Vimeo, Inc.

Good morning, and thank you for joining Vimeo's Q1 earnings event. We're excited to be here in front of you. Before we begin, a few comments. First, this session will be recorded and available on the Vimeo Investor Relations site later today. Second, we will discuss Vimeo's outlook and future performance. These forward-looking statements typically may be preceded by words such as we expect, we believe, we anticipate, or similar such statements. These forward-looking views are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. We have also provided information regarding certain key metrics and our non-GAAP financial measures, including certain forward-looking measures. These should be considered in addition to, and not as a substitute, for or in isolation from GAAP measures. Additional information regarding Vimeo's financial performance, including reconciliations with comparable GAAP measures, can be found in our earnings release and Vimeo filings with the SEC, as well as in supplemental information posted on the Invested Relations section of our website. With that, I'll turn it over to our interim CEO, Mark.

Good morning, everyone, and thank you for attending our Q1 earnings call. I'll start with some team updates. First, congratulations to our CEO, Anjali, for welcoming a baby boy to the world three weeks ago. Everyone is happy and healthy, and we're excited for Anjali's return in June. In the interim, she stayed well informed on the business and involved in major decisions. I'm also incredibly excited to welcome our new CFO, Gillian Munson. Some of you may know her from her prior lives as CFO of The Knot and Iora Health, and of her time at Allen & Co. and Union Square Ventures. Gillian brings decades of financial and operational experience to Vimeo, and she's already making a significant impact in her first few weeks. Welcome, Gillian. Turning to Q1 results, we're pleased with our results and progress made. Revenue grew 21% and gross profit grew 27% year over year. We ended the quarter with $291 million in cash and no debt, positioning us to be on offense in a volatile market. We also made important investments in the quarter in both product and sales initiatives to fuel our future growth ambitions. Predicting the post-COVID normalization hasn't been easy. Our top of funnel traffic has returned to pre-pandemic levels, and because of the volatility, we're not providing full-year revenue guidance this quarter. But today, Vimeo is a very different company from what it was in 2019. Our visitors convert to paid subscribers at more than double the rate from pre-pandemic. They're adopting our new products, and they're paying us more for them. Our revenue has more than doubled since 2019, and we've delivered 15 percentage points of gross margin expansion. We grew our market by serving larger businesses with our sales-assisted business now representing over 30% of total revenue, up from 16% pre-pandemic on the back of a growth of 75% and 90% in 2021 and 2020, respectively. And these customers retain better, they pay us significantly more over time, and they're more profitable. We're now winning six and seven figure deals with some of the largest companies in the world for products that didn't exist two years ago. In summary, with the changes we initiated in business since 2017, all accelerated by the pandemic tailwinds, we were able to acquire and retain millions of users at a low cost, and these represent an expansion opportunity for years to come. With this base, we leave the pandemic a stronger company with the scale, learnings, product, and team it would have otherwise taken years to assemble. As we continue to lean into these strengths with the investments we're making across go-to-market and product, we expect our consolidated bookings to re-accelerate across both sales-assisted and self-serve by the second half of this year, with revenue trailing behind this booking re-acceleration. We also expect our ARPU to continue to grow as a result of our expansion within large businesses and our new monetization efforts, and we plan to exit the year significantly closer to breakeven EBITDA, which we believe is prudent in the current environment. Delivering on these goals would have us exit 2022 on a clear trajectory to achieve our long-term growth and profitability targets, which we very much view as intact. The signals that we see in the business not only show how much we and the market have evolved in the last two years, but they also continue to give me, Angeli, and the team strong conviction in our strategy and in the enormous market opportunity to transform the way people work with video. Moving on to updates on our key priorities for the year. In 2022, our plan has been to achieve excellence in targeting and serving larger customers, which while relatively new for us, has been the fastest growing part of our business. If we continue to grow at our current pace with larger customers, they'll likely become the most meaningful part of our business over the next years. I'm happy to say that Eric Cox, our new Chief Revenue Officer, has been making a real impact on the organization since he joined us full-time in December. Eric has been busy upgrading our go-to-market processes and structure to help us go faster here. Specifically, we deployed three major changes to our sales organization this quarter. We specialize our sales team for the first time by size of company, enabling our teams to develop deeper expertise in the areas that matter the most to each kind of customer. For example, hiring and training sellers who understand the more sophisticated needs larger organizations have around information security. In Q1, this allowed us to navigate the complex needs and the requirements across multiple corporate divisions at a Fortune 50 media company to displace internal tools and become their video platform solution for more than 150,000 employees. We created a customer success function, now more than 20 employees strong, to help our customers decrease their time to value once they sign a contract, to expand adoption and usage of our product, and ultimately increase their lifetime value on Vimeo. For example, Hilton began as a customer with Vimeo back in 2019, using our solution strictly for hosting live events. Through customer success efforts in Q1, we were able to expand with Hilton to now serve as their internal employee communications platform across the company, winning