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spk03: Good morning. My name is Tamia, and I will be your conference operator today. At this time, I would like to welcome everyone to Squarespace's fourth quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the prepared remarks, there will 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 your question, press the pound key. Thank you. I will now hand the call over to your host at Squarespace, Claire Perry. Claire, please go ahead.
spk04: Good morning, and thank you for joining Squarespace's fourth quarter 2023 earnings conference call. This is Claire Perry, head of investor relations. I'm joined by Anthony Casalena, Squarespace's founder and CEO, and Nathan Gooden, CFO. After their prepared remarks, we will open the call to your questions. Earlier today, we posted a press release and shareholder letter to the investor relations section of our website. On today's call, we will be referencing 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 and shareholder letter. These measures should not be considered in isolation from nor a substitute for our GAAP reporting. We will make forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which include, but are not limited to, statements related to our future financial performance, our strategies, and our ability to integrate new technology into our core platform. 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 Security and Exchange Commission. Any forward-looking statements that we make on this call are based on assumptions as of this day, February 28, 2024. We undertake no obligation to update these statements as a result of new information or future events, except where required by law. Please also note that all comparisons are on a year-over-year basis unless we state otherwise. I will now turn the call over to Anthony.
spk06: Thank you, Claire, and good morning, everyone. 2023 was a strong year for Squarespace, both strategically and financially. We crossed $1 billion in revenue for the first time, growing 17% for the year. Our unlevered free cash flow margin expanded to 24%. This top and bottom line performance put us in Rule 40 territory for the year. Q4 was an excellent finish to 2023, with faster bookings and revenue growth than we saw for the full year, also aided by the addition of our customers coming over from Google domains. Last year was also an important year for laying the foundation for accelerating multi-year growth. We began rolling out Scores-based payments in Q4, a key strategic initiative supporting our commerce aspirations. And I'm delighted to share today that Payments is now fully rolled out to new customers in the United States. We invested significantly in our domains business as we welcome customers over from Google domains and establish ourselves further in this space. We also launched dozens of new products and features in 2023 to make it easier than ever for entrepreneurs to launch their businesses and stand out online by leveraging the most distinctive design capabilities anywhere in our industry. The main drivers of our business moving forward into 2024 are, first, enabling small business, which is inclusive of the essential services an entrepreneur needs to get started, namely a domain, website, and email. Second, commerce, where we offer powerful tools to enable customers to engage and transact via their online presence. And finally, third, international, where we're making great progress in expanding our brand and presence in both existing key markets and new ones. With respect to enabling small businesses, two key highlights this year were the build-out of our domains business and the launch of Squarespace Blueprint. Squarespace Domains is now the fourth largest registrar in the world. Renewals from migrating Google customers are going better than expected, and we're now poised to grow adoption of our broader offerings as we capitalize on a wider customer funnel and larger customer base. Major updates to our platform's interface are launching as soon as next week. And when our customers want to build a website, many are onboarding using Squarespace Blueprint, also available in select international markets. Blueprint's guided, interactive design experience enhances our users' ability to rapidly create a distinct, personalized website, and it acts as a natural place for us to inject an array of generative AI features that help guide customers through setup. We'll be releasing these improvements throughout the year under the banner of Design Intelligence, which you'll find at home on our front site. Turning to commerce, we're now offering a comprehensive set of tools that enable our customers to transact and engage with their customers through selling digital content, physical goods, and services. Acuity scheduling has proven to be an important driver of GMV growth and underscores our increasing focus on services sellers, where we believe we will offer meaningful product differentiation. Top closed out the year with a record Q4, its best revenue quarter ever, and we saw an uplift in seasonal GMV. We believe that the product enhancements, new integrations, and an improved iOS app further separate talk as the leading hospitality solution for restaurants and diners alike. Our larger scores-based payments in Q4 serves as a cornerstone of our commerce capabilities. Enabling merchants to collect money directly through our native solution will be central to enhancing the power of our platform by growing GMV and driving customer growth and retention. With payments now 100% rolled out in the U.S., we're turning our attention to key international markets. Payments is getting great early feedback from customers and we look forward to building payments discount for our current customers into our broader plan offering as we move throughout the year, marking the first time we will have the ability to do that. Finally, we are excited to the efforts we have put into expanding our international offering are showing up in our performance. Our largest international markets continue to grow and we've seen double digit subscription growth across all key markets. In 2023, we added 18 new currencies, enabling more customers to pay in the ways most convenient for them. As we enter our third decade, Squarespace is in a better position than ever to empower more entrepreneurs online. We're looking forward to even more strong product releases in 2024 as we continue to refine the go-to-market for much of what we were able to release in 2023. Today, we're also announcing that we'll be holding an investor day at our offices in New York City on May 15th, where Nathan and I and key Squarespace leaders will dive deeper into our market positioning, growth drivers, and opportunities for the future. Thank you all for your support, and now I'll turn it over to Nathan.
