Q1 2023 Wix.com Ltd Earnings Call

Good day and thank you for standing by welcome to the Wix Q1, 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your <unk>.

You will then hear an automated message, but I think that your hand is right to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, David head of PR and Communications. Please go ahead.

Thanks, and good morning, everyone welcome to with this first quarter 2023 earnings call joining.

Joining me today to discuss the results of each I ever Hanmi, CEO and cofounder nears, our our president and CEO and Dr. Shemesh our CFO .

During this call we may make forward looking statements and these statements are based on current expectations and assumptions.

Please consider the risk factors included in our press release and most recent form 20-F that could cause our actual results to differ materially from these forward looking statements.

We do not undertake any obligation to update these forward looking statements.

In addition, we will comment on non-GAAP financial results and key operating metrics you can find all reconciliations between our GAAP and non-GAAP results in the earnings materials and in the interactive Analyst Center on the Investor Relations section of our web site investors that Wix dotcom.

With that I'll turn the call over at the other side.

Thanks, Rhonda and good morning, everyone.

We have had a fantastic start to 2023.

And I'm pleased to say that we exceeded our expectation across many areas of our business.

The drivers of our results this quarter.

Broad based across our business both on the top line and on the profitability.

Revenues in Q1 grew to $374 million above our guidance we generated.

$44 million of free cash flow, excluding one time charges.

Uh huh.

Okay.

Also ahead of our expectation.

These great results are a testament to the strong execution of our strategy to provide the best possible.

Innovative products for our users, while increasing operational efficiency and discipline.

Much of the growth. This quarter was also driven by all parts of this business.

This year scaling our business with partners, including designers freelancers and enterprise partnerships.

And a key strategic focus.

Father, just revenue growth accelerated this quarter.

27% year over year, we recently.

Some exciting product CRO partners, including wakes Atlas and have many more incredible product announcements and marketing plans for later this year.

The outperformance of this first quarter is very encouraging so we are raising our revenues and free cash flow for the full year as well as pulling forward, maybe about talked about targets for.

For 2020.

Our profitability.

Before.

Bolstering our.

Our confidence in achieving the rule of 42020.

2025.

I will let me share more detail about each quarter, and then I will close with my thoughts on AI.

Yeah.

Thank you I'll be shy and thank you everyone for joining us today.

I'll share a bit more details about our performance this quarter.

As it relates to our user cohorts some color on our marketing investment in the quarter. Following the recently announced strategy shift.

And an update on our focus on operational efficiency.

Let's start with user cohort performance.

Our Q1, 'twenty three new user cohorts performed exceptionally well with $5 4 million users collectively generating more than $30 million in bookings in this first quarter easily the highest same quarter booking in a non coffee.

Non COVID-19 cohort.

On a base of the significantly smaller size courts.

This clearly indicates the inherent improvement in the fundamentals of our business.

Clothing subscription conversion and average collections per subscription as well as stable retention.

Diving deeper into these fundamentals shows the returns from our focus on bringing higher intent South Korea to users and partners, which convert at higher rates.

It is also the result of higher monetization driven by users choosing higher priced subscription.

Strong adoption of business solutions applications.

More transaction revenue as a result of higher GP.

An increase take rate and continued contribution from RMB to be partnerships.

We expect these trends to continue in the coming quarters this year.

Lastly, this performance is a testament to the strength and scale of our global brand is reflected in the success of our marketing strategy shift implemented last year.

As a reminder.

Based on tests, we started last summer we determined that we could keep new cohorts bookings stable, even if we will do reduced acquisition marketing spend by half.

<unk> continued its marketing strategy this quarter and decreased acquisition marketing spend by approximately 47% year over year, while still increasing nucor's bookings.

After more than eight months of expanding in perfecting the new strategy. We are confident in the results and therefore expect investment in acquisition marketing to remain at reduced levels throughout the rest of the year and beyond.

In addition to the strong fundamentals and the significant decrease in marketing effectiveness.

