Squarespace Inc (SQSP) 2022 Q4 法說會逐字稿

Good morning. My name is Alex, and I'll be your conference operator today. At this time, I would like to welcome everyone to Squarespace's Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions). I'll now hand the call over to your host at Squarespace, Clare Perry. Clare, please go ahead.

Good morning, and thank you for joining Squarespace's Fourth Quarter and Fiscal Year 2022 Conference Call. I'm Clare Perry, Investor Relations Manager. And with me today are 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'll 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, which can be found in the Investor Relations section of our website. 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. 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, March 7, 2023. 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 specifically noted otherwise. I will now turn the call over to Anthony.

Good morning, and thank you for joining us today. 2022 was an extraordinary year for Squarespace and I'm proud to announce very strong Q4 results alongside a positive outlook for 2023. During Q4, we achieved record bookings of $232 million, growing over 18% year-over-year in constant currency. This growth speaks to the enduring ways our products help our customers succeed online at a moment when digital presence is central to how entrepreneurs engage with their audiences. Commerce revenue grew to 3-year CAGR of 42% bolstered by new commerce subscription growth as we continue to prioritize tools and features for entrepreneurs everywhere. The growth in our commerce revenue continues to outpace our presence revenue growth. Our Q4 unlevered free cash flow was more than triple the amount last year, resulting in an overall unlevered free cash flow margin of 19% for 2022. We plan on continuing our disciplined approach to balancing cash flow growth and revenue growth and improving this margin in 2023 by continuing to improve operations, growing our product lines and continuing to invest both domestically and internationally. Our outstanding results are a testament to the power of our products. They are influenced by a rapid pace of innovation as we deliver new technology and drive improvements across our entire platform throughout the year.

In September, we introduced Squarespace Refresh, our annual recap of product releases. This year, we highlighted more than 100 improvements across the platform. These releases included fluid engine, a new design system for building pages on Squarespace, which represents one of the biggest changes that we brought to our content management system in a decade. Fluid engine drive measurable usability improvements for our customers and pro communities while also expanding the number of designs our customers are able to create. We've been consistently updating it since launching over the summer and continue to receive positive feedback from our customers. We believe with the improvements we've made to the platform in 2022 that we are both the easiest to use and most expressive content management system on the market.

Last week, Fast Company named Squarespace is one of the world's most innovative companies in 2023 for our e-commerce improvements. Custom merchandise, our print-on-demand service, video hosting and our expanding payment tools provide digital-first entrepreneurs with the technology they need to monetize content and create new revenue streams. Our decade-plus investment in digital commerce helps customers retool their businesses with everything to sell anything. Our product investments for service-based sellers have improved immensely in 2022, and we're delighted by the recognition. Our growing set of products and corresponding investments in new go-to-market initiatives continue to strengthen the underlying drivers of our business. Our commerce capabilities, international expansion, enterprise initiatives and our pro user community circle remain key to our future growth. We made progress on advancing each throughout 2022.

Our commerce revenue growth continues to be an important driver of our business. Commerce Website subscriptions represent an increasing percentage of our total website subscription mix. And this mix shift to commerce is one of the main factors why average revenue per unique subscription increased by 3% year-over-year to $209 in 2022. This continued remix to higher-value services will continue to be Squarespace's business in 2023 and beyond. Tock, our platform for managing hospitality and time-slot businesses also had a standout year and processed record levels of GMV on its platform and tens of millions of diners booked reservations through Tock in 2022. Matt Tucker, former President and CEO of Olo, joined at the end of the year to drive Tock's next stage of growth, and I'm excited about the progress he's already made in the short tenure.

Acuity Scheduling, our product for customers managing calendar-based businesses also had a fantastic year. We recently welcomed Dan Chandra, who brings over 15 years' experience with time management software and payment solutions to our team to lead Acuity to its next stage of growth, and we're excited for what's to come. Acuity benefits greatly from the integration with and funnel from the Squarespace platform, and we look forward to continuing both these integration efforts as well as growing Acuity as a stand-alone brand. Many large customers may not use Squarespace as their website provider, and we want to make sure our product lines can grow independently of one another when we have that opportunity.