spk01: Thank you, Anthony, and good morning, everyone. 2023 was a tremendous year. The Squarespace ecosystem of products and solid execution fueled our strong financial results. We exceeded our top line and unlevered free cash flow guidance, which culminated in full year revenue growth of 17% and a 24% unlevered free cash flow margin, over 400 basis points of improvement. We are driving meaningful top line growth, improving our profitability, and delivering strong incremental cash flow, a powerful formula for long-term value creation. We continue to balance our strong cash flow with sustainable top line growth, Today, we announced a $500 million share repurchase program. This authorization underscores the strong financial momentum of our business. Our robust balance sheet and cash flow generation provide us with the flexibility to repurchase shares while continuing to execute against our long-term strategy. We view share repurchase programs as an integral part of our capital allocation strategy, a key topic which I will discuss more at our upcoming Investor Day in May. Turning now to the strong financial results driving our business. Q4 bookings of $286 million grew 23% as reported, and 22% in constant currency. Our acquired domain assets, consisting of single domain subscriptions originally sold by Google as part of our acquisition of Google Domains, drove about half of the growth during the quarter, followed by contributions from websites, both in presence and commerce. Related to our acquired domain assets, renewal rates from this customer base have surpassed our expectations. As a reminder, we acquired Google Domains in September 2023. This was an asset purchase with no deferred revenue. There are two primary components of the acquisition, which include the acquired domain assets and a partnership. Squarespace is the exclusive domain provider for any customer purchasing a domain along with their Workspace subscription from Google directly for a minimum of three years. Additionally, we see benefits from Google referral pages, which direct traffic to Squarespace domains. Unique subscriptions and ARPUs do not include our acquired domain assets. Full year 2023 bookings were $1.1 billion, growing 19% and 18% in constant currency. The primary driver of growth during the year was the strong retention and growth of unique subscriptions. Legacy price increases across several of our website plans were another driver of our full-year bookings growth in addition to contributions from our acquired domain assets. We are delighted by the momentum we achieved through 2023, with bookings growth accelerating quarter after quarter and driving $169 million of incremental growth in the year. Revenue of $271 million is exceeded the high end of our guidance of $261 to $264 million in the fourth quarter, which represents 18% growth and 16% in constant currency. In addition to positive contributions from foreign exchange, we saw stronger new subscription acquisitions from websites. We continue to see a positive halo effect following our acquisition of Google Domains, where we see robust referral traffic to Squarespace. increases in premium plan mix, and new unique subscriptions. As of year end, our customer base represented over 4.6 million unique subscriptions, up 10%, and representing a net increase of 427,000 unique subscriptions over the 12-month period. Q4 2023 revenue highlights included presence revenue of $188 million, growing 20% and 18% in constant currency, and $82 million of commerce revenue, growing 14% and 13% in constant currency. Presence revenue grew from the acquisition and retention of unique subscriptions and also benefited from legacy customer price increases. Our acquired domain assets also contributed to presence revenue growth during the quarter. Revenue recognition of our acquired domain assets, where generally domain subscriptions are annual and paid up front, is recognized radically over the course of 12 months. Therefore, we see greater contributions from this important customer base in our presence revenue in 2024. Squarespace has built a strengthening, diverse commerce portfolio to support our customers' e-commerce needs, including physical goods and service sellers, as well as hospitality customers. Commerce website subscriptions, acuity scheduling, and TOC were primary drivers of commerce revenue growth in Q4. We saw positive contributions to GMB-related revenue sharing across commerce capabilities. In Q4, GMB was approximately $1.7 billion, growing 6%. We saw strength in acuity scheduling this quarter, and TOC had a great finish to the year with strong seasonal uplift in reservations, leading to record-high GMB and solid subscription revenue contributions from customers. As Anthony highlighted, our full year 2023 revenue reached approximately $1.01 billion, up 17% and 16% in constant currency. We exited the year with annual run rate revenue of $1.1 billion, up 19%, or $174 million. All year, we saw strength from websites, the largest driver of our growth, both from retention of existing and acquisition of new subscriptions. For the full year 2023, unique subscriptions contributed $87 million, representing 60% of our top-line growth. Price increases across our subscription offerings contributed $39 million, representing approximately 27% of our top-line growth, with renewal rates supporting strong cash retentions. Price increases had an outsized impact on our presence revenue during the year. In 2023, the growth of unique subscriptions and legacy price increases drove