We also intensified our focus on driving operating efficiency across our business.

We successfully implemented the cost savings outlined last quarter as well as realized additional hosting optimization opportunities.

And continued to decrease head count.

We ended Q1 with 5006 employees.

18% year over year for immediately 6100 employees in Q1 2022.

With that I will now hand, it over to the or to walk through more details on our financials.

Sure.

Thanks, Nir this quarter was marked by fantastic profitability improvements.

Allowed us to achieve our 2023 profitability targets much earlier than anticipated.

Even more importantly, these steps firmly put us on a path to achieving our rule of 40 in 2025 with significant expansion will sort them out.

Yes.

In Q1, we grew gross margin by nearly 500 basis points, driven by hosting optimization and head count efficiencies among other cost savings.

We further drove operating leverage by executing on our new marketing strategy, reducing head count and implementing savings across our entire operating cost structure.

non-GAAP operating expenses as a percentage of revenue declined significantly from 77% in Q1 2022 to just under 54% in Q1 2023, resulting in the highest non-GAAP operating income in our history. These airports drove free cash flow gens.

<unk> to finish higher than anticipated.

Looking past this year, we expect to continue this quarter momentum by advancing our commitment to operational efficiencies across all aspects of our organization continued cost management, mostly across operating expenses will enable us to drive further leverage in <unk>.

Our cash flow margin significantly.

In addition to our continued profitability improvements I'm also very excited about the execution of our strategic initiatives.

Particularly we are focused on the parcel was a business that will enable us to continue to deliver growth in the coming years.

Now onto the details of the quarter the fundamentals of our business remained strong this quarter, which led us to exceed the top end of our.

Guidance range for revenue.

Revenue was 374 million this quarter up 10% year over year total bookings were $415 million in Q1 up 6% year over year remember that we signed a partnership with legal room in Q1 2022, creating a difficult.

Comparisons this quarter, removing this amount from bookings in Q1 of last year, our FX neutral year year over year bookings growth was 13% a better indication of our growth compared to the prior year quarter.

We saw an acceleration in transaction revenue growth this quarter up 16%.

Year over year to $42 3 million. This growth was driven by higher <unk> of $2 7 billion up 6% year over year as well as the high overall pick rate as merchant adoption of weak spirits continued to increase.

As Avishai mentioned partners is a major area of focus and growth for us. This year, partly as revenue grew to $103 9 million up 27% year over year. This is an acceleration in growth compared to the prior couple of quarters as more agencies and developers build projects on weeks and we incur.

Our monetization of professionals.

Particularly as they increasingly generate more GPP. So this quarter. We also began to see some early but still very minimal revenue contribution from the B to B partnership we signed over the past couple of years.

More impressively this quarter.

We intensified our focus on driving operational efficiencies across the business. These actions allow us to achieve the profitability milestones planned for later in the year much earlier in Q1.

By implementing the cost savings strategy introduced last quarter as well as additional hosting optimization and head count efficiencies non-GAAP gross margin increased to 67% in Q1, making it the highest quarterly gross margin in 2020.

Growth in the creative subscription revenue along with cost discipline drove non-GAAP gross margin for creative subscriptions to above 80% in Q1, an increase of 450 basis points year over year. Both of these gross margin targets were originally anticipated for later in the year.

Our continued implementation of our new marketing strategy that new spoke about earlier, along with additional savings across our operating cost structure. This quarter resulted in the highest quarterly non-GAAP operating income in our history of $48 5 million or 13% of revenue.

We mentioned last quarter, we did take a one time charge of $25 $3 million related to the headcount reduction we announced in February and impairment charges related to operating leases as we align our footprint with all currently.

As a result of higher growth and a focus on operational efficiency, we generated $44 million of free cash flow of 12% of revenue. This excludes capex related to the build out of our headquarters as well as the cash portion of the one time severance charges I, just discussed which was about $2.

$1 million in Q1.

Free cash flow performed better than expected and gives us more confidence in our ability to achieve the rule of 40 in 2025.

