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spk06: Good morning, my name is Nadia and I'll be your conference operator today. At this time, I would like to welcome everyone to the Squarespace's third quarter 2022 earnings conference call. All lines being placed on mute to prevent any background noise. After the prepared remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw a question, please press star, followed by two. Thank you. I will now hand the call over to your host, Robert Sanders, Head of Investor Relations at Squarespace to begin. Robert, please go ahead.
spk10: Good morning. Thank you for joining us. My name is Robert Sanders, Head of Investor Relations. With me on the call today are Anthony Casalena, Squarespace founder and CEO. And we welcome Nathan Gooden, our CFO who joined the company in October. They will share some opening remarks and then we will open the call to your questions. Earlier today, we issued a press release and posted a shareholder letter in the investor relations section of our website with additional information related to our Q3 results. On today's call, we will be referring to both GAAP and non-GAAP financial results and operating metrics. You can find additional information on how we calculate these metrics, including a reconciliation of GAAP to non-GAAP measures in today's press release, which can be found in the investor relations section of our website. These measures should not be considered in isolation from or superior to our GAAP results. We will make forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities and Litigation Reform Act of 1995, which include but are not limited to statements related to our future financial performance. These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially. These risks are further defined in our most recent filings with the Securities and Exchange Commission. Any forward-looking statements that we make on this call are based on assumptions as of this day, November 8, 2022. We undertake no obligation to update these statements as a result of new information or future events, except where required by law. Now, I'll turn the call over to Anthony.
spk08: Good morning, everyone. Please join me in welcoming Nathan Gooden to our team as our new CFO. I'm thrilled he's with us and pleased to have him on this call. Nathan brings over two decades of financial leadership in the technology sector, most recently as CFO of Amazon's Alexa business. In our first weeks of working together, I'm finding his enthusiasm for our business invigorating and believe his positive influence will spread across the organization as he settles into his new role. Welcome, Nathan.
spk09: Thank you, Anthony. I will say I'm thrilled to be working with you and excited about the tremendous opportunity ahead for Squarespace. I believe together with the amazing Squarespace team, we can further optimize our portfolio of brands for entrepreneurs and accelerate growth. I'm inspired by the vision that drives our business forward to help entrepreneurs with creative ideas stand out and succeed. I believe our mission, enabling millions to build a brand and transact with their customers with an impactful and beautiful online presence, creates an amazing opportunity for our business. Now I'll hand the call back to Anthony for some opening remarks. Then I'll take us through our third quarter financial results.
spk08: Thank you, Nathan. Our third quarter results highlight the strength and durability of our business. Revenue came in at the high end of our guidance range, growing 8% annually as reported and 13% in constant currency, driven by strong customer retention, growth in higher value commerce subscriptions, and TOC. Our revenue is extremely durable, with 92% coming from SaaS fees across our 4.2 million unique subscriptions. Unlevered free cash flow in the quarter of 42.1 million exceeded the high end of our guidance range by 3.4 million, mainly due to the timing of payments. We're especially pleased to see bookings accelerate to 10% year-over-year as reported and 14% in constant currency, up from 6% year-over-year growth we achieved in Q2. Booking strength was fueled by new website subscriptions legacy price increases, and talk. This growth gives us further confidence in our continued success. This fall, we were pleased to announce Squarespace Refresh, our annual campaign that showcases over 100 new product innovations and features to be introduced throughout the year. Our constantly evolving platform has grown exceptionally in a myriad of ways, from improvements in our selling tools to enhancements in the kinds of sites our customers can create on our platform. We also hosted our first Circle Day for our community of professionals to build on Squarespace. This live event in New York was exclusively for members of our community. No matter how simple we make our platform to use, there are many out there who would prefer professional help, from setting up their site to consulting on copy, photography, and or marketing. Since Squarespace is uniquely positioned in the world due to our emphasis on incredible design, we are a fantastic starting point for these professionals when they build sites for clients. Further, as we continue to enhance our platform with innovations like Fluid Engine, our new page design system we launched a few months ago, we eliminate the need for these professionals to learn custom code or move to more complex platforms that are harder to maintain. This quarter, we also began introducing modest increases to our pricing for existing base subscribers and saw minimal impact to customer attention and response, far below what we originally had modeled. We continue to benefit from the new pricing introduced in the third quarter over the coming quarters as annual subscriptions come up for renewal, with approximately 70% of our entire customer base on annual subscriptions. As we've noted previously, we've never raised prices on existing customers. Accordingly, many of our existing customers who received a new price in this quarter remain well below our current market rates for new customers. To unpack some of the drivers of growth in this quarter, Unique subscriptions for websites grew in line with our expectations throughout the quarters. We acquired new customers and retained existing ones. However, our Unfold business saw softness impacting overall subscription growth, leading to the number being roughly flat from a macro perspective. Unfold subscriptions are substantially lower in dollar value than other subscriptions we offer. We continue to innovate in Unfold by rapidly launching new features, including bio sites, which are easy to create websites for social profiles