Q4 2023 Squarespace Inc Earnings Call
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Good morning, My name is to me and I will be your conference operator today at this time I would like to welcome everyone to square spaces fourth quarter 2023 earnings Conference call.
All lines have been placed on mute to prevent any background noise. After the prepared remarks there'll be a question and answer session. If you would 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 the pound key thank you I will now hand, the call over to your host S course base Clare Parry clear. Please go ahead.
Good morning, and thank you for joining square spaces fourth quarter 2023 earnings Conference call. This is Clare Parry head of Investor Relations I'm joined by Anthony Cocillana 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 will 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.
These measures should not be considered in isolation from or as substitute for our GAAP reporting 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.
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 security and Exchange Commission.
Any forward looking statements that we make on this call are based on assumptions as of this day February 28th 2024, 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 we state otherwise.
I will now turn the call over to Anthony.
Thank you Claire and good morning, everyone.
23 was a strong year for square space, both strategically and financially we crossed $1 billion in revenue for the first time growing 17% for the year, our unlevered free cash flow margin expanded 24%.
The top and bottom line performance puts us in rule of 40 territory for the year.
Q4 was an excellent finish to 2023 with faster bookings and revenue growth than we saw for the full year also aided by the addition of our customers coming over from Google domains last.
Last year was also an important year for laying the foundation for accelerating multi year growth. We began rolling out scores based payments in Q4, our key strategic initiatives supporting our commerce aspirations and I'm delighted to share today that payments is now fully rolled out to new customers in the United States.
We invested significantly in our domain business as we welcome customers over from Google domains and establish ourselves further in this space.
We also launched dozens of new products and features in 2023 to make it easier than ever for entrepreneurs to launch their businesses and standout online by leveraging in both distinctive design capabilities anywhere in our industry.
The main drivers of our business moving forward into 2024, our first enabling small business, which is inclusive of the essential services and entrepreneur needs to get started namely a domain website and email.
Second commerce, where we offer powerful tools to enable customers to engage and transact via their online presence and finally third international where we're making great progress in expanding our brand and presence in both existing key markets and new ones.
With respect to enabling small businesses to key highlights this year, where the build out of our domains business and the launch of square space Blueprint square.
Square feet domains is now the fourth largest registrar in the world renewals from migrating Google customers are going better than expected and were now poised to grow adoption of our broader offerings as we capitalized on a wider customer funnel and larger customer base major updates to our platform to interface, they're launching as soon as next week.
And when our customers want to go to a website. Many are onboarding using of course. This blueprint also available in select international markets blueprints guided interactive design experience enhances our users the ability to rapidly create a distinct personalized web site and then act as a natural place for us to inject an array of generative AI features that help guide customers through <unk>.
We will be releasing these improvements throughout the year under the banner of design intelligence, what you will find a home on our Frac site.
Turning to Commerce, we're now offering a comprehensive set of tools to enable our customers to transact and engage with their customers through selling digital content physical goods and services.
<unk> scheduling has proven to be an important driver of GSV growth and underscores our increasing focus on service to sellers, but we believe we will offer meaningful product differentiation.
<unk> closed out the year with a record Q4, its best revenue quarter ever and we saw an uplift in seasonal GSV, we believe that the product enhancements, new integrations and an improved iOS app further separate targets, leading hospitality solution for restaurants and diners alike.
Our largest scores based payments in Q4 serves as a cornerstone of our commerce capabilities.
Enabling merchants to collect money directly through our native solution will be central to enhancing the power of our platform by growing CMV and driving customer growth and retention.
With payments now 100% rollout in the U S. We're turning our attention to key international markets payments is getting great early feedback from customers and we look forward to building payments discount for our current customers into our broader plan offering as we move throughout the year, marking the first time, we will have the ability to do that.
Finally, we are excited to the efforts we have put into expanding our international offering are showing up in our performance.
Our largest international markets continue to grow and we've seen double digit subscription growth across all key markets. In 2023, we added 18, new currencies, enabling more customers to pay in the ways most convenient for them.
As we enter our third decade square spaces in a better position than ever to empower more entrepreneurs online we're.
We're looking forward to even more strong product releases in 2024 as we continue to refine the go to market for much of what we were able to release in 2023.