International remains a greenfield opportunity for Squarespace. Last year, we expanded language support with 3 new languages and added the ability to host multilingual websites on our platform. International customers represented about 30% of our total bookings. Throughout the year, we developed tailor-made marketing campaigns for key markets, and we anticipate continuing to scale investment in these markets where we saw opportunities to grow. Our professional partner Community Circle also had a great year, and we hosted our first per user day in 2022 for our Circle members. Over 1,000 members participated in the event with 150 joining us live in New York. We continue to invest in tools for this community as producers have always been important to our growth. Currently, our circle community accounts for over 9% of new sites created on our platform. Releases like fluid engine do not just target consumers, our circle community uses the same tool to produce a wide variety of sites for clients, and we're delighted to hear their positive feedback.

2022 was a building year in enterprise. We strengthened our team, advanced our sales enablement assets and release new product features to support enterprise clients. We launched a shared template store new dashboard features, which include additional functionality around permissioning and analytics and improved features related to single sign-on used by many enterprise customers. Progress towards Squarespace payments continues, and we're still on track to launch our service in the back half of 2023. As we continue to move more payment volume onto our platform, Squarespace payments represents an important piece of the customer experience we ultimately want to deliver. 2023 is set up to be a fantastic year for our company. At Squarespace, we see a future where everyone can be an entrepreneur, and we remain excited to continue to deliver exceptional products that help millions as they embark on that journey. I'll now turn it over to Nathan to go through the financials.

Thank you, Anthony. Today, we reported a strong fourth quarter, which culminated in a strong year for Squarespace, both our full year 2022 and Q4 results exceeded our top line and unlevered free cash flow guidance as we close 2022 with revenues of $867 million, up 11% and 14% on a constant currency basis with a 19% unlevered free cash flow margin. These achievements speak to Squarespace's solid financial profile. We are driving growth and generating positive cash flow, a combination that affords us the opportunity to deliver more to our customers in 2023 and continuing to deliver for investors. I can tell you, after working with the team these past 5 months leaves me energized by the incredible opportunity ahead of us today. I'm confident in the vision we have guiding Squarespace, one which prioritizes innovation for the benefit of customers and empowers their entrepreneurial aspirations with the tools they need to stand out and succeed. Q4 bookings of $232 million grew by 15% as reported and 18% in constant currency, a sequential increase from the 10% reported and 14% constant currency bookings growth in the third quarter of 2022.

Full year 2022 bookings of $906 million increased 11% as reported and 15% in constant currency, driven by growth in unique subscriptions and in our hospitality services through Tock as well as the successful implementation of price increases for both new and existing customers. We are delighted by the momentum we achieved in 2022 as bookings increased through the year. Revenue of $229 million exceeded the high end of our guidance of $219 million to $224 million in the fourth quarter, which represents growth of 14% in constant currency. Since providing guidance in November, foreign currency fluctuations positively impacted our fourth quarter revenue by $1.6 million. Our Q4 results were driven by strong customer retention and acquisition, along with the continued success of legacy pricing initiatives, which we initiated for existing customers at the end of Q3. We continue to see better-than-expected retention from our stable base of over 4.2 million subscriptions as we methodically roll out that price increase. Our product offering, more powerful than ever before, provides an essential service to our customers.

International revenue was $244 million for the year, representing 2% growth and comprised 28% of total revenue. Excluding the FX impact, international revenue would have comprised 30% of total revenue and grown at 14% on a constant currency basis. From a product and partnership standpoint, we are making consistent progress in our efforts to drive new international customers. We are now supporting multilingual extensions in 100% of our target markets. We have localized payment mechanisms, and we have added other localization features to fine-tune our platform's suitability to the needs of entrepreneurs globally. Though we are still in the early stages, as we look forward, international expansion will be a key growth driver for our business. As Anthony said, Commerce continues to be a driver and focus at Squarespace as we roll out more solutions to help our customers transact online and engage with their audiences, enabling the sale of merchandise, time-based services and content.

In Q4, Commerce revenue was $72 million, growing 12% and 14% in constant currency. Commerce subscriptions, Tock and our scheduling product drove growth in the quarter. Our Commerce revenue includes contributions from GMV-related revenue share resulting from the value of services, merchandise and digital content. GMV was $1.6 billion in the quarter, down to 11% due to lower transaction volume from our scheduling product and Commerce website subscriptions. This result is consistent with the guidance we provided during the last quarter and in line with our expectations. Scheduling showed particular strength in Q4 2021, setting at Q4 2022 for a tough comparison. Despite the slowdown from scheduling in the quarter, we saw strength from Tock. Tock had its highest quarter ever for GMV as more businesses choose Tock to help manage time-based reservations and events. We believe we have a significant opportunity to provide further value for service-based businesses selling through digital channels as we prioritize investments in Tock and scheduling products in 2023.