that are being adopted rapidly. Commerce subscription growth continues to outpace presence as entrepreneurs and creators in greater numbers turn to our simple-to-use but powerful integrated platform of services for sellers. Talk is also helping drive growth in our commerce segment. In Q3 2020, presence revenue grew at 6% year-over-year as reported and 12% in constant currency. Commerce revenue grew 13% year-over-year as reported and 16% in constant currency. Our mix of commerce subscriptions as well as the addition and subsequent growth of TOC contributed to our boost climbing to $206, growing 4% annually. International expansion remains a core growth driver as we localize our offerings. I'm excited about some of our new international brand ambassadors and specific campaigns tailored to appeal to international audiences. Within TOC, which helps hospitality and time-slotted businesses thrive, we launched the TOC Wine Shop, This makes it possible for our winery partners to sell directly to consumers while continuing to manage the tasting reservations on its all-in-one platform. Further, we're making progress with Squarespace payments and have recently hired a new vice president who brings over a decade of experience in payments to our team. We believe payments will be an important driver of our business moving forward. I'll hand it over to Nathan to speak to the financials before taking your questions.
spk09: Thank you, Anthony. Let me begin by highlighting some of the bright spots in the third quarter. Revenue of 218 million was at the top end of our guidance range. As Anthony said, our growth was underpinned by strong customer retention as we introduced new pricing with existing customers, increases in higher value commerce subscriptions which continue to outpace growth in presence subscriptions, and growth in our talk business. As Anthony pointed out, these signs give us further confidence in our business and its future success. In addition to our top line performance, Our efficient and scalable model delivered $42 million in unlevered free cash flow, giving us a 19.3% unlevered free cash flow margin and demonstrating our ability to generate growth and drive profits. Total GMB of $1.4 billion grew 3% year-over-year as discretionary spending dwindled due to macroeconomic environment we are in. Recall our Board of Directors authorized a $200 million share repurchase program in the second quarter of this year. As of September 30th, we have repurchased and retired 3.99 million shares, including 2.43 million shares during the third quarter, offsetting dilution related to stock-based compensation. Approximately 114.4 million remained available under this program at the end of the third quarter. I do want to clarify our mix of international revenue, as reported, which represented 28% of our total revenue and declined 15% year over year, whereas U.S. revenue, as reported, was 72% of revenue and grew 21% year over year. This is a reflection of prior year revenue reclassifications and current year FX headwinds. As we noted previously, in the third quarter of 2021, we reclassified 9.2 million of first and second quarter 2021 revenue out of the U.S. and into international. When taking into account this reclassification and the 9.3 million of currency headwinds versus rates in effect in the third quarter of 2021, our mix of U.S. and international revenue would have been 69% and 31% respectively, which is consistent with levels in the first two quarters of this year. When considering the impact of these two adjustments, both U.S. and international grew 13% year-over-year. We are executing against our expectations for non-GAAP expenses. Full year 2022, our non-GAAP operating margin is expected to increase approximately 300 basis points from 2021 levels as we reduce G&A and marketing sales expenses as a percent of revenue while at the same time increasing our investment in R&D relative to 2021. This balanced approach fuels our future growth while also delivering strong, unlevered free cash flow. Let me turn to guidance before opening up for Q&A. For the fourth quarter of 2022, we expect revenue to be in the range of $219 million to $224 million, representing a year-over-year growth rate range of 6% to 8% versus Q4 2021. We anticipate unlevered free cash flow in the range of $24.6 million to $29.6 million. Our unlevered free cash flow guidance comprises ranges of cash flow from operating activities of $24.0 million to $28.9 million, capital expenditures of $4.6 million to $5.5 million, and cash paid for interest expenses net of associated tax benefits between $5.1 million and $6.2 million. For the full year 2022, we expect revenue to be in the range of $857 million to $862 million, representing a year-over-year growth rate range of 9 to 10 percent. We anticipate unleveraged free cash flow in the range of $148.6 million to $153.6 million. Our 2022 Unleveraged Free Cash Flow Guidance assumes cash flow from operating activities in the range of $149.2 million to $154.2 million, capital expenditures of $12.9 million to $13.9 million, and cash paid for interest expenses net of associated tax benefit between $12.4 million and $13.4 million. We are reducing our revenue outlook for full year 2022 by $2.5 million, or 0.3% at the midpoint, as we take a more conservative outlook related to the GMV transacting on our platform in the fourth quarter. Historically, during the fourth quarter, we processed higher levels of GMV relative to other periods during the year. This year, with increased uncertainty around consumer spending, we're taking our expectations for GMV in the fourth quarter down slightly. We are also factoring an additional $1.1 million in currency headwinds since we offered full year guidance in July. Turning to unlevered free cash flow. Reducing full year 2022 guidance by $10 million at the midpoint to a range of $149 million to $156 million, representing a 17.5% margin at the midpoint to account for our lowered revenue expectations and primarily the uncertainty and timing of tax receivables. In summary, I believe the fundamentals of our business remain strong. We have a long operating history of profitable growth, a strong gross profit margin, and a loyal customer base. Our refreshed platform delivers an exceptional experience for entrepreneurs that will continue to fuel future growth. I look forward to meeting our investors and analysts in the coming weeks and cannot be more excited to be a part of the Squarespace team and for the opportunity we have in front of us. Given my short tenure, Anthony will be fielding your questions today, and I look forward to speaking with you on our fourth quarter call. Now we would like to open the line to your questions.
