroup. Please go ahead.
Hey, good morning, guys.
Yeah Anthony.
Good job on the Investor letter talking about.
And the impacts there.
But maybe you could just spend a little bit more time on your thoughts on the evolution of AI how that impacts.
The web builder space.
General.
And then what you guys are doing to stay ahead of those changes and I know some of that.
The key factors I guess, you could think of.
The front end CMS and how it impacts on the actual building of the web page and then the back end and all the business towards that you highlighted that you guys kind of layer on top of that and how each of those might change and how how you approach each with your larger language models.
As well over time.
Yes sure. Thanks for the question.
No mistake that we devoted a good amount of space in the investor letter to commentary on AI, considering where it is in People's minds right now our industry is really no no stranger to it there've been AI based on boarding tool various farms affecting different parts of our industry for eight plus years.
Now, but what I focus on is kind of like where we are right now and where we're going and how those tools will fit into that roadmap. So just kind of where we are right now I mean scores basis core business is helping people make websites without code and we've been doing that for two decades and another thing I kind of wanted to highlight in the letter is.
Yeah.
Our plan started at 16 $18 a month and you don't just get a thing that makes the website hosting storage bandwidth CDN Ddos protection customer support teams and infrastructure teams at around $24 seven domain registration DNS services SSL certificates, if you're using our email product email delivery.
And monitoring.
There's kind of a lot that's baked into that subscription that's just outside.
The onboarding and the type of the code and but if you go beyond that Youre looking at the future. We're super excited about their staffing have been either playing with it in various forms in our product.
Kind of following along as they develop.
So I'll focus on two of those items verbally.
One is large language models in terms of dealing with what we call content not ready. So the main reason why people don't sign up for our web site.
Self reported service they don't have their content ready inventory ready to have a tax ready they know kind of what to do so just yesterday in production in beta for our circle members and this will be available in general released over the next couple of weeks I don't see any reason why it wouldn't be is just integrating the large language model improvements from open AI into.
Our open text field right Youre sitting there there is no <unk> put in it and we've all seen the magic of what chat GPT can do.
And we want to make that accessible to everybody of course, it's also worth highlighting that after that tax goes into the field and you need to edit it which is why we haven't content management system.
What we have so it's great to be able to release that yesterday and.
It really does provide a magical experience for people. It's just it's just awesome to see where it's going.
The other thing I would highlight is and this is also in the letter.
And leading to some of the outperformance you saw in the quarter is suddenly calling squared space blueprint, which is.
For people, who don't want the pre generated template to come on and build a template from piece is visually based on kind of the parts that we provide to them.
This will integrate I think theres, a great thing to highlight because it integrates very well to large language models in generation and in our form thats not maybe obvious initially because what we can do with this is that alright. Some people do kind of come to square as they say hey, I want to look through the store I need inspiration I need to know what these things look like they can't from the top of their mind genera.
Right.
They need help in getting set up blueprint gives us some flexibility in what we can do on top of that it's not just.
Take large language models with prompts, but do what we're calling and.
And I think it is.
<unk>, but essentially prompt engineering and say all right you don't know what the tightening of the stocks.
Here's some ideas on what they say on one side you have the same color here. Some give me, let's talk about the tone of taxes, you might want to use and that engineering can go into the large language model and go into a framework like blueprint and really help people with their starting point. So we're super excited about that <unk> already.
It's showing.
<unk>.
<unk>.
And our sign up process, even without that but I just kind of say in closing there are a lot of people. There are a lot of ways people are going to need to get started with this product and receive help and I think what we do as a creative partner to give people. These ideas are starting points and all that other stuff, we do that the lift I rattled off on the backend, especially.
At a price point like $18 a month is.
It's great. So look we're really excited about these developments does or a couple of ways will be integrating me is we have some dentists coming out later, which I think people will get really excited by.
Yes.
It's great for us.
Okay.
Thanks, guys and looking forward to seeing those down was that that was really helpful.
On a follow up.
Yeah.
On the business near term.
Just dive into the to the record trial volume.
Could you just expand on that a little bit I think it's great to see that coming back in.
Especially impressive, but it's higher than it was during the peak of Covid, one really stopped.
Pretty major industry tailwind there.
And then that come in at the same time with improved marketing efficiency or spending less year over year marketing and yours youre driving better record.
Driving record trial volume.
Just talk about how those two things are tied together as well thanks.
Sure, Yes, they're all interrelated honestly reporting on that trial number was it was great to see and is a bit of an interesting shocking result.