their confidence in our solution based on reliability and quality. We focused our go-to-market execution on three use cases, marketing, HR, and internal communications, and content monetizations. These are the three use cases we've historically seen the most traction with, and the target buyers and consideration process for each are different. So we aligned our marketing and sales motions to connect the power of our platform to the specific needs of each. Many of these tactics are simply best practices in the SaaS industry, but new to Vimeo, and we're seeing early success here and investing. At the end of Q1, our go-to-market team is over 60% larger than a year ago. We know this kind of go-to-market evolution doesn't happen overnight, so we're closely monitoring key metrics and adjusting our processes and investments as we go. We expect to see clear results paying off as we work our way throughout the year. Our second priority this year is enhancing our monetization model with new pricing and packaging. Specifically, moving from storage-based to seat-based pricing that we believe is easier to understand is better aligned with customer success and helps expand the adoption of our products within organizations. In our early tests in Q1, we're seeing an uplift of 10 to 50% in average order values across customer sizes on the new pricing model for sales-assisted deals we've closed, without any degradation in win rates or sales cycle. We will expand this test in Q2 to enable the new pricing model for all our sellers on all new sales-assisted customers. For self-serve, we're still preparing for the full rollout of the new pricing and packaging. Self-serve is more complex, given both the volume and the variety of in-product purchase paths and customer types on our platform. A change of this size and scale needs to be done extremely thoughtfully, so our strategy and the pace at which we will roll out these changes will be governed by a measure twice and cut once philosophy. We're planning to start testing with new customers in specific geographies at the beginning of Q3 and then roll out the change to all new customers globally throughout the remainder of the year. As we gather adoption and retention signals, we're going to consider how we onboard our existing customers into our new model in 2023. Our third priority is to continue to broaden our product suite. Product excellence is the center of all we do at Vimeo. And one of the reasons we consistently win new business is the simplicity and ease of use of our products. Multi-product adoption continues to grow steadily for existing Vimeo Enterprise customers with more than 50% of our customers using two or more of our products. In the next quarter, we're going to start testing a completely reimagined live experience, internally codenamed Venues, which we believe has the potential to redefine this category by making live events more interactive, more social, and more engaging, ultimately helping businesses drive a higher return on every event. In March, we soft-launched a product called Vimeo Interactive, and we're going to launch it publicly in May. The product enables businesses to make any video instantly interactive by adding shoppable touchpoints and customizable call to actions directly in the Vimeo player. As with all our products, you don't need to be a pro to use it or configure it. Anyone in the organization can set up an interactive video without installing any software. I like Vimeo Interactive, first because it's proving out to be a great validation of our M&A capabilities. We've hit our internal targets for the first half of the year in the first month after our soft launch, and this product is a result of the WireWax acquisition that we did in Q4 of last year. But also, and more importantly, because in many ways it's a great example of how early we still are in video. This medium that was designed for lean back entertainment content is now used by organizations to drive purchases on their e-commerce store, to train their employees in more engaging ways, and to support their customers. Each of these use case is really a lean forward consumption experience, where instead of being in front of a TV screen, the viewer is on their desktop computer or on their mobile phone. And the video experience needs to be more engaging to integrate seamlessly in the user journey, whether that's part of an e-commerce funnel, internal onboarding, or FAQs on a customer support website. We're in the early innings of what our product can do for businesses, and we're excited to continue to push the boundaries here. Turning back to team and execution, I'm pleased to announce that we've hired a new CMO who spent over 30 years in marketing with deep expertise in B2B, enterprise SaaS, and brand marketing. We'll be sharing more details on that appointment in the next few weeks. We've now added four C-suite executives in the last six months, each of whom has operated at scale, understands SaaS inside out, and has deep functional expertise. Underlying these changes is a commitment that we've made to ourselves to enhance our execution, to set up Vimeo for the next phase of growth, not only with our executive team, but throughout our people, our processes, and our systems. The skills and tactics that got us from $50 to $400 million in revenue are not the same thing that will get us to a multibillion-dollar company. We haven't and will not hesitate to make the changes and upgrades necessary to step up our game on operational excellence, and I'm confident that we will see the fruits of that labor over the next few quarters. Before I hand it over to Gillian, I do want to comment on recent geopolitical events. The invasion of Ukraine is devastating. It hit very close to home as we have about 80 employees in the Ukraine, some of whom I've been working with for over 10 years. We're in awe at the extraordinary spirit of our team in the impacted regions and all of the people of Ukraine. We've suspended our support for new customers in Russia and announced updated content guidelines to be more explicit in what we defined as misinformation and propaganda on our platform. The vast majority of our employees in Ukraine are in safe locations and currently remain productive. Although we cannot stress enough that the safety of our employees and their families is paramount and a key priority for our company. With that, welcome to your first Earnings Call with Vimeo, Gillian.

