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spk02: Thank you for watching Vimeo's Q1 2023 interactive earnings video. Before we begin, a few comments. First, Vimeo's Q1 earnings video will be available on the Vimeo Investor Relations site. 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, which are further described in our filings with the Security and Exchange Commission, the SEC, and which could cause our actual results to differ materially from the views expressed in this video. 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 in Vimeo's filings with the SEC, as well as in supplemental information posted on the investor relations section of our website. Thank you and please enjoy hearing from our CEO Anjali and our CFO Jillian.
spk01: Welcome to Vimeo's first quarter update. We like to demonstrate the power of our product, so today we're going to show you one of the newer ways our customers are embracing video, which is for internal training. Today, only 12% of employees report that their company effectively trains them. More and more, we're seeing companies turn to interactive video as a better format for learning and absorbing information. In fact, survey data shows that interactive video is more memorable and delivers five times more engagement than other formats. So to put this to the test, at the end of this segment, we'll invite you to take a three-question quiz to see if we got our information across. We entered 2023 with a commitment to do three things. Simplify Vimeo, return to growth, and get more efficient. I'm pleased to say that a quarter in, we are executing this strategy well and are on track to meet these goals. Simplification is a theme across everything we are doing this year, and we see meaningful opportunity to further simplify Vimeo's product and experience to make video more accessible. For example, we built powerful new tools in the last few years to help businesses create video content. This includes the ability to record a video message from your browser, the ability to livestream an event from your browser, and the ability to create a video ad from scratch using existing footage, music, and text. We know these tools are valuable to our users, so much so that around 30% of users who upload video now create that content on Vimeo. In 2019, that percentage was nearly zero. We also know that users who create content on Vimeo are more valuable to us. In fact, users who upload a video and then create content on Vimeo generate four and a half times higher bookings on average. However, today these creation tools are still hard to discover, both due to the extensive breadth of our offering and due to our historical focus on hosting and sharing. We believe we can greatly amplify users' access to these tools by making them more prominent and easier to discover on our most visited pages and in our signup experience, which impacts 25 million potential new users signing up to Vimeo a year. We also believe we can remove friction in the number of steps a user has to take to actually get started creating a video. Finally, we plan to introduce innovative capabilities like text-based editing to dramatically reduce the time and effort for someone to get to a finished video that they're excited about. We expect the impact of this product work to materialize over the next few quarters, resulting in a more simplified platform for users to discover the power of Vimeo. These are just a few of the initiatives to simplify Vimeo that we believe are table stakes for a great video software company. With these, we're focused on returning the business to growth. We expect a return to growth to come from both a rebound in self-serve and continued momentum in Vimeo Enterprise. The first quarter provided good evidence that we're on track here. starting with self-serving add-ons. While bookings were down 6% year over year in the first quarter, they were flat sequentially. Importantly, we've seen traffic stabilize on a sequential basis. As you may recall, over the past year, traffic was down significantly when compared to the unprecedented peaks we saw during the pandemic. So it's encouraging to now see it holding more steady. We've also seen new bookings as a percentage of total bookings returned to 2019 levels after spiking during the pandemic. These are good leading indicators that we're getting to a more normalized environment, which should allow our self-serve business to grow again. This view is bolstered by the fact that if you normalize for the outsized cohort cohorts from 2020 and 2021, self-serve would be a growing business today. Specifically, bookings in the first quarter have grown at a double-digit compound annual growth rate since Q1 of 2020. And the underlying metrics of monthly active users, uploads, paying subscribers, and ARPU also grew double digits during that same period. Ultimately, video continues to have long-term tailwinds as it becomes more ubiquitous and accessible. And we believe Vimeo is the best platform to capitalize on this trend. We see clear levers to drive growth and self-serve from the UX and product simplification I spoke about earlier to improved pricing and marketing. We continue to optimize our subscription tiering and packaging to increase both conversion and price, which we believe will drive upside. We also saw positive results in both efficiency and impact of our marketing spend this quarter, where we're getting better at targeting business customers and shifting our traffic to more qualified users. It's important to remember that self-serve is a critical driver of Vimeo's overall growth, both due to its size and its role as the primary feeder for Vimeo Enterprise, as self-serve customers graduate to more advanced product