We are encouraged by the continuing trends we are seeing within our website subscriptions with a greater proportion of customers using our higher-valued plans compared to prior years. We believe this demonstrates a greater intent to sell as these offerings include fully integrated e-commerce options and other features that enable digital sales. I believe ARPU is a useful metric in evaluating our ability to sell higher high-value plans, add-on subscriptions and hospitality services. At the end of 2022, ARPUs was $209, representing an increase of 3% from $203 in 2021. Growth in ARPUs is due to an increased mix of higher tiered plans across our website subscriptions, planned pricing increases and the continued growth of our commerce offerings and attached products as well as the addition and subsequent growth of Tock, which began impacting revenue in Q2 2021 following its acquisition. Our model benefits from our ability to sell more to customers and also from new customers joining our platform. Unique subscriptions surpassed $4.2 million at the end of 2022, growing 3%. We have noted softness impacting overall unique subscription growth throughout the year from Unfold, our product that helps customers manage their social media presence. Unfold subscriptions are substantially lower in dollar value than other subscriptions we offer. Unfold's application has been impacted by increased competition in the App Store and the greater evolution of trends on social media. Despite this slowdown, we are excited about Unfold's Bio Site product. Bio Sites are mobile-first one-page websites. With a Bio Site, customers can create a simple web presence, accept payments, connect across social platforms and grow their audiences with 1 URL.

Full year adjusted EBITDA grew to $147 million, representing a 17% margin, a 106 basis points of improvement compared to the previous year and 18% growth driven by our operational discipline. As a result of our annual impairment analysis, we incurred a $225 million noncash goodwill impairment charge, primarily due to market value deteriorating subsequent to our acquisition of Tock in March of 2021. The impairment charge impacted our operating expenses for the quarter and year. Moving beyond top line metrics. We delivered non-GAAP gross margin of 84%, down approximately 130 basis points year-over-year as we prioritize faster and more scalable deployments through cloud-first delivery. Gross margins are also impacted by Tock's hospitality business on account of its payments business. In 2022, we delivered a non-GAAP operating margin of 17% and which represents expansion of approximately 430 basis points compared to the previous year and excludes the impairment charge we incurred in Q4. We improved non-GAAP operating efficiency as we reduced marketing and sales expenses throughout the year, in part by focusing our investments in areas that drive subscriptions and continuously adjust for demand. We drove efficiencies in our marketing and sales spend throughout the year and delivered over 600 basis points of year-over-year improvement on a non-GAAP basis in 2022, where non-GAAP marketing and sales represented approximately 35% of revenue.

Additionally, we reduced G&A expenses by 75 basis points to 11.5% of revenue on a non-GAAP basis. We realized this operating leverage while still investing in our future growth as we increased our R&D spend to 21% of revenue on a non-GAAP basis, up 125 basis points over 2021 and in line with the outlook we provided last year. Throughout the year, we took a disciplined approach to our expenses with intent to drive improvements from our 2021 expense allocation, in line with where we saw opportunity for future growth. Turning now to the balance sheet and cash flow statement. We finished 2022 with cash and cash equivalents of $197 million and investments of $32 million. Our total debt was $514 million, of which $41 million is current. Our cash flow from operating activities grew 33% to $164 million. In Q4, we generated strong unlevered free cash flow of $41.5 million for the trailing 3 months or 18% of total revenue, a growth rate of 217% to surpass the high end of our guidance. The outperformance was due to higher bookings driven by strong customer retention associated with legacy pricing increases and favorable FX rates, combined with operational efficiencies.

We continued our share repurchase program authorized by our Board of Directors in May, which underscores the confidence leadership has in our business and Squarespace's opportunity for future growth. As of December 31, 2022, we returned over $120 million of cash to shareholders under the current authorization. This represents purchases of approximately 5.5 million shares at an average price per share of $21.28 on the open market. At year-end, approximately $80 million remained available for repurchase. The shares repurchased in 2022 had an antidilutive impact and more than offset our stock-based compensation grants, net of forfeitures and expirations. Turning to our guidance for Q1 and full year 2023. In Q1 2023, we are targeting total revenue in the range of $232 million to $234 million. This represents 12% growth at the midpoint. We expect unlevered free cash flow during Q1 to be in the range of $63 million to $65 million, which implies an unlevered free cash flow margin of 27% at the midpoint of the range. For the full year, we expect total revenue to be in the range of $955 million to $970 million, representing growth of 11% at the midpoint of the range.