spk06: Thank you. If you would like to ask a question today, please press star followed by one on your telephone keypads. If you choose to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. And our first question today goes to Trevor Young of Barclays. Trevor, please go ahead. Your line is open.
spk03: Great. Thanks. Two, if I may. First one, Nathan, on the unlevered free cash flow. You came in just over $3 million ahead in the quarter. But as you mentioned, lowering full year by about $10 million at the midpoint. I think you mentioned something about tax receivables. But I think also in prior years, stronger cash flow on some timing events that reversed in 4Q. Maybe that's the tax item you're referring to. but also 4Q, I think it had some ad spend prepay ahead of 1Q. So is that the dynamic that's going on here, that basically a little bit of a reversal of the 3Q trend? Just any color on that would be appreciated.
spk09: Thank you, Trevor, for your question. The tax receivables are relating to two things, one from 2018, as you can see in the queue, on a research and development tax credit that we received, or haven't received, but filed for, and a tax overpayment from tax year 2020 that was paid in 2021. That represents the far majority of that 10 million that we have pushed to 2023. As you look at the operating margin in the cash flow margin, that is improving the 300 basis points, as I said in my remarks year over year. I'll just add to that.
spk00: That's really helpful.
spk08: Yeah, it's the payments. I mean, the timing is moving some things around. It's not reflective of like a fundamental difference in how the company is generating free cash flow.
spk03: Got it. Yeah, that's what I'm trying to get at. And Anthony, I have a question. around your comments a bit on, on taking price, um, which I think started earlier in the year, you mentioned rolling out the price increases to existing subs and not having an impact on churn, you know, initially, can you just remind us, you know, how much of a discount versus list price existing subs are, because I think you mentioned, you know, still a significant discount. So this maybe is like a multi-year initiative to kind of get closer to parity.
spk08: Yeah, good. Thanks for highlighting that. It will be a multi-year initiative. So basically, we went in on a plan-by-plan level and tried to find, you know, we didn't want anyone's price increase, because they could have been on like Squarespace from like 10 years ago, to be like 25% or something like that. So a lot of the, like, I guess the biggest, like, we wanted to take people up by, let's call it around 10 to 15%, around 10% on average. And so There's not just one kind of difference that people saw, but you're correct in assuming that we have more room to move in subsequent years as we kind of slowly bring everyone up to what we would call like list price. In addition, in international markets, depending on how our new price tests go, we'll have even more kind of – room to move as we establish a new intro price point, right, which is a prerequisite for doing all this. The other part of what you were talking about, and this was just, I mean, again, it's like the first time you're doing something like this, so it's like, you know, there's no precedent. The churn ended up coming in far below what we modeled, which was great. And again, we don't know how much of that is just a pull forward, which would be ideal, right? Because they were going to leave anyway. So I'm really pleased with the rollout of this and with the reaction we're seeing. And it just kind of underscores to me how important the product is to the people who are using it and the fact that they get a lot of value out of this. Otherwise, we wouldn't be able to do And I think, you know, look, the intro prices still remain very, very competitive in my view. So I don't think we've done anything at all egregious here. And I think, you know, the platform is just so much better than it was years ago. So I think, you know, this has been a highlight for us over the quarter.
spk03: That's really helpful. And just to dovetail on that, can you update us on where we stand with the bundling efforts and as part of that to bring, you know, maybe some older subs that were kind of a la carte into new bundles that potentially higher price point.