offerings. So we remain focused on a return to growth here as our top priority. Turning to Vimeo Enterprise, Booking's growth accelerated for the third consecutive quarter to 62% year over year. We continue to see sales cycles in the 30-day range, consistent with a year ago and slightly shorter than last quarter, as our value proposition resonates with customers looking for more efficiency in their software stack. Equally importantly, we continue to see strong retention among existing customers and the ability to expand their usage over time. Our net revenue retention in the quarter was again 100%, with retention up from a year ago on both a logo and dollar basis. And usage metrics continue to be very strong, with the number of monthly active team members up 93% and team seats up 113% year over year. Across industries, some of the most important brands in the world continue to recognize the importance of video and Vimeo. We welcomed leading companies as new Vimeo Enterprise customers in the quarter, including Canon, UCLA, the BBC, Warner Brothers, Johnson & Johnson, Karl Lagerfeld, and the National Gallery. UCLA, for example, is using Vimeo to produce webinars and marketing events, while the National Gallery is using us for live events such as museum tours and seminars with guest speakers. We also signed Wizards of the Coast, the company behind Dungeons & Dragons. They just released a new film that's been a box office hit and used interactive video to promote it through a choose-your-own-adventure experience. As we look ahead for Vimeo Enterprise, we have some exciting product launches on the roadmap that will enable us to better serve the largest companies in the world. You'll also see us strategically partner to integrate our offering with other best-in-class software vendors. Lastly, we continue to make progress in getting more efficient with our third consecutive quarter of positive adjusted EBITDA and positive free cashflow. Our gross margin and bottom line both benefited from lower hosting fees and higher collection rates in the quarter. And we continue to reduce our operating expenses as a percentage of revenue, despite top line headwinds. Our goal is to drive continued efficiency while investing in a select number of high value growth opportunities that we expect will drive incremental profit dollars in the future. I'm pleased with the progress we made in the first quarter to simplify Vimeo, return the business to growth and get more efficient. In self-serve, we see encouraging signs of a return to growth as we get to more normalized post-COVID trends. Vimeo Enterprise momentum remains strong and accelerating, and we continue to drive cost efficiency and profitability while making disciplined investments that we believe will allow us to achieve double digit revenue growth and double digit adjusted EBITDA margins in the future. It's worth reiterating that we're executing this plan with a strong balance sheet and plenty of inherent profitability in our current business and are choosing to invest with the flexibility to adjust based on what materializes in the short term. Our results and the momentum behind our initiatives give us confidence that we're very much on track in 2023. We will continue to focus on the fundamentals that will be the biggest drivers of shareholder value over time. An innovative and easy to use product that makes our customers successful and a business that gets more efficient and profitable as we scale. Thank you again for joining our Q and video update. Before we get to a deeper dive into the numbers, you can click here to take our three question quiz on the most important stats to know about Vimeo this quarter.
spk00: Thanks Anjali, and thank you everyone for joining us. I'll start by saying that the first quarter results give me confidence that we're on track for 2023. We are adjusted EBITDA positive, even as we manage a period of revenue declines. And our cash balance remains enviable for a company of our size and market capitalization. So let's dive in. All the financial metrics I talk through, except for revenue, will be discussed in non-GAAP terms, and all comparisons will be on a year-over-year basis, unless noted otherwise. Revenue was $104 million, down 4%. while first quarter bookings were $98 million, down 5%. Our gap net loss was $1 million, and we delivered adjusted EBITDA of $3 million. In the quarter, we generated $5 million of free cash flow and ended with a cash balance of $268 million. Self-serve and add-on bookings were down 6% and were up 2% sequentially. Top of the funnel traffic, while still down, was down less than it was in 2022 and appeared to follow the more typical seasonality curves we saw pre-pandemic. Conversion, AOV, and retention were all reasonably stable sequentially, as were both new and retention bookings. And I'd note that self-serve continues to be the largest source of lead generation for our enterprise product. self-serve and add-on revenue was down 6%, driven by a 4% decline in average subs and a 2% decline in ARPU. It's important to remind everyone that 2023 continues to be a year of digestion of the oversized 2020 and 2021 COVID cohorts of new self-serve and add-on subscribers, which were almost three times the size of our typical run rate from pre-pandemic. There are two business impacts to consider in this regard. First, total new bookings need to return to a more organic rate, something, as Anjali mentioned in her remarks, we believe is starting to happen in 23. Second, we need to digest the second renewal for the 2021 cohort and move beyond the pressure on our business from the pandemic. Historically, around three quarters of cohort churn occurs in the first two years. We believe both these