Squarespace Inc (SQSP) 2022 Q2 法說會逐字稿

Good morning. My name is Charlie and I'll be your conference operator today. At this time, I'd like to welcome everyone to Squarespace's Second Quarter 2022 Earnings Conference Call. (Operator Instructions) I'll now hand the call over to your host, Robert Sanders, Head of Investor Relations at Squarespace. Robert, please go ahead.

Good morning. Thank you for joining us. Robert Sanders, Head of Investor Relations. With me on the call today, Anthony Casalena, Squarespace Founder and CEO; and Marcela Martin, our CFO. They will share some opening remarks and then 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 Q2 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. These measures should not be considered in isolation from or a substitute for our GAAP results.

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 relating 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, July 25, 2022. We undertake no obligation to update these statements as a result of new information or future events, except where required by law.

I'll now turn the call over to Anthony.

Good morning. I hope everyone had the opportunity to read our shareholder letter issued this morning, which is available on our Investor Relations website. It brings to light the topics we will discuss on this call.

Squarespace benefits from 4.2 million unique subscriptions on our platform. As we think about the massive market opportunity in front of us, it's imperative that we continue to invest in our platform to remain a leader in the areas we operate. We will continue to develop new tools and refine our existing platform to help the next generation of creatives and entrepreneurs build a brand and transact with their customers online.

This quarter, we delivered a fundamental upgrade to the core part of Squarespace's content management system. This new design system called Fluid Engine lets us push forward a platform that is both more usable and expressive than our previous system. This benefits both our users who are just getting started and not familiar with web development as well as our professional circle members who will find that the platform lets them do even more without resorting to custom code or complex tools.

Fluid Engine is currently live to all customers using our 7.1 platform and anyone signing up for Squarespace today. We have some great demo videos and more up on our homepage for anyone interested.

To enable the billions of transactions of all types we envision on our platform, we also are investing in an integrated payment solution, Squarespace Payments. We look forward to sharing more in future calls about the opportunities we see, enabling our customers to transact in more ways and in more places on our platform.

Momentum around Tock, our unique solution for hospitality and time-slotted businesses, continues to build, and we're making significant investments to support Tock's future growth. We launched a new global brand campaign, Delicious Starts Here, to showcase the range of businesses using Tock's platform. The campaign includes strategic advertising across digital, print and partnership channels.

Tock is also beginning to draw large enterprise hotel groups as clients and is expanding to hospitality groups with hundreds of locations because of the ROI it presents and the ability for those groups to own the relationship to their end customer. It's been a bit over a year since our direct listing. One reason we chose a direct listing versus a traditional IPO was because we are cash-generative and did not need to raise primary capital, but rather wanted to diverse -- rather wanted our diverse stakeholders to have the ability to transact in the public markets.

Our public listing also enables us to return the cash we generate to shareholders in the form of share buybacks. I'm delighted to report that under our $200 million repurchase program, we bought over 1.5 million shares at an average price of $20.73 per share through the end of the second quarter.

Our CFO search is underway, and we've met with a number of quality candidates. In the interim period, I'm confident in our finance leadership, our finance leadership's team ability to execute. Marcela was gracious enough to join us for one more call before her departure. Please join me again in thanking her for her work at Squarespace.

Recently, economists' reports in the press have forewarn of an economic slowdown. While no 2 recessions are necessarily equivalent, Squarespace has historically fared well during times when individuals are seeking lower cost alternatives to custom web development. Squarespace will continue to operate by balancing revenue growth with strong cash flow as we move throughout this period.

Finally, I'd like to thank all of our employees who work tirelessly to provide our customers and deliver innovations that underpin our future success.

Now I'd like to turn the call over to Marcela to take you through the financials.

Good morning, everyone, and thank you for being here today. I will talk about some of the highlights of the second quarter's performance and provide further details on guidance for the rest of the year.