We're also announcing that we'll be holding an investor day at our offices in New York City on May 15th where Nathan and Inq square space leaders, who will dive deeper into our market positioning and growth drivers and opportunities for the future.
You all for your support and now I'll turn it over to Nathan.
Thank you Anthony and good morning, everyone.
2023 was a tremendous year does square space ecosystem of products and solid execution fueled our strong financial results, we exceeded our top line and Unlevered free cash flow guidance, which culminated in full year revenue growth of 17% and a 24% unlevered free cash flow margin over 400 basis.
Points of improvement.
We are driving meaningful top line growth, improving our profitability and delivering strong incremental cash flow a powerful formula for long term value creation.
We continue to balance our strong cash flow with sustainable top line growth today, we announced a $500 million share repurchase program.
This authorization underscores the strong financial momentum of our business, our robust balance sheet and cash flow generation provide us with the flexibility to repurchase shares while continuing to execute against our long term strategy.
We view share repurchase programs as an integral part of our capital allocation strategy, a key topic, which I will discuss more at our upcoming Investor day in May.
Turning now to the strong financial results driving our business.
Q4 bookings of $286 million grew 23% as reported and 22% in constant currency.
Our acquired domain assets, consisting of single domain subscriptions originally sold by Google as part of our acquisition of Google domains drove about half of the growth during the quarter followed by contributions from websites both in presence and commerce.
Related to our acquired domain assets renewal rates from this customer base have surpassed our expectations. As a reminder, we acquired Google domains. In September 2023. This was an asset purchase with no deferred revenue.
There are two primary components of the acquisition, which include the acquired domain assets and a partnership.
Square space is the exclusive domains provider for any customer purchasing a domain along with their workspace subscription from Google directly for a minimum of three years.
Additionally, we see benefits from Google referral pages, which direct traffic to square space domains unique subscriptions and <unk> do not include our acquired domain assets.
Full year 2023 bookings were $1 1 billion.
Growing 19% and 18% in constant currency the primary driver of growth during the year with a strong retention and growth of unique subscriptions.
Legacy price increases across several of our web site plans were another driver of our full year bookings growth. In addition to contributions from our acquired domain assets.
We are delighted by the momentum we achieved through 2023 with bookings growth accelerated quarter after quarter and driving $169 million of the incremental growth in the year.
Revenue of $271 million exceeded the high end of our guidance of $261 million to $264 million in the fourth quarter, which represents 18% growth and 16% in constant currency and.
In addition to positive contributions from foreign exchange, we saw stronger new subscription acquisitions from websites. We continue to see a positive halo effect following our acquisition of Google domains, where we see robust referral traffic to square space increases in premium plan mix and new unique subscriptions.
As of year end, our customer base represented over $4 6 million unique subscriptions up 10% and representing a net increase of 427000 unique subscriptions over the 12 month period.
Q4, 2023 revenue highlights included presence revenue of $188 million growing 20% and 18% in constant currency and $82 million of commerce revenue growing 14% and 13% in constant currency.
Presence revenue grew from the acquisition and retention of unique subscriptions and also benefited from legacy customer price increases are acquired domain assets also contributed to presence revenue growth during the quarter.
Revenue recognition of our acquired domain assets.
We're generally domain subscriptions are annual and paid upfront is recognized ratably over the course of 12 months. Therefore, we see greater contributions from this important customer base and our presence revenue in 2024.
Square space has built a strengthening diverse commerce portfolio to support our customers' e-commerce needs, including physical goods and service sellers as well as hospitality customers Commerce website subscriptions acuity scheduling and talk were primary drivers of commerce revenue growth in Q4.
We saw positive contributions to <unk> related revenue sharing across commerce capabilities in Q4, <unk> was approximately $1 7 billion.
Growing 6%, we saw strength in acuity scheduling this quarter and talk had a great finish to the year with strong seasonal uplift in reservations, leading to a record high GMB and solid subscription revenue contributions from customers.
As Anthony highlighted our full year 2023 revenue reached approximately $1.01 billion up 17% and 16% in constant currency, we exited the year with annual run rate revenue of $1 $1 billion.
Of 19% or $174 million all year, we saw strength from web sites, the largest driver of our growth both from retention of existing and acquisition of new subscriptions.
