Vimeo, Inc.

Good morning, and thank you for joining Vimeo's Q2 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 risk and uncertainties, and our actual results could differ materially from the views expressed today. We have also provided information regarding certain key metrics in 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's filings with the SEC, as well as in supplemental information posted on the Investor Relations section of our website. With that, I'll turn it over to our CEO, Anjali.

Good morning, everyone, and thank you for joining our Q2 earnings event. During the second quarter, we delivered year-over-year revenue growth of 16%, gross profit growth of 20%, and we made good progress on our near-term path to profitability, cutting our adjusted EBITDA loss sequentially by almost half. Stepping back, Vimeo is now a few years into an exciting transition into a software company that serves businesses both big and small. And this transition is working. A few years ago, we were purely a self-serve hosting business, constrained by selling gigabytes of video storage to individuals. Today, our video platform is serving the needs of some of the largest companies and teams in the world. We've turned our self-serve roots into an engaged user base of employees who are using Vimeo daily. And we've built a sales force on top that's starting to gain real traction. We can see our market opportunity expanding in front of us as our newest products from Video Library to Vimeo Events to Vimeo Interactive get to product market fit quickly. There are three things I want to hit with you today. First on growth, we continue to see lower demand than we expected, primarily in our self-serve business, which we attribute to both post-COVID normalization and macroeconomic conditions. Bookings is our leading indicator of revenue growth, and given the environment, we're going to start talking about this metric more to give you transparency into what we expect. In Q2, our sales-assisted bookings grew double digits, but our overall bookings were flat year over year, dragged down by a decline in self-serve. Bookings typically precedes revenue by roughly three-quarters for Vimeo, so we're prepared to see our revenue growth continue to decelerate in 2022. We believe we will exit 2022 with sales-assisted bookings growing healthy and accelerating, but an acceleration in self-serve continues to be hard to forecast. So while we work to return to growth in self-serve, we'll rely on the strength of our sales-assisted to propel our overall revenue growth in 2023, which we expect to accelerate in the second half. Second, on profitability, we're proactively responding to our environment and our outlook. We've made swift changes to the business. This includes reducing our operating expenses across the board to get to profitability faster and to invest from there based on validated results. We believe we can deliver near break-even adjusted EBITDA by Q4 of this year, and we're positioning the company to be profitable in 2023 across a range of revenue outcomes. We've also added several new executives with deep experience and proven track records to improve our execution across product, sales, and marketing. Third, on the long term, our growth path remains clear to us. Our sales-assisted revenue grew 45% year-over-year in Q2, and those bookings grew nearly 20%, even as we worked through a reorientation of our sales force and despite macro concerns. Within sales-assisted, our flagship Vimeo Enterprise product is scaling. Those bookings are growing the fastest, 2x faster than our total sales-assisted bookings. and we see leading indicators of further scale. Retention and ARPU of Vimeo Enterprise customers is rising year over year, and the number of seats using those accounts is growing in the triple digits. These are strong indicators of both the value we're delivering today and of our ability to drive product-led growth in the future. So let me give you some color on self-serve, which is a fundamental advantage for Vimeo despite the current headwinds. Self-serve was roughly 65% of revenue in Q2, up 4% year over year. And what self-serve gives us is enviable scale in our industry, both financially and in our product and brand. It's already our largest and most efficient source of enterprise leads today, with over 80% of our new sales-assisted customers coming from self-serve in the quarter. So we're very much focused on resuming growth here and are taking the following clear actions. We're reallocating our marketing spend and campaigns to more explicitly target key buyers at large organizations instead of the consumers at SMBs we were historically optimized for. We're making key changes to our website and customer experience to better convert those buyers. This involves wholesale changes to our landing pages, site navigation, and marketing content. We're building a far more collaborative product experience for self-serve users to enable them to more easily create and share content with colleagues, get feedback faster, and save time. And we're rolling out a new monetization model designed to simplify the purchasing process and upsell customers naturally through seat expansion. These are big changes, and with them, we believe that self-serve