record cash retention to 88%, 400 basis points of improvement versus 2022. As of year-end, ARPU's accelerated 9% to $228, primarily the result of the increase in revenue associated with our unique subscriptions and price increases across several of our subscription plans. International revenue was $286 million, growing 17% and 14% in constant currency and representing 28% to our total revenue during the full year period. Strong growth in websites across the target markets contributed to our revenue growth. In 2023, we increased our currency options five times, which, alongside growing our support languages, bolsters our ability to support our international customers. As Anthony mentioned, International is a key growth driver for our business as we look to bring our ecosystem to new markets. We are focusing resources on markets where we see clear synergies with our differentiated design and where our product market fit is well supported. We are investing in product features, targeted marketing campaigns, and building ties with pro users through Circle, our partner program, to deliver growth. Through our powerful business model, we drove profitability as a result of solid execution and operating improvement. offsetting the temporary gross profit margin impact from our acquired domain assets. We intend to improve profitability while we continue to invest to support long-term growth and shareholder return. Turning to our margin profile, our non-GAAP gross profit margin was 81% in full year 2023, a decline of 286 basis points. Cost of revenue increased in the year primarily due to domain registration fees associated with our acquired domain assets. As legacy Google domain customers renew their domain subscriptions, we pay registry fees up front, but recognize associated revenue radically over the course of 12 months, as I mentioned earlier. Our customer operations costs increased on an incremental dollar basis, but as a percentage of revenue remained in line with 2022, showing that we are able to sustain an efficient model for our business as we scale. We see AI as a continued driver of efficiency in our customer operations, We have been using AI models to bolster parts of our platform and enhance our customer support for the better part of a decade. We will continue to leverage technology to drive efficiency in our business. Moving to operational expenses. We improved non-GAAP operating efficiency in areas throughout the year, lowering expenses as a percentage of revenue. In 2023, non-GAAP R&D expense was $183 million, or 18% of revenue. an improvement of nearly 280 basis points, primarily due to efficient spending and cash-based payroll with increased capitalization year over year. During the same period, non-GAAP marketing and sales expenses were approximately $313 million, or 31% of revenue, an improvement of nearly 400 basis points. Our marketing attribution model has been efficiently directing the mix of spend to the optimal marketing channels, helping us drive better ROIs. During the year, we prioritized direct response channels and decreased investment in brand advertising. These changes supported increases to our growing subscription base. Finally, non-GAAP G&A expenses were $90 million, or 9% of revenue. We improved non-GAAP G&A expenses both on a dollar basis and as a percentage of revenue more than 250 basis points, primarily due to taxes. In 2023, we focused on execution and efficiency, which can be seen across each of the operating expense areas. Full year 2023 adjusted EBITDA increased 60% to approximately $235 million, or 23% of total revenue, nearly 600 basis points of improvement compared to the previous year, driven by our operational discipline. This performance more than offset impacts related to the acquired domain assets and increases in employee expenses. Turning now to the balance sheet and cash flow statement. We finished Q4 with cash and cash equivalents of approximately $258 million and approximately $18 million of available borrowing. Total debt was approximately $569 million, of which $49 million is current. I remain comfortable with our leverage ratios today, with net debt to our trailing 12-month adjusted EBITDA at 1.2 times as of year end. We delivered strong cash flow in 2023, surpassing the high end of our guidance. Our cash flow from operating activities grew 41% to $231 million. We generated strong unlevered free cash flow of $241 million for the trailing 12 months, or 24% of total revenue, a growth rate of 46%, surpassing the high end of our guidance. The outperformance was primarily due to strong bookings, driven by renewals and acquisition of our website business. Our consistent levels of positive unlevered free cash flow afford us opportunities to innovate and develop new products, where we see opportunity to provide more value to our customers and to plant seeds for long-term growth. In 2023, we returned approximately $26 million of cash to shareholders under our current share repurchase authorization. This represents purchases of approximately 1.3 million shares at an average price per share of $22.17 on the open market. At year end, we had approximately $54 million remaining on the current authorization. The shares we purchased in 2023 had an anti-dilutive impact and offset some of our stock-based compensation grants. Turning to our guidance for Q1 and full year 2024, we are expecting another year of strong growth for Squarespace driven by our expanded ecosystem, contributions from renewing Google domain customers, and the continued strong