Thanks, Mark. I'm delighted to be at Vimeo and thrilled to be on my first Vimeo earnings video. Some reasons that I came to Vimeo are worth noting today now that I'm a month in. I want to be part of building a profitable multi-billion dollar revenue company that will lead its industry. After a month with the company, I can see a lot of evidence this opportunity is very real. I'm excited to join this team. And I believe that my experience and approach can truly help our management team define and drive a disciplined growth strategy. And I believe my approach to thinking and discussing financials will both simplify and demystify the Vimeo financials internally and externally. I hope to have the opportunity to meet with many of you over the coming quarters. Let me start by trying to simplify our business for you. For Vimeo, there are four main economic drivers of revenue growth. Top of the funnel momentum, conversion of that funnel into paying customers, our average price, and retention. As I think about Vimeo and work to describe it to our investors, I will try to talk to these drivers often to help give you color on both what we are seeing and what we are working towards. While I will try to address each individually here, our revenue growth is in reality the result of the combination of these factors together. I will discuss them one by one now. Top of the funnel for us is both leads coming into our sales-assisted pipeline and visitors coming to Vimeo's landing pages and converting into self-serve customers. In sales-assisted, we are executing a go-to-market evolution given the opportunity we see ahead. We expect to drive continued growth in the funnel of customers in our sales-assisted approach in 2022 and beyond, especially as we move through the sales team enhancements that Mark just mentioned. In self-serve, the pandemic accelerated the top of our funnel growth, and that is now in the process of normalizing back to pre-pandemic levels. On conversion, Vimeo has experienced strong and steady conversion improvements through the pandemic. And this continues to be an area of focus, especially in a more challenging self-serve top of funnel environment. In sales assisted, conversion rates from pipeline remain healthy, but with room for improvement in our view. In self-serve, our conversion rate has more than doubled since 2019, enabling us to be efficient with traffic and providing strong core economics. Price, for us, is really about ARPU. Vimeo's overall ARPU has been trending up over time as we have continued to grow the percentage of our revenue from sales-assisted and therefore higher-priced products, and we have held pricing on a per-product basis stable. Additionally, we believe we have an opportunity to add to ARPU growth with a smarter approach to pricing and packaging, rolled out in a measured way, as Mark mentioned, when he talked through priorities. Finally, retention. Retention fuels the largest piece of our revenue at Vimeo and gives us the recurring revenue aspect of our business. In sales-assisted, our retention rates continue to show steady, healthy trends. In self-serve, retention rates are down slightly year-over-year, largely as a result of a planned mixed shift to free trials and mobile, which have lower year-one retention. Retention rates for customers in year two and beyond continue to exhibit good stability at this point, and we are pleased with the net effect, particularly as we get more year two data from our largest pandemic cohorts. This matters because we believe we are holding on to a significant portion of our pandemic gains and have inherent stability from which we can drive future growth. Now, turning to the Q1 and our outlook. Through the lens of these four building blocks, here's how Q1 came together. Top of the funnel weakness, particularly on self-serve, made itself more apparent through Q1, negatively impacting Booking's growth. We had continued conversion strength in self-serve with some offset in sales assisted as we executed our sales transition. Our retention results were healthy and ARPU continued to grow year over year. Q1 revenue reached $108 million and was up 21% year over year, with healthy growth across both self-serve and sales-assisted customers. Sales-assisted revenue continued to grow faster than self-serve at greater than 50% growth year over year, while self-serve growth was 14% year over year, excluding the impact from Magisto, which you will recall is in the process of being deprecated. The upside as compared to our guidance was due to slightly better than expected performance on the sales-assisted front. We think giving color on self-serve versus sales-assisted makes sense today, but I'd like to remind everyone that the