spk08: So we're still doing a lot of the engineering work for that. Part of the idea behind the bundling efforts are to give more like basically supercharge the power and the features and functionality that are in the base level plans. And so I think that just will speak to us maybe being able to get to a higher intro price point and also mid-bundle price point later on. So I think we'll start to see some of that stuff enter into a test phase more in Q1. But yeah, still remain excited about that.
spk03: Great. Thanks, Anthony.
spk06: Thank you. And the next question goes to Joshua.
spk08: I just wanted to add one thing there because, you know, we saw a bookings reacceleration this quarter, which we're all very pleased to see. Some of that is the price increase, but a lot of that is also just new website subscribers, which, again, is getting masked by the offset and the negative story related to the unfold subscribers. So I just want to point that out.
spk06: Thank you. And the next question goes to Josh Beck of KeyBank. Josh, please go ahead. Your line is open.
spk04: Thank you so much for taking the question. I wanted to go back to, Anthony, your comments there around churn. Certainly you had embedded something into the model. You obviously have so many months of experience at this point. Do you feel like you have a pretty good handle on how that churn, at least related to pricing, is going to play out in the future quarters? Or is that one where you may be awaiting a little bit more data through the end of the year to really be able to make the call, like, okay, we have a very good kind of handle on the sensitivity around pricing there?
spk08: I think we have enough data to say we have a good handle around it. I think, you know, when we're talking about hundreds of thousands of data points. The one area where we won't know until it happens is, you know, the full impact of what it will mean for annual renewals. But, you know, I would think that if you didn't like the new price you were planning on leaving, you would have just set your site to cancel and not renew as soon as you saw this. But, no, I think, again, it's a positive story for us, and we rolled it out in a controlled way, and I think... I don't anticipate more surprises related to this.
spk04: Okay, that's great to hear. Obviously, it's kind of breaking new ground in some ways with your model. I also wanted to ask just to follow up on GMV. Obviously, the growth slowed. We've heard this theme from many commerce-oriented companies this quarter. I'm kind of curious, you mentioned discretionary, that's obviously been, you know, a topic that's come up many times. But if you kind of double click on GMV and what the drivers are, any, you know, verticals that really stood out or maybe some that were resilient, just kind of curious on what some of those drivers were and how we should kind of, you know, bleed that forward into future periods.
spk08: Yeah, so again, no surprises there. We've seen softness in U.S. e-commerce over the past couple months and last quarter and all that, so it shouldn't be too much of a surprise. I think the interesting thing about our GMV is that it's really multidimensional. So it's not just physical commerce. It's services-based commerce. It's appointments. It's bookings. Bookings and reservations would talk. So I think talk showed a bit of resilience, whereas physical and services-based commerce was a little bit weakened. But again, that's kind of going to be the difference between what you're going to see in Squarespace as GMV as we move forward, which will maybe cause it to look a little bit different than if you just compared it to what Amazon or Shopify sees.
spk04: Super helpful. Thank you, Anthony. Thanks.
spk06: Thank you. And the next question goes to Ken Wong of Oppenheimer. Ken, please go ahead. Your line is open.
spk12: Great. Fantastic. Anthony, you mentioned weakness and unfold. That was something we saw last quarter as well. Any color on whether or not that stabilized, worsened? We'd love an update on how that piece of the business did.
spk08: Yeah, so I remain really enthusiastic about Unfold, and I'll kind of break down what we're looking at in there a little bit. So Unfold is a very low-priced subscription, one of our lowest, aside from domains, but there's a high volume of them. And it's also, by the way, a very global business, much more than the rest of Squarespace. So I think a couple quarters ago when we were talking about you know, the situation in Europe, things like that actually impact Unfold in a disproportionate way, as well as events in Asia and South America. So what's happening in Unfold is, you know, it's a place where there's two factors that really kind of batter it, if you will. One is competition in the app store, and two is just the evolution of trends on social media. So what people are doing on social media and how it looks and how they use Instagram, how they use Stories, three years ago aren't the same as two years ago or five years ago or even last year, especially with, you know, the usage trends changing alongside the pandemic. That being said, we still have a huge belief that people are starting out on social media and then their presence matters to them there. And the real bright spot actually within Unfold is the introduction of bio sites, which we're not fully monetizing yet. So there's like, if you're looking at what's called like the Lincoln bio space, there's a couple of different competitors there. There it's the notion that you've all seen it. I'm sure in Instagram, you click on somebody's bio and you could see that little site. It's kind of a train station routing links out. We have hundreds of thousands of bio sites created and the pace of them being deployed is accelerating. So I think we're going to have a lot of opportunities within that product, as well as the pro. Um, stories products to create a really positive story here. Again, like it's just so great to see something accelerate and organically spread that we deployed from within Unfold. In addition to it being a new homegrown brand that we're launching, you know, we developed and launched in-house. So more to come there. But I'm really happy with that foothold we've got and how that story has played out.