can unlock an incredibly efficient and scalable sales funnel for Vimeo that can fuel our growth for years to come and that can fund our sales-assisted growth in the future. Next, an update on sales-assisted, which was roughly 35% of revenue in Q2 and grew 45% year over year. We continue to see exciting progress here, with the largest companies in the world using video and Vimeo more. These companies are live streaming town halls and then recording those sessions and turning them into searchable Q&A in their video libraries. They're training their employees and teaching their customers how to use their products. And they're embracing interactive video to market and sell better. These goals aren't new. We just enable companies to give their employees and customers far more engaging experiences through video. And as workforces get more distributed, video will keep moving from a nice-to-have to an absolute necessity, regardless of the economic landscape. For Vimeo, this translates into faster adoption of our product suite, which we expanded with Vimeo Events in November and Vimeo Interactive in June. With these launches, the percentage of sales-assisted customers who use two or more products in our suite continues to grow. Our Salesforce transition is also moving along nicely. Of our Salesforce, roughly 74% are fully ramped with the remaining 26% expected to ramp in Q4. We've invested in specialization and in new motions like customer success, all of which are showing promising signs. In Q2, we saw the fastest bookings growth from larger customers and in our APAC and EMEA regions. And our new monetization model is rolling out nicely, with new and renewing sales-assisted customers now buying per-seat plans. We're also continuing to win new customers across industries and verticals, and we're getting better at expanding how existing customers use Vimeo. A good example is this Fortune 50 company. A person on this company's video production team started using us to livestream events years ago as a self-serve customer. That production team steadily expanded their use of Vimeo over time and moved to a sales-assisted contract to stream all town halls for one of their business divisions. This year, they expanded to a company-wide contract driven by adoption of our video library product and our new per-seat monetization model. Now, we're in active conversations to expand adoption further to their marketing teams through our newer products like Vimeo Events and Interactively. There is nothing about this deal, this company, or their needs that isn't replicable and extendable to the many other Fortune 500 companies already in our self-serve user base. This is what we're focused on right now, bringing the pieces together of our product and go to market to make this example happen at scale. Finally, we continue to make important structural changes at Vimeo to set us up for the future. In the last six months, we welcomed five new executives who each bring exceptional experience to the table. Jillian is here today in her first full quarter as our CFO, and you've heard me speak about Eric and Crystal in the past. In Q2, we welcomed Lynn as our new chief marketing officer and Ashraf as our new chief product officer. Lynn has over 30 years of experience across B2C and B2B marketing at companies like Microsoft, Starbucks, and Getty Images. She's seen multiple companies scale in enterprise software, including taking Tableau from a similar place that Vimeo is today to significant scale. Ashraf is a proven product leader with expertise ranging from enterprise video at Brightcove and AWS, to having run massive consumer experiences like Facebook Watch at Meta, to having led business units at Amazon. A strong executive team is even more essential in challenging times, and I'm thrilled to be attracting this caliber of talent and to have this group of leaders in place for Vimeo's next phase. While we continue to invest in critical areas of the business, we're also right-sizing our operating expenses to reflect our current outlook. We've made adjustments across the board, including a 6% reduction in workforce in July and an ongoing reduction and reallocation of our marketing spend. We expect to continue hiring and investing in both product and go-to-market, but we will require more from these investments in the near term. Specifically, the performance indicators we will look for to unlock additional investment are re-accelerating our bookings growth, continuing to grow ARPU, and ensuring we approach break-even adjusted EBITDA in Q4. In summary, we know what we need to do and believe we have the tools to prove our growth path over the next few quarters. We will continue to respond with speed and agility to a challenging environment while taking a long-term view towards capturing an enormous market opportunity. And while the current environment brings headwinds, we will also enjoy the tailwinds associated with the inevitable increase of video at work. We think we're uniquely positioned and organized to come out of this period a stronger company with an industry-leading product, a seasoned team, and a clear path to becoming both a fast-growing and profitable business. With that, I will pass it over to Jillian to walk through the financials.

