Vimeo, Inc.

Q4 2023 earnings Q&A session. I'm Jillian Munson, CFO, and I'm happy to be joined by Adam Gross, our interim CEO. You can find our Q4 23 shareholder letter and additional financial materials on our investor relations website. As a reminder, in this session, we will talk through some non-GAAP terms, and you can find the closest GAAP terms and reconciliations in our shareholder letter. Before we jump into Q&A, a few points on the quarter. In 2023, Vimeo made significant strides in improving profitability while also showing bookings, revenue, and some encouraging product metric improvements in the second half of the year. We delivered solid results in Q4 with revenue flat year-over-year, adjusted EBITDA of $13 million, and $10 million in free cash flow, ending the year with over $300 million in cash. As we look at our bookings, a couple key items stand out. Vimeo Enterprise continued its strong double-digit growth trajectory with net revenue retention of 103% and some impressive customer wins in the quarter. In self-serving add-ons, we saw some green shoots that our bet on product-led growth is the right one. Partially offsetting top of the funnel pressure, conversion and AOV improved. And most exciting for us, the team delivered retention improvements in all cohorts in the self-serve business and in aggregate. Looking ahead to 2024, we continue to believe that Vimeo has a lot of upside potential that's being masked by the post-pandemic market environment and our own proactive efforts to put Vimeo on better financial footing. We have been and are continuing to move to more efficient product-led growth with increased investment in R&D, improved go-to-market systems and processes, and an eye to cost containment, especially in advertising spend. When we net out the factors impacting our bookings and revenue, we expect they will both decline in 2024 as we work our way to a healthier Vimeo. At the same time, the strength of our business model remains evident. We believe that we can maintain adjusted EBITDA profitability in 2024, despite the impact of roughly $5 million in cash compensation substituted for equity grants. We are making strategic changes to the business that we believe will lay the foundation for healthier, more profitable growth in the future. And Adam and I are looking forward to talking with you today. With that, let's open up the line for your questions.

Our first question will come from Tom Champion at Piper Sandler. Tom?

Hey, thanks very much, and good afternoon. Maybe, Adam, to begin with you, so within Booking's clear progress on the enterprise side, I'm wondering if you could just talk about how you're thinking through uh self-serve and and the add-on segment just as as you manage to go forward and you know some of the push pull between kind of upper funnel um friction and um maybe improved retention maybe how are you thinking through um that part of the business and then uh maybe for jillian The letter talks about lower ad expense after reducing this line item in 22 and 23. How are you looking to further rationalize this? And why does that make sense given the top line implications? Thank you.

Yeah, great. Thank you for the question. And I'll see if I can cover the first part of that and hand off to Jillian. You know, one of the things that makes Vimeo unique is we have tens of millions of people interacting with our products every month. And that's just an enormous differentiation for us. We have the second largest or most popular video player on the market. We have all of these people experiencing and understanding our value proposition every day. And as we've talked about in the letter, we really think there's an opportunity to take that organic traction, to take those product experiences and better and more efficiently convert them into free users and ultimately into paying customers. We think that that's why product investment is important, why what you've already seen us release in terms of improvements to the overall product experience, to our checkout flows, as you mentioned, focus on both activation and retention. These are things that we are heads down actively working on and optimizing against and are optimistic about for the future. And I'll let Jillian speak to some of the more specifics.

Yeah. So as it relates to the advertising spend, I think what you're really seeing is us be more confident. So when we look at the business and we look at the green shoots we see in terms of what product led growth can do for the business, we're feeling emboldened to take a little bit more risk in getting the business more quickly to the kind of business model we think is the right answer long term. So when we look at advertising spend, we dropped it about 20 some odd percent in 2023 after dropping it in the teens. in 2022. We'll probably drop it more this year, and that's going to make room for more product investment that we think is going to get us to the right metrics to get us to growth over time. When you look at Vimeo as a whole, there's a lot going on at the top line from bringing down the other products, both in bookings and revenue, so that we get that rationalized, and then the investments we want to make in self-serve and Vimeo Enterprise over time. And so what you're really seeing us do is actually because we're feeling good about the business, actually proactively take a little bit more risk and we'll bring down advertising more, get ourselves to the right profitable mix, invest in the product, and then move forward from there.

Our next question will come from Corey Carpenter at JPMorgan. Corey.