performance of our website's business. In Q1 2024, we are targeting total revenue in the range of $274 to $277 million. This represents 16% growth at the midpoint. We expect unlevered free cash flow during the quarter to be in the range of $83 to $86 million, which implies an unlevered free cash flow margin of 31% at the midpoint of the range. Our Q1 unlevered free cash flow margin reflects the seasonal strength in bookings, including the added benefit of bookings from our Google Domain asset acquisition. For the full year 2024, we expect total revenue to be in the range of $1.17 to $1.19 billion, representing growth of 17% at the midpoint of the range. Unlevered free cash flow is expected to grow through the year to the range of $290 to $310 million and implies an unlevered free cash flow margin of 25% at the midpoint of the range. Related to the full year revenue guide, we expect contributions from our Google Domains assets to be in the range of $85 to $88 million. I want to call out that we are not including any material contributions from either pricing of our core offerings or cross-selling of Squarespace products to our Google Domains customers in our revenue guidance. Adjusted EBITDA is expected to improve as the year progresses, ultimately showing similar leverage to our full-year 2024 unlevered free cash flow margin as we benefit from improved marketing efficiency in the second half of 2024. Finishing where I started, I couldn't be more proud of our performance in Q4 and 2023. Our teams helped drive steady performance, enabling us to maintain a strong outlook and steadfast execution. 2023 was my first full year as CFO at Squarespace, and it is clear that we have a strong foundation for growth, supported by our growing Squarespace ecosystem and suite of products. Thank you to our employees who execute daily to deliver value to our customers. I look forward with confidence and excitement in this new year. With that, operator, please open the line for the Q&A portion of the call.
spk00: Certainly. We will now begin the question and answer session. By way of reminder, if you would like to queue for a question, it is star 1 on your telephone keypad. The first question comes from the line of Matt Pfau with William Blair. Your line is now open.
spk02: Great. Nice results, and thanks for taking my question. First, I actually had two that I wanted to ask related on payments. First, what is the plan to go about migrating existing customers over to Squarespace payments? And then both from Squarespace's perspective as well as the customer's perspective, what would the advantages be to moving from a third-party payment system over to Squarespace payments? Thanks.
spk06: Sure, I can take that. So one of the things that we haven't talked about up to this point is what the release of payments can do to our plan and offering architecture. So in the past, we've talked about customer experience, which is better, everything being integrated. They don't have to go to more than one place. Obviously, we have some better economics with it. But as we roll this out, we've been spending a lot of time thinking about how we can give people on higher SaaS tiers a more advantageous take rate than they currently get right now via the Stripe relationship. And so that sort of begins to kind of answer both of your questions at once, right? So your first is about migration, your second is why do it? So you don't see it in the plan architecture now, but that is something we're gonna be actively working on and testing, and it's been built into our payment infrastructure so that we can deploy that. If you look across our competitive set, a decreased take rate is probably in multiple cases, very first line item on why people are selecting various plans. And in my opinion, one of the reasons why I think, you know, certain larger sellers or people who would adopt, like, you know, our invoicing products might not use Squarespace and it might not even be in our ecosystem. So we have a lot coming there. And it's just a huge unlock for us. So right now, we're focused on making sure that the system is working well. It so far is. Otherwise, we wouldn't be at 100% U.S. rollout. Moving to all of our international markets and then integrating that to our plan architecture. So that's all just, frankly, super exciting, and we're all spending a lot of time here looking into it.
spk02: Okay, so just to follow up on that in terms of the more advantageous pricing, perhaps, What has that meant in terms of uptake by new customers that have been exposed to Squarespace payments coming into your customer ecosystem?
spk06: So what I'm talking about is not something you see in production right now. So this is something we have the ability to do and are currently contemplating it in our rebundling and, you know, just new offerings as we continue to shape the commerce product. But that is not currently out.
spk02: Got it. Great. Thanks for taking my questions.
spk00: Thank you. The next question comes from the line of Andrew Boone with J&P Securities. Your line is now open.
spk11: Thanks so much for taking my questions. Nathan, can you unpack the 2024 guidance, given the fact that you've given us kind of domains revenue? Is that 8% kind of high single-digit number right to think about for 2024? Is there anything else we should consider as we're doing our math? And then, Anthony, on domains, can you just help us understand where you are in the cross-sell into other Squarespace products and what the strategy is there? Thank you so much.