We executed well as we delivered revenue ahead of our estimated high end of guidance when adjusted for the impact of the stronger dollar versus what we had originally anticipated. Revenue of $213 million grew 9% year-over-year as reported and 12% on a constant currency basis.

Breaking revenue further down, presence grew 11%, and commerce grew 15% year-over-year in constant currency. These results were driven by new unique subscriptions and strong customer retention across our base. Our business model and relentless focus on cash flow and profitability have driven unlevered free cash flow to $36 million in the quarter, representing a 17% unlevered free cash flow margin and adjusted EBITDA to $44 million and 21% margin. Overall, we are pleased with our performance in the second quarter as we continue to execute towards our plans.

There are a few specific items that I would like to unpack this quarter. The first item is on net new subscriptions. New subscriptions for websites and domains were ahead of our own internal forecast as we had stronger-than-expected months of May and June, further expanding our loyal customer base of 4.2 million unique subscription.

This quarter is impacted by a 2021 COVID quarter of the strong growth comparison and weak new business formations, overall as we had anticipated in our Q1 guidance. The most impacted product was Unfold, which has the lowest average revenue per unit subscription. The light net new Unfold subscription are the results of the shift of social media trends, resulting in a general decline in the total category in the main platforms where Unfold is distributed.

We are incredibly encouraged by the Unfold's team pace of innovation. We continue to deliver new products and features to position Unfold as an essential tool for creators on social media. We are especially encouraged by developments in Unfold's Bio Sites functionality, which lets our customers create simple websites for their social profiles.

The second item relates to the increase in customer acquisition cost per unique subscription. Our overall marketing spend includes investments in our core business and investments in newer revenue streams such as Tock, international expansion and enterprise. These businesses are at different maturity and development level versus our core business.

At the beginning of the year, we talked about the increased marketing, research and development investments that we are deploying at Tock. These marketing expenses have an impact on the calculation of acquisition costs, though these are not measured through the number of subscriptions that we acquire as they mostly relate to marketing directed to consumers.

We are quite pleased with how the business performed so far and the speed of launching new features and products, which have proved so far the return on investment that we had expected. We are continually updating our attribution model to evaluate our marketing spend and ensure that we are investing wisely.

We expect to leverage marketing expenses further in the future though not at the cost of nurturing new revenue streams for our business. Our history of strong cash retention, rising average revenue per unit subscription and growing customer LTV provide us with that confidence.

The third item relates to spending in a recessionary environment. At the beginning of the year, we took a conservative approach related to our overall spend, and these allows us to deliver strong cash flow margins in the last 2 quarters while also repurchasing shares.

We continue to pay close attention to macroeconomic headwinds, and we will adjust expenses accordingly. We believe that our company is well positioned to continue to deliver revenue growth and profitability even in a recession in part because we believe that we offer our customers a low-cost solution to maintain a digital presence, both for their business and online presence.

We provide essential web tools and sites for people looking to launch the business, transact with their customers or promote themselves online. More than 90% of our revenue is subscription-based, and about 70% of the new additions typically pay for annual plan.

The fourth item relates to FX headwind, which had an impact on our actual results and on our full year guidance as I will explain a little bit later. Besides the impact that we have shown in revenues, bookings of $220 million resulted in a 6% year-over-year growth but 10% in constant currency.

Also, we reached $838 million on annual run rate revenue, growing at 8% year-over-year as reported. But because we calculate our annual run rate revenue using received in the final month of the period, in this case, June times 12, the large FX movements we witnessed in June had an outside impact on this calculation.

Our balance sheet is strong and ensures that we have the resources to execute our strategies. As of June 30, cash and marketable securities totaled $247.3 million, bolstered by strong cash generation in the period, allowing us to return over $35 million in share buybacks to our shareholders as Anthony noted in his remarks.

Turning now to some further details on guidance. Today, we update our guidance only to reflect changes in foreign exchange rates since we last offered guidance in May as our business remains on track to deliver on our prior guidance, excluding FX impact.