Hello, good afternoon. I had two, just maybe, Jillian or Adam, if you could just expand on, you've mentioned, I think, twice now the green sheets you're seeing on the product side. So if you could just expand a bit on what you're seeing there. And then, Jillian, just as we think about your 24 outlook, it feels like it certainly is a big impact from the other segment, which you're kind of managing down on purpose. But maybe if you could just set our expectations for what you're expecting across enterprise, self-serve, and other.

Sure.

That'd be helpful.

Thank you. I take those numbers questions and I'm going to pass it to Adam a little bit more on the product. So let me start first with the guidance. So when you look at the business, there's both the bookings and then what follows is revenue. So in terms of how we're thinking about the business in the booking side of the business, as we get Vimeo Enterprise bigger, its rate of growth will probably slow. And then in the other segment, we continue to think that's going to decline as we manage that business down to basically being OTT. Now, OTT is a real opportunity for us, but for right now, we view it as more optionality. We have a great team running OTT. So then you get to the self-serve business, which is the biggest piece of the business. There, what we're doing is, and you see in the guidance, is that cut to the ad spend adds to the environment we are in that will probably cause that to go down as we look at 2024, but it's going to get us to a healthier place. And so then that gets me to the revenue. Revenue trails the bookings. So you'll see that come through. The biggest delta in the revenue, as I look at 2024, is actually the other segment where we continue to bring that down. Those bookings are followed by that revenue. And then the two trends I talked about in terms of Vimeo Enterprise and self-serve follow. The reason we think this is the right way to look at the business is those green shoots. So a couple things. When we look at the rate of new bookings, particularly in the self-serve business, relative to the rate of cuts we're making in the ad dollars, there is a positive relation there. In other words, the new bookings are falling less than the ad dollars are falling. And that is a trend we started to see in the second half of last year. We are seeing it in 24. That makes us feel confident that the product is starting to do exactly what we want it to do, which is sell itself. Other metrics that we are looking to is conversion of that traffic to new sales has been coming up. AOVs and ARPUs are looking better. And really exciting in the quarter for us is those retention trends that we mentioned in the letter. Let me particularly focus in on self-serve, where we saw increased retention across the board and in all cohorts. That's a big piece for us in terms of thinking about how the product is performing for us and how we kind of put it all together. So hopefully that gives you some of the green shoots, kind of how we're getting to the math on it. And then, Adam, I don't know if you want to add anything on sort of how you're thinking about products and how they're performing.

Yeah, sure. From the product side, one of the things that I think we're seeing across the industry is obviously there's a tremendous amount of innovation and excitement in video in general, and we're seeing our customers asking us to help them make the video more strategic for them. You're seeing in how we're kind of modifying and evolving our products, especially on the enterprise side, to be more solution-oriented, to fundamentally be more strategic to our customers and hopefully create more value and allow us to capture more value as part of that. Last quarter, we launched Vimeo Marketing, which is kind of the first pillar of our new enterprise product strategy. You'll see we've got a lot more stuff like that in the pipeline in the coming quarters. And the early results are promising. In Q4, we have some great customer wins. Hermes, Southwest, Toyota, Domino's, Gartner. We're really seeing a lot of adoption across a broad swath of industries, which is a great early indication that our product value proposition is being well-received.

Our next question will come from Brian Fitzgerald at Wells Fargo. Brian?

Thanks, guys. On the sales execution and the macro issues you talked about last quarter, I think it was lead handling and also maybe some macro softness with respect to SMBs. Could you give us an update on what you saw in the current quarter? How did you address those lead handling issues? Are you starting to see improvement in any signs in the environment for SMBs?

Sure. Let me just take some of the macro stuff. Obviously, we're not economists. The environment is what it is. No meaningful change in the environment that we're operating in that was noticeable in the quarter. In terms of the sales team, we made nice progress during the quarter. We still have work to do there, but we feel like the issues that we highlighted last quarter, we're working our way through and working beyond. Adam, I don't know if you want to add anything there.

Yeah, I just say that we're continuing to be proactive and aggressive in optimizing both the systems and structure of our sales organization. We made some changes that we rolled out at the beginning of this quarter, reorganizing how we look at territories, looking at our systems about how we're around lead handling and other issues, and continue to be very focused. And we're optimistic about the opportunities for optimization there.