spk01: Yeah, thanks for the question, Andrew. So for 24 guidance, you know, we certainly ended 23 very strong. It was an incredible year. at 17% year-over-year growth rate, which was driven by the top driver of our core business of the retention of our existing and acquisition of new, against the backdrop of raising legacy prices. So as we go into 2024, 18% growth at the top end of the range is really driven, a combination of what we disclosed for Google Domains but that core business coming through. But we are lapping the pricing, and so you will see that impact in the 2024 guide, as well as, as I said in my opening remarks, we've built immaterial cross-sell for the Google domains. Anthony talked really the focus of migrating those domains.
spk06: Yeah, and just to reemphasize, you know, in 2023, we saw some of the strongest quarters ever, including COVID quarters, in our core business. And so, you know, I'm sure we'll get to it later, but we've built in really no material changes in the 24 guidance due to any more pricing changes other than an update to some of our customers who are currently not at list that will be at list. But that is not a, that's like a single digit millions sort of thing. And we can talk about pricing and pricing strategy later. To your question on domains and cross-sell, right now the answer is nowhere because we're still in the process of migrating everyone over. We have a new interface coming out next week, which will be kind of the foundation for more cross-sell and up-sell. We're really just focused on a seamless transition, making sure everything's working perfectly to make sure there's no interruptions. And we'll be doing that for the next couple of months. And then after that, we'll be thinking more about cross-sell and up-sell. That being said, we do have an elevated and new stream of new domains coming in that we are seeing attach rates into Google and website products for. And that is greatly appreciated. elevated versus last year. Early results, considering we're literally doing almost nothing, is encouraging what they're attaching. The thesis here is not really too hard. All small businesses in the world need a domain, a website, and email. We're just refining the offering there, and we're going to have plenty of opportunity later throughout the year and throughout these customers' life cycles to get them into that trifecta of products.
spk11: Thank you.
spk00: Thank you. The next question comes from the line of Siti Panagrahi with Mizuho. Your line is now open.
spk05: Thanks for taking my question. Anthony, I know Squarespace has been a pioneer in website building. You always differentiate yourself from this crowded market, competitive market. So now the question we're getting with this emergence of new competitors now leveraging AI is, wondering how are you positioning yourself from the back? I know some of the investment you did on the AI side. Could you talk about how the product changed right now, your offering, and also in terms of go-to-market, what you're doing?
spk06: Yeah, for sure. Thanks for the question. At Refresh last year, which is just really kind of almost a couple months ago, we have some demo videos about how we plan on and have incorporated AI advancements into the product. I mean, Squarespace has always had a machine learning group here, which we've used insights from to guide the onboarding experience and the setup experience. So I'd say a couple of things. So first off, jumping back to your original kind of positioning of Squarespace, which is how I believe we're positioned too, which is that we're really the leader in design and we're the leader in I believe, quality and all of the things we do. So coming over the next couple of months, you're going to see more ongoing releases. By the way, the AI stuff is an ongoing process. We're always releasing things. We're always updating things. It's not this big bang, now it's here, we're done sort of situation. But we're going to be releasing a number of incremental improvements under the banner of sort of design intelligence, we're calling it. So it's really not just the fact that AI is there. It's the combination of AI, which us and all these smaller startups have equal access to, with a tool and a taste level that is really, really, really incredible. I mean, you can't just have AI generate the code for your site, have no tool, no hosting, no domains, no order management, no e-commerce capabilities. You have to build all this stuff. And ScoreSpace has an amazing technology stack that we're building on top of. So we're constantly releasing AI improvements into our editor, into Blueprint, into Setup. We have new services going online that understand the context of your brand and start to help you automatically put that into prompts as you build your site. So a lot of releases. I'd take a look at the refresh stuff and then also stay tuned for design intelligence appearing on the front site. That's really how we are going to continue to integrate AI. The other thing, just one more thing on this, is that a lot of the magical stuff people see with MidJourney or ChatGPT or whatever, we've integrated a lot of that into the interface, which is a convenience thing. But I'll have to keep in mind that I think this is directionally correct, don't quote me exactly, but like a third or a third of Americans have used ChatGPT. So whatever they're getting there, if that's not augmented with a great tool, it's just a commodity at this point. So we're looking to make sure our integration of AI isn't the same tricks we see everyone use and is something genuinely useful for our customers.
spk05: That's a great color. And Nathan, just quick housekeeping question. So I don't know if you talked about the Google domain impact on revenue and gross margin in Q4?