Unlevered free cash flow is expected to grow throughout the year to the range of $183 million to $198 million and implies an unlevered free cash flow margin of 20% at the midpoint of the range. This outlook is constructed from our stable recurring revenue model, 92% of revenue coming from subscription revenue and our continued commitment to operate our business with a focus on balancing profitability and investment. In constructing our guidance, we assume continued positive impacts from our legacy price increases and a customer demand trajectory, which continues at a similar rate. We also assumed FX rates as of the end of February. We look to sustain profitable growth for our business and expect to maintain a 2023 non-GAAP gross margin similar to the strong margin we delivered in '22.

We expect to see continued improvements in our marketing and sales expense throughout the year. We balanced this efficiency with increased R&D expense as a percentage of revenue as we invest for growth. We are always keeping an eye on the bottom line to rationalize spend and ensure our resources are aligned with strategic priorities. Operating through the lens of scalable and profitable growth remains true to Squarespace's core and is evidenced through our financial results. We believe we are in the early stages of addressing a large and growing global opportunity for our services and our technology has the ability to scale and empower millions more customers in the future. Our results demonstrate our customers' commitment to our platform and our ability to deliver both top line growth and bottom line margin expansion. We are inspired by the opportunities available to us today and see those opportunities expanding over the years ahead as we optimize our platform and launch additional services for our customers. Our singular focus on our customers is driven by the talented people who work at Squarespace. I will now open the call for any questions.

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

Great. First, for Anthony, we're hearing a lot about AI across internet and software and even some of the web tools players are looking at it for chatbots to complement kind of self-serve customer support and the like as well as maybe generative AI for making product descriptions to go on websites. Can you talk a little bit about your ambitions with AI? Is it something that you're looking at? Is it an opportunity? Is that something you want to lean in on some investments there? And then for Nathan, on the revenue guide, implying a bit of a deceleration later in the year. Is there something that you're seeing that informs why you think growth maybe slows from here versus the 1Q guide? Or is that just some conservatism given the macro uncertainty?

Trevor, thanks for the question. We're no stranger to AI and have been following developments related to it for probably 8 or 9 years now. 8 or 9 years ago, we had smaller competitors that tried to really differentiate by making essentially like a Squarespace clone, but starting with AI. And I think what we've sort of found through that process is that AI is best used to augment tools like Squarespace and help with, in our case, a lot of the initial setup, not necessarily do the entire thing and pretend that tools like Squarespace don't exist. For instance, ChatGPT doesn't replace Microsoft Word. You still need the tool even if they're going to pre-populate it with a really nice starting point in terms of initial content. So as we've moved along, we've seen start-ups, I'm referencing same 8 years ago now, 2 other competitors integrating it to their setup process. And that's really what we're focused right now to take things like DALL-E, ChatGPT and help people with sort of what we call the content not ready problem.

So when you start a Squarespace website, the biggest reason why people don't sign up is content not ready. So if every time you present it with a blank text box or you presented with a blank image field, if we can give you an AI solution for that, that is something we will absolutely do and we're currently working on it. You mentioned actually a customer service chatbot implementations. Well, we actually have had an AI-assisted chat bot for don't quote me on the exact amount of time out I think over 2 or 3 years, helping with customer support, and that's been really successful for us, too, in improving the efficiency in customer operations. So yes, we're -- it's nothing -- it's definitely not something new to us. And I think tools like us are going to be in a fantastic position to capitalize on what's available in AI because again, you're going to need a platform to run the business, to edit the site to make changes, it can't just be kind of an AI card trick.

Hi Trevor, this is Nathan. Good to talk to you again. The -- on revenue, this is reflective of the price increase. As you recall, we did a legacy price increase for the first time in Q3 -- the end of Q3 in 2022. And as that rolls out, then you see the effect of the timing of that. Our biggest renewal period for pricing is in Q1, which we saw -- we just came through January and February and continue to see the strong customer retention that we had seen in the end of 2022 that caused us to exceed our guidance. And so as that timing wraps, that's just the essence of the price increase.

That's really helpful. Thank you both.

Our next question comes from Ken Wong of Oppenheimer.

Great, fantastic. Anthony, I wanted to touch on Tock. You guys talked about record GMV and that was definitely a business that surged during the pandemic, and you guys were able to pivot to where it still remains successful. Just wondering if you can maybe just kind of talk through some of those pivots and kind of what's been driving the outperformance here. And you also touched on the next stage of growth for Tock but I would love a sense for kind of how you envision that product evolving in '23.