For the full year 2023 unique subscriptions contributed $87 million.
Representing 60% of our topline growth.
Price increases across our subscription offerings contributed $39 million, representing approximately 27% of our topline growth with renewal rates supporting strong cash retention.
Price increases had an outsized impact on our presence revenue during the year in 2023, the growth of unique subscriptions and legacy price increases drove record cash retention to 88%.
400 basis points of improvement versus 2022 as of year end <unk> accelerated to 9% to $228, primarily the result of the increase in revenue associated with our unique subscriptions and price increases across several of our subscription plans.
International revenue was $286 million growing 17% and 14% in constant currency and representing 28% to our total revenue during the full year period.
Strong growth in websites across the target markets contributed to our revenue growth in 2023, we increased our currency options five times, which alongside growing our support languages bolsters, our ability to support our international customers.
As Anthony mentioned International is a key growth driver for our business as we look to bring our ecosystem to new markets. We.
We are focusing resources on markets, where we see clear synergies with our differentiated design and where our product market fit is well supported.
We are investing in product features targeted marketing campaigns and building ties with pro users through circle, our partner program to deliver growth.
Through our powerful business model, we drove profitability as a result of solid execution and operating improvements offsetting the temporary gross profit margin impact from our acquired domain assets, we intend to improve profitability, while we continue to invest to support long term growth and shareholder return.
Turning to our margin profile, our non-GAAP gross profit margin was 81% and full year 2023, a decline of 286 basis points cost of revenue increased in the year, primarily due to domain registration fees associated with our acquired domain assets.
As legacy Google domain customers renew their domain subscriptions, we pay registry fees upfront, but recognize the associated revenue ratably over the course of 12 months as I mentioned earlier.
Our customer operations costs increased on an incremental dollar basis, but as a percentage of revenue remained in line with 2022, showing that we're able to sustain an efficient model for our business as we scale, we see AI as a continued driver of efficiency and our customer operations, we have been using AI models to bolster <unk>.
<unk> of our platform and enhance our customer support for the better part of a decade, we will continue to leverage technology to drive efficiency in our business.
Moving to operational expenses, we improved non-GAAP operating efficiency in areas throughout the year lowering expenses as a percentage of revenue in 2023, non-GAAP R&D expense was $183 million or 18% of revenue an improvement of nearly 280 basis points.
Primarily due to efficient spending in cash base payroll with increased capitalization year over year.
During the same period, non-GAAP marketing and sales expenses were approximately $313 million or 31% of revenue an improvement of nearly 400 basis points.
Our marketing attribution model has been efficiently directing the mix of spend the optimal marketing channels, helping us drive better ROI.
During the year, we prioritize direct response channels and decreased investment in brand advertising. These changes supported increases to our growing subscription base.
Finally, non-GAAP G&A expenses were $90 million or 9% of revenue, we improved non-GAAP G&A expenses, both on a dollar basis and as a percentage of revenue more than 250 basis points, primarily due to taxes.
In 2023, we focus on execution and efficiency, which can be seen across each of the operating expense areas.
Full year 2023, adjusted EBITDA increased 60% to approximately $235 million or 23% of total revenue nearly 600 basis points of improvement compared to the previous year driven by our operational discipline. This performance more than offset impacts related to the acquired domain.
Assets and increases in employee expenses.
Turning now to the balance sheet and cash flow statement, we finished Q4 with cash and cash equivalents of approximately $258 million.
And approximately $18 million of available borrowing.
Total debt was approximately $569 million of which $49 million is current.
I remain comfortable with our leverage ratio is today with net debt to our trailing 12 month adjusted EBITDA at one two times as of year end.
We delivered strong cash flow in 2023, surpassing the high end of our guidance our cash flow from operating activities grew 41% to $231 million, we generated strong unlevered free cash flow of $241 million for the trailing 12 months or 24% of total revenue a growth rate of 46.
Percent, surpassing the high end of our guidance.
The outperformance was primarily due to strong bookings driven by renewals in acquisition of our website business.
Our consistent levels of positive unlevered free cash flow afford us opportunities to innovate and develop new products, where we see opportunity to provide more value to our customers and to plant seeds for long term growth.