Thanks, Anjali. I've had the opportunity to be CFO at Vimeo for a full quarter now, and I really want to step back and explain what I'm excited about in terms of our opportunity from a strategic and a financial perspective. On strategy, the tailwinds for video at work are undeniable, and I'm already using the tools in my day-to-day work, and longer term, you should expect us to use more Vimeo tools for our own IR program as well. On the financial side, we have an enviable financial profile with high margin, recurring revenue, cash on hand, and embedded profitability that we are choosing to invest for growth today, but have the flexibility to moderate based on how our results unfold. Given the size of our opportunity, we aren't growing as fast today as we believe we will in the future. And we are fortunate to be able to continue to invest in this environment to generate real shareholder value with low risk of significant cash burn. Now, there are three key messages stemming from our Q2 financials and our outlook that we want to make clear. First, we continue to move through short-term, post-pandemic, and economic headwinds that are particularly impacting us on self-serve. Sales Assisted is healthy thanks to momentum in Vimeo Enterprise, though we continue to work through a reorientation of our sales force and pressure on our more volume-driven OTT product. Second, we remain committed to achieving near-break-even adjusted EBITDA by the end of 2022 and have proactively taken steps to meet this goal. In Q2, we already reduced our quarterly loss by approximately 40% sequentially and expect sequential improvement to continue. Third, we are setting Vimeo up to be a healthier company as we move through this post-pandemic period. In fact, we believe we are setting ourselves up to deliver profitability against a number of potential revenue outcomes in 2023. Now onto the quarter. Q2 revenue reached $111 million and was up 16% year over year, with growth across both self-serve and sales-assisted customers. Sales-assisted revenue grew 45% year over year, while self-serve growth was 4%. Our aim is to get to a place where we have stabilized self-serve, putting it in a position to grow, while the faster growth part of our business, sales-assisted, begins to approach being the majority of our revenue, which combined should provide us an overall tailwind to our growth rates. Now zeroing in on bookings. Revenue growth will be dictated by our bookings growth, typically with a three-quarter lag. And in Q2, bookings were flat year over year, with sales-assisted growing near 20% and self-serve down. There are four drivers of our bookings at Vimeo. Top of the funnel demand, conversion of that demand into customers and sales, average value derived from each customer, and customer retention. As for top of the funnel demand, in self-serve, traffic continues to decline in the double digits year over year and was down roughly 30% in Q2, a rate of decline at which we have plateaued near term. In sales assisted, we continue to move through this post-pandemic period and our sales team transformation. In Q2, our overall pipeline was down year over year. However, the decline was in our more volume-driven and post-pandemic-exposed products like OTT, whereas the Vimeo Enterprise pipeline was up in the double digits. On to conversion. In self-serve, our conversion rate has more than doubled since 2019, as measured by customer bookings over traffic, and was flat in Q2 versus a year ago. In sales-assisted, conversion rates from pipeline were up slightly quarter over quarter, though we still see room for improvement as the adjustments we have made to the sales team mature. Our overall ARPU is rising thanks to the continued mix shift towards sales-assisted customers. ARPU was $264 overall, an increase of 10% year-over-year. Self-serve was essentially flat and sales-assisted was down largely due to mix. Within sales-assisted, Vimeo Enterprise had rising ARPU, but products like OTT had a lower ARPU year-over-year. Recently, we rolled out a new monetization model for customers across most sales-assisted revenue and saw early signs of success, bringing price up to better reflect the value we believe we deliver and create natural expansion from there based on seat usage. For self-serve, we began to roll out early tests of our per-seat model in select regions, but it's too early to make any conclusions from the data as we are three weeks in to a limited pilot. Finally, retention. As context, renewals are