We reduced the high end of our full year guided range for revenue by $12 million or 1.4% due to our exposure to sales in foreign currency. Our outlook for profitability remains unchanged as we continue to drive towards a full year free cash flow margin -- unlevered free cash flow margin of 18.7% at the midpoint of our guidance.

For the third quarter of 2022, we expect revenue to be in the range of $213 million to $218 million, representing a year-over-year growth range of 6% to 8% versus Q3 2021. We anticipate unlevered free cash flow in the range of $33.7 million to $38.7 million, which implies an unlevered free cash flow margin of 16.8% at the midpoint of our guided range.

For the full year 2022, we expect revenue to be in the range of $857 million to $867 million, representing a year-over-year growth range of 9% to 11%. We anticipate unlevered free cash flow in the range of $156.5 million to $166.5 million.

In Q1, we outlined our expectations for non-GAAP operating expenses in 2022. We are executing well against our prior comments and expect our non-GAAP expenses ratio to remain within the following ranges. Gross margin at our current level, so no changes to report.

Previously, we noted expectations of marketing and sales expenses at a range between 32% to 35%. We now believe we will hit the high end of the range because of the exposure that we have to foreign currencies. While we are expanding our international presence with entities in Australia, U.K., Netherlands, expenses denominated in foreign currencies are still lower than the revenues that we generate outside the U.S.

Research and development to be at a range between 20% to 25%, and G&A at approximately 11% of revenue. Our second quarter performance brings us closer to these full year projections as we deliver industry-best operating performance.

I've had the pleasure of leading the Squarespace finance team since I joined in 2020. In the interim period before a new CFO begins, I feel confident that the highly qualified leaders from the finance team will continue to support the business relative to their areas of expertise.

And now we would like to open the line to your questions.

(Operator Instructions) Our first question comes from Trevor Young of Barclays.

Great. First one, based on that 3Q guide and what that implies for 4Q, it looks like you're assuming a modest uptick, call it, like 8% to 10% year-on-year revenue growth versus 8% at the high end for 3Q. Can you just help us understand what's informing that uptick? Is there something that you see today that's giving you more confidence later in the year? Is it just some of the pricing initiatives you started with new subs earlier in the year and pricing for existing subs in the back half of the year? That's the first question.

Thanks, Trevor, for the question. Yes, we have -- we are assuming that our GMV trends are going to perform higher than Q2, and that is mainly related to seasonality. And of course, Q3 is suffering as Q4 from the impact of the FX headwinds overall.

We also talked in the past about our pricing initiatives that are underway with regards to legacy customers and later in the year, bundling, which we are excited about the work that we have been doing there. And we expect to release some further news probably in Q3, Q4.

Great. And then just a separate one on that bookings growth, the nearly 9-point decel, maybe a little bit less FX while customers were maybe flattish or down a tad Q-on-Q and GMV was also down. Was all that kind of consistent with your expectations? We're just trying to reconcile those trends in the commentary in the letter that the lower full year revenue guide was really FX-based rather than a change in the business fundamentals and growth trajectory.

Yes. Thank you again for the question. As the business continues to grow, bookings will become a less relevant metric because the transactional portion of the business is growing faster than the rest of the business.

What we are expecting, and this is something that we have already outlined in the full year guidance in Q1 much earlier on, it's also the growth of Tock. So as the business continues to grow because Tock, the vast majority of the business relates to payment, you can expect that it's going to converge a little bit more, not fully, of course, because our business is still heavily relying on Tock. But for full year guidance, we have only taken into account the impact of exchange rate, which is about $12 million for the remaining of the year.

Our next question comes from Matthew Pfau of William Blair.

I wanted to ask on the net additions in the quarter. You commented that they came in ahead of your expectations, and you saw some strength in May and June. Maybe just some more details on why those are coming in ahead of your expectations, and why May and June were stronger would be helpful.