Now, let me finish with our outlook for Q3 for Q2 in 2023, we expect total revenue in Q2 to be $380 million to $285 million, representing approximately 10% to 12% year over year growth for the full year, we increasingly outlook. We now expect total revenue to be.

Similarly, 152 billion to $1 five 4 billion.

Representing approximately 10% to 11% year over year growth. This is an increase from our prior expectation of $1 51 billion to $1 53 billion or 9% to 11% growth.

We are also updating our profitability expectations for the full year as we continue to drive efficiencies across our operating cost structure. We now expect non-GAAP gross margin to increase to 67% for the year up from the 66 previously expected creative subscription non-GAAP gross margin is now expected to.

81% up from 80 previously expected non-GAAP operating expenses in 2023, I will now expected to be down year over year to 58% to 59% of revenue compared to 59% to 60% of revenue as previously expected driven by lower sales in market.

<unk> expenses and generate incremental operational efficiencies.

As a result, we're increasing our outlook for free cash flow for 2023 to 172 million to $180 million, 11%, 12% of revenue exiting the year with a free cash flow of more than 13%.

This compares to our previous expectation of $152 million to 162 million or 10% to 11% of revenue and then exit margin of 12% to 13%.

Note that our free cash flow outlook exclude our headquarters build out cost as well as approximately $4 5 million of cash restructuring costs.

Finally stock based compensation is expected to decrease to 14% to 14% to 15% of revenue in 2023 down from our previous expectation of 15% and down from 17% of revenue in 2022 as head count across the organization declines more than originally in.

<unk> I am very happy with this quarter and our revised outlook for the remainder of the year I'll now turn it back to a V shape.

Thanks <unk>.

I have been getting a lot of questions about AI lately, so I wanted to share my thoughts.

To close out.

To date <unk>.

By two weeks was in the development of advanced computing aggregate, including AI, which is why I find the recent AI breakthrough so exciting in fact did.

The data and AI groups here at weeks report directly to me over.

Over the past decade.

We've been unlocking more and more opportunities based on AI breakthrough, while also collaborate collaborating with the best teams on the planet at opening I, Google X IBM and others. Fortunately I can be summarized.

And free and key points first our goal with tweaks.

You should remove friction the easier it is for us to build website. The better wishes. We have proven this many times before for the development of software and products, including AI as we make it easier for users to achieve their goals.

The satisfaction goes up conversion goes up user retention goes up monetization closeout and the value of which grows.

In 2016, we launch Wix, Adi and advanced AI based site creation platform.

In fact, it's equivalent to using a prompt to build the site user enter some basic information about their business and they recommended pages images and text that makes sense and then generate decide personalize to the business.

Obviously, the tax generation ability in 2006 were beaten the east compared to the recent Gen. AI tools are to date.

Due to our long established team and institutional knowledge of AI. It was easy for us to replace that initial next generation tool with open AI chat GPT cortex.

AI to exploration.

Which we introduced earlier this year to.

To date Nir emerging AD technologies creates an even bigger opportunity to reduce friction and some adds that will almost impossible to solve a few years ago. When we embedded technologies into our platform. It's increased value for our customers. We believe this opportunity will result in <unk>.

<unk> addressable market and many more satisfied users.

We have over 200, AI and Jennie O model deployed on our platform.

Both to simplify complex technology for our users and to improve internal workflows and development efficiencies.

This model.

Following many processes and innovation of ours, including foresight creation tax creation image manipulation and enhancement side design user support user certainty about the nice diversification.

Recommendation engines semantic search forecasting and many more.

In the coming months, we will introduce even more AI tools.

Fully powered by LNG.

Two and proprietary algorithms, which will of course include full saturation that not only generate content, but also the design and the layout.

It will also integrate with everything you need to run a business such as ecommerce scheduling SCO and more.

The second important point is that there is a huge amount of complexity in software even with websites and it's growing the question of today is not waning I would be able to create the content for web site that already.