Sure. Yes. As you mentioned, Tock was in an interesting position over the pandemic in the sense that they had to kind of rapidly shift to Tock to go, and that let them kind of help people remain in business and generate revenue during the pandemic period. And over the past year, what you've really seen is us to shift back to sort of business is normal sort of scenario. We greatly expanded Tock's sales team in 2022. We have a new leader there, Matt Tucker, who just basically got started in December, January. He was the President of Olo for about a decade and sell them through their IPO. So we're really excited to kind of be packing a business as normal kind of growth mode where we hope continued pivots aren't necessary. So we continuing to focus on the core product there, make improvements for the existing businesses we've got and really updating our go-to-market and making sure that the salespeople trained and up to speed. But we're happy with the performance and looking forward to 2023. We're also going to try and probably closer to later '23, start to activate on some of those cross-sells that I think are going to be possible with Squarespace as we abstract some of our tool set and make them available to Tock customers. So all stuff I'm excited about.

Got it. Fantastic. And then, Nathan, just a follow-up on just the solid ARPU performance here. Any way to help us kind of dissect what the impact from the mix is in terms of moving up to commerce versus the pricing impact from -- that you guys initiated in Q3?

Thanks for the question. And yes, we are seeing continued increase in our ARPU as from the pricing increases you mentioned, customers going to higher value plan. As we look forward in '23, I think that the pricing increase will have a higher impact as we rolled that out at the end of 2022. So I would expect that to have a more concrete impact in '23 versus '22. And the -- we're increasing to higher tier plans. We're also increasing the mix to commerce. As we increase the attach rates of our existing products of the scheduling product and other things that will also help to increase our ARPU.

Got it. Great. Fantastic quarter, guys.

Our next question comes from Andrew Boone of JPM Securities.

I wanted to ask about 2 things. You talked about the slowdown in e-commerce as well as the opportunity within services. Can you just double-click on what you're seeing in services and where you guys are pushing? And then, Nathan, I think you mentioned more S&M sales marketing discipline as we think about 2023. Can you just expand on that?

Sure. So our our GPV, the amount of payments flowing through the platform is mix between physical commerce, which we all saw a surge during the pandemic and has waned a bit. And we've been talking about that dynamic. And multiple companies have been talking about that dynamic for the past couple of quarters. We've got services-based commerce. So those are people selling services, to the appointment-based stuff that's flowing through Acuity. And then there's the hospitality and bookings fee area of things, which is flowing through Tock. Our focus has been more on the services appointment-based and event and booking fee area versus just focusing on physical commerce. We have an almost 10-year investment in physical commerce. And so I think when you're referring to sort of softness in the overall GMV number, it's mostly from the physical side. And also, I'd like to say, during '23, we've got a lot of changes coming out that will be our product changes to benefit service-based sellers. And so those will start to roll out during the year and then, of course, later in the year, hope to have merchants onboarding the score space payments for the first time, which is just -- we're doing -- I mean, obviously, there's a financial impact there to us. It's positive, but there's really also a customer experience impact that's very positive. So we hope that all those changes will continue to bolster our presence in that space.

Good Morning Andrew, on your question on the marketing ER, I might step back a little bit first and say the -- we are taking a very maniacal approach as we think about driving the profitability and investing in growth. And marketing is certainly a key lever there. In 2022, we were constantly assessing the return on our marketing dollars to make sure that we were making conscious decisions of where we were investing. And you saw in the latter half of the year, we did pull back and continue to see strong returns from our core suns in Q3 and Q4, we saw that acceleration in our core business. As we look to 2023, I would expect that same discipline and similar ratios on the ER for marketing and sales. But we will keep an eye on the spend to make sure that we are most efficient in getting the highest return for what we're spending.

Our next question comes from Ygal Arounian from Citi.

I just had some follow-up on the comment you just made on the products that are launching this year that will benefit some of the sellers. You talked about a really strong product pipeline in '22, one of the best you've ever had. Maybe just expand a little bit on what's to come next, maybe (inaudible) but specifically just following up on that service or comment.