What youre seeing there is improvement to the attribution model changes, which we were starting to rollout in August in Q4, and really deploying spend against that in Q1 Q.
Q4 Q1.
Which is of course, there are seasonality a lot of the website business seasonality is focused there.
Things like <unk>.
Fluid ends.
Sharing blueprint being released mobile path to publish in Q4 of last year.
All this stuff kind of works together.
Can't point to any one of them would be like this alone changed at all but.
Together it is it is producing a great results for us.
Yes look.
Encourage that.
The demand in the business remains strong and I'd also mentioned that a lot of what we have that we're releasing during the year around service base salaries in the classes and courses area.
It workflow products for people who have.
Workflows that are not in ecommerce checkout.
As it relates to a physical ecommerce checkout, we're gonna be able to sell into this space and I think.
That of course won't be something that hits in Q3, Q4 necessarily in a big way, but I think absolutely into next year. That's just a huge opportunity here and I think we have permission to sell into that base.
Because people because of why people are coming to us I would layer on there I think the attribution model is really enabling us to invest in the right channels to get the highest.
<unk> and the right customers with the highest intent to sell and we're seeing that both unlock internationally as we saw strong growth there that we can scale and the right opportunities there but also.
In March specifically, we started to see a good acceleration of our core business.
That led to us increasing obviously the guidance for the year, but we would attribute a lot that we're directing to the right customer.
Thanks, guys really helpful.
The next question comes from Trevor Young with Barclays. Please go ahead.
Great. Thanks, first one for I guess, Anthony or Nathan just on pricing any updated thoughts on whether youll push another round of increases on renewals to those customers that are still well below list price or pushing pricing to those non USD customers given the strong retention trends among the customers that have.
<unk> already seen those increases as well as that strong international growth.
And then second question Nathan on the Unlevered free cash flow guide it implies some margin compression in the back half versus the front half of this year as well as the back half of 'twenty. Two can you help us foot that versus your commentary on kind of steady gross margin for the full year, maybe some R&D investments offsetting the marketing efficiencies and then G&A already fairly mean.
I'm just trying to understand whether that's conservatism or if we should assume like a more market ramp in R&D in the back half.
I'll start with your first question and then let Nathan comment on the second.
With regard to further price increases.
This year on people in the core that was not baked into anything that we have but for non USD customers.
Let me clarify.
For people, who have already increased prices on USA no. We're not we're not planning a further increase yet this year.
But for non USD, because we saw success in USD, we are looking to raise.
The international currencies to lift and all of this are deciding not to list all the time, but just raise them.
And.
That said Nathan's model.
If you want to comment on the free cash yes. So Trevor as you saw we did raise the high end of our range by $9 million for the year for Unlevered free cash flow.
The Q1 impact is really driven by three things one as Anthony said.
His knowledge of our business that has the highest renewal quarter for our business Secondly, we skew to annual plant to 75% of our business is annual plans and with that renewal.
<unk> has a high bookings impact in Q1, and then the last thing I would say it's timing of spend.
Kind of went to where you were going with the R&D spend as we ramp the investment throughout the year, but also for the advertising and marketing spend which we see heavier in Q4 and lighter in Q1. So that's why that has reflected that way.
Okay.
Great. Thank you both.
Our next question comes from Stacy <unk> with Mizuho. Please go ahead.
Thank you.
Thanks for my question, it's good good.
<unk> just wanted to ask you on the follow up on the pricing question what percentage of your legacy customer already moved to the new <unk>.
Pricing.
Maybe I'll kind of a follow up to that.
It's around 75%.
Okay.
And again not necessarily move in my model Okay. Good.
And then it's of course waiting for either the annual renewal because a lot of our legacy based on animals.
And then obviously if its monthly they've already received it.
Yes.
Okay, Great and then a question that unique subscriber growth I see your sales and marketing, it's kind of pretty much tied to the unit growth and I see it was down are you planning to increase yourself in marketing spend.
Spend maybe later part of this year.
So well first let me comment on the <unk> subs <unk> subs as you know.
Relation of all of our subs, both unfold, which we have spoke in Q3 and Q4 of last year are continuing to see the erosion. There. So it's not necessarily impacting the total units of the $4 3 million growing to two 5% year over year, but our core business is continuing to grow and accelerate and.
March and we saw that goodness in the vehicle as well considering the marketing and we are.