Got it. Thanks, guys. And I wonder if I could get one quick follow-up on it. You talked about AI investments. I think we're starting to see some of that in the product in terms of multi-language closed captioning. Any other key areas of opportunity you see there in terms of using AI to address key customer pain points?

Yeah, obviously, AI is a tremendously exciting area in video for our customers, and I would encourage all of you to stay tuned. We've got a lot of exciting products in the pipeline.

Our next question will come from William Kerr at TD Cowan. Will?

Great. Thanks for the questions. So first off, you guys have been able to generate some solid free cash flow over the last few quarters. Just wondering how we should think about your ability to convert EBITDA to free cash flow in 24 and beyond. And then I have one additional question.

Yeah, I mean, the free cash flow and EBITDA story here really shows you what a great business model Vimeo has. And even while we make the transitions that we've been talking about to get the business to where we want to get it to in terms of setup, we're able to have really strong EBITDA results. As you saw, our guide was for essentially flat EBITDA. That's even taking in another $5 million of cash cost to replace some equity with cash, given where the stock is. Our cash flow was in excess of the EBITDA in 2023. I think it'll be again in 2024. That's the beauty of a subscription business. You oftentimes get the cash up front, and we think that trend will continue for the business.

Great, thanks. And then in terms of the investments, you talked about there being some areas that may take some time to develop and looking out even into 2025. Can you just talk about the balance of your R&D investments in terms of enterprise versus self-serve? And then are there areas that you feel you need to invest other than on the R&D side, like in the Salesforce, or do you feel like you're pretty squared away in those other areas?

Let me just take the areas generally, and then I'll have Adam give you a little bit more color on kind of where we're focused. Just one reminder on the R&D front, much of Vimeo's product line spans the customer bases. So a lot of the investments we make actually benefit most all of our customers across the board. But when we look at the blend of investment, we're really trying to make sure we're freeing up investment dollars to put in the R&D area to really come up with the best products. We are feeling emboldened by what we're seeing out there in the business, that that's the right strategy and you're seeing us move that way. A few weeks ago, we made a small reduction in force in our G&A areas and just to right size us for where we want to be. So in general, what we are looking for is about flat head count and there'll be a mixed shift towards the R&D group as we work our way through the year.

Yeah, and to speak to the second part of your question, one of the things that we're becoming more aggressive about is how we talk about our products, how we talk about the innovation that we're creating, and how we make sure that our customers are aware and adopting all the great things that we're releasing. In just a couple weeks ago, at the end of the quarter, last quarter, we released our Vimeo Winter 2024 release, I encourage you to go to the website. You can take a look at all the areas that we're focusing on and innovating. And I think it'll give you a pretty good flavor of how the innovation kind of spans what we're seeing both on self-serve and where customers and individuals can get started very quickly all the way up through with a brand new editor, with things like multi-track audio, all the way up through advanced features for enterprises like a new integration system analytics API, which is super useful for understanding employee engagement. So I'd just say stay tuned. We're going to be more clear about how we're communicating our product capabilities and hopefully easier for all of you to keep track.

Okay. Really appreciate the call. Thanks.

Our next question will come from Yusuf Squally at Truist. Yusuf. All right. Our next question will come from David Lussberg at Jefferies. David?

Hey, thanks so much. I wanted to ask, I noticed in the shareholder letter, Adam, you still had interim next to your name. I was just curious if you guys could give us an update on where you guys are in the CEO search, who you guys are looking for as the right fit, and what kind of timeline there might be around that. I know, obviously, you guys are looking for the right fit and not necessarily a time perspective, but any update there would be helpful.

So the CEO search continues. And in the meantime, Adam is full time running the business with us. We're having a lot of fun doing it. We're headed the right direction. And I think the strategy that Adam has laid out and we've been laying out for the street is exactly the direction we are going and the right fit for us will fit with that strategy. So no update on timing. Of course, these things are hard to tell on timing. But we are not holding back at Vimeo. Adam is here with us, and we are working really hard on the business.

Yeah. Hopefully, as you're seeing in the letter and the other results in the business and across the product releases, we as an organization are fully heads down, engaged, and really enjoying taking advantage of all the strategic opportunities that our market allows.