spk12: Got it. Fantastic. And then maybe following up on Trevor's question on bundling, I noticed you guys put out this refresh campaign. Should we think of that as the first kind of education process to get the customers aware? Where are we in terms of the direct sales effort, your partner efforts to kind of get the bundling initiative up and rolling? And it sounds like the product piece is still TBD, but... On the go-to-market side, are we kind of getting to the point where you guys are ready to activate that once the product side is squared away?
spk08: Oh, there's more than enough we can put into the bundles. I mean, part of the situation Squarespace has found itself in over the years is that we actually do so many things with classes and courses or email campaigns, and these things are launched and on the platform, but they're behind separate subscriptions. So we have plenty to, you know, the bundling work is not dependent upon, like, us needing to create new features for the bundles. It's the re-architecture of how those things are accessed is really, it's just a heavy lift. I mean, it's just a lot in the platform. So Refresh, that's kind of the rebrand. That's a new brand for us again, branding what's essentially going to be our annual product event, which is a combination of feature launches and a roundup of what's been going on. you know, we actually launch a ton of stuff during the year. And I think some of it gets lost because, you know, it's not all at the level of a press release. And so, you know, Refresh gives us an opportunity to say, hey, wait, let's take a look. This product improved in like 100 different ways over the past year. Let's relook at Fluid Engine. Let's look at the work we're doing with various personalities and brands that are on the platform. Another thing that's fun and part of Refresh is, After putting Fluid Engine out, which I have talked to a previous client and would love to talk to about more, it's really unlocked the ability for us in a no-code fashion to do really kind of forward-thinking sites that our customers can then not just admire but manipulate into something that would work for them. And so as part of Refresh, we launched icons, which lets us showcase sort of like we've always had this dream for like a fall and a spring season of templates, if you will, just to further the fashion analogy. And we can finally do that and do it in a way where those templates that we put out there, we collaborated with Bjork on one of the first ones here, are usable by customers. It's not just this completely avant-garde thing. They can take it with Fluid Engine and our section-based design system, actually make it work for a portfolio or for a consulting site or something like that. That has been a long time coming for me, and I'm happy we've got it there. But yeah, I hope that gives some color on refresh and the intersection with bundling. Great. Thanks for the details. Thanks, Ed.
spk06: Thank you. And the next question goes to Chris Zhang of Credit Suisse. Chris, please go ahead. Your line is open. Hi.
spk02: Good morning. Thanks for taking my question. I had a question on the unique subscriptions. I know a lot of details and very helpful color has been provided, especially around the continued impact from found fold and at the same time the growth in website subscribers. So given the moving parts here, can you maybe unpack the growth of unique subscriptions in the presence versus commerce segments and how they compare to the overall growth? I think any directional comments on the sequential or year-on-year growth of these two segments would be appreciated. And I had a follow-up, if I may.
spk08: Sure. I think why you see a positive bookings and revenue story here is that we continue to grow higher value subscriptions at a pace above lower value subscriptions, and we continue to get more revenue out of the subscriptions that we have. Again, underscoring in that number that it's masking the fact that the new website revenue number was strong. To be more specific about it, commerce subs growing at 7% versus presence subs growing at 4%, just to kind of help you think about that. Look, I think that As we continue to evolve the system and provide more and more sophisticated tools and become more and more a part of the infrastructure that entrepreneurs use to grow their businesses, it's just naturally going to trend towards those higher value subscriptions because we're getting just more, you know, it's just more business oriented in nature. And the more kinds of businesses that we serve, time slotted businesses, hospitality, services based businesses, classes and courses, It's just going to keep trending there. And then once we overlay that with improvements to payments, we'll be unlocking that stream too. Again, 92% of our revenue right now is coming from SaaS and recurring fees in the business, which is, again, great from a resiliency standpoint, especially considering our cash retention and churn properties. But just a lot more to do there.
spk02: All right. Thanks, Anthony, for the great details. I really appreciate it. And my second question is on the payments. Can you maybe give us an update on the progress in the timing of your in-house payments offering?