In any given month, it's sometimes a little bit hard to kind of tease out what was going on, especially considering the macroeconomic environment that surrounds us. But it's pleasing to see that those were a little bit ahead, while Unfold was kind of behind where we wanted it to be.

Unfold's more global. I think the Russia situation affects it more, things like that. But the core business remains strong, and so we were just encouraged to see the positive reversion seasonality.

Great. And just a follow-up, how about any updated commentary around retention and churn? How did those trend in the quarter?

Yes, sure. We have not seen any changes in churn. Again, the impact that we have on the net new is mostly related to new. And with that, it's mostly related to Unfold.

And with regards to retention, cash retention, it's better than prior year. And we actually, as you know, we pay a lot of attention to the 2020 and the 2021 cohort to see how they behave compared to the previous cohorts.

So when you look at the 2020 cohort for -- at the end of the quarter, it performed better than the '20 -- sorry, it performed in line with 2019. But what it is exciting is that the 2021 cohort is actually performing better than the 2020 and the 2019 cohort at the same maturity level, right, for the whole year. So overall, we are pleased with our customer base and how well they retain as we continue to innovate with products and features and so on.

Our next question comes from Raquel Betesh of JPMorgan.

I know you guys spoke a little bit about the deceleration of Unfold this quarter, but presence revenue still accelerated quarter-over-quarter. So I'm curious what you guys saw performing well on the presence side of your business.

Can you repeat the second part of that? It was a little soft in the line.

Yes. Sorry about that. I'm curious what you saw performing well on the presence side of your business.

Versus [Unfold], I think it's very similar to the other -- what's that?

It's because of the lower ARPUS. So when you look at our combination of revenue streams, you have very, very high ARPUS businesses like Tock, where a subscription may cost you $600 to $700 a year with very low ARPUS or average revenue per unit subscription for Unfold.

And so while we have seen the net new for Unfold coming down, it did not have an impact overall on the revenue. And the other reason, of course, is our presence business continues to perform very strong, growing at 7% on a year-to-year -- year-over-year basis but 11% on a constant currency basis.

So the diversified portfolio of revenue streams that we have allow for that flexibility that one business may not be performing as expected. It may be compensated by the other businesses. But again, I mean, Unfold, it's a small -- it's a smaller revenue size overall. And it's a small -- very low ARPUS.

But in terms of unique subscription, it has a significant impact when you look at that because, first of all, the base of customers that have Unfold is pretty large. And for the most part, there is a little -- there is not much attached yet between Unfold and website. So there's a lot of potential for growth there as well, particularly with Bio Sites.

Yes. I just want to highlight one of the things. You were, I think, asking about what was going well in the presence business. And I mean, obviously, one of the highlights in the quarter that we point out is the launch of Fluid Engine, which is a core improvement to our content management system.

But those types of updates are happening really all the time behind the scenes in Squarespace across both presence and commerce. And so I'd like to think that we are not even close to finish innovating on the core platform. And I think that we really have an edge right now in terms of what we've got out there from a product perspective in the market.

Just one thing I want to clarify because I said Tock subscriptions, $600 a year. It's actually $600 a month. Apologies.

Our next question comes from Ron Josey of Citi.

I had 2, please. And maybe, Anthony, just to follow-up from a prior question around sub growth and why May and June were better than expected. I think the answer was ebbs and flows. But maybe can you just talk a little bit more? I think you mentioned macro in your prepared remarks, how you prepared for it? But is there anything that maybe stood out in May and June that were better? Was it maybe around Fluid? I know it just launched, but maybe that or marketing campaigns that might have driven better May and June.

And then lastly, on Fluid Engine, you just mentioned it, Anthony, but talk to us a little bit more about how web pros benefit from this in the process for just raising awareness among web pros for Fluid Engine.