Got it. And then maybe just a second question, if I may. You know, I think a really good execution from you guys on the enterprise side, maybe getting a little bit lost in the sauce, if you will, with everything going on and other and self-serve. You talked about some of the growth coming down just as law of large numbers, but how durable do you see the growth in enterprise? And it sounds like you guys have an exciting product portfolio ahead of you. How do you think about the balance in enterprise between growing customer count and R&P would be helpful?

So just real quick on overall growth. I think the point we tried to make in the shareholder letter, and I think what you reflected in your question, is that there's a little bit, it's a hard, there's a lot of puts and takes in the Vimeo top line that in a way is muddying really great progress, right? The company X other has grown for the last two years, and we continue to see a lot of great growth prospects growing. We are actually taking some risk in terms of putting a little bit more pressure on the self-serve business to get to where we want to be in terms of the mix of product versus marketing led growth. But we continue to see really strong growth prospects for Vimeo as a whole, and in particular in Vimeo Enterprise, where we see double digit growth as absolutely the future of that business with a lot of opportunity. Adam, do you want to add to that at all?

No, I think You're going to see innovation and product releases across both businesses. I think the benefit of video becoming more strategic to organizations of all sizes should help provide tailwinds across our channels.

Yeah, and I just realized you added a question about ARPU and subs, and I wanted to make sure I came back to that. Our ARPU and our AOVs have been in about the $20,000 range. We think there's still a lot more opportunity for us with customers to sell. It takes time to work that through the system, and of course, The Vimeo Enterprise business is a blend of SMBs and mid-market and corporate, CorpStrat. And so it's just about the timing on that. To us, that's time, not, you know, we just have to work our way there.

Got it. Thank you, guys. Appreciate it.

No problem.

With that, there are no further questions. I'll hand the call back to Jillian.

Thanks for joining our 2023 Q4 Live Q&A. We look forward to updating you again next quarter. Have a great evening.

Hi, I'm Jillian Munson, Vimeo's CFO.

Welcome to our Q3 2023 earnings. This quarter, we're going to do a short interactive video to help you navigate the earnings results. First, we have posted a shareholder letter, which you can also find right here, that reviews our results and our outlook. Additionally, today, Monday, November 6th, at 5 p.m., we will be hosting a Q&A session with me and our interim CEO, Adam Gross. If you'd like to see the replay, you can access it here. And then finally, customers are the center of everything we do at Vimeo, and so we always like to highlight them in our quarterly results. If you click on this pop-out, you'll be able to see an overview of CustomerWise, who uses Vimeo to communicate with their 5,000-strong distributed workforce. Thanks for your attention, and we look forward to seeing you on our earnings Q&A.

Hello, and thank you for joining Vimeo's Q3 2023 Earnings Live Q&A. 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 other 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've 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 gap measures. Additional information regarding Vimeo's financial performance, including reconciliations with comparable gap measures, can be found in our shareholder letter 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 CFO, Jillian.

Hello, and thank you for joining Vimeo's Q3 23 earnings Q&A session. I am Jillian Munson, CFO of Vimeo, and I'm happy to be joined by Adam Gross, our interim CEO. You can find our Q3 23 shareholder letter on our investor relations website, which has further details and financial information about the quarter, as well as additional commentary on the results and our outlook. Before we jump into Q&A, a few points on how we are thinking about this quarter. We believe our team delivered a solid Q3 result that shows what Vimeo's model can do. In particular, showing that our model can deliver healthy operating leverage thanks to our disciplined focus on cost. A couple key points. we were able to grow bookings. Total bookings were up 4% year over year, driven by a reduction in the rate of decline in self-serving add-ons, strong growth in Vimeo Enterprise, and a shift in timing of a large OTT renewal from Q4 into Q3 in our Other category. Taking Other out of the math, we grew bookings 5%, a nice acceleration from Q2. We also continued to sign premier clients to our platform, including Oxford University, Tory Burch, and Alarm.com. Cost Discipline helped us deliver adjusted EBITDA of $13 million in the quarter. Finally, we ended the quarter with cash of $291 million and generated $17 million of free cash flow. Putting 2023 in perspective, entering the year, we had three financial goals. Delivering revenue declines in the mid-single digits, posting adjusted EBITDA of $5 to $10 million, and returning to bookings growth in the second half. I'm happy to say that we believe we have line of sight to achieving or beating two of those goals. And while we aren't all the way there on the third, we are making solid progress. Specifically, I'm happy to relay that we continue to believe that our revenue outlook is appropriate, and we have raised our EBITDA outlook to $27 to $30 million. As for getting back to sustained bookings growth in the second half of the year, Q3 solid results aside, we now believe that our path there will be nonlinear. In Q4, we now expect bookings to decline in the mid-single digits percentage-wise. About half of the shift from Q3 to Q4 is expected to be driven by lumpiness in our other category. The rest will come from two factors. First, while self-serve and add-ons showed improvement in Q3, we expect we will need more time still to return it for good. Moreover, as we look at our strategy, we are making overt changes to be more product than paid marketing driven, which may cause near-term headwinds on new bookings, but should be long-term healthier for our business. And in Vimeo Enterprise, despite strong growth prospects, the rate of growth is slowing, in part due to some operational issues we saw in Q3 that resulted in pipeline softness. We are moving the business in the right direction despite a delay in delivering sustained growth and continue to believe that Vimeo will deliver growth overall, first driven by bookings. Importantly, Vimeo has the financial staying power thanks to its strong cash generation in 2023 and its enviable balance sheet to invest appropriately to turn our business to a growth posture. With that, we're happy to take your questions.