spk08: Yeah, I wish I had more of an update. The big update I do have is that we welcomed a new vice president, Dan Chandra, who's joining us, actually, his first day today. who will be really focusing on this and also our acuity business, which I can talk about later. But yeah, we've just been making updates to the team and going back and forth to try and make this a reality. We're far down the road with it. It's just, you know, it's a heavy undertaking and it's a new muscle for the company. So it takes a minute.
spk02: All right. Yeah, that's great to hear the update on the leadership. I'll jump back to the queue. Thank you. Yep.
spk06: Thank you. And the next question goes to Matt Few of William Blair. Matt, please go ahead. Your line is open.
spk05: Hey, great. Thanks for taking my questions. Wanted to first ask on the macro and dig into the sub-commentary a little bit more. Are you seeing any impact from the macro in terms of the top of funnel activity or conversion or even on the churn side of things?
spk08: No, all of that remains strong, especially if you're looking at the website business in particular, which is going to be one of the main drivers of bookings and revenue.
spk05: Okay. Got it. And then if we are heading into a weaker macro next year, How do you all think about managing your expenses and, you know, are there certain areas where you might pull back on if we were to see demand weaken a bit?
spk08: Yeah, I mean, that's kind of been the whole story of the year, right? So, you know, Squarespace, one of the things I'm very proud of with our company is that, you know, we've always been, I think, very cautious with cash. This company operated the cash flow break even for 15 years. before flipping over to profitability a number of years before going public. And to put it in perspective, like earlier in this year, when we saw things changing internally, we massively changed our plans regarding headcount and hiring and continue to keep our eye on that as we move forward into the year. We're looking further into our marketing spend, making sure that ratio remains under control. and managed as we continue to grow. And you see that those you see those actions and those results for us kind of almost every quarter. So, you know, it's not like a Squarespace is going to be making like a some sort of left turn. We have a we have a diversity of businesses, right? So it's not just Squarespace websites or unfold or bio sites or talk or scheduling. You know, we've got all these different business lines and all these different ways that we're helping entrepreneurs. And so it'll be interesting to see as we move forward into, you know, what is an uncertain macroeconomic time, which of these, you know, have headwinds and which have tailwinds. You know, it's something we saw during the pandemic, right? Our website's business had massive tailwinds and other businesses like appointments suffered certain headwinds on any given quarter. Same with TOC. Yeah, two things. One, just to underscore that 92% of the business is SaaS revenue. So even if there are further fluctuations that are affecting GMV and that aspect of the business, that is not like Squarespace's current main driver for growth. It remains a big opportunity for us, but I don't think you should worry too much about that. The second thing, and this will be interesting because no two recession... are created equal. And the last time Squarespace existed in a time like this was 2008. And what ended up happening back then, and again, it was such different numbers, different recession, et cetera. We were actually countercyclical to that recession because, you know, people get laid off or have to switch jobs or have to evolve. You know, they evolve, they adapt. They don't just sit there and give up and go home and say, that's it, I won't put my portfolio online. I won't try and start a business. I'll just give up. it's not what we tend to see. So I, I hope that we're, uh, well positioned to help people adapt in this timeframe. And frankly, for some of them to come out, um, with new businesses of their own and, and, and, and, and, you know, not that we want to be in this situation, but it could push certain people to have a positive change. Um, so we'll, we'll see. Uh, but we remain a critical infrastructure component in people's lives. And, um, Yeah, I think we're – hopefully we're well positioned.
spk09: I would just layer on this, Matt. This is Nathan. That, you know, in my few weeks here, I do think the company has a very strong discipline here that we manage the expenses to our top line and make the adjustments necessary. And you can see that in our operating profit improvement year over year and our healthy cash flow margin.
spk05: Perfect. Very helpful. Thank you.
spk06: Thank you. And the next question goes to Gabriela Borges of Goldman Sachs. Gabriela, please go ahead. Your line is open.
spk01: Good morning. Thank you. Anthony, as you and Nathan think about your medium-term planning assumptions, we'd love if you could share a little bit of color on what do you think the normalized growth rate of this business is? And more specifically on 2023, do you think 2023 can accelerate based on the visibility that you have today? Thank you.