And it's been possible for many years.

Adi fully demonstrated the big question of today is what happens when they I can generate August the content.

And because of the software needed to run a fully function of our web site.

For example.

Even if AI could cause a fully functional e-commerce website, which I believe we are still very far from there is still a need for the site to be deployed to a server to under court.

To make sure. The court continues to work to manage and maintain the database for when someone wants to buy something to monitor security to ship product to partner with payment gateways and many more things.

Even if you have something that can build pages and content and could you still need much more.

That get to my third and final point.

And that is even in the far future.

It's able to automate all of those there's it would have to disrupt a lot of software industry Youll no longer need a database management.

Several management and cloud computing I believe we are very far from that and that before that there will be many more opportunities for weeks to leverage AI and create value for our users.

To add to that the volume of what we do today is allowing our users to capture their story and bring it to the way it is not a text chat GPT generate it's.

It is helping the user yochai GPT to create their version of tactics to tell their story, it's not about mid journey using my journey to create images for your business.

For example.

Can you distribute should yoga studio or an amusement park you need an image of your yoga studio and your amusement park.

<unk> E Commerce site, you'll need images of your products that are being sold.

Images have to be real and the story needs to be real and the value of telling that story online and how to do it well is a big part of what we do here at Wix.

As you can tell I'm tremendously excited about the power of AI.

Deposit that is bringing and the amazing opportunities it will create for our users and our business.

You again for joining and we will now take your questions.

Secondly, as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please stand by while we compile the Q&A roster one moment for our first question.

And our first question will come from Yigal uranium of Citigroup. Your line is open.

Hey, good morning, guys.

Good afternoon.

Obviously, I don't want a lot of the color on <unk>.

AI and I was just wanted to focus on that maybe a little bit more.

On that last point.

Talk about more opportunities to leverage AI and add value for users.

I wanted to maybe expand on that point, a little bit and as we talk to.

Investors over the past couple of weeks as this question has come up more.

I think the biggest fear is that all this stuff happens.

And that.

Folks start to go to some of the larger players.

Sure.

You can simply upside can you use some of these things as they develop their AI capabilities.

Starting to develop some good morning, So maybe just talk about.

How do you envision that and why.

The AI capabilities improve.

You expect users to continue to come to work.

Yes.

Of course.

First of all I want to say is that.

The first part of your question right is about what kind of opportunities deliver Gi do we get right and I think it's about a few things I'll start the first one it's about how many of the people that try to build a website on wix actually finished with a website that they're very happy with and the more we can push that ratio.

To better the customer experience the longer those customers stay with us and of course, the better monetization.

And we've proven with Adi 2016, but by just generating a lot of the finger automatically for the users. So the text, which we did in the images and the layout. We increased conversion I think the correct technology will allow us to do it even further.

So I look at it as a way for Webster.

Our website is a combination of many things not just the <unk>. So it <unk> help us which all of it but you still have to have the right structure the right visual arts dry play.

Layout design and wait to use the user images, so theres a lot of work there.

And so.

So I think this is the first part right the creation of the website. The next part is how do you edit and modify and use the website. There is a bit harder to use any of the standard models. Because you wanted to place an image you don't Wanna right I'm going to I wanted to place the FERC the image and the fifth Colo can you. Please change it to something actually it's easier to go and click and point on it.

And you don't want a generic other takes on the beginning youll just wanted to be specific but so this requires a lot of complex yoy Buddy.

Adi prove that you can do it and when you do it well it works very well.

This is the first part I was going to see better happier users and then faster saturation and more sites being finished to the user satisfaction. The second part is when you start to add things like copilot and away from the AI to help you understand what you need to do next and how to add things you can actually use more of our software.

<unk> capabilities because today, they don't have to know yourself why do you want to do it and then find out to do it but if we can guide you with AI and Microsoft is demonstrating a lot of vertical thing with co pilot.