Sure. So we were named one of Fast Company's most innovative companies in retail and e-commerce in 2022 -- so for 2023, which you talked about in the release. And that really highlights the attention we get for a number of the things that we announced during Squarespace refresh. So a lot of improvements to the existing platform. When you look forward into 2023, without giving kind of too much away, there is improvements to the appointment system within Acuity. We're reinvesting that as a stand-alone brand. We've got giant investments in classes and courses and a lot of updates coming there. We're looking at project-based sellers. So somebody has a score space site with a contact form, maybe they're a wedding photographer and they get an inbound lead. How do we help them with that inbound lead coming in from product proposal to initial charge to finally sending the invoice to them to collect payments. So what's happening there? And then finally, Squarespace payments, which we're making great progress on and expect to have towards the end of the year, which will further improve that whole end-to-end experience for people selling services on the platform.

You guys also talked about the enterprise as kind of one of the pillars of growth here. Can you talk a little bit more about that, maybe how much enterprise represents right now in terms of bookings and revenue and some of the factors that you look to implement that business to grow from where it is right now?

So enterprise is still small for us. It doesn't represent a large portion of our bookings at all. And we really think about it in 3 kind of areas because we have 3 product lines right now where maybe a fourth "enterprise" applies to. You got enterprise within Squarespace, which I talked about on previous calls, mostly volume sellers or people meeting single sign on our multi-account management. And we actually had a lot of releases last year in those areas, which I think kind of puts us on better footing to achieve progress there. You've got enterprise within Acuity. We've underinvested in that up until this point, but it remains a big opportunity, very natural upsell there if you got a very large business, probably, in some ways, conceptually equal to or greater than the Squarespace side of things because a lot of the larger customers using Acuity don't use Squarespace at their website because they don't have a website built on the DIY platform, which is totally fine with us and why we're investing in acuity as a stand-alone brand. And then you've got Tock in the hospitality experience, which is really all enterprise right now. There's no DIY sales and the opportunity is actually kind of of course, to continue that because that customer base needs it, but then also move to a DIY model starting hopefully with events. So yes, that's kind of an overview of the landscape. But right now, this is not a large percentage of our revenue.

Very helpful Thank you.

Our next question comes from Matt Pfau from William Blair.

Great. I wanted to ask on the transaction volume in the quarter, you called out some softness around scheduling or at least difficult comps there. Maybe just help us understand what was going on there and is this sort of a onetime issue?

Yes. Thanks for the question. The -- so scheduling had an outsized impact in 2021. So comparing quarter-over-quarter is an anomaly, if you will. Scheduling it overall, if you look at 2022, had a very good year. We did see strong growth. But what I was calling out there is just the comparison year-over-year because of what happened in 2021.

I'd like to just add that I think we see the volume opportunity there as just -- the volume is just a giant opportunity for us. I mean most of the Squarespace's revenue is still coming from SaaS and subscription. So when we see fluctuations in the platform volume, we're still sort of getting used to this at scale. And honestly, it can be so many multiples larger that it sort of doesn't -- I don't think it's not that concerning to us when it's slightly down slightly up, just considering the the new seasonality that we're getting used to with it.

Got it. And then Unfold, any update to your thinking on strategy there? How you plan to move forward with that business?

For sure. I think that the strategy there can be summarized in -- basically that we're focusing on Bio Sites, -- so Unfold is a great product. It's been in market for a number of years now, a lot of competition in that space, nothing really new to my dialogue there. But what's been really exciting, and you don't see it in any of the numbers, the subscription numbers we have because these are not necessarily paid subscriptions yet, but there has been over hundreds of thousands of bio sites that have been created. We recently launched the ability to create a Bio Site from the web in addition to being able to create one in the Unfold app. And we see just a huge amount of opportunity there for monetization. I mean, considering our numbers and literally the hundreds of thousands of sites created and spreading virally with very, very little marketing spend just due to the nature of the product. I'm really excited about future monetization opportunities there. And that tails very nicely with things we're doing in the future on Squarespace payments, upsell to the main -- upsell to perhaps a larger website, everything we're doing for services-based sellers. So that's really the crux of where we see the future within that product. In addition to continuing to invest in the unfold products and making sure we are updating it. But there's not really a world I see where we have some macro strategy that triples the amount of unfold subscribers or anything like that. So it's a great deployment. It's a great product, solid revenue stream for us and a really, really great deployment mechanism for Bio Site.

Appreciate it.

Our next question comes from Gabriela Borges from Goldman Sachs. Gabriela.

At want to ask, are you seeing any macro impact on the business? The KPIs across the board of studies are improving on a number of company-specific drivers at play here. But given your unique lines into the installed base, what are you seeing in terms of the health of the service pin...