Thanks. I don't -- I'm not sure I have much more color around the May, June stuff that was more positive there. I mean, we're -- you've got -- we advertise across every channel imaginable. And some are depending on a lot of factors outperforming and some are underperforming. And we're updating our attribution model and rebalancing our spend. So there was a lot of that.

What's interesting that from a macro perspective, this is one of the first summers we're starting with really kind of lower COVID rates in a lot of the areas that we were -- or lower COVID impact, I should say, in a lot of the areas that had it in the past. So these are just interesting years.

Sometimes we're the beneficiary. Sometimes it's a headwind in this case. So we're seeing that we're a beneficiary.

Second, to your question around Fluid Engine and specifically web professionals. This launch is something I'm really proud of because I think what you're seeing is us invest in one unified system that really works for both. And so if you're new to the platform, you're not a pro, this system is easier to use than what we currently had on the platform for almost the past decade.

But at the same time, if you're a web professional and you're comfortable using the tool, the expressability aspect of the tool matters a lot more to you than maybe the usability does. And what's really great about this is now within one system, you've got one, our section-based design system, but Fluid Engine can impair as a section, and web pros can get a lot more flexibility out of this tool.

And that means that they just don't need to resort to either way more complex tools or custom code as much. So I'm really happy about this launch. I think it underscores really what makes Squarespace special in a lot of ways, that we're able to kind of pull this off in one system.

Yes, at a glance, it may seem like these things are easy to do or create, but they just really aren't, which is why there are so few companies at our scale that have the results we do in websites and are usable by so many millions of people. So it's really an upgrade across both that DIY and professional audience.

And any plans on specific marketing around Fluid Engine with the launch?

Yes. Actually, it's going to show up in a lot of our campaigns. Right now, if you go to squarespace.com, there's demo videos that can show you kind of how it operates. And there's a lot of like fancy stuff in those videos, but it's like kind of not fake, like that's kind of how it works. It's really, really, really good.

So yes, you'll see it appear visually in a lot of marketing campaigns. And yes, it's live on the front site right now. I think when you think about marketing it, it's not that it's not -- the core message of Squarespace is not different. This just helps more people get better results and more varied results on the platform, really bridging the gap between some of the higher-end tools and frankly, the usability of some of the simpler tools, right?

I think that at times, I had always thought about Squarespace as having really, really good expressability that maybe for the pages like, oh, this is not the easiest to use. I think this really lets us turn a corner with that. So really happy about it. Again, it's an in-place upgrade. So it's rolled out to everyone. You can convert your old pages or if you're signing up for Squarespace today, you'll automatically have this platform.

Our next question comes from Christopher Zhang of Credit Suisse.

Your international mix was pretty strong in the second quarter, especially adjusted for FX and on the basis of year-on-year incremental international mix. And that's perhaps the first time you've called out the Pacific region. So can you talk a little bit about your initiatives there that's driving the strength? And what's the relative impact of the Pacific region today versus Europe? And then I'll have a follow-up on GMV.

So nothing we're doing right now in terms of international is significantly different than what we were doing and -- from prior quarters. I think you're seeing just the result of many initiatives play out, right? Currency, language, our support queues in multiple languages, multiple ways to check out and pay for Squarespace, localized campaigns that are running internationally.

And I think that we tend to be pleased with the growth outside of the U.S. Obviously, it was mentioned in the prepared remarks, and I think it will probably come up on these questions. When we're investing in marketing, not all of our business lines and all of our regions are as developed as we are in the U.S.

So when we're investing in Tock and international markets, it's a drag if you look at it on a holistic basis versus what's happened in the U.S. But as you're pointing out, it eventually pays off. And yes, we continue to expand globally.

Yes. And just to add to that, Christopher, last year, we did marketing campaigns for the first time that were localized for certain markets. And we continue to do this at the beginning of the year, but at a much lower scale.