dynamics are creating headwinds that should alleviate as we move into 2024. As we look ahead, we believe we'll have another quarter or so of bookings decline in self-serving add-ons before we achieve bookings growth in the latter part of the year. Vimeo's brand remains enviable. Adoption and usage of video continues to drive a strong opportunity for us, and we are executing against initiatives to better focus our marketing, continue our pricing optimization, and simplify our product experience. All of these give us confidence that growth in self-serving add-ons is a matter of when, not if. Vimeo Enterprise continued to be a strong performer with bookings up 62% in Q1. NRR was 100% as we continue to see strong retention and expansion. We generated record new pipeline in the quarter and saw win rates up compared to a year ago and stable sequentially. Vimeo Enterprise revenue grew 27% in the quarter with subscribers growing 39%, partially offset by an 8% decline in ARPU. ARPU was impacted by MIX as we continue to see strength in signing mid-market customers. That said, we see ARPU as an opportunity in Vimeo Enterprise as our corporate pipeline remains strong and we're confident in our ability to close larger deals and to ultimately expand our relationships with large and mid-market customers after landing them. Other bookings, which includes OTT, and our legacy acquired products, including Magisto, Livestream, Wirewax, and Wibbitz, were down 31% in the quarter, as we focused our strategic investment elsewhere to drive profit in a disciplined fashion. Other revenue was down 12% in the quarter. OTT revenue was up 11%, though that was more than offset by declines in other products. Turning to our expense structure, our gross margin increased to 78%, up three percentage points. This was helped by improved hosting costs as part of our efficiency initiatives, which drove cost savings in the quarter. I'd note that our gross margin is up 10 percentage points from where it was in Q1 2020. Overall operating expenses were roughly $77 million, down 16%, driven primarily by continued cost management, the actualization of cost savings from our 2022 and early 2023 reductions in force, and a large reduction in bad debt post our billing system implementation improvements during 2022. R&D was 23% of revenue, down 21% or four points. Sales and marketing was also lower, falling 14% or four points as a percentage of revenue as we focused our spend on the highest ROI opportunities. G&A fell 15% and was as a percentage of revenue down two points. While we are continually looking at optimization, we have reached a run rate on quarterly expenses in the $77 to $79 million range, which we think is appropriate relative to our current plan. Adjusted EBITDA was $3.2 million in the quarter, an improvement of more than $13 million from a year ago quarter. About $1 million of that EBITDA was likely unique upside to Q1. Stock-based compensation in the quarter was a benefit in the quarter, largely due to a $15 million modification. I'd like to take a minute to remind everyone of our stock compensation philosophy, which you can learn more about in our recently filed proxy statement. We think the current organic run rate near $20 million a quarter is a peak level, and that stock-based compensation should begin to fall meaningfully as we bring down our granting of stock-based compensation. We generated $5 million of free cash flow versus a $27 million outflow a year ago and ended the quarter with $268 million in cash. With that, I'd like to turn to our outlook for the coming quarter and the year. As I've said, our performance in the first quarter indicates to me that we're on track. We're maintaining the full-year revenue guidance of down mid-single digits that we previously provided. As for the 2023 adjusted EBITDA, we are maintaining our guidance range of $5 and $10 million, though with more confidence after the healthy Q1 result. As for Q2, we expect revenue to be approximately $100 million and adjusted EBITDA to be at or slightly above break-even. Looking at the full year, we have three financial goals. Number one, turn self-serve bookings back to growth by the end of the year. Number two, maintain Vimeo Enterprise's strong growth trajectory. And number three, manage down OTT and other as we focus our investment dollars to drive profit with discipline. We continue to believe these are the right goals for us and that they continue to be achievable. We are committed to delivering EBITDA profit and positive free cash flow in 2023, and believe we can do so in a range of possible revenue outcomes. As the year progresses, we will assess the effectiveness of our investments, and we have the ability to scale back considerably to drive profit if we determine that to be the best course of action. We're confident we can achieve our growth goals because we continue to see the Vimeo business model as very strong. We have a meaningful customer base with healthy conversion and retention characteristics. Usage of our products continues to expand beyond just hosting with around 30% of users who upload a video now utilizing our creation tools. An indication of the growing tailwinds for video and the strength of our product relative to alternatives. Our gross margin structure gives us over $300 million of gross profit dollars annually, and we have demonstrated the discipline to manage cost and deliver positive EBITDA even while we invest in what we see as an exciting opportunity ahead for both Vimeo Enterprise and SelfServe. I'd like to thank you again for joining our first quarter 2023 earnings call. We look forward to updating you on our progress again next quarter. Thank you.
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