Our first question will come from Yusuf Squally at Truist. Yusuf. Awesome. Can you guys hear me?

Yep. Hi, Yusuf.

Hello. Congrats on a good quarter. So I guess the two questions I have, one is around The OpEx, you showed some really impressive improvement, actually, in gross margins to about 80%. Can you maybe speak to the drivers there and sustainability into Q4, same with OpEx? And then on bookings trends, I think you touched on it a little bit, but particularly within self-serve and add-ons. Now that you're pushing the inflection back to positive for later, I mean, can you provide a little more color on what's going on there and how late, how later is later? Are we expecting first half next year, second half next year? Any kind of color would be helpful. Thanks.

OK, I'm going to try to remember all of those because that was like four questions, but I'll get there. So in terms of profitability, we had a great quarter on profitability, EBITDA of $13 million. I think our analysis would be that we may have swung a little bit too far towards profit in the quarter. So I wouldn't want you to keep yourself at that kind of a margin moving forward. So let me break it to the parts you asked about. In terms of gross margin on a non-GAAP basis, that was about 80% in the quarter. That is really thanks to the work our team does in terms of hosting costs and other costs that go into the cost of goods sold in the quarter. It also, we benefited from some healthy revenue in the quarter as well. So when I look at that number, I think 79, 80% is probably a good range for that. I don't think that we see a ton of upside over where we were this quarter. It was a pretty good result there. On operating expenses, as you know, we've been bringing down costs through the course of the year. It was down about 11% in the quarter. It's about 5% on headcount and the rest coming from non-comp costs. I think we will continue to show discipline on cost and our guidance reflects that as well for Q4. But we do want to make some investments against growth and probably we were a little bit too close on cost this quarter. So I wouldn't expect us to hold it to this EBITDA margin level as we move forward in order to make the proper trade-offs there. I think on cost, Vimeo showed the kind of operating leverage this model can deliver. And now Adam and I are working very hard to make sure we have the right balance of investment to growth over time. As it relates to the self-serve business, we are making good progress there. The rate of bookings decline got better in the quarter. We are making progress. We're particularly seeing good results in terms of our top of the funnel traffic. We have brought our AOV up fairly meaningfully over the course of the last year. Conversion is still not where we want it on new, and we need to do some more work there. So it's going to take us a little bit more time to get that sustainably to growth. And as you know from the math, self-serve getting back to growth really helps us get to growth overall for Vimeo. And so we're working on that. In addition, and we talked about this in the letter, it's an important point to think about. We, with Adam's leadership, are really focused more on product-led growth than paid marketing-led growth. And as we make that transition, that might cause a little bit of incremental headwind on new bookings, but we think long-term will be super healthy for the business. In terms of picking a date certain for when we'll get back to growth, we're right in the middle of 2024 strategic planning. So don't think it's appropriate to pick a date there, but we'll come back with guidance on that on the Q4 call.

All right.

Did I get them all? I think I got them all. Yeah. Okay, good. You did a great job. Thanks.

Our next question will come from Tom Champion at Piper Sandler. Tom?