And Australia is a very good market for us. And we can see now the impact of those marketing campaigns where we are raising brand awareness and how they are paying off on the net additions that we are seeing coming from international. So as Anthony said, it's a combination of all the efforts that we are doing and also what we have started last year in a much -- at a much deeper level.

And then I have a follow-up on the GMV, which is somewhat weaker than typical seasonality and arguably some of the macro trends that was actually holding up in the second quarter. So can you unpack the sequential move in the GMV maybe by the underlying categories such as goods versus services and particularly how Tock was performing.

Sure. So glad you're calling this out because when you look at our GMV, I think we saw this last quarter that people expected us to be much more correlated with just essentially physical goods sales. But in that GMV number we have, there's many categories.

So you've got the scheduling business, which operates differently than the hospitality and time-slotted based businesses that Tock has and operates differently than our e-commerce business and operates differently than our member areas businesses, which are just starting to grow. So within there, I think Tock's a much more normal quarter than they've really seen in the past.

I think 2 items to highlight there. One, the beginning of adoption by larger chains and then -- which was significantly impact GMV. And then also hospitality industry woes lightening a bit in terms of workforce ability to open all those sorts of things. So those things moved in a positive direction for Tock.

Scheduling business remains strong. And the physical -- yes, and the member areas business is growing and looks good. And then the -- I think we're all seeing kind of a little bit of movement in a different direction for physical goods. So -- but this is why I like how we're positioned. I mean, Squarespace has always been about many, many ways to sell. And as we keep strengthening that and grow real business revenue lines there, you will not see us impacted by any one -- hopefully, any one single trend in particular within there. So.

Our next question comes from Josh Beck of KeyBanc.

I think on the prior call, you had cited the idea that business formations were pretty observable headwind. Obviously, we're further along in the year at this point. Certainly, I think we often see the U.S. data quite well, probably have less of a handle globally. So maybe if you could just talk about what type of expectations you're embedding there as we think about the second half?

So it's interesting. We've begun to do a little bit of research on our side as well around the correlation with small business formations and what we're seeing in the main products. I would just caution and say, in the past, we did see not an extreme correlation, but a correlation.

In different periods of time, we actually observed that it wasn't as correlated as it used to be. We may be returning to a time of correlation, but I would just again issue that word of caution that you don't only see it play out the way you might think.

And then in addition, as our revenue streams diversify and you've got scheduling and member areas and all these ways for creators to interact online and things like Unfold, the correlation there, I think, will lessen. So that's just kind of how we view it.

Okay. Very helpful. And then just with respect to the pricing initiatives, it always seems like there's a great opportunity to reap some of the extra value that you've created. Also on the other side, it can, I think, cause churn in some small cases. Obviously, it's generally viewed as a net positive. So just kind of help us think about how you're kind of framing these different factors as we approach the pricing initiatives here?

Yes. So I'd highlight 2 areas that I highlighted in the past. One is our bundling and positioning of the packages, which is I'm a believer that Squarespace has a lot of products in market that just due to how we've rolled them out over time, there's just a lot of different subscriptions in there you have to use to access those products.

And I think that as we rethink our bundling strategy and how we present those to an end consumer, I think there's going to be a lot of leverage we've got, just giving people more access to the things we already made, frankly. And that's something we are looking to have happen later this year or early next.

The other point you make and that we've made on the call is just around refreshing pricing for existing users. Now we have never done that before. And right now, we are rolling out and we have started rolling out a pretty modest price increase.

We don't anticipate this -- we're monitoring it, of course. We don't anticipate this causing a massive amount of churn. The danger is there. Somebody realized that they didn't want the website and they're like, I just wasn't using this.

But on the flip side, with a very modest price increase, I mean, to move your website because it cost you $10 or $20 more a year, it is sort of a -- assuming you want the website, probably not a great use of your time to react to that, especially considering 2 things. One is that competitors have also raised their prices, and so you're not really going to something cheaper; and two, even within Squarespace, many of our customers that are getting renewal -- their legacy prices updated are still coming in under list price if you just re-signed up with Squarespace.