approximately 70% of our bookings. In our self-serve funnel, Q2 retention rates were down year-over-year, largely due to COVID cohorts, where our shift to mobile and free trials is more evident. In sales assisted, our bookings and logo retention rates were up year-over-year. Moving on to subscribers. As you likely saw in our monthly metrics, we grew paying subscribers to 1.7 million in June, up 3% year-over-year. Subs fell slightly versus Q1 due to a reduction in Magisto subscribers. Excluding Magisto, subscribers grew 7% year-over-year. We now have more than 9,000 paying sales-assisted customers, which grew nicely year over year. Given its magnitude, self-serve had the same growth rates as Vimeo overall. Now the remainder of my comments will refer to non-gap measures. Our gross margin improved approximately 300 basis points year over year and 50 basis points quarter over quarter to 76% in Q2, enabling us to deliver gross profit growth of 20% year over year. We began to moderate our rate of operating expense growth in Q2 with expense growth of 22% year-over-year versus a 46% growth rate in Q1. And we finished Q2 with operating expenses down slightly sequentially. R&D expense for the quarter was up 36% year-over-year due to the run rate cost of growing our team over the last two years. Sales and marketing spend for the quarter was up just 5% year-over-year due to a strategic investment in sales headcount and infrastructure offset by reduced paid marketing spend. G&A rose 48% year-over-year, reflecting growth in our team and related compensation, and an increased provision for credit losses of $3.7 million. As relayed last quarter, we are working through some unintended payment slowdowns due to a shift to a new billing system. Finally, adjusted EBITDA loss for the quarter was $6.4 million, a solid sequential drop in loss from Q1, thanks to delivering higher gross profit dollars quarter over quarter while slightly dropping operating expenses. We ended the quarter with a healthy $268 million in cash on our balance sheet. Cash was down versus Q1 due to our EBITDA loss, timing of accounts payable movements, and increasing AR from both the growth and sales-assisted revenue, which has longer payment terms, and the billing systems transition I mentioned. I'll now discuss our outlook for the third quarter and the full year 2022. On the Q1 call, we said that we thought full year 2022 revenue growth would be in the double digits, that we would be able to approach adjusted EBITDA breakeven by Q4, that 2022 adjusted EBITDA would be $25 to $30 million loss, and that our bookings would accelerate in Q4. For Q3, we expect to exceed 5% revenue growth and post an adjusted EBITDA loss of $3 to $5 million. For 2022, we expect to hit near double-digit revenue growth and are improving our adjusted EBITDA loss outlook to $20 to $25 million. Additionally, we continue to believe we can be near EBITDA break-even even in Q4. As Anjali previewed, we believe we'll exit 2022 with sales assisted bookings growth accelerating. However, an acceleration in self-serve continues to be difficult to forecast. We expect the strength of sales assisted to propel our overall revenue growth in 2023. Our bookings trends would indicate that we should expect total Vimeo growth to bottom out early in the year and accelerate in the second half. As Anjali mentioned, we've begun to adjust our cost structure to reflect our outlook. We are assuming flat gross margin through the rest of the year at 76%. On operating expenses, we made a small reduction in workforce in mid-July and have embarked on reducing non-comp expenses like marketing and real estate to aid in achieving our EBITDA target. This has been a tough but healthy process for the company, and we are grateful for the maturity and resiliency of our team. From a financial perspective, we are not where we want to be today. However, I do want to be clear that we believe Vimeo is differentiated in large part because of its solid financial profile. At our Q2 run rate, Vimeo's margin gives us over $330 million of gross profit. on an annualized basis. This is a tremendous asset because it provides us the unique opportunity to elect to invest to pursue our growth strategy and drive shareholder value with no risk of significant unsustainable cash burn. We are confident about Vimeo and its opportunity to create significant shareholder value through profitable growth as we move through this current environment. With that, I'll open it up for questions. Over to you, Ankit.