spk01: Yeah, happy to unpack that a little bit there. As a reminder, For Google domains, you will see the impact of revenue. We recognize that over 12 months, so you'll see the initial impact in bookings, which we saw 20% year-over-year growth in bookings in Q4, which is predominantly driven by the Google domain, but the revenue impact you will see over time. There was an 820 basis point degradation in our margin, which we were not surprised by. That's because we recognized the registry cost up front. whereas revenue is recognized over time. So you'll see this continue in the first half of 2024, and then as we last the anniversary of the acquisition, we expect that to improve as we have a full year of revenue in the model.
spk05: Thank you.
spk00: Thank you. The next question comes from the line of Egal Arunian with Citi. Your line is now open.
spk09: Hey, good morning, guys. Okay, Anthony, I'll bite on the pricing philosophy question. I think we noticed some pricing increases at least at the list price about a month ago, a few weeks ago. So can you talk about that, what the impact might be? It sounds like it's not super material or at least in terms of your guidance and then how you're thinking about pricing and pricing opportunity moving forward from here.
spk06: Thank you for biting. I'll touch on three areas. So first off, we just executed that one, our first ever price test was around the August, September timeframe, going up about a year and a half ago. So this August, September, it will be two years since we've raised prices. And the test that you all picked up on in Market is one of many tests we do to list prices constantly. So if you're just loading our pricing page and screenshotting things, you will see differences all the time. So that test is, again, a new customer list price test. It's very marginal, 5% to 10% over what we have now. And if that is an audio issue.
spk04: Testing.
spk07: To both.
spk00: Please stand by as we reconnect our speaker lines. speaking team. You have been reconnected. Please proceed.
spk06: Hey there. Sorry about that. So I'll take it from the top on the pricing question again. So first off, it's been about a year. It'll be two years since our original price increases in August and September in that timeframe. And also referenced was some people picked up on a list price test that we were doing about a month ago. So first off, we're always doing price testing. We have tons of price tests in the market. The one that was being observed is a pretty slight increase. So I think it was like 5%, 10% across the board, certain plans changing more than others. If something like that ends up being successful and we can move up list prices for new customers, in that August, September timeframe, that would mean that everyone is then again below list and we would have another opportunity to hopefully do a really marginal price increase again. But of course, this has giant implications in 25 and 26 because it affects millions and millions and millions of people. And just to remind everyone, we saw a really positive retention dynamics when we did this last time. And so I would like to think that that'll be the same or better this time around because it's not the very first price increase. The other thing I would mention is Again, going back to payments and what this can unlock with respect to a broader pricing strategy. Us being able to change the take rate as part of the SaaS tiers and contemplate different platform fees on different ways to transact is a huge change. And we couldn't do it before because we didn't have this in market. And so one of the biggest things that, and I'm sure because you're all watching the pricing page, you'll probably find a test on, is plans that are differentiated based on take rate and platform fees. And that will hopefully allow us to introduce commerce to basically everyone using the platform and just differentiate based on take rate. So you'll be able to use invoices, donations, classes and courses, sell physical products, sell services, book appointments all across Squarespace. And you just get a lower take rate with a higher SAS fee. So that's kind of what we've got in store for pricing. I mean, in my mind, once every two years doesn't feel particularly aggressive with respect to a modest increase in price. So, yeah, that's kind of how we're addressing it. And, Nathan, none of that is built into guidance except for the cohort of people who are not currently at the previous list price.
spk01: Correct. But it is immaterial to the 2024 guide.
spk09: Yeah, single-digit millions. Okay, thanks. Really helpful. A follow-up on the Squarespace building experience and some of the work you're doing there. You talked about being the fourth largest registrar business now. Any more color you could share around what that experience is like, how it's changed, and how you're differentiating as a registrar business to drive more traffic to you guys versus some of the other competitors? Thanks.
spk06: Right now, most of our efforts have been on making sure the migration is successful and also improving our interface for people who are interested in having a domain in email and no website or multiple domains or a domain that forwards elsewhere, et cetera, et cetera. So, again, I think as early as next week, you may see a new interface starting to roll out, which is, Just a big upgrade on everything that's going on, and the majority of the customers moving over from Google will experience that interface. The migration has been started, but it's a small percentage of the actual number of domains that have actually moved over right now. We're just being really careful.
spk01: Any goal, I will say, since we closed the transaction in September, We are seeing very good retention of the legacy business that continues to exceed the expectations that we had at the close of the deal. So happy with the overall transaction awards trending.
spk09: Great. Thanks so much, guys.
spk00: Thank you. The next question comes from the line of Ken Wong with Oppenheimer. Your line is now open.