And so we're monitoring that situation, but I think it's not a crazy thing for us to have a modest price increase after literally never doing it.

Yes. Just to add to that, we see strength of our platform, particularly on entrepreneurs and creators and so on, which a little bit speaks also about the new business formations that you asked earlier because most of these businesses or some of the business may start with a website before even registering themselves.

But with regards to the pricing increases, in particular, we are doing this in a very thoughtful manner, looking at cohort by cohort and within the cohorts, the prices for each of the subcohorts. So at any point in time, we can stop any increase and really pull back without any major changes because not everybody is getting the same price increase.

We discussed earlier the fact that it's going to take a significant amount of time to get everybody in the base to listing price according to the website because all of the cohorts have different prices and within the cohorts, there are cohorts, some cohorts have different prices as well. So our ability to really monitor and check on churn another one is very, very high just because we are doing this on a very thoughtful base to make sure that we protect our revenue base.

And again, just to emphasize it, not all of our customers are receiving the increase would actually be even moved to our current list price.

Our next question comes from Siti Panigrahi of Mizuho.

So Anthony, unlike many other companies, Squarespace has gone through recession, even survived in crisis and so help us understand a little bit like what -- how does the different segments react during recession and how prepared you are? I mean, '20 post COVID, it was more of a tailwind for online presence and e-commerce, but in a [privacy] and how prepared you are, that would be helpful.

Yes. So thanks for asking that. Look, and I said it in the prepared remarks, it's tough for me to -- so one, last time we were through a recession, we didn't have as many diversified revenue streams. So I can't comment on what those might have looked like.

I will say though that the core business during prior recessions performed well because, one, it's a low-cost DIY tool. So instead of having to go up there and pay somebody for setup, you might try and set it up -- set the site up yourself. And so we saw a lot of positive usage.

Further, during a recession, yes, some businesses closed, but also some people just lose their job. And so they set out and try more entrepreneurial things than they might have. I mean, Squarespace actually itself was started in 2003, which is not exactly like a fun time after the tech collapse.

So I think a lot of entrepreneurial initiative happens during these times of constraint. And so I'm -- I think we're well positioned there. Also in terms of like cutting costs in your business like turning your website off is not exactly like the place most people start if they needed a website.

I mean, Squarespace is not a huge line item of expense for people. So I'm pretty confident there that things should be okay.

Further in the core business, we love highlighting how profitable we are from a cash flow basis. And so we have used the period to -- we said this in January that we were starting to look at just making sure we were rightsized cost-wise in the business from the very beginning.

So I think we're very good at controlling our costs. Obviously, we're investing for growth, so we don't want to turn that off, which is why we're always talking about the balanced revenue growth with profitability. But I mean, there's just a lot of flexibility in the core business there. So we're really confident.

I mean, as I look into next year, just taking the free cash flow margin up is kind of what I'm expecting to do. So I think we're in a good spot there.

Also worth noting that there was a reason we went and it's related to the cash flow comment, but we did a direct listing because Squarespace didn't need to raise money because it was profitable. So we're not like out there in the public markets having to raise money.

In fact, as you saw from the buyback, we're just using the time where there's a bit of fear going around right now to say, "Hey, we think the buyback can make sense for us." And so that's what we executed on. So you see all those factors in play.

That's great color.

One more point on the profitability and the strength of the core business. At the beginning of the year, we talked about the investments that we are doing in younger revenue streams like Tock, international and enterprise.

And so we are delivering -- we're expecting to deliver unlevered free cash flow margins that are in the range of 16%, 17% for the quarter and even higher for the year in spite of the fact that we are making those investments in those business that are an actual drag to the unlevered free cash flow margins and the EBITDA margins that we have shown.