In 2023, we returned approximately $26 million of cash to shareholders under our current share repurchase authorization.
This represents purchases of approximately one 3 million shares at an average price per share of $22 17 on the open market at.
At year end, we had approximately $54 million remaining on the current authorization.
The shares repurchased in 2023 had an anti dilutive impact and offset some of our stock based compensation grants.
Turning to our guidance for Q1 and full year 2024, we are expecting another year of strong growth for square space driven by our expanded ecosystem contributions from renewing Google domain customers and the continued strong performance of our website business.
In Q1 2024, we are targeting total revenue in the range of $274 million to $277 million.
This represents 16% growth at the midpoint, we expect unlevered free cash flow during the quarter to be in the range of $83 million to $86 million, which implies an unlevered free cash flow margin of 31% at the midpoint of the range.
Our Q1, Unlevered free cash flow margin reflects the seasonal strength in bookings, including the added benefit of bookings from our Google domain asset acquisition.
For the full year 2024, we expect total revenue to be in the range of $1 107 to $1, one 9 billion.
Representing growth of 17% at the midpoint of the range.
Unlevered free cash flow is expected to grow through the year to the range of $290 million to $310 million and implies an unlevered free cash flow margin of 25% at the midpoint of the range related to the full year revenue guide, we expect contributions from our Google domains assets to be in the range of 85 to 80.
$8 million.
I want to call out that we are not including any material contributions from either pricing of our core offerings or cross selling of squares based products to our Google domain customers and our revenue guidance.
Adjusted EBITDA is expected to improve as the year progresses, ultimately showing similar leverage to our full year 2020 for Unlevered free cash flow margin as we benefit from improved marketing efficiency in the second half of 2024.
Finishing where I started I couldnt be more proud of our performance in Q4 and 2023, our teams helped drive steady performance, enabling us to maintain a strong outlook and steadfast execution 2023 was my first full year as CFO at square space and it is clear that we have a strong foundation.
For growth supported by our growing square space ecosystem and suite of products.
Thank you to our employees, who execute daily to deliver value to our customers I look forward with confidence and excitement in this new year.
With that operator, please open the line for the Q&A portion of the call.
Certainly we will now begin the question and answer session.
By way of reminder, if you would like to queue for a question. It is star one on your telephone keypad.
The first question comes from the line of Matt Pfau with William Blair. Your line is now open.
Great Nice results and thanks for taking my question first.
Actually it too and I wanted to ask a related on payments.
What is the plan to go about migrating existing customers over to square space payments.
And then both from square spaces perspective, as well as the customer's perspective, what would the advantages be two moving from a third party payment system over Q scores based payments. Thanks.
Sure I can take that.
So one of the things that we haven't talked about up to this point.
Is what the release of payments can do to our plan and offering architecture. So in the past we've talked about customer experience.
As better everything being integrated they don't have to go to more than one place. Obviously, we have some better economics with it.
As we roll this out we've been spending a lot of time thinking about how we can give people on higher SaaS tiers and more advantageous take rate than they currently get right now.
If you had a stripe relationship and so that sort of begins to kind of answer both of your questions at once right. So youre.
First is about migration and the second is why do it. So you don't see it in the plan architecture now, but that is something we're going to be actively working on and testing and it's been built into our payments infrastructure. So that we can deploy that.
If you look at across our competitive set.
Yes, a decrease take rate is probably in multiple cases.
Very first line item on why people are selecting various plants and in my opinion.
Well one of the reasons why I think <unk>.
Larger sellers or people who would adopt.
Our invoicing products might not use square station you might not even be in our ecosystem. So we have a lot coming there.
And it's just a huge unlock for us so right now we're just we're focused on making sure that the system is working well. So far is otherwise we wouldn't be at a 100% U S rollout.
Moving to all of our international markets and then integrating that to our plan architecture. So that's all just frankly super exciting and we're all spending a lot of time here looking into it.
Okay. So just to follow up on that in terms of the more advantageous pricing, perhaps what does that meant in terms of uptake by new customers that have been exposed to scores based payments coming into your your customer ecosystem.
So what I'm talking about.
Not something you see in production right now. So this is something that we have the ability to do and are currently contemplating it in our.