spk08: Well, one of the highlights, thank you. Well, one of the highlights of this call today is talking about the bookings acceleration to 10% year over year and 14% on a constant currency basis. So I think that that's really encouraging while still preserving margins that we like. We're not burning cash to just falsely inflate that number. We would never do that. We've always operated with a balance. So I think So that, along with pricing, along with bundling, along with payments, there are many, many, many levers this business has to accelerate our growth rate. I'll even highlight kind of two additional ones. One of the ways we're thinking about the business right now is not just, you know, square face the brand and everything falling under that one brand. We're really thinking about having, you know, building on a portfolio of brands. You see that with Talk, you see that with Unfold, you see that with Biosites. But one of the areas where I don't think that we've pushed enough and we've changed our structure internally to be able to do this is things like the Acuity brand. Yes, appointments will appear as part of the Squarespace platform because there's a large number of people that want to schedule appointments as part of that subscription. But there's a huge number of people that want to do that that aren't using us for their website. And so I think one of the ways that we can really continue to grow a lot bigger is invest in those brands. I mean, that's what ScoreSpace is so good at doing. I mean, we're at an internal agency of the year last year. We can apply that skill set to all of these other brands that we've either acquired or launched so that we can win in more categories than just websites. And that is, frankly, a really big difference from us and a lot of our competitive set and kind of the path we're pursuing right now.
spk01: Anthony, if you think about the next three to five years, the consistency and the strategy that you have with pricing, order of magnitude, how much do you think pricing can contribute to the growth algorithm?
spk08: Well, a lot. I mean, again, another positive highlight from this quarter that we were able to – by the way, a positive highlight throughout the entire year is that we were able to really successfully increase the – the price for new customers, which gives us the leverage to increase for existing customers. And we started to push that up a little bit. I think there's huge potential there. But it's not all I want to rely on. I really am interested to see what happens with bundling, see what happens with pricing within Acuity, pricing within TOC. I mean, we've just scratched the surface what we're able to do across the product portfolio there. And then in addition, bundling is one side of it because we're introducing new features onto like a kind of a base level subscription. But in areas like talk and acuity, we have a real opportunity to grow with customers and have much, much, much higher LTV as we pursue those lines of business. So I see there's just a lot of directions we can move in and we're moving in them, right? I mean, you saw the past.
spk01: Thanks for the call.
spk06: Thank you. And the next question goes to Logan Reach of RBC Capital Markets. Logan, please go ahead. Your line is open.
spk13: Hey, good morning. Thanks for taking the question. Just on the sequential sub growth, you guys were flat or approximately flat this quarter. You know, a lot of that was related to the unfold being soft, but what needs to happen for you guys to return back to your sub growth?
spk08: I personally find that number challenging to look at from a number of reasons. I mean, we're reporting it, and I think what we're trying to show is that versus the Our booth and that positive dynamic within that subscriber set. But if you're just looking at the raw number. It's hard because talk has thousands of subs that generate 10s of millions of dollars and unfold has hundreds of thousands of subs that generates like single digit to slow load, you know, like somewhere in that range millions of revenue so My focus is not necessarily I need to see 4.2 go to 4.3, go to 4.4, although that would be great. It should go to a billion. But it's what's happening in that number that's so important. And so focusing on the acuity subs, the high-value subs, and again, one highlight of the quarter, and I want to make sure we're emphasizing this, the website subscription growth was strong within that number, which is a core driver of the business and why we have a positive bookings story. And so, uh, yeah, I mean, I guess, I guess to answer the question in a nuanced way, I'd almost have to take it like subtype by subtype, right? Like you'd have to talk about talk and what that means for Salesforce and how that's related to those grow those growing and unfold that, that driver of that is organic growth in the app store. It's virally spreading. Like there's so much underlying that number. So I hope it's not too misleading.
spk13: Gotcha. Yeah, no, totally makes sense. I really appreciate the call.
spk08: Yeah. Yeah, no problem.
spk06: Thank you. And the next question goes to Siti Panagrihi of Mizuho City. Please go ahead. Your line is open.
spk07: Thanks for taking my question. Anthony, I think last year you talked about enterprise team, which you started a couple of years back. Just wondering if you could give an update on that and What kind of traction are you seeing on the enterprise customer, larger customer?
spk08: Yeah, thanks for the question. You know, it's actually seen some improvements over the past couple of quarters, but it's such a small part of the business right now that we kind of don't share too many updates on it. It is definitely still a focus. And if you think about Squarespace as again, being a bit of a portfolio of brands, the unlock that that gives you inside the enterprise space is really big. Because if we've got scheduling as a separate product, as a separate brand with Acuity, a lot of the enterprise interest that we had that was really natural came in through that angle. It wasn't because somebody made a website on Squarespace and added scheduling and suddenly there's some giant customer opportunity for us. So I think as we clarify that point, we're going to be able to give kind of a, or I look at it as like almost a segment by segment breakdown of how we're doing in enterprise. Again, talk, for instance, is enterprise, the right word, but maybe more mid-market sales force-driven, already has that muscle and grows that way. It's just we're trying to grow that in acuity and Squarespace more broadly. But still getting footing there, but not a significant driver of revenue in the business yet.