Seeing the efficiency and we're happy with the efficiency that we're seeing that's allowing us to decrease and still get the.
Higher intent and higher trials, which is converting so we feel good about where our marketing spend isn't necessarily.
Bill that we need to increase it but we are moving it around to the right channels, we have decreased our brand spend as.
As we built that funnel.
The United States and then internationally, we have increased the brand spend is reporting to those markets. So I think thats the balance that we are doing.
Great color. Thank you.
Our next question comes from Matt Pfau with William Blair. Please go ahead, Mike Your line is open.
Hey, Great I wanted to ask a follow up on incorporating AI and as a platform and how do you view it from a monetization perspective is it more of increasing conversion or do you plan to charge for these perhaps in premium tiers. Thanks.
Right now we are thinking of it as a tool for conversion not something we are going to be monetizing directly any other tiers.
Got it okay.
And then wanted to follow up just on the commentary around <unk>.
The tough comps there on acuity scheduling so.
Maybe it would just be helpful to provide some additional commentary around that given youre seeing good subscription additions there, but yet the GMB.
Growth is lagging so may be just helpful in terms of what's driving that.
Yes.
So.
Q1, 2022, we did have a very strong quarter for scheduling.
So that comp is somewhat skewed for Q1 2023 however.
We are seeing strength across the other areas of <unk> <unk> had another record quarter in Q1, our core business as we continue to invest in service sellers.
Moving in the right direction I mean, it was just the comparison.
What we saw the strength in early Q1 2022 carrying over from 'twenty one.
It creates that tough comparison.
Right.
Okay, great. Thank you.
Okay.
Our next question comes from Ken Wong with Oppenheimer and company. Please go ahead.
Great. Thank you for taking my question.
The first is just.
A question about the record the record customer trials.
How much of that do you think is driven by the new attribution model, maybe a rebounded demand.
Or is there potentially just heightened seasonality in Q1 that you guys have started to see any color on whether or not that could potentially extend through the year or does it does it start to kind of dip back down after after a strong Q1.
Okay.
Yes. It is.
Really a combination of everything I mean that is partially Q1 is seasonally the highest quarter in website ti, but we're comparing to other high seasonal quarters.
A combination of what we're doing on Onboarding the attribution model changes.
Improvements in certain international markets starting to improve.
Fluid engine product getting attention. It's just it's just all of those factors and one.
Not like one of them is the reason, it's probably a bit early for me to comment on just pure macro stuff, except that we just continue to see strength into the year and that continues in April .
Yeah.
Got it.
And then and then on the international side.
Now international growing roughly in line with domestic you guys have highlighted some some marketing investments over the past year should we start to see that international business start to outpace U S.
Sometime this year is that still it's still a bit of a lag before we start to see that flow through.
I think that we're still in the early innings here Ken.
We continue to localize our product.
Make a fully localized experience for our entrepreneurs with translation in local currency.
As we make that investment I think that for years to come we'll start to see that outpace for 2023, I think that we will stay fairly constant with where we see the growth to date, but we are very excited about the key markets, where we are seeing double digit growth in our international markets. I think this is reflective of the investor.
We've made in 'twenty, two with brand and product.
Starting to see that come to fruition I'd also highlight that.
Certain.
<unk>.
Certain product releases go to the U S. First before they go internationally, so blueprint mobile path to publish those things that I was kind of mentioning that are that are leading and strengthen the core business. We do U S. First and then once we validated that.
We think it's going to be a positive test.
Test result.
We spend the effort internationalize. It so it always is going to kind of have that.
Lag.
Okay.
Got it thanks for the clarity.
Our next question comes from Angie <unk> with JMP Securities. Please.
Please go ahead.
Okay.
Good morning, and thanks for taking my questions.
I wanted to go back to international as well Nathan in the letter I think your section talked about it being early innings of channel growth for international just Anthony to the point that you. Just made can you talk about where you are in the process of localizing products that may be specific to international what is not available. If you think about the parity of the U S versus <unk>.
<unk> markets can you just provide a little bit more details on on the international kind of roadmap.
And then we haven't talked much about square space payments can you just update us there thoughts on timing as well as just any broader update thanks so much.
Sure so.
I started to get into a lot of that internationally. There is just going to be a lot of details I can highlight a couple like for instance in the past quarter.
Yes, this will sound like kind of mundane but like.
We spent a lot of time looking at things like our contact form block and making sure. They work in all the countries, where we're present and it's just an immense amount of work getting all the ZIP code type straight address types right phone number format right. All this like currency format. All the stuff that people are expecting in a local market that maybe we've gotten sort of right sort of wrong.