So look, we continue to see strength across our product lines. I think one of the questions that we're kind of always getting is around if the economy goes into more of a decline or there's a recession, what happens to Squarespace. And we've run some internal analysis and also lived through a past recession, I think we were so much smaller at the time. But it would seem to us that we still have some correlation to small business formation. That is not as strong as it was pre-pandemic for whatever reason, maybe do the diversity of services or it moves towards the creator economy. So we think we're well positioned there. I think if you look at even the results from the price increase, I really think it shows the power of the product and the importance of the product even on even in times of uncertainty, right? Churn was much lower than we expected. It was definitely pull forward in churn as opposed to a lot of net new. And so we think it's well positioned. I think I'm less able to comment on things like what was brought in the prior question around GMV and macro flows related to e-commerce cyclicality or what's happening with our service-based sellers, which are sort of just getting started. So -- but for the core business, I think it's well positioned in a downturn. And yes, I don't think we'd be able to show a lot of what we showed in Q4 and continuing into Q1 if that wasn't true, hopefully.

I might just add to that. The -- our core business is seeing strength as we -- as I said, Q3 and Q4, we're starting to see the acceleration. So even in this environment, we are performing well. As Anthony said, our pricing increase. We saw strong customer retention and continue to see that in Q1. So with 92% of our revenue coming from the SaaS side of the business, I would say we pull fairly strong about our '23 guidance.

Yes. Yes, that makes sense. And Nathan, a follow-up is to you standing how bookings not to revenue essentially. So you've talked about the impact from the pricing increase and how that flows through the year. You also talked about expecting customer demand to remain at a similar level. So if we tie that together, if you're able to continue to deliver bookings growth in the mid-teens, high teens range, are there any other reasons why you wouldn't be able to show that kind of move call it, 15% to 18% for the full year, understanding that early in the year and visibility went arounf?

So as you know, we rolled out the Q3 -- or the pricing in Q3 of last year. And so the bookings increase that we saw in '22 is actually been reflected in the revenue growth in '23. I do think if I step back, though, as we look at the growth of this business, we -- the core area of the business is continuing to see strong growth. The top business had a very strong Q4, which flows into our '23 guidance, scheduling performed well. So I do feel good that we -- as I look forward beyond '23 even as we increase the attach rate of our existing services and grow these various other services with GMV being such a small part of our business today and launching payments at the end of this year. Beyond 23, I think I feel very good about strong growth for our revenue.

Our next question comes from Siti Panigrahi from Mizuho.

So I wanted to ask you on the cash flow, like 300 bps expansion how sustainable is that? And also I was thinking about what are you thinking about capital allocation from here? And if a buyback should be -- thought about as a consistent part of your capital allocation for more.

So with regards to the margin sustainability, it's incredibly sustainable. And it's my goal to continue to improve free cash flow margin into well into the mid and upper 20s over the next couple of years. So that's absolutely a goal of the company.

What was the second part of the question again?

Capital allocation...

Yes. I mean, look, we reevaluate our stance on where to allocate capital, really, I mean, every single month. And so I think that there will always be some room for an authorized buyback program, whether or not we're executing on that. It's going to depend on other opportunities we see in the market. So as we move into this year, depending on what we see from an M&A front, we may decide to allocate it there. But yes, I mean we believe it's in the equity of the business. And so -- in so far as we can return capital to shareholders, that is one way we'll continue to do it.

Okay. Great. And then one follow-up that I'm getting a question today, your unique subscription that's only grew 4,000 and you talked about the weakness and unfold. So I think it will be helpful to unpack what was your gross increase? And maybe help us like what the churn was and how much of that unfold? Maybe it will be helpful. And how should we think about this unique subscription growth in 2023?

So as you noted, not all unique subscriptions in that number created equal. We've got top subscriptions in there that have tens of thousands of dollars you've got unfold subscriptions in there, which are more like a domain name to us like $100 a year type subscription. So as I mentioned in the previous -- one of the previous answers, there's some things we can do to change the Unfold term, but not -- it's not going to be like in a macro way correctable in some giant sense, and we're really focusing on Bio Site a bit more there. But look, I mean, overall, the churn properties of the business are stable to -- they remain really positive. Again, the pricing increase. It's the first time we've ever affected something like this, and we were in a very pleasantly surprised with the -- with what we saw from a churn standpoint.

Yes. I would just layer on there we are seeing strong retention of our stable customer base, though we don't disclose beyond the breakdown of the 4.2%. I can tell you that the core business did see acceleration in Q3 and Q4, which that does flow through to our '23 guidance. Our churn levels are lower than our 2020 level. So we feel very good about where the core business is relative to our subscriber base. Thank you.