Re bundling and just new offerings as we as we continue to shape the commerce product, but that is not currently out.
Got it great. Thanks for taking my questions.
Thank you.
The next question comes from the line of Andrew Boone with JMP Securities. Your line is now open.
Thanks, so much for taking my questions.
Nathan can you unpack the 2024 guidance given the fact, you've given us kind of domains revenue is that 8% kind of high single digit number right to think about for 2024 is there anything else, we should consider as we're doing our math.
And then Anthony on domains can you just help us understand where you are on the cross sell into other score space products and what the strategy is there. Thank you so much for it.
Yeah.
Yes, thanks for the question Andrew So for.
24 guidance, we certainly.
We ended 2003 very strong it was an incredible year.
17% year over year growth rate, which was driven by the top driver of our core business of the retention of our existing and acquisition of new.
Against the backdrop of raising legacy pricing. So as we go into 2024, 18% growth at the top end of the range is really driven a combination of what we disclosed for Google domains, but that core business coming through but we are lapping the pricing and so you will see that impact in the 2024 guide as well as.
I said in my opening remarks, we built.
Immaterial cross sell for the Google domains I'll, let Anthony talk really the focus of migrating those domains.
Yes, and just to reemphasize.
In 2023, and we saw some of the strongest quarters ever including Covid quarters in our core business.
And so.
I'm sure we'll get to it later, but we've built in really no material.
Changes in the 'twenty four guidance due to any more pricing changes other than an update to some of our customers who are currently not at list that will be at list, but that is that is not.
Single digit millions.
Thanks, and we can talk about pricing and pricing strategy later to.
To your question on domains and cross sell.
Right now the answer is nowhere.
Because we're still in the process of migrating everyone over really we have a new interface coming on next week, which will be kind of the foundation for more cross sell and upsell. We're really just focused on a seamless transition making sure everything is working perfectly to.
To make sure Theres no interruptions and we'll be doing that for the next couple of months.
And then after that we will be thinking more about cross sell and upsell that being said, we do have a elevated a new stream of new domains coming and we are seeing attach rates into <unk>.
<unk> website products.
Four and that is greatly.
Elevated versus last year and early results considering where.
Literally doing almost nothing is encouraged encouraging that what they are attaching I mean.
The thesis here is not really like too hard I mean, all small businesses in the world need a domain and website and E mail and so we're just refining the offering there and we're going to have plenty of opportunity later.
Throughout the year and throughout these customers life cycles to get them into that.
Our effective products.
Thank you.
Thank you. The next question comes from the line of City Panic Rohit with Mizuho. Your line is now open.
Thanks for taking my question.
Tony.
<unk> has been a pioneer in website building you always different said yourself from this crowded.
<unk> comprehensive market. So now the question, we're getting with this emergence of.
No new competition to us and are leveraging AI wondering how long do you put your sitting yourself from the pack I know some of the investment you did on the AI side could you talk about how the product.
Right now you're offering and also in terms of go to market what are you doing.
Yes sure. Thanks for the question.
<unk>.
At refresh last year, which is just really kind of almost a couple of months ago, we have some demo videos about.
Now we plan on and have incorporated AI advancements into the product I mean square space has always had a machine learning group here.
Which we've use insights from to guide the Onboarding experience and the setup experience. So I'd say a couple of things. So first off jumping back to your original kind of positioning of square space, which is how I believe we are positioned to which is that we're really the leader in design and we're the leader in I believe quality in.
And all of the things we do so coming over the next couple of months Youre going to see more ongoing releases by the way. The AI status is an ongoing process. We're always releasing things. We're always updating thinks it's not this big Bang now a tiered were done sort of situation, but we're going to be releasing.
A number of incremental improvements under the banner of sort of design intelligence, we're calling it. So it's really not just the fact that AI is there its the combination of AI, which us and all these smaller start ups have equal access to.
With a tool and it tastes level that is really really really incredible I mean, you can't just have AI.
Generate the code for your site have no tool no hosting no domains no order management know ecommerce capabilities like you have to build all this stuff and scores. It has an amazing technology stack that we're building on top of it. So we're constantly releasing AI improvements into our editor into blueprint into setup, we have new services going online to understand.
In the context of your brand and.
Start to help you.