spk08: Great. Thanks for taking my question. I wanted to maybe just kind of dive in on the fiscal 24 revenue guidance again. One way I think we typically think about the growth rate of revenue is that kind of bookings leads revenue. You obviously exited with a really high 23% bookings growth rate. I guess why wouldn't we think of the 24 revenue growth rate being closer to that number? Is there something we're missing in terms of the revenue lag or what might be in bookings versus top line?
spk01: Yeah, that's a great question, Ken. So the 23% year-over-year bookings in Q4 that we saw, the top driver of that was Google. domains flowing through, the second driver being our core business. As that flows through 2024, because we recognize the revenue from Google over 12 months, you don't see that pick up really until the last half of the year when we last the acquisition. And so the latter part of this year, you will see an improvement on that side.
spk06: And also to mention in the core, you are laughing price increases.
spk08: Got it. Got it. But at a high level, kind of that booking leads revenue shouldn't be too much of a stretch. Like granted, there's maybe some ups and downs depending on quarter and obviously you've got some acquisitions that we have to kind of work through.
spk01: Correct. That is the essence of our model.
spk08: Okay, perfect. And then maybe just to follow up for you, Anthony, on the, again, on the, on the domain side, you know, now that you guys have kind of harmonized the experience, you guys have taken ownership of it from, from Google. Like, are you seeing a similar kind of customer funnel coming in? I realize the retention has been really good, but I'm just wondering in terms of kind of the new lead gen, has that been consistent with expectations when you, when you purchase the assets?
spk06: The new lead gen remains greatly elevated over our standalone business from last year. And that elevation has been sustained. I think it and the attach rate on those new customers, you know, we're monitoring very closely, even though we do not have an optimized experience there. Just to reemphasize this, we have not currently migrated over most Google domains. We've migrated a minority over. And we have an interface out there that does not prioritize cross-sell and up-sell. You'll see something appear, again, within a week or so that does a much better job at that. So it's just extremely early days. But in terms of how we're positioned, this fits into my mind as that trifecta of things all small businesses need, a website, email, and a domain. And so we're going to continue to iterate on that experience. But yeah, the funnel increase of new customers has been really, really encouraging. And it'll only get better as we solidify the domains offering, get better SEO optimization, refine how we're packaging and offering it. But it's just, it's really, really early days. So I think the revenue and the bookings we're seeing are great, but I think the best is yet to come.
spk01: And I would layer on that. It is important, as you think about the guide, because we are very focused on the migration, that it is a successful customer experience becoming a Squarespace customer. That is why we've not included the cross-sell impact from these millions of customers coming into the Squarespace ecosystem.
spk06: Yeah, the guide has limited cross-sell because we just need to observe it.
spk01: Yeah.
spk06: Yeah.
spk08: Okay, perfect. Thank you, guys.
spk00: Thank you. The next question comes from the line of Chris Jeng with UBS. Your line is now open.
spk07: Hi, thanks for taking our question. So I wanted to hear your perspectives on the verticalization in website builders. and pretty notably in the POS software industry, and I guess particularly by some of the leading restaurant POS providers offering website builders for, for example, with Clover going to the market with VentoBox, Toast, and Shift4 having recently introduced website builders for their restaurant customers. And of course, Square has had Quickly and Square Online for a while. So those are not their core business, but those are tightly integrated with the POS software those restaurants use to run their business day in and day out. So maybe can you share with us if you have seen an increase in competition from these types of vertical software providers in hospitality and maybe some other verticals, and also can you discuss some of the cross-sell between POC and your existing website product? Thank you.
spk06: Sure. We generally have not observed a large amount of competition when, you know, email marketing companies or other companies, point of sale companies want to offer a website with their core offering. In fact, the kind of reverse economics should be true. Like it certainly is in Squarespace. I mean, you know, if the website right now is, you know, $20, $30, $40 a month, the top subscription is hundreds. And the GMV plug to the platform is what's really important. And frankly, how a lot of these businesses are driving their choice of tools, right? It's kind of inverted from website first and then the rest of the tools. Although we certainly see that. I think what's interesting is for us, as we get kind of more vertical scalable tools in place, like for instance, our email marketing tools and can further integrate those with talk, that kind of upsell is much more of what I would be looking to do versus having, you know, a couple thousand additional websites from the restaurant customers. So, you know, I don't, you know, if a vertical provider shaves off a few thousand websites, it's really kind of immaterial to us. Um, But, you know, that being said, there was always a giant overlap between talk and Squarespace just organically. You know, a ton of talk restaurants, of course, having their own brand use Squarespace. And so that's where a lot of that came from originally. But the cross-sell we're looking for is more higher margin, higher value products, not necessarily, you know, the website SaaS subscription.