Sales for example than we can actually take it to another level. So we actually have the ability to take users that use we can sit and wait and make them better and more weeks and.

And I think that also.

Okay. The next part which is the.

The more that you have stronger AI tools. The more important is the power of the platform itself.

Just how quickly can type content because.

If we now have a way for you to finish everything and now utilize more of the platform than the fact that you have a deeper software there actually become a lot more valuable.

And so I think.

We are very optimistic that this would actually enable us to give more power and therefore users make those sites more successful and as a result and make the assay.

Put us in a better place as a company.

I think your second part was about <unk>.

Why.

What is.

John .

People are moving today.

AI companies to build a website, if I understood correctly or I misunderstood it.

Yes.

Yes.

The leverage there.

<unk> built.

Replicate what youre doing.

So what my people stay online.

Yes, so okay, so but if.

If you look at what you can do today, where there are actually two things that changed dramatically. The first one integration of <unk>, which has moved changed dramatically and images, which you can invent images and do that.

But as I said, we've been doing it for a very long time and.

Of course, nothing dissimilar in tech generation not nearly as good a chat GPT.

But this is a very small part of what we do right because.

How do you use that to create e-commerce right. How do you make of scheduling Ajay just thinking about all the way that you need to sign contracts with payment processes to align that I won't.

How do you edit things.

On top of it.

Sure.

Very much.

8% of what we work on and develop right is not covered by that you'll need your site to be running well you need to be managed whether you need to have SCO security and then you need the ability to update call that you need to have the ability to do slideshow and scheduling ecommerce transaction collect leads all of those are not covered.

So.

What do you Chengdu essentially is great and we don't those tools on the basic level escapes simply lending pages, right, which is kind of like a very static pay but you can always do that already with micro support. If you just go into that detects and publish it is HTML I put it in some hosting company.

So and those guys have never been our competitors the ones that do that.

The two just very basic simple lineup as you in fact, you could do this in weeks and.

And it is very small portion of our business. So if you look at the majority of our business I think there is.

We're still very.

Quite a few years and probably more than just quite a few years until we see that the ice starting to cover that guy.

Of software.

Great. Thank you.

Let me just ask a quick follow up on some.

A little bit more near term.

A number of interesting product announcements this quarter.

And if you could just expand on the Google ads.

You talked about that being a meaningful contributor to growth in business solutions and then but.

Newsround habits product was really interesting.

Potentially open up the opportunity with the partners a little bit more so maybe if you could just add on that as well. Thank you.

Well.

This is actually a good demo of where we are utilizing the power advanced algorithm for green and AI to bring more value for our users right. It's a way for you to.

Not understand anything about what you need to do a Google in order to create great advertisement and foster fully create that that generated for ya.

And by doing that we reduce the friction.

So I used to have and running successful global competitors.

Well, it's a real skill that you need to learn it takes time and we use advanced algorithms to reach for the users.

And the result of that is that we have.

Okay.

Happier users that their businesses more successful and of course philosophy more monetization opportunities.

It is as finally ICD, it's also being used a lot by.

What we call partners web agencies, because even for them. It provides so much value and adoption of friction and labor that we see a lot of the.

Professional are using that product.

Thank you and one other final question.

And our next question will come from Aaron Kessler of Raymond James Aaron Your line is open.

Great. Thank you maybe just a couple of questions, maybe just comment a little bit on the macro and the letter just maybe your updated thoughts there and kind of the environment, we're seeing especially with Smbs right now and second just the non-GAAP Opex Guide I think.

You've lowered that a little bit, but still given the strong Q1 performance there up looks relatively conservative guide just any updates on that.

non-GAAP opex for the year as well thank you.

Hey, Erinn, it's Nir I'll take the first part and Leon can follow up on the second part in regards to the Opex.

In terms of the macro environment.

We've seen some modest improvement.

Kind of across the board.

In terms of.

The demand side top of funnel.

Some I would see some recovery in growth in <unk> in the transaction revenue as well as the <unk> subscription.

Subscription behavior.