Checkout method currency.
Making sure they can transact and our local currency, making sure our support keizer staffed and that is correct.
And those markets, obviously, when you get into commerce.
Like our customers Commerce component there is a whole another level of.
Kind of complexity are like local shipping and whatnot that we may not be fully up to speed on that we are in.
U S market. So all of that is kind of floating around.
Within that within that number I.
I do think that before you jump into the areas I just kind of layer on.
Why I said, it's early innings here I think that we still have quite a bit of room to go to get to parity in and some of the key markets that we're in and that will continue investment this year.
That will obviously drive.
That's why I said earlier, we still we're not at parity in all regions that we're in.
Yeah and payments.
All I have is positive commentary we are on track there.
Its not something thats going to appear.
In the financials for this year, but we expect to have customers in production onboarding to payments by the end of this year in Q4.
And maybe some data a little before that so we are rolling along quite nicely.
And that will be a more exciting things to talk about over the next couple of calls.
Okay.
Thank you.
Our next question comes from Josh Beck with Keybanc, Josh. Please go ahead.
Thank you for taking the question and I apologize for my voice.
But yeah I wanted to just to go back to some of your commentary around March April it really sounds like.
As you looked at the monthly.
Cadence that transaction improves, which I would say versus maybe some of the broader consumer oriented spending data points, what's kind of the opposite and certainly a positive.
Standout so any other.
Other color you can share on what may be changed with respect to the monthly cadence would be great.
As I said, it's a little hard yes, we're encouraged by it as well.
I think while it is hard for us to comment on anything to macro at this point.
We mentioned the number of the changes that we're going into the outperformance right now which is attribution changing how we're spending blueprint mobile path to publish et cetera.
Yes, after we get a maybe a couple more months.
Behind us, we'll be able to kind of tease out what may be going on from a macro standpoint or not.
Yes, Nathan would you add anything on that.
I think I agree with you I think it's a <unk>.
Combination of everything that we've seen as we continue to invest in the product and.
Realizing the investment that we've made in brand spend in early years and that we saw in 2022.
Okay, Great and then maybe just a follow up on just how to think about maybe more of the mid term growth algorithm. Obviously this year there is really nice.
Impact related to pricing getting really good you mentioned record trials lots of of drivers between subscriptions arps.
Obviously, you talked to.
Wearing on payments revenue and other initiatives.
What.
I guess framework would you put around kind of the more mid term growth algorithm as we think about the future years.
So I think that we would look into the various.
Im putting like a task between the product side as we think about the products themselves improvements in classes and courses improvements and workflows around people who are selling on the platform that are service based sellers.
Lots of stuff happening within acuity, we've got sort of the opportunity. There obviously early stages in their experimental with bio sites and we haven't done any monetization there you've already mentioned payments that is on track for.
Late Q3 Q4.
Yes, I mean, that's a lot of the stuff we're focused on trying to make people more successful on the platform and then hopefully over the next five years shifted a little bit away from SaaS towards more payment volume from a macro standpoint is of course, something we have less control over.
But we hope it will build up over time.
Yeah.
Super helpful. Thanks, guys.
Our next question comes from Clarke Jeffries with Piper Sandler. Please go ahead.
Hi, Thank you for taking the question.
First one is just a clarifying question.
What was constant currency bookings in the quarter.
Okay.
In the quarter was 17% in constant currency year over year growth.
Okay perfect. Thank you and then follow up question.
How are you thinking about capital allocation I mean is there any appetite here to accelerate the.
The pay down of the debt or how are you thinking about incremental cash from here.
I'll take a pass and they can give his view.
We of course want to use the cash on hand for growth, but also our theme is always responsible growth and so we have over investment in certain areas of R&D, where we feel that the team is light and we have an ability to outpace on revenue if we.
If we invest there and we really modulate it.
Certain growth and marketing sales and R&D in targeted ways to kind of get blended away and the big number.
<unk>.
But.
I've said it before because I think we should just be kind of constantly.
Ticking up ticking up the free cash flow margin, so just continuing to grow responsibly.
We of course want to keep something available for opportunistic M&A.
M&A that comes up I thought that I talked about the fact that we want to be we are mostly looking at smaller.
Deals there, but we remain open to whatever might come across.
Come across our desk.
Nathan what would you say I think I'm in line with everything you said I don't think.