spk07: Got it. It's super helpful, Anthony. Okay. And I guess a follow-up would be, maybe just can you talk about the top of the funnel strength in the core website products so far this year, given Q1 is such an important quarter?
spk06: Yeah, it's really strong. You know, again, I mentioned multiple times that last year we had some of our best quarters ever from new trials created. You know, we're just kind of, we're what, two-thirds through Q1. And it's been really positive, so. We're on track there.
spk07: All right. It's great to hear. Thank you.
spk00: Thank you. Thank you. The next question comes from the line of Navid Khan with the Riley Securities. Your line is now open.
spk10: Yeah, great. Thanks a lot. So two questions. One on your marketing spend. As a percentage of revenues, it was elevated versus key four of 22. Is it just the fact that you're leaning into marketing because you see opportunity, or is it more of a channel mix, just wondering what's going on, or maybe associated with the push into acuity in some of the products that you've kind of redone recently? So that's one. The other is just on new markets. Anthony, any thoughts on maybe going into any new international markets in 2024? Sure.
spk01: Yeah, so I'll start with your, on the marketing and sales question, specifically on Q4. There are several things rolling through here. The amortization of the additional expense related to the Google acquisition rolls through. There, you know, seasonally, we do, Q1 is historically a high demand, so we spend into that in Q4. So that's not a surprise, but I would encourage you to look at the annual for marketing sales E to R ratios because there is seasonality within each quarter. But on an annual basis, you'll see the marked improvement both on GAAP and non-GAAP.
spk00: Please ensure your line is unmuted if there is a follow-up.
spk10: Yeah, I did have a follow-up for Anthony. And it was about any plans to enter a new international market in 2024.
spk00: Apologies, Naved, and participants, please hold as we reconnect our speaker lines. Naved, please restate your question. Our speakers have rejoined the line.
spk10: Yes, thank you. The second question was for Anthony about if you have any plans to add a new market, new geo in 2024.
spk06: Yeah, so I think Nathan's comments apply to the spend overall. So I'll bridge into and just kind of comment on it quickly. Generally, when you see inefficiencies in our spend, it is because of us trying to grow an international market where we don't have the same spend dynamics and presence as in the U.S. And, yes, we're looking at a couple of different Asian markets, one in particular, as we go into 2024. It's a heavier lift in terms of translation, but it should be an exciting one for us. Thank you.
spk00: Thank you. The next question comes from the line of Alexey Gogolev with JP Morgan. Your line is now open.
spk12: Hello, everyone. I was wondering if you could possibly comment what was the contribution of payment business on that basis in the fourth quarter, and what do you expect the contribution for the payments business on that basis to be in 2024?
spk01: Yeah, both for 2023 and 2024, it is immaterial to the results and to the guide. We are focused on, you know, exposing it to first the U.S. new customers, which we have successfully done, and then we will roll out international markets in 2024, and then open up to existing. So you won't see a material impact until beyond 2024. Okay.
spk12: Okay. Thank you for that. Thanks, Nathan. And then, Anthony, I had another very high-level question around the comment of your capital allocation. Obviously, that $500 million buyback sounds very impressive. I was wondering if, first of all, you have any thoughts on the potential cadence, whether it will be front-loaded or evenly split over a certain period of time? And then what is your thinking around the potential impact on FreeFloat, which is relatively lower versus some of the peers in the internet infrastructure space?
spk06: Sure. So we had the $200 million authorized from a year and a half, two years ago, which was expiring. So this is our refreshing and expanding that program. I see this more as opportunistic. If we see things floating into certain levels, much like you saw with our other program, which I think was kind of extremely successful over the past two years, we're able to show our support for the stock and buy into it. There's no specific cadence set. There's nothing around that that's been contemplated. And I should also emphasize that This will probably be an ongoing portion of how Squarespace operates in terms of return of capital, and it shouldn't be viewed as being instead of something else. It's not instead of us buying something. It's not instead of us growing headcount. As you've seen over the years, we've been really, really disciplined about moving free cash flow up, and this is just one of the many things we can do with that. Also, I think Nathan quoted our... net debt leverage ratio earlier, it's very, very low. So we're not stopped from doing anything because of this, and it's just a component of how we're going to operate in addition to expanding margins.
spk01: Yeah, I would layer on that, Alexey. We would view the share repurchase program as an integral part of our overall capital allocation strategy, and the investor day in May, we will talk more about our overall philosophy around capital allocation.
spk12: Thank you both.
spk00: Thank you. This will conclude today's conference call. Thank you all for joining, and you may now disconnect your lines.
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