Our next question comes from Chris Zhang of Credit Suisse. Please go ahead.

So you highlighted higher bookings and net churn than anticipated from the legacy price increase. We understand that you try to keep the increases less than 20% to not give customers a shock. But at the same time, there seems to be lots of customers that are still paying well below the list price. So my question is, are you planning on continuing to reach their prices each and every year to renew until you bring their prices to the list price or are you planning on a pause at some point? And if you could also give us a rough sense of the portion of the subscriptions, that would be very helpful. And I have a quick follow-up.

Yes. It's actually a fantastic question. So our current price increases were targeted at USD customers only, so we didn't look at the international anything internationally. And as you mentioned, correct, there's a number of customers hundreds of thousands of customers that are still under list price and some substantially so. I mean when you don't raise prices for a decade, we've got -- we had plant level a long time because $8 a month. And so yes, we have raised these a little bit. It's given us some confidence to understand the dynamics of what happens when we do that. And yes, I think there's no -- I don't know the exact frequency at which it's going to be reasonable to do those raises. But yes, there's hundreds of thousands still below list price in U.S. dollars. So we want to raise -- we want to get everyone a list over time, but I don't want to -- unduly hit some to the 50% price increase or something crazy like that, which would make any sense.

Yes, Chris, we will take a longer-term holistic approach to pricing as we think about it as a growth side of our business. In addition to the core business, we also have never raised pricing on talk or scheduling. So we will look at all different areas of the business as we think about pricing strategy.

And we have a number of new hires starting this year as we develop a more sophisticated pricing discipline, especially considering how many different product lines we have and how many different brands are going to be supporting.

All right. Thank you, Anthony, and Nathan, both of you for the great color. And my follow-up is for Nathan. Last quarter, you mentioned there's $8.7 million of tax refund that was not in the fourth quarter guide, but close to 2023. Could you confirm that was that realized in the fourth quarter? Or is that still in 2023 guide and whether that's in the first quarter, if that's the case.

Yes. Thanks, Chris. Yes, the tax flows, obviously, there's up and down, puts and takes that we have built into the '23 guidance. The -- what I referenced in the November call, we do expect to receive in 2023, it was not received in Q4 of '22.

Thank you very much.

Our next question comes from Deepak Mathivanan from Wolfe Research.

Great. A couple of ones from us. So first, on the marketing front, are you seeing improved returns from some of the marketplace getting more efficient? Because a lot of the competitors are also pulling back marketing spend currently. Is the customer acquisition cost coming down? Or is it kind of your more optimization that's driving good leverage currently? And then Anthony, I wanted to ask about long-term margins. You referred to kind of free cash flow margin reaching mid- to high 20s. Is that sort of the right way to think about long-term targets? Can you provide your updated thoughts on how to think about that, that would be great.

Sure. With respect to marketing efficiency, we're certainly not trying to indicate that on a quarter-to-quarter basis, it's getting cheaper to acquire customers. But that being said, a lot of what you're seeing a shift is 2 things. one, a movement of brand spend to pre-pandemic levels, but also the benefit of having done that brand spend. So you've got more people typing in Squarespace than how to build a website. And so the continued strength there, even though that was done in the past, continues to benefit us. The other thing you're going to see is more of a remix of that spend to international markets as opposed to just focusing it in the U.S., which externally will cause -- it dilutes the efficiency that we do have in the U.S. Yes. And also, in the past quarter, we've affected some strategic changes in how we've gone about just certain methods that we were pursuing in the company. We -- it just wants to change course on. And so yes, lots of changes under the hood. But Yes. I wouldn't say cheaper to pierce right now than before.

But we do look at it by specific product line within the business, and we do have strong attribution models that help us drive the right spend across each of those channels to make sure that we are the most efficient in getting the return that we want. And we do consistently shift dollars as we see the attribution model output.

Yes, that's a good point. We did launch a new attribution model in August. Well, we've been testing for a long time, but it really took effect in like August, September of last year, which allows us to have a more nuance look at our channel spends and rebalance between them. So with respect to the question around long-term margins in the mid- to upper 20s, yes, I mean, I'm not giving a specific time frame for that. You're going to hopefully see a very consistent pattern of us increasing that margin. every single quarter, but definitely every single year. I see no reason why we can't achieve upper 20s free cash flow over time.

Thank you. That will be the final question for today. This concludes today's call. Thank you so much for joining. You may now disconnect your lines.