Great. Thank you. Good afternoon. Adam, I'd love to hear from you and just talk about your impressions kind of hearing the early going. I mean, you're familiar with the business, but now you're running it on an operating basis day to day. What's... What are your current thoughts? And the letter refers to kind of doing more with less or as a simplification process that sounds sensible in the abstract, but just maybe you could contextualize for us what you're seeing and what you'd like to do.

Yeah, thanks for the question. I appreciate that. So I am, I think, just about to start or just about to hit my second month anniversary here, as I mentioned in the letter. And it's been really exciting to get a closer seat at the table, transitioning from the board to interim CEO. Some of my reflections are Vimeo has an enormous number of just really interesting assets. I mentioned this in the letter, but since I've taken this role and I started talking to people and our customers and people in the community, I'm yet to meet somebody who doesn't know what Vimeo is, who doesn't know who we are, and more likely than not, doesn't have a positive story or experience to tell about us. When you look at assets like that, when you look at how much traffic we have onto our various properties, measuring in the tens of millions of miles, and you look at fundamentally the category we're in and how important video is and how strategic it is increasingly to enterprises, those are all really amazing assets. I think what we're talking about when we talk about focus and simplicity is how can we really bring all of those assets that we have together more effectively so that 1 plus 1 equals 3 in a little bit more of an impactful way. Julian referenced that with regards to our Self serve strategy. How can we take advantage of the brand? How can we take advantage of the traffic we have? How can we take advantage of a product that we invested an enormous amount in really making simple and delightful to use? So that we're better able to attract customers, get them engaged in the product, leveraging organic mechanisms. have them engaged as free users, and then over time convert them into paying customers. I think that's an example of a strategy that we can take advantage of that will let us align our efforts better and ultimately yield more effective and customer acquisition and ultimately more growth. That's great. Thank you.

Our next question comes from Brian Fitzgerald at Wells Fargo. Brian? Yeah, thanks, guys.

Wanted to know with the product simplification efforts, have you seen any early signs of improved conversion that has given you confidence that we can reduce the emphasis on paid marketing and then maybe scale the top of funnel? And then related, wondering how you're thinking about continuing to feed that type of funnel. Is the plan to lean back into paid marketing at some point in the future and any preliminary thoughts on how that would kind of phase in?

Yeah, let me take the numbers side of that first, Brian, and then I'll have Adam talk about sort of the strategic side. So from a paid marketing perspective, we've been bringing down paid marketing over the course of 2023 and have in Q3 delivered better bookings than we had. We've been reducing the rate of decline there. It's a careful balance. It's early days on really doubling down on the product versus paid strategy at the company. So a little bit early to see full results there. But I think what you're seeing is the team has been doing a lot of work all year long to build features and functions to make it, as we've talked a lot about, make it easier to get to the features that are the best at Vimeo, make it easier to onboard with Vimeo. And I think Our belief is that as we start to see better and better usage, that's going to bring us that product-led growth as opposed to the paid marketing growth. And we feel very optimistic that that's doable. Super early days in terms of really doubling down on that. I think it's a while before we would say, okay, let's not turn back on the paid marketing. I think our real focus is making – we have a lot of folks who touch the Vimeo product. I think it's like 50 million people. you know, viewers even see the product and millions of people use the core product every month. And there's a lot of opportunity in that for us to sell subscriptions to those folks. So I think we still have time to get to a place where you'd say, OK, let's now reassess the paid marketing strategy. For right now, I think we're really focused on product more than paid. Doesn't mean we don't spend money on paid. We do. So I would be remiss if I said that we're not spending on paid. But I think we are really trying to shift that orientation because we think it's healthier for the business over time. Adam, do you want to add anything?

Yeah, as you mentioned, it's still pretty early in the journey on thinking about the strategy and this alignment. But one thing I would keep an eye on is all the things that we are doing in the product, as Jillian mentioned. Last week, we announced our new video marketing solution. Inside of that is an entirely new editing experience. Another product innovation we've had in the past 30 days alone is a new AI-powered teleprompter, which... follows you as you speak to kind of prompt and scroll the words accordingly. I encourage you to check it out. It's really cool. And I think it's those kinds of investments, that kind of innovation, that's going to be really key to unlocking the opportunity that we have in enterprise video. So really excited about what we've shipped and excited about the pipeline of the new capabilities we've got coming.

Got it. Thanks both. Very helpful.

Our next question comes from David Lustberg at Jefferies. David?