Both the existing cohorts and the new cohorts.

That being said.

It's still relatively early the increase is modest.

So we're being cautious not to call it a recovery, but we do point out that we're seeing a little bit of it.

Aaron This is.

With regard to the Opex.

I think that this is one of our.

In my mind, one of the most amazing thing that we will manage to achieve them.

Opex this year, the non-GAAP opex is going to be around 58% to 59%.

And I believe that this trend of taking down the opex as a percentage of revenue will continue into 2024 and 2025.

Which brings me the confidence in our ability to meet the target that we set for.

For the rule of 40, so you should expect it to continue to decline as a percentage of revenue even in the next couple of years and it will be significant okay and just in terms of 'twenty three though I think you did 54% in Q1 in terms of the non-GAAP Opex I guess any reason it wouldnt be lower than that 50 859 for the full year.

Yes, because as we mentioned last time, the second half of the year.

We do plan to invest more in branding.

For a full two weeks.

Especially with regard to the partners.

Okay.

And we said that we are going to do that in the second half of the year.

So it reflects that.

Great. Thank you.

And one moment our next question.

And our next question will come from Mark Mahaney of Evercore ISI. Your line is open more.

Great. Thanks, two questions could you talk about the revenue growth outlook in order to get to that rule of 40 I think.

For the full year your guidance implies maybe the potential for very modest acceleration there.

Are there factors that could cause that revenue growth rate over the next two or three years to get back to the kind of the mid teens levels and if it does what would be the two or three biggest drivers of that and then secondly, just on Google ads could you just talk through the mechanics of that are the materiality of that.

Thank you very much.

Okay. So for the first question.

Mark we obviously see tremendous growth in terms of our partners business approximately 30%.

Very much in line with what we said during the analyst day, but I must tell you that I didn't plan to my model.

Grow to acceleration and growth in revenue in order to achieve the rule of 40, meaning that the rule of 40 will be mostly achieved.

Bye bye more efficiency and leverage coming from.

Both of gross margin.

But mostly operating margins.

With regard to the Google ads.

Look this is something that we started and it's a great as avishai mentioned to grid modernization.

Monetization of our funnel of our no.

Customers.

It is millions of rollout.

I don't want to provide the exact amount, but this is one of the very exciting growth driver for our business solution.

Okay. Thank you Leroy.

One moment our next question.

And our next question will come from Elizabeth quarter of Morgan Stanley . Your line is open.

Great. Thank you very much really helpful color on why kind of the current AI platforms are no replacement for west.

Also referenced emerging AI technologies, providing the opportunity to actually increase which is addressable market. So could you provide more color on who that incremental use your guidance do you expect to be able to address and how thats different than your core Tam today.

Of course, I think that one of the thing that we always see.

And <unk> is that we have a lot of users that come to wix and sometimes.

Okay.

They finished their website that they want and there are many reasons for that side. Some some of the reason is that it just takes too much time at the end of the day you have to.

Personalize the template youll have to even if you use Adi is youre going to have to go around and fix a lot of finger understand how to do that you need to understand how do you or the user interface work for that.

So reduction of that complexity and making weeks more available to users that are less advanced or don't have the time is something that we think is one direction of increasing that addressable market data side of it is exactly the opposite is that users that actually understand how to use the platform b well, but.

You cannot use the more advanced functionality I don't know whether these exist right. So you've got two weeks and you think about Oh I need to have an application that thats something specific and its not obvious to you or you cannot find how to do it in wickes and this actually the opposite dry because on one side those are the.

We have users that don't have the time certification and here we have users that have a lot of time and sophistication for example.

They'll be using velo to actually configure to their website.

Sure I think we have the advantage that we the AI, we can expose them give them the ability to us way more complex questions and get more detail answer is and actually guidance.

Where they should be going.

So.

I think that the.

Expansion of addressable market will go both way toward more advanced more advanced functionality.

Functionality and then for the people that just want to finish up so quickly and do it and get good results I think those are both directions.