Automatically put that into prompt.
As you build your site. So a lot of releases I agree I take a look at the refresh stuff and then also stay tuned for.
Design intelligence, appearing on the front side, but that's really how we are going to continue to integrate AI and the other thing just one more thing on this is that.
A lot of the magical stuff people see with mid journey or chat GPT or whatever.
Great a lot of that into the interface, which is a convenient thing but also keep in mind that I think this is directionally correct don't quote me exactly but like a third or a third of Americans have used chat GPT. So whatever they are getting there if thats not augmented with a great tool is just a commodity at this point. So we're looking to make sure our.
<unk> of AI isn't the same tricks, we see everyone use and its something genuinely useful for our customers.
That's a great color.
And just a quick housekeeping.
A question. So I don't know if you could talk about google's impact on revenue and gross margin in Q4.
Yes, happy to unpack that a little bit there.
As a reminder.
For Google domains, you will see the impact of revenue we recognized that over 12 months. So you will see the initial impact in bookings, which we saw.
Year over year growth in bookings in Q4.
Is predominantly driven by Google remains that the revenue impact you will see over time.
There was an 820 basis point degradation.
Degradation in our margin, which we were not surprised by that because we recognize the registry cost upfront, whereas revenue is recognized over time. So you'll see this continue in the first half of 2024, and then as we lap the anniversary.
Pension is.
Again going back to payments and what this can unlock with respect to our broader pricing strategy us being able to change the take rate as part of the SaaS tiers and contemplate different platform fees on different ways to transact is a huge change and we couldn't do it before because we didn't have this end market and so one of the biggest things.
And I'm sure because you all watch the pricing picture probably find a test on is.
Plans are differentiated based on take rate and platform fees and that will hopefully allow us to introduce commerce to basically everyone using the platform and just differentiate based on take rate so you'll be able to use it.
Invoices donation classes and Cortez, south physical products sell services book appointments all across square.
And you just got a lower take rate with the higher SaaS fee. So that's kind of what we've got in store for pricing I mean in my mind.
Once every two years doesn't feel particularly aggressive with respect to a modest increase in price.
Yeah, that's kind of how we're how we're addressing it and Nathan none of that is built into guidance, except for a cohort of people who are not currently at the previous.
<unk> price correct.
Immaterial to the 2024 guidance at $600 million.
Okay. That's really helpful. A follow up on the on the Swiss Batesville beans experience.
Some of the work Youre doing there.
It's about being the fourth largest reinsurance now.
And any more color you can share around what what that experience is like how it how it has changed.
Differentiating as a registrar business.
Five more traffic you guys versus the other.
Thanks.
Right now most of our efforts have been on making sure. The migration is successful and also improving our interface for people who are interested in having a domain and email or.
And no website or multiple domains or domain that forwards outswear etcetera, etcetera. So again I think as early as next week, you may see a new interface starting to rollout.
<unk> is just a big upgrade on everything that's going on in the majority of the.
Customers moving over from Google will experience.
That interface. The migration has been started but there as you know.
It's a small percentage of the actual number of domains that have actually moved over right now, we're just being really careful.
And I will tell you since we closed the transaction in September.
Are seeing very good retention of the legacy business continues to exceed the expectations that we had at the close of the deal so happy.
Transaction and where it's trending.
Great. Thanks, so much guys.
Thank you.
The next question comes from the line of Ken Wong with Oppenheimer. Your line is now open.
Great. Thanks for taking my question I wanted to maybe just kind of dive in on the fiscal 'twenty for revenue guidance again.
One way I think we typically think about the growth rate of revenue is that kind of bookings lead revenue, you're obviously exited with it with a really high 20, 30% bookings growth rate I guess why wouldn't we think of the 24 revenue growth rate being closer to that number.
We were missing in terms of the revenue lag or what might be in bookings versus versus top line.
Yes.
Great question can be so the 23% year over year bookings in Q4 that we saw on the top driver of that was what Google.
Domains flowing through second driver being our core business.
That flows through 2024.
Because we recognize the revenue from Google over 12 months, you don't see that pick up.
Really until the last half of the year when we lap the.
Acquisition.
So the latter part of this year you will see.
Improvement on that side.
And answer that for you.
We're lapping price increases.