Thanks. Hey, guys. I have two, maybe just to start and then a follow-up. In the letter, you said you saw... Some Vimeo Enterprise headwinds in Q3, I think you said mostly around SMB side due to execution issues that you guys are addressing. Maybe if you could just start by walking through what some of those execution issues were, it would be helpful.

Sure. So in Vimeo Enterprise during Q3, we started to see some headwinds in our pipeline. It was across the board, but a little heavier in SMB than in other categories. We think this is largely execution and really the execution is in how we take leads into the system and make them into real opportunities. So it's a lot of items around focusing on leads, responding to leads, how quickly we're getting to them, things like that. All of this we are addressing. That said, as we've looked at the data and we think about SMB being a place of a little bit more weakness than other, we suspect there's probably a little bit of macro in there as well. But in our view, our destiny is ours to fix. And we actually think that for the most part, this is about us executing better in that category as opposed to it's all macro and that's our issue. So we'll work on that. We're out there working on it now. and, you know, hope to turn that around.

Got it. A tough one. Then maybe just as a follow-up, in the letter, I think, Adam, you talked about your cash position and, you know, how it provides a wide array of investment opportunities going forward. Maybe if you could just talk through, you know, what are some of those investment areas in the business that you might be thinking about leaning in harder to with that cash position? Thanks, guys.

Yeah, sure. Thank you for the question. Happy to speak to that. Obviously, it's too early for us to say anything definitive about how we want to use that. But I think if you look even in the past 30 days at some of the things we've been talking about and releasing, it signals a lot of our strategy fundamentally. one of the things I'm really focused on is how do we become more strategic to our customers? We know that companies of all sizes need help navigating the new world of enterprise video, whether that's in the marketing domain, whether that's in how companies use that if they're in the media business, and increasingly also in knowledge sharing and collaboration. So As I mentioned, you saw investments that we've made in the editor. We've also made additional investments in our core player technology, which is probably the industry standard for internet quality video playback. And all of these, we introduced new analytics capabilities to help our customers understand how video is being used. All of these are efforts that are designed to either attract and convert customers or to ultimately become more strategic to our customers. And we think there's just a lot of opportunity to do that across those different areas that I mentioned.

And David, I might add for that. When we talk about investing, it's all a balance. So what we are committed to is being a profitably growing company. So I want to make sure we're not leading you the wrong direction on that. I think it's just more about the level. I think that what we're trying to say is in Q3, we might have swung a little bit too positive relative to the level of investment we want to make. So don't expect us to go into a lost position. That's not our strategy. We want to be a profitably growing business as well.

Our next question will come from William Kerr at TD Cowen. William?

Great. Thanks for the question. So in the shareholder letter, you noted a number of large customer wins on the enterprise side. Could you just give us a bit more color on what categories are driving the most demand and maybe where you're seeing your customers pull back a little bit? And then I have one additional question.

So just from a macro basis, the pullback was more by size as opposed to usage. So really, in terms of pipeline, I think we saw our execution was a bunch of the pullback. But then in SMB, we saw a little bit more than elsewhere, but kind of across the board. So it wasn't like one use versus another. And I think in terms of use cases, we continue to see many of the same ones that you've seen over time. marketing comms, communications, all those good things. So no real change in how people are using the product.

Okay, great. And then, you know, SBC was down again year over year this quarter. And, you know, you guys have made a lot of progress on that side of things. And I was just wondering how you're thinking about limiting share dilution over time. And if you think you're, you know, you're happy with the current levels of SBC and, you know, where you're thinking for the next several quarters.

Yeah, I didn't mention this in the beginning. When we talk about cost, I really talked to the EBITDA. But the net income story at Vimeo was also really strong. In addition to the interest income we're starting to earn on our cash balance, as it helped the bottom line, the stock-based comp has been really controlled. Now, there are some ins and outs on that, right? As you know, we've had some folks depart the company over the course of last year. There's been a lot of change here. And so I think in this quarter, we had a handful of folks who were sort of late last year grants that were backed out of the stock-based comp, which is just normal with the kind of change we are having. So that level for this quarter, which was just around $7 million, probably is a little bit lower than where we'll land. My suspicion is we'll be closer to $9, $10 million a quarter moving forward. But if you can think about it in sort of the longer form, a year ago, that number was $19 million. And we were thinking we were going to be looking at $20 million a quarter in stock-based comp. And as that represents dilution, that's a pretty hefty number. The company and our comp committee have really joined forces to limit dilution this year. I think we've done a really nice job at it. And we will continue to be conservative in terms of giving stock out over the course of the future.