It will allow us to expand into.

Great and then on the partnership side, you mentioned that it's starting to impact revenue in the model and while it is small today, how should we think about the magnitude of the impact kind of buildings through this year ended 2020.

So.

I believe that.

Elizabeth if you take the overall bookings that we already had and some of the deals we already mentioned in the past.

It is growing very fast, meaning that 2022, you are going to see millions of dollars and I guess that 2020 full it would be more like tens of millions of dollars.

But it is growing and we are.

We were able to sign more and more deals in this segment is actually growing very nicely.

I do want to mention that we see less people that are willing to sign for a multi use agreement.

Nevertheless, we see many of them actually moving two weeks and start to use <unk> for their customers.

Great. Thank you.

And one moment for our next question.

Our next question will come from Clarke Jeffries of Piper Sandler Your line is open.

Hello. Thank you for taking the question first question is for your I mean, one metric that seems to jump off the page as improvement in net new <unk> creative subscriptions IRR.

I wanted to ask what specifically drove the improvement I mean, the color around the Q1 cohort is helpful. But it doesn't seem to really fully reflect inflection there I'm wondering if you could maybe break apart maybe changes in churn or what might drive that improvement in IRR.

From.

Q4 to Q1.

So there are few reasons for that the first one I might say that it's coming from the growth that we've seen our partners business, we see more and more agencies.

Using weeks.

And building an existing agencies building more websites for their customers.

And we so are also a better conversion of existing users create.

Creating more subscriptions.

The third point is as we mentioned before as we see more revenue coming from the B to B partnership also has a positive effect on that but those are like the three main reasons.

And before we then well obviously be up we increase that what's happening this quarter, meaning that we see more shift towards like more expensive packages.

A positive impact on on the growth of creative subscriptions.

Perfect and then just wanted to follow up.

Characterizing half of that increase to free cash flow being driven by cost of revenue efficiencies. Another half from Opex wondering if you could parse out maybe where you are in terms of your expectations splitting that between partners in south creator.

Is there a disproportionate amount of the cost savings both both on cost of revenue and opex coming from either self trader or the partner business. Thank you. So yeah. So obviously, it's coming from from both of them, but mostly from partners.

I mentioned many times in the past with we're going to see more leveraging partners, who are partners is growing and.

This is exactly what we're seeing.

We see more leverage coming from the partners and it's mostly because of the fact that we invested a lot of building. This vertical in the in the last two years and we started to see the fruits of it and getting more and more leverage from this business.

Perfect. Thank you very much.

Our next question.

Our next question will come from Trevor Young of Barclays. Your line is open.

Great. Thanks first one just dovetailing on that prior question on free cash flow margin ex all the items at 12% can you kind of break that down into core self creator versus partner itself create or kind of still high teens, which would put partner still modest, but improving free cash flow declines or self creator now north of.

20% in light of all your cost actions, which would maybe result in partners still being quite a bit more negative.

And then on the Geo mix Europe slowed to just 5% year on year ex FX. Despite easier compares and maybe lapping some of the headwinds that started with after the Ukrainian conflict any color on why Europe is slowing.

So with regard to the first question, we do not provide at this point of time the breakdown of the free cash flow between partners. Since it was on products that I'm going to do it.

And the next.

The next couple of months ago, and a quarter or two I will provide the odeon inflammation.

With regard to Europe , you are right.

I think that is mainly due to a tough comp in Q1, 2022 but we obviously see the effect of also the war in Europe, that's affecting the overall business.

And one moment for our next question.

Our next question will come from Brent Thill of Jefferies. Your line is open Brian .

Thanks, just a question on the sustainability of demand in the back half, but yet I know Nir mentioned, it's still too early you don't want to call. It a recovery, but you did raise the guidance more than national beat in the quarter.

Pocket.

The visibility and maybe.

For Lee or can you give us a sense of just what the linearity of the quarter to look like and ultimately what what happened in April and into May.