lines between them will likely blur over time, given that more than 80% of our sales-assisted customers come from within our self-serve base. We grew paying subscribers to 1.69 million, up 6% year over year. our ARPU in Q1 was $260, an increase of 12% compared to Q1 of last year. We now have more than 8,000 paying sales-assisted customers. The remainder of my comments will refer to non-GAAP measures. Moving to expense and profitability, our gross margin improved approximately 330 basis points year over year, or roughly 40 basis points Q over Q at 75% in Q1. R&D expense for the quarter was up 50% year-over-year as we strategically added product and engineering talent to the team. The rise in costs includes compensation adjustments we have made to invest in our existing employees given the tight labor market. We plan to grow into this upsized team scale as we continue to grow the business. Our sales and marketing spend for the quarter was up 33% year over year, also reflecting a strategic 2022 investment in our future as we continue to build out both direct sales headcount and infrastructure, which we believe we can scale over time. G&A rose 73% year over year, largely reflecting growth in our team and related compensation. One note, we did increase our provision for credit losses roughly $3 million due to near-term uncertainty around a new billing system implementation, which we expect to work through over the coming months. Finally, adjusted EBITDA loss for the quarter was $10 million. We ended the quarter with a healthy 291 million in cash on our balance sheet. Cash was down versus Q4 due to our EBITDA losses, the timing of bonus payments, and some use of working capital as we adopted the new billing system. Now on to our outlook for the year. As I am digging into this business, and as you may have surmised from Mark's comments, there are factors driving our business that we are very confident in, such as the size of and our ability to capture our sales-assisted opportunity, our conversion progress, our retention, and the ARPU increases we are enjoying as we grow sales-assisted as a percentage of our business. In fact, there are clear opportunities to drive each of our factors over time. the top of the funnel for our self-serve business is harder to forecast as the environment normalizes post-pandemic. Given volatility on traffic trends through the year, I'm going to give a more specific Q2 outlook today and talk to the rest of the year in more general terms. We'll continue to give you monthly metrics and you can expect an update on 2022 from us at the next earnings call. For the second quarter of 2022, we expect revenue growth of 12 to 14%, with gross margin of 75%, and adjusted EBITDA loss of between 11 million and 13 million. Today, we are not providing revenue guidance for 2022, given my short tenure and the volatile environment we're in. However, as we sit here today, we currently expect Booking's growth to re-accelerate in the second half, led by sales-assisted. Based on the math of how our revenue works, a reacceleration of bookings will drive a reacceleration of our revenue growth after some lag. We remain in an investment posture in 2022 and have organized ourselves structurally to accelerate growth, but we are committed to disciplined growth and will adjust our operating expense growth rates to appropriate levels relative to our revenue. Specifically, we do not expect to exceed the full year adjusted EBITDA loss we guided to last quarter of between 25 million and 30 million. I plan to help the team look at all of our investments with an eye to how they impact our drivers and ensure they are appropriately aligned. Moreover, it is important to mention that to the extent we do not see the revenue materialize as we expect, we will address the resulting imbalance of expenses accordingly and bring down expenses as a percentage of revenue to drive sustainable growth. Longer term, the Vimeo story continues to be about growth. What we have here at Vimeo is a strong growth sales-assisted business that we believe only gets better as we lean into its strengths. and we have a self-serve business with strong fundamental tailwinds that was a major pandemic beneficiary and is adjusting now to a more normalized environment. Together, we believe these businesses will deliver an attractive revenue growth profile once we work through this normalization period. We believe we can deliver growth in a disciplined manner, and I'm already getting to work to help achieve these goals. Again, I want to thank the Vimeo team and Mark for welcoming me. This is my kind of opportunity, and I'm very excited to continue to dive in with you all. With that, I'll open up for your questions. Over to you, Yao.