I would add anything differently so okay.
Okay.
Thank you very much.
Our next question comes from Brad Erickson with RBC capital markets. Please go ahead Brett.
Hi, Thanks.
Just another generative AIA question chat Gpt's, obviously, I guess, the most well known solution out there but broadly.
What do you expect will kind of be the main drivers as you guys look to select models and output partners. You would use is it going to be kind of easy.
Easier faster time to market with working with a single all in vendor or are you seeing things out there from other vendors you're testing with at this point that are intriguing and then a second part.
Maybe just a quick comment related to longer term compute compute costs related to integrating some of the tech into your stack.
You spoke a little bit of this earlier, maybe not embedding it into your price per se, but just talk about the general sort of structural cost of compute associated with putting this tech into your stack.
Sure, Yes, so we're mostly looking at large language models right now.
It's kind of interesting this I'm actually glad you brought up the cost I think that where we see integration of these products. It's really in a very cost effective way because it's not like we're integrating anything on that.
Like a traffic per query basis, when everything we're doing is mostly related to set up right. So if you have trouble with a text box of your building a website. These things get you started and then the tool takes you from there. So we don't have like an API call per hit to your website or anything built in like that that would be.
Yes.
I really detrimental kind of bid.
Business model impact.
On the contrary I mean, we've been investing in machine learning internal to our company for <unk>.
Eight plus years. So the fact that these are now available in API form is a huge benefit to US right. I mean, all of the steps happening at open AI wasn't let's just say we've closed AI instead of open AI and we had to take those technologies like we've had to do in the past and train them ourselves.
Build the Martha.
The cost of Chinese models is gigantic so it's fantastic that we can get the benefit of this.
So quickly in the areas of the product, but we think it's going to have the most impact again most of what <unk> does that's used list of stuff I'd write off.
And that isn't currently changed by the presence of large large language models. So again, mostly setup based cost lower than before which is positive time to market faster than before which is why youre seeing all these like any.
The space you can look at but like maybe like a million AI startups in the basketball something like something crazy there isn't that developing that theyre not developing that technology themselves.
Again why were focused on what we're good at the prompt engineering what can we do on top of these models that would be the real value add.
Yeah, So that's kind of how we're approaching it.
Got it thanks.
Okay.
Our final question today comes from Deepak <unk> with Wolfe Research. Please go ahead.
Hey, guys. Thanks for taking the questions one more on the <unk>, how do you think it changes the distribution landscape in this space you point on kind of the compelling value prop of this glass based features that makes a lot of sense, but do you think other large platform could potentially integrate some of the website building capabilities.
Using these elements as part of their products and curious whether I'm curious on your thoughts whether it create some sort of like a distribution in competitive landscape shifts in this space and then second question maybe for Nathan It seems like the retention trends are very strong relatively despite the ongoing price increases what do you think are sort of like the primary reasons for this day.
Mike.
First question. Thank you so much.
Yes ill talk to you. The first part of your question around what disruption this will bring to.
Some of the core fundamental things like hosting storage bandwidth.
Yes.
CDN all of that I think it's a little DNS, it's a little less clear how it is going to immediately impact infrastructure I think that there is a big open question in the industry around.
Frankly, what R&D R&D expenses really looked like in a couple of years with get a co pilot type models that are helping with developer efficiency or what is your.
What is your support costs really look like when you have hired higher and higher and higher deflection rates based on.
Models that you have that are automating some part of support actually worth mentioning that we've had.
<unk> got a support group is how much are.
AI based not LLM, yet, but it will be based.
Bots are helping with.
The selection all of that so.
TBD is out there, but for the most part that's just really excitement about integrating this with a product in the areas I've already mentioned.
Deepak Thanks for the pricing question.
I guess, there's three things that I would say this is the first time in the history of the company that we've increased pricing for our legacy customers.
And as.
As you've seen the results.
Turning to see strong retention I think that goes to two other things one there is still far below lift so as we increase them.
Moving them closer to less there is still opportunity there that we've seen and then lastly, I think this goes to the really the value that we provide to our customers. We've continued to increase their product offerings and then we launched fluid ends and last year. We were offered a 100 plus extra features that we launched last year as well and we've never increased the prices.
With that so this is just realizing the value that we have already delivered to them.
Yeah.
Got it thank you bill.
Yes.
That was our final question for today. This concludes today's call. Thank you. So much for joining you may now disconnect your lines.
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Yeah.
Yeah.
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