Great. Thanks so much.

And with that, there are no further questions. I will hand the call back to Jillian.

Thank you so much for joining our Q3 2023 live Q&A. We look forward to updating you again next quarter.

Hi, I'm Ken Goff, Vimeo's Head of Investor Relations. Thank you for watching our Q2 2023 Interactive Earnings video. Before we begin, a few comments. First, Vimeo's Q2 earnings video and shareholder letter are available on the Vimeo Investor Relations site. Second, this video 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've 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 shareholder letter 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.

Hi everyone. And thank you for joining our Q2 2023 Interactive Learners video. This afternoon, we published a showholder letter you can find here with details and financials around the quarter, as well as our commentary on the results and outlook. Before getting into our performance of the quarter, I'd like to say how excited I am to have Adam Gross starting as interim CEO on September 1st. Adam has been a board member for the past two years and has a wealth of experience as a SaaS leader. He has started two companies and held senior roles at high-growth, industry-leading companies, including Salesforce and Dropbox. In 2013, Adam sold Cloud Connect, a company he co-founded to Heroku, a Salesforce subsidiary, and later served as CEO of Heroku, expanding the business from self-serve to enterprise. Adam is an active startup investor and advisor in several companies, including dbt, Kribble, Tailscale, and Billkite. Adam has been with us part-time for the last month and we are looking forward to moving him to full-time on September 1st. As a board member, he's already aligned with our strategy of simplifying Vimeo to make video more accessible to all. I'm confident that his insights, experience, and track record of scaling product-led companies will be significant assets for Vimeo as we continue to transition the company, return to growth, and drive profitability in the future. Adam provided us with a short intro video, which you can see We are excited for the next stage of Vimeo with Adam and would like to thank Anjali Sood, our CEO of the past six years, for all her contributions to the company. We wish her the best of luck in her next endeavor. Turning to the quarter's financials, we will walk through some non-GAAP terms, and you can find reconciliations to the closest GAAP terms in our shareholder letter. In Q2, we delivered $104 million in bookings, $102 million in revenue, and $5 million in adjusted EBITDA. And our results this quarter reinforced my confidence that we're on track to moving Vimeo's business model to one driving profitable growth in the future. Some highlights from Q2. First, enterprise bookings grew 72% in Q2 to represent 17% of total bookings, making up a larger percentage of total bookings than other by six percentage points. This mixed shift represents a nice tailwind as we work to return Vimeo overall to a growth posture. Second, we are encouraged by what we're seeing on retention in our key products. Self-serve retention on both a subscriber and dollar basis was stable, sequentially. Vimeo Enterprise NRR was over 100% and bookings and logo retention were improved year over year. Third, we delivered on our promise to get more efficient while investing for our future. with an 18% year-over-year decline in non-GAAP operating expenses and adjusted EBITDA of $5 million, an $11 million improvement versus Q2 of last year. Fourth, we reduced the year-over-year rate of decline of our bookings by two points to 3% versus 5% in Q1, excluding other re-grew bookings 2% year-over-year, led by Vimeo Enterprise. Fifth, Our innovation investments paid off with the release of an AI-powered video creation suite, which you can see Anjali discuss here. Beyond these highlights for the quarter, we continued to sign impressive customers for Vimeo Enterprise, including Whole Foods for executive comms, Portia for organizing and managing their video library, and Diageo and Volvo, both for video marketing on web and social. You can click. here to see how workflow management company Monday.com is using Vimeo for external events, webinars, and lead gen. Turning to our outlook, we expect Q3 revenue to be slightly above $100 million. We expect Q3 adjusted EBITDA to be down sequentially on an absolute dollar basis, largely due to the timing of certain expenses coming in near $2 million. For full-year revenue, we continue to expect a mid-single-digit percent decline, and we are updating our full-year adjusted EBITDA guidance expectations to be in the range of $10 to $15 million, up from the prior range of $5 to $10 million, due primarily to the strong adjusted EBITDA performance in the second quarter. Thank you for watching our Q2 2023 earnings video. We look forward to updating you again next quarter.