Got it got it but at a high level.
Kind of that booking lead revenue shouldn't be too much of a stretch like granted there's maybe some ups and downs, depending on quarter and obviously, you've got some acquisitions stuff, we have to kind of work through it.
Correct that is.
That is the essence of our model.
Okay, Perfect and then maybe just a follow up for you Anthony on the again on the on the domain side now that you guys have to harmonize. The experience you guys have taken ownership of it from from Google.
Like are you seeing a similar kind of customer funnel coming in I realize the retention has been really good but I'm just wondering in terms of kind of the new lead Gen has that been consistent with expectations. When you when you purchased the assets.
The new lead Gen remains.
Greatly elevated over our standalone business from last year.
And that elevation has been sustained I think it and the attach rate on those new customers.
We are monitoring very closely even though we do not have an optimized experience. They're just just to reemphasize that we have not currently migrated over most Google domains, we've mined integrated a minority over and we have an interface out there that does not prioritize cross sell and upsell that youll see something appear again within a week or so it doesn't much.
Our job at that.
So it's it's just extremely early days.
But in terms of how we are positioned this fits into my mind is that trifecta of things all small businesses need a website email in the domain and so we're going to continue to iterate on that experience, but yeah. The the the funnel increase of new customers and really really encouraging and it'll only get better as we solidify the <unk>.
Men's offering get better as your optimization.
Refined how we're packaging and offering it but it just.
It's really really early days, so I think the revenue and the bookings you're seeing or are great, but I think the fastest yet to come and I would layer on that it is important as you think about the guide because we are very focused on the migration that does that is it a successful customer experience, becoming a square space customer.
This is why we have not included the cross sell impact from these billions of customers coming into the sport.
Yes, the guidance really cross sell because we just think of observed it yeah yeah.
Okay.
Okay perfect. Thank you guys.
Thank you.
Apologies. Our next question comes from the line of Chris Chang with UBS. Your line is now open.
Hi, Thanks for taking my question.
So I wanted to hear your perspective on the vertical virtualization in bauxite bidders and pretty notably in the software industry and I guess, particularly by some of the leading restaurant Pos providers operating lessor builders for.
For example, with Clover go to market with Bento box toast and shift for having recently introduced lots of bidders for their restaurant customers.
Of course square has had quickly and squirted ally for awhile. So those are not their core business, but.
Those are tightly integrated with asphalt gross restaurants used to run their business day in and day out, but maybe you can share with us if you have seen an increase in competition from.
There's this types of haul vertical software providers.
Policy and maybe some other vertical and also discussed.
Discussing the cross sell between.
Hawkins your.
Existing lifestyle product. Thank you.
Okay.
Sure.
We generally have not observed a large amount of competition when email marketing companies or other companies point of sale companies want to offer our website with their core offering in fact.
The kind of reverse economics should be true like it certainly isn't a square space I mean, you know if.
The website right now is.
Yeah, 2030, 40 hours a month that talk subscription is hundreds.
And the GMB plugged into the platform is what's really important and frankly, how a lot of these businesses are driving there.
Their choice it tools right. It's it's kind of inverted from website first and then the rest of the tools, although we certainly see that.
I think what's interesting is for us as we get kind of more vertical scalable tools in place like for instance, our email marketing tools and can further integrate those with top that kind of upsell is much more of what.
I would be looking to do versus having you know a.
A couple of thousand additional websites from the restaurant customers. So you know.
I don't if a vertical provider shaves off a few thousand websites, it's really kind of immaterial to us.
But that being said there was always a giant overlap between Kotkin square space just organically.
Kinda talk restaurants of course, having their own brand used square space and so that's where a lot of that came from originally.
But the cross sell we're looking for is more higher margin higher value products not necessarily.
Yeah, the website SaaS subscription.
Got it that's super helpful. Anthony and I guess, a follow up would be maybe just can you talk about the public panel strength in our core lessons. So far this year given Q1 is such an important quarter.
Yes, it's really strong.
You know again I mentioned multiple times that last year, we had some of our best quarters ever from neutral.
Trials created you know, we're just kind of where what two thirds through Q1.
And it's it's it's been really positive so we're on track there.
Alright, that's great to hear thank you.