Okay.

Sure so.

The way that we provide guidance we pick the kpis the fundamentals as we see right now we don't improve it.

And if you didn't account as any any improvement or further improvement to what we see right now based on that we provided our guidance.

But I believe that you'll see.

Increase the acceleration in growth in the second half of the year.

Due to a different comp because Q1 of last year was a very strong quarter for us. So obviously, if you are looking at it on a year over year basis. The second half of the U is going to be a stronger.

Due to that but again, it's not coming from a place that we.

We took any kind of assumption about.

More recovery than what we see right now.

<unk> may also.

It had been good and you know continue I cannot say more than that.

Thank you.

Okay.

One moment for our next question.

Okay.

Okay.

And our next question will come from Andrew Bill of JMP Securities. Your line is open.

Good morning, and thanks for taking my questions.

Obviously, you talked about the importance of integration in the backend in terms of AI.

I think in the context of also launching a handler solution what else do you guys need to build in terms of the backend.

To make the business more defense fall in and compete against maybe other competitors that are already built out kind of hit the solutions and then secondly thinking about.

The self creator business as well as marketing as we think about the rest of 2023 can you talk about the puts and takes in terms of marketing spend and how we should be thinking about self create a revenue growth. Thanks. So much.

Just wanted to ask a quick hit.

To clarify.

In the first question do you mean in regards to AI or Jeff Hume into Odyssey headlights vendor software vendors.

I think more broadly so if I think about the back end and you've talked about the possibility of that creates when you think about AI coming online if I think about your <unk> solution.

I think it's somewhat connected in terms of what else you guys can balance make the platform more central as well as to attract more headless dollars I mean, maybe that's wrong, but let's talk about then why that thesis is wrong or what else you guys needed to opex.

Okay.

First of all thank you and if we can understand the question better now so the aggregate quite a few pilots with that but the first thing is that.

Headless is just one of the thing that current Malo AI cannot do right. They can move very basic things come to court, but.

And if you think about the whole stack right or things that you need to have it running.

Looking scheduling website.

So any database has doubled indexes databases a lot of API and then you need to have also signed contracts with processing and merchants and banks in the nation.

There's a lot of things that you need to do it right. So I think this is shopping that.

Take quite a while and when I say quite a while we don't even have.

It cleared by the algorithms that will need to do something like that yet.

That's quite aligned in the future, but every element were going to get from <unk> to simplify that of course provides value for weeks, just because it allow us to do it better faster and reduce the cost.

Nowadays are going to be a lot of opportunities underway for them as for the headwinds itself. So we are.

Quite a few softer stocks that we build that are being used by tens of millions of users and <unk>.

<unk>.

Yeah.

Why fantastic, but we never offered them upside of Wix.

No yes, some in some cases, you have competitors that Dave.

Like E Commerce, right, where you have really great competitors out there, but in some cases like scheduling booking and the ability to manage a variety of events and other things, there's not really anything similar in quality to what we have so we think the opportunity days liability to allow people to use that and offer that on there.

And website that are not built in weeks.

And I think that is something that.

We create to us another marketing channel, which is very different than a standard one it's mostly based on partners and professionals.

And long term I think the validates quite big there is something that.

Because we actually provide all of the different elements and not just one like shopping cart E Commerce base.

Then the thing is that.

There is also the integration. So you can actually have all of them offer together and not two separate pieces.

That provides quite a lot of value.

Hey, Andrew it's Nir in terms of the marketing.

Our plan.

So as <unk> mentioned and as we also illustrated.

This quarter, we do expect on the partner side do you see an increase in marketing as we have some initiatives around that segment.

In the second half of the year in terms of the sales creators.

We will continue the current focus which is a combination between brand activity as well as the direct acquisition at.

At similar cadence as we've done this past quarter and before that we see as we see that marketing.

Strategy really paying off.

Thank you.

I would now like to turn the call back so Ron Davis for closing remarks.

Thank you for joining and have a good day.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Okay.

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