And quick clarification. And by the way, how much was the Tock revenue this quarter? And Anthony, I think you talked about Squarespace Payments that you were going to launch this year. Was it this year or was it planned for next year?

It's planned for next year. And for the Tock, we don't split out the revenue specifically.

Yes. But Siti, I know you have like in other revenues for -- we have been talking about organic versus inorganic growth throughout the whole entire year last year when we acquired Tock. And Tock continues to grow nicely.

And in the overall growth rate, it represents approximately 100 basis points on the growth just to give you a little bit more color about Tock.

Our next question comes from Naved Khan of Truist Securities.

We are hearing about the consumer wallet kind of shifting more towards experiential spend, like travel or other things. And just wondering how it affects your GMV number because your GMV, as you pointed out, is very diversified streams between bookings and everything else.

So just talk to us about that and how we should think about the GMV growth in the back half and maybe for next year, how should we be thinking? The other question I have is around opportunities for M&A. As valuations continue to adjust, Anthony, can you maybe just talk about what are you seeing out there with respect to potential bite-sized acquisitions?

Sure. So first off, with respect to consumer spending, I think what's interesting is we sort of -- we capture a bit of that when we kind of go through our GMV commentary. And if you think about, hey, okay, I'm not going to buy this physical -- this wallet, I'm going to go and invest in experience. We're perfectly situated to capture that demand with things like Tock, which is about time-slotted businesses and will eventually be about events. And so I think that's just going to highlight the power of the diversified revenue streams that we have. And what was your second -- the second question?

Oh, it was around M&A opportunities. Yes. So our M&A strategy remains unchanged. I think we're in an integration mode right now with the products that -- or with the platforms that we currently are bringing together. The share buyback does not prevent us from executing on M&A within a target range that we have. And so we will remain opportunistic.

But look, I mean, Squarespace is also really good at building things, too. So a lot of times, we see a company might have to resort to M&A to buy something. You see us flexing our build muscle. I mean, of course, they didn't execute on any M&A for 15 years or so of its existence. Again, we like having the muscle, but it's just an opportunistic thing for us.

Our next question comes from Clarke Jeffries of Piper Sandler.

Anthony, you briefly mentioned some of the upmarket momentum, and Tock could impact GMV significantly. How are you feeling about the pipeline there for other upmarket brands seen and feeling comfortable investing in that platform? And is there anything driving that upmarket traction beyond some of those macro factors you called out in the hospitality vertical?

Well, the interesting thing about Tock versus the Squarespace, many of the Squarespace brands is in Tock really started very upmarket and is moving down with the events product that we're working on and other things to be -- to move to a broader base. So I mean, the upmarket spot is their sweet spot. So yes, I mean that's kind of how it's oriented.

All right. Great. And then clarifying a little bit of how we should think about Fluid Engine. Could you maybe give some color on the portion of users that will be getting access to Fluid Engine here over the next quarter? What portion of subscribers are on an eligible version to get that innovation?

So it's 100% of new subscribers today. And if you're on the -- I don't have an exact number for you off like on the 7.1 platform how many are enabled today. I would just say this. In terms of business impact, it's going to have a much bigger impact for new sites than existing sites because if you have an existing site, you've kind of like created those pages already.

And so this might be better, and you might use it to get more expressive layouts at times, but it's really around that new build experience that I think you're going to see it shine, especially people putting sites on the platform that otherwise would have had to go to different tools because the expressability isn't there, right? And you're always limited by that.

So hopefully, it's TAM expanding for us, which is really important. I mean, at the end of the day, if you can't make the site you wanted using the platform's tools, you're going to be on another platform where you're going to go to custom code or you're just going to settle for what's on the platform. So I really -- I think the team has done just a fantastic job at this release, and it was -- again, we've been testing it for a while. And so now it's out to everybody.

Thank you for your questions. Unfortunately, this is all we have time for. So therefore, this concludes today's call. Thank you so much for joining. You may now disconnect your lines.