Thank you. Thank you.
The next question comes from the line of Narvik Kang with B Riley Securities. Your line is now open.
Okay.
Yeah, great. Thanks.
So two questions one on on your marketing spend.
As a percentage of revenue is because elevated versus.
Q4 22.
Is that is it just a privately leaning into into marketing because you see.
Opportunity or is it more of a channel mix is for knowing what's going on or maybe associated with when you're pushing to acuity and some other products that you have kind of rebalanced recently.
Well that's one.
Just on.
New markets, Anthony any thoughts on like maybe going into any new international markets.
In 2024.
Yeah, So I'll start with your on the marketing and sales question specifically on Q4.
There are several things rolling through the amortization of the additional expense related to the Google.
Acquisition roll through there.
Seasonality, we do Q1 is historically a high demand so we spend into data in Q4, so that's not a surprise, but I would encourage you on it.
To look at.
The annual for marketing WLR ratios, because there is seasonality within each quarter, but on an annual basis Youll see the marked improvement both on GAAP and non-GAAP.
Please ensure your line is on mute it if there is a follow up.
Yes, I did I didn't follow up for Anthony.
And it is about.
Any plans to enter a new international market in 'twenty 'twenty four.
Apologies, Nevada and participants please hold.
We reconnect our speaker lines.
Once again, please hold as we reconnect our speakers.
Okay.
Okay.
Marvin Please restate your question our speakers have rejoined the line.
Yes.
The second question was for Crown.
About.
And if you have any plan to add a new market.
New deal in 'twenty 'twenty four.
Yeah, So I think Nathan the Navy's fens.
Comments apply to the spend overall for a bridge into.
International or just kind of comment on generally when you see inefficiencies in our span it is because of us trying to grow in international markets, where we don't have the same spend dynamics and presence as in the U S and yes, we're looking at a couple of different Asian markets. One in particular as we go into 2024.
The heavier lift in terms of translation, but should be an exciting one for us.
Yes.
Okay.
Thank you.
Thank you.
The next question comes from the line of Alexia <unk> with Jpmorgan. Your line is now open.
Hello, everyone.
I was wondering if you could possibly comment and what was the contribution of our payments business on that basis in the fourth quarter.
And what do you expect the contribution for the payments business on that basis to be in 2024.
Yes, both for 2023 and 2024 it is immaterial to the results and the guide we are focused on exposing it.
First the U S new customers, which we have successfully diamond and we own a lot of international markets and 24.
Then open up to existing so you won't see a material impact until beyond.
Okay.
Okay.
Thank you for that.
Thanks, Nathan and then and then Anthony I had another from a very high level question around the common cold.
Your capital allocation.
Obviously that $500 million buyback it sounds very impressive I was wondering if first of all you have any thoughts on the potential cadence world, whether it will be frontloaded or evenly.
Evenly split over a certain period of time and then.
What is your thinking around the potential impact on free float.
Which is a relatively lower versus some of the.
Peers, Youre, making trump infrastructure space.
Sure. So we had the 200 million authorized from a year and a half two years ago, which was expiring. So this is a refreshing and expanding that program.
I see this more as a opportunistic.
If we see things floating into certain levels.
Like you saw with our other program, which I think was it kind of extremely successful over the past two years.
Yeah, we're able to show our support for the stock and buy into it.
There is no specific cadence that theres now.
Theres nothing around that but that's been contemplated.
And I should also emphasize that.
That will probably be an ongoing portion of the house scores based operates in terms as a return of capital and it shouldn't be viewed as being instead of something else. It's not instead of us buying something it's not instead of us growing head count.
As you've seen over the years.
We've been really really disciplined about moving free cash flow up and this is just one of the many things we can do with that also I think Nathan quoted are.
Net debt leverage ratio earlier, it's very very low so we're not stopped from doing anything because of their furniture a component of how we're going to operate in addition to expanding margins, yes, I would layer on that Alexia.
We would view the share repurchase program as an integral part of our overall capital allocation strategy.
At the Investor Day in May we will talk more about our overall philosophy around capital allocation.
Thank you Paul.
Thank you.
Okay.
This will conclude today's conference call.
Thank you all for joining.
And you May now disconnect your lines.
Yes.
Okay.