spk07: That's great. And Nathan, as you joined, you talked about why you joined and about profitability part of this business. And what are the things, you did mention some of the things that you like. Maybe help us understand the strength and where do you think you can improve further? And how do you think about the opportunity in terms of investing, given that's such a large time and this business is pretty much tied to
spk09: know your growth pretty much ties to camping and how you're investing how you're thinking about that yeah thanks for the question um so as you know as i evaluated the squarespace opportunity i'll say one of the key factors was anthony and partnering with a ceo that could grow the business he's very forward-looking product driven what we can do to the entrepreneurial world type of thinker and that was you know, personally very attractive to me, like I want to partner with the right CEO that we can grow and drive a business to be 10x. Secondly, I would say, like the foundation that we have at Squarespace with the premium brand and the portfolio brands that Anthony referred to, I think that's just the start of what we can deliver to the entrepreneurial world. And thinking about the adjacent spaces that we can go in, you know, three years and five years of how that looks to deliver a even more holistic approach to our entrepreneurs that will drive monetization for both the entrepreneur and for Squarespace. Lastly, and I did refer to this, I think the financial profile of Squarespace is very healthy. We have a very strong cash flow margin. We also have a very good operating margin that allows us to think about where we're going to drive growth and investment growth, but also give strong returns to our shareholders. I think that that is laying the land of how we are going to grow this business to be 10X.
spk07: Thank you, Nathan, and welcome. Looking forward to working with you. Thank you. Likewise.
spk06: Thank you. And our final question today goes to Clark Jeffries of Piper Sandler. Clark, please go ahead. Your line is open.
spk11: Hello, thank you for taking the question. One thing that stood out to me in the shareholder letter was that, you know, scheduling and talk account for half of the mix of GMV. I was wondering if you could talk about what does the payment attached look like in the scheduling product today or broadly within time-sotted businesses? And, you know, what would be your ambitions to have more offline commerce functionality, potentially at the point of sale, but even scheduling or software functionality offline?
spk08: So this is a huge focus for us, especially within the acuity business. A huge, huge amount of the transactions are happening not at the point of booking, but at the point of service rendering. So it is a big focus of the team right now to think about that, think about invoicing, think about workflows. Invoicing was announced as part of Refresh. And it's just a big focus for us. And further, with innovations that are happening on the phones with tap-to-pay and all of that, it means that if we want to enable solutions within the mobile app to kind of complete that end-to-end payment, that we're not reliant on hardware and things like that to help people facilitate that. So very excited there. And again, excited in pursuing this portfolio-based approach, right? It's not just physical commerce. It's services-based commerce. It's reservations. It's events. It's all of these things that we can push on. And I think when you think about, hey, look, it's going to be a portfolio of brands, not just one. You can see that it affords you to kind of have a path to like, okay, well, talk is winning as a reservations platform in a number of ways. How can we make sure that acuity doesn't fade into the darkness but becomes a prominent thing in people's minds when they think of scheduling platforms? So there's just so much opportunity there. Our analysis of what's happening around those platforms, especially with Acuity, it's just billions and billions in that ecosystem. And because we have permission, I think, because we're the front door and we have that branded touchpoint, I think people want us to participate there and they want us to be providing those solutions so that the customer, everything from booking an appointment to the invoice they see looks consistent. So that's kind of how we're oriented. Absolutely.
spk11: It certainly seems like there's a level of functionality specific to time-slotted businesses related to loyalty and services rather than products. A follow-up question is really a lot of the commentary had been around during this call had been around the new customer funnel, the subscription growth. You know, I think the last few quarters, we've got the characterization that you may have been pulling back on sales and marketing spend because of the ROI in this environment. Do you think that's changing? Does the new customer funnel look today? Is it in a place where you might consider increasing the sales and marketing investment?
spk08: I think we've been focusing on sort of right-sizing it. And I think when you think about these different businesses and how they need to grow, We're trying to take a pretty nuanced approach to where we're adding and where we're holding it flat. And you've seen us do that throughout the years. We try to keep that E to R ratio kind of in a certain range. So we're not thinking about really taking it up from that ratio right now. I mean, we certainly would if there was something to lean into more heavily. But I think we keep focusing on really sustainable growth. And so that's kind of been our model.
spk11: All right. Thank you very much.
spk08: All right. Thank you for joining today. We will be presenting the RBC conference in New York later this month and at the Barclays conference in December. Thank you all. Enjoy your Tuesday.
spk06: Thank you. This now concludes today's call. Thank you so much for